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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the quarterly period ended: September 30, 2004

OR

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the transition period from                     to                        

Commission File Number:   001-32213

MORTGAGEIT HOLDINGS, INC.(Exact name of registrant as specified in itscharter)

|                                                             |  |                                    |  |  |  |  |
|-------------------------------------------------------------|--|------------------------------------|--|--|--|--|
| Maryland                                                    |  | 20-0404134                         |
| (Stateor other jurisdiction ofincorporation ororganization) |  | (IRS EmployerIdentificationNumber) |
|                                                        |  |
| 33Maiden LaneNew York, NewYork                              |  | 10038                              |
| (Address of principal executiveoffices)                     |  | (ZipCode)                          |
|                                                             |

Registrant'stelephone number, including area code:    **(212)651-7700**

(Former name, former addressand former fiscal year, if changed since last report)**Notapplicable**

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13or 15 (d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was requiredto file such reports, and (2) has been subject to such filingrequirements for the past 90 days.

|  | Yes            No    |
|--|--------------------------------------------------------------------------------------------|

Indicate by check mark whether theRegistrant is an accelerated filer (as defined in rule 12b-2 of theSecurities Exchange Act of 1934)

|  | Yes           No    |
|--|-------------------------------------------------------------------------------------------|

Indicate the number of sharesoutstanding of each of the issuer's classes of common stock, asof the latest practicable date:

COMMON STOCK, $0.01 PARVALUE PER SHARE: 19,405,473 SHARES OUTSTANDING AS OF NOVEMBER 12,2004.

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TABLE OFCONTENTS

|                                                     |  |                                                                                      |    |        |    |        |  |  |  |  |
|-----------------------------------------------------|--|--------------------------------------------------------------------------------------|----|--------|----|--------|--|--|--|--|
| CautionaryStatements                                |  |                                                                                 | 3  |   |
| PartI.    Financial Information |  |                                                                                 | 4  |   |
| Item1.                                              |  | FinancialStatements                                                                  |    |   | 4  |   |
|                                                |  | ConsolidatedBalanceSheets                                                            |    |   | 4  |   |
|                                                |  | ConsolidatedStatements of Operations(Unaudited)                                      |    |   | 5  |   |
|                                                |  | ConsolidatedStatements of Comprehensive Income(Unaudited)                            |    |   | 6  |   |
|                                                |  | ConsolidatedStatements of Changes in Stockholders' Equity (Deficit)(Unaudited)       |    |   | 7  |   |
|                                                |  | ConsolidatedStatements of Cash Flows(Unaudited)                                      |    |   | 8  |   |
|                                                |  | Notes toConsolidated FinancialStatements                                             |    |   | 9  |   |
| Item2.                                              |  | Management's Discussion and Analysis of FinancialCondition and Results of Operations |    |   | 27 |   |
| Item3.                                              |  | Quantitative and Qualitative Disclosures About MarketRisk                            |    |   | 46 |   |
| Item 4.                                             |  | Controls AndProcedures                                                               |    |   | 51 |   |
| PartII.    Other Information    |  |                                                                                 | 52 |   |
| Item1.                                              |  | Legal Proceedings                                                                    |    |   | 52 |   |
| Item2.                                              |  | Unregistered Sales of Equity Securities and Use ofProceeds                           |    |   | 52 |   |
| Item 3.                                             |  | Defaults UponSenior Securities                                                       |    |   | 52 |   |
| Item4.                                              |  | Submission of Matters to a Vote of SecurityHolders                                   |    |   | 52 |   |
| Item 5.                                             |  | OtherInformation                                                                     |    |   | 52 |   |
| Item6.                                              |  | Exhibits                                                                             |    |   | 53 |   |
| Signatures                                          |  |                                                                                 | 54 |   |
|                                                     |

2

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CAUTIONARY STATEMENTS

Theinformation contained in this quarterly report on Form 10-Q is not acomplete description of our business or the risks associated with aninvestment in our Company. We urge you to carefully review and considerthe various disclosures made by us in this report and in our otherfilings with the Securities and Exchange Commission("SEC"), including our registration statementon Form S-11 declared effective on July 29, 2004, that discuss ourbusiness in greater detail.

This report contains certain"forward-looking statements" within themeaning of the Private Securities Litigation Reform Act of 1995. Suchforward-looking statements relate to, among other things, the operatingperformance of our investments and financing needs. Forward-lookingstatements are generally identifiable by use of forward-lookingterminology such as "may,""will," "should,""potential,""intend," "expect,""endeavor," "seek,""anticipate,""estimate,""overestimate,""underestimate,""believe," "could,""project,""predict,""continue" or other similar words orexpressions. Forward-looking statements are based on certainassumptions, discuss future expectations, describe future plans andstrategies, contain projections of results of operations or offinancial condition or state other forward-looking information.Our ability to predict results or the actual effect of future plans orstrategies is inherently uncertain. Although we believe that theexpectations reflected in such forward-looking statements are based onreasonable assumptions, our actual results and performance could differmaterially from those set forth in the forward-looking statements.These forward-looking statements involve risks, uncertainties and otherfactors that may cause our actual results in future periods to differmaterially from forecasted results.   Factors which could have amaterial adverse effect on our operations and future prospects include,but are not limited to, changes in economic conditions generally andthe real estate and bond markets specifically; our ability to originatea portfolio of high quality prime adjustable-rate mortgage("ARM") and Hybrid ARM loans; changes ininterest rates and/or credit spreads, as well as the success of ourhedging strategy in relation to such changes; the quality and size ofthe investment pipeline and the rate at which we can invest our cash;changes in the markets; legislative/regulatory changes; completion ofpending investments; the availability and cost of capital for futureinvestments; competition within the finance and real estate industries;and other risks detailed from time to time in our SEC reports. Readersare cautioned not to place undue reliance on any of theseforward-looking statements, which reflect our management's viewsas of the date of this report. The factors noted above could cause ouractual results to differ significantly from those contained in anyforward-looking statement. For a discussion of our critical accountingpolicies see "Management's Discussion and Analysisof Financial Condition and Results of Operations — CriticalAccounting Policies and Estimates."

Althoughwe believe that the expectations reflected in the forward-lookingstatements are reasonable, we cannot guarantee future results, levelsof activity, performance or achievements. We are under no duty toupdate any of the forward-looking statements after the date of thisreport to conform these statements to actualresults.

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PART I.   FINANCIALINFORMATION

ITEM 1.    FINANCIAL STATEMENTS

MortgageIT Holdings,  Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS (Dollars in thousands)

|                                                                                                       |  |                  |           |                 |  |        |         |         |  |  |
|-------------------------------------------------------------------------------------------------------|--|------------------|-----------|-----------------|--|--------|---------|---------|--|--|
|                                                                                                  |  | September30,2004 |           | December31,2003 |
|                                                                                                  |  | (unaudited)      |           |            |
| **ASSETS**                                                                                            |  |             |      |            |  |   |    |    |
| Cashand cashequivalents                                                                               |  | $                | 79,597    |            |  | $      | 22,261  |    |
| Restrictedcash                                                                                        |  |             | 920       |            |  |   | 1,517   |    |
| Marketable securitiesheld tomaturity                                                                  |  |             | 1,420     |            |  |   | 1,419   |    |
| Portfolio ARMloans                                                                                    |  |
| Arm loans collateralizing debtobligations,net                                                         |  |             | 818,829   |            |  |   | — |    |
| Arm loansheld for securitization,net                                                                  |  |             | 321,086   |            |  |   | — |    |
| TotalPortfolio ARMloans                                                                               |  |             | 1,139,915 |            |  |   | — |    |
| Mortgageloans held forsale                                                                            |  |             | 422,213   |            |  |   | 322,012 |    |
| Hedginginstruments                                                                                    |  |             | 11,913    |            |  |   | — |    |
| Accountsreceivable, net ofallowance                                                                   |  |             | 24,542    |            |  |   | 10,301  |    |
| Prepaids andother currentassets                                                                       |  |             | 6,800     |            |  |   | 5,481   |    |
| Goodwill                                                                                              |  |             | 11,639    |            |  |   | 11,665  |    |
| Propertyand equipment,net                                                                             |  |             | 5,087     |            |  |   | 5,324   |    |
| **Totalassets**                                                                                       |  | $                | 1,704,046 |            |  | $      | 379,980 |    |
| **LIABILITIESAND STOCKHOLDERS' EQUITY(DEFICIT)**                                                      |  |
| Liabilities:                                                                                          |  |
| Collateralizeddebt obligations,net                                                                    |  | $                | 749,900   |            |  | $      | — |    |
| Warehouselinespayable                                                                                 |  |             | 696,778   |            |  |   | 300,699 |    |
| Hedginginstruments                                                                                    |  |             | 159       |            |  |   | — |    |
| Notespayable and otherdebt                                                                            |  |             | 15,000    |            |  |   | 1,125   |    |
| Accounts payable,accrued expenses and otherliabilities                                                |  |             | 42,966    |            |  |   | 30,996  |    |
| **Totalliabilities**                                                                                  |  |             | 1,504,803 |            |  |   | 332,820 |    |
| **COMMITMENTSAND CONTINGENCIES**                                                                      |  |
| Convertible redeemablepreferred stock: 22,000,000 shares authorized; 15,082,973 issued andoutstanding |  |             | —   |            |  |   | 62,557  |    |
| **STOCKHOLDERS'EQUITY (DEFICIT):**                                                                    |  |
| Common stock, $.01 par value:125,000,000 shares authorized; 19,405,473 issued andoutstanding          |  |             | 194       |            |  |   | — |    |
| Common stockClass A, $0.01 par value: 1,895,000 shares authorized; 517,835 issuedand outstanding(1)   |  |             | —   |            |  |   | 5       |    |
| Additional paid-incapital (1)                                                                         |  |             | 233,909   |            |  |   | 3,955   |    |
| Unearnedcompensation – restrictedstock                                                          |  |             | (2,455    | )          |  |   | — |    |
| Accumulatedother comprehensive income(loss)                                                           |  |             | (9,856    | )          |  |   | — |    |
| Accumulateddeficit                                                                                    |  |             | (22,549   | )          |  |   | (19,357 | )  |
| **Totalstockholders' equity(deficit)**                                                                |  |             | 199,243   |            |  |   | (15,397 | )  |
| **Totalliabilities and stockholders'equity**                                                          |  | $                | 1,704,046 |            |  | $      | 379,980 |    |
|                                                                                                       |

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|     |                                                                                                                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Reflects,on a retroactive basis, for all periods presented, the exchange ofapproximately 12.80 shares of MortgageIT, Inc. common stock for eachshare of MortgageIT Holdings, Inc. common stock and the retention andretirement of common shares pursuant to the reorganization ofMortgageIT, Inc. |

The accompanying notes are anintegral part of the consolidated financial statements

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MortgageIT Holdings,  Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) (Dollars and shares in thousands, except per sharedata)

|                                                         |  |                                 |        |                                |  |        |        |         |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------|--|---------------------------------|--------|--------------------------------|--|--------|--------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                    |  | Threemonths ended September 30, |        | Nine months ended September30, |
|                                                    |  | 2004                            |        | 2003                           |  | 2004   |        | 2003    |
| **Revenues:**                                           |  |
| Gainon sale of mortgageloans                            |  | $                               | 14,269 |                           |  | $      | 23,552 |    |  | $      | 51,941  |    |  | $      | 65,810  |    |
| Brokeragerevenues                                       |  |                            | 8,955  |                           |  |   | 18,013 |    |  |   | 29,543  |    |  |   | 48,818  |    |
| Interestincome                                          |  |                            | 15,804 |                           |  |   | 6,793  |    |  |   | 27,397  |    |  |   | 18,865  |    |
| Interestexpense                                         |  |                            | (6,925 | )                         |  |   | (3,484 | )  |  |   | (11,910 | )  |  |   | (10,693 | )  |
| Netinterestincome                                       |  |                            | 8,879  |                           |  |   | 3,309  |    |  |   | 15,487  |    |  |   | 8,172   |    |
| Other                                                   |  |                            | 248    |                           |  |   | 39     |    |  |   | 265     |    |  |   | 960     |    |
| **Totalrevenues**                                       |  |                            | 32,351 |                           |  |   | 44,913 |    |  |   | 97,236  |    |  |   | 123,760 |    |
| **Operatingexpenses:**                                  |  |
| Compensation and employeebenefits                       |  |                            | 20,492 |                           |  |   | 21,603 |    |  |   | 56,923  |    |  |   | 59,886  |    |
| Processingexpenses                                      |  |                            | 7,165  |                           |  |   | 8,043  |    |  |   | 16,944  |    |  |   | 22,039  |    |
| Generaland administrativeexpenses                       |  |                            | 2,811  |                           |  |   | 2,255  |    |  |   | 7,614   |    |  |   | 7,170   |    |
| Rent                                                    |  |                            | 1,990  |                           |  |   | 1,744  |    |  |   | 5,663   |    |  |   | 4,885   |    |
| Marketing,loan acquisition and businessdevelopment      |  |                            | 902    |                           |  |   | 1,634  |    |  |   | 3,127   |    |  |   | 5,023   |    |
| Professionalfees                                        |  |                            | 792    |                           |  |   | 973    |    |  |   | 1,851   |    |  |   | 2,345   |    |
| Depreciationandamortization                             |  |                            | 686    |                           |  |   | 621    |    |  |   | 1,956   |    |  |   | 1,786   |    |
| Totaloperatingexpenses                                  |  |                            | 34,838 |                           |  |   | 36,873 |    |  |   | 94,078  |    |  |   | 103,134 |    |
| **Income(loss) before incometaxes**                     |  |                            | (2,487 | )                         |  |   | 8,040  |    |  |   | 3,158   |    |  |   | 20,626  |    |
| **Incometaxes**                                         |  |                            | 144    |                           |  |   | 2,016  |    |  |   | 2,403   |    |  |   | 4,801   |    |
| **Netincome(loss)**                                     |  |                            | (2,631 | )                         |  |   | 6,024  |    |  |   | 755     |    |  |   | 15,825  |    |
| **Dividendson convertible redeemable preferredstock**   |  |                            | 587    |                           |  |   | 1,604  |    |  |   | 3,947   |    |  |   | 4,658   |    |
| **Netincome (loss) attributable to commonstockholders** |  | $                               | (3,218 | )                         |  | $      | 4,420  |    |  | $      | (3,192  | )  |  | $      | 11,167  |    |
| **Persharedata:**                                       |  |
| Basic                                                   |  | $                               | (0.24  | )                         |  | $      | 8.55   |    |  | $      | (0.66   | )  |  | $      | 21.60   |    |
| Diluted                                                 |  | $                               | (0.24  | )                         |  | $      | 1.30   |    |  | $      | (0.66   | )  |  | $      | 3.47    |    |
| Weightedaverage number of shares — basic(1)       |  |                            | 13,451 |                           |  |   | 517    |    |  |   | 4,861   |    |  |   | 517     |    |
| Weightedaverage number of shares — diluted(1)     |  |                            | 13,451 |                           |  |   | 4,645  |    |  |   | 4,861   |    |  |   | 4,562   |    |
|                                                         |

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|     |                                                                                                                                                                                                                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Reflects, on a retroactive basis, for all periodspresented, the exchange of approximately 12.80 shares of MortgageIT,Inc. common stock for each share of MortgageIT Holdings, Inc. commonstock and the retention and retirement of common shares pursuant to thereorganization of MortgageIT, Inc. |

Theaccompanying notes are an integral part of the consolidated financialstatements.

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited) (Dollars inthousands)

|                                           |  |                                |         |                               |  |        |        |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|-------------------------------------------|--|--------------------------------|---------|-------------------------------|--|--------|--------|---------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|                                      |  | ThreeMonths EndedSeptember 30, |         | Nine Months EndedSeptember30, |  |
|                                      |  | 2004                           |         | 2004                          |  |
| Netincome (loss)                          |  | $                              | (2,631  | )                        |  | $      | 755    |    |  |
| Othercomprehensive income:                |  |
| Unrealizedlosses  on hedging instruments: |  |
| Netunrealized losses  during theperiod    |  |                           | (9,856  | )                        |  |   | (9,856 | )  |  |
| Othercomprehensive income(loss)           |  | $                              | (12,487 | )                        |  | $      | (9,101 | )  |  |
|                                           |

Theaccompanying notes are an integral part of the consolidated financialstatements.

6

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MortgageIT Holdings, Inc.and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)

Nine monthsended September 30, 2004 and year ended December 31, 2003 (Dollarsand shares inthousands)

|                                                                  |  |               |         |                          |  |         |         |                                   |  |                          |         |                                   |  |        |         |        |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------|--|---------------|---------|--------------------------|--|---------|---------|-----------------------------------|--|--------------------------|---------|-----------------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                             |  | CapitalStock  |         | AdditionalPaid-InCapital |  | Deficit |         | UnamortizedCostof RestrictedStock |  | OtherComprehensiveIncome |         | TotalStockholders'Equity(deficit) |
|                                                             |  | Common-ClassA |         | Common                   |  |
|                                                             |  | Shares        |         | Amount                   |  | Shares  |         | Amount                            |  |
| Balanceat January 1,2003                                         |  |          | 518     |                     |  | $       | 5       |                              |  |                     | — |                              |  | $      | — |   |  | $      | 3,969   |    |  | $      | (30,827 | )  |  | $      | (15     | )  |  | $      | — |    |  | $      | (26,868 | )  |
| Saleof commonstock                                               |  |          | 1       |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | 5       |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 5       |    |
| Restrictedstock awardsforfeited                                  |  |          | (1      | )                   |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | (19     | )  |  |   | — |    |  |   | 19      |    |  |   | — |    |  |   | — |    |
| Amortizationof the cost of restricted stock, net offorfeitures   |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   |    |    |  |   |    |    |  |   | (4      | )  |  |   | — |    |  |   | (4      | )  |
| Preferredstock dividends, accrued andunpaid                      |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | (5,787  | )  |  |   | — |    |  |   | — |    |  |   | (5,787  | )  |
| Accretionof discount on preferredstock                           |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | (511    | )  |  |   | — |    |  |   | — |    |  |   | (511    | )  |
| Netincome                                                        |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | 17,768  |    |  |   | — |    |  |   | — |    |  |   | 17,768  |    |
| Balanceat December 31,2003                                       |  |          | 518     |                     |  |    | 5       |                              |  |                     | — |                              |  |   | — |   |  |   | 3,955   |    |  |   | (19,357 | )  |  |   | — |    |  |   | — |    |  |   | (15,397 | )  |
| Preferredstock dividends, accrued and unpaid                     |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | (3,645  | )  |  |   | — |    |  |   | — |    |  |   | (3,645  | )  |
| Accretionof discount on preferred stock                          |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | (302    | )  |  |   | — |    |  |   | — |    |  |   | (302    | )  |
| Exerciseof stockoptions                                          |  |          | 45      |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | 224     |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 224     |    |
| Initialissuance ofstock                                          |  |          | — |                     |  |    | — |                              |  |                     | 1       |                              |  |   | — |   |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Reorganizationof MortgageIT, Inc.,net                            |  |          | (563    | )                   |  |    | (5      | )                            |  |                     | 4,804   |                              |  |   | 48      |   |  |   | 63,885  |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 63,928  |    |
| Issuanceof common stock in connection with a public offering,net |  |          | — |                     |  |    | — |                              |  |                     | 14,600  |                              |  |   | 146     |   |  |   | 163,246 |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 163,392 |    |
| Restrictedstockgrant                                             |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | 2,599   |    |  |   | — |    |  |   | (2,599  | )  |  |   | — |    |  |   | — |    |
| Amortizationof the cost of restrictedstock                       |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | — |    |  |   | 144     |    |  |   | — |    |  |   | 144     |    |
| Othercomprehensiveincome                                         |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | — |    |  |   | — |    |  |   | (9,856  | )  |  |   | (9,856  | )  |
| Netincome                                                        |  |          | — |                     |  |    | — |                              |  |                     | — |                              |  |   | — |   |  |   | — |    |  |   | 755     |    |  |   | — |    |  |   | — |    |  |   | 755     |    |
| Balanceat September 30,2004                                      |  |          | — |                     |  | $       | — |                              |  |                     | 19,405  |                              |  | $      | 194     |   |  | $      | 233,909 |    |  | $      | (22,549 | )  |  | $      | (2,455  | )  |  | $      | (9,856  | )  |  | $      | 199,243 |    |
|                                                                  |

Theaccompanying notes are an integral part of the consolidated financialstatements.

7

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(Dollars in thousands)

|                                                                                           |  |                               |            |         |  |        |          |         |  |  |
|-------------------------------------------------------------------------------------------|--|-------------------------------|------------|---------|--|--------|----------|---------|--|--|
|                                                                                      |  | Ninemonths ended September30, |
|                                                                                      |  | 2004                          |            | 2003    |
| Cashflows from operating activities:                                                      |  |                          |       |    |  |
| Netincome                                                                                 |  | $                             | 755        |    |  | $      | 15,825   |    |
| Adjustments toreconcile net income to net cash (used in) provided by operatingactivities: |  |                          |       |    |  |
| Depreciation andamortization                                                              |  |                          | 1,956      |    |  |   | 1,786    |    |
| Amortizationof restricted stockcosts                                                      |  |                          | 144        |    |  |   | (4       | )  |
| Changes in operatingassets:                                                               |  |                          |       |    |  |
| Decrease in restrictedcash                                                                |  |                          | 597        |    |  |   | 2,735    |    |
| (Increase) decreasein mortgage loans held forsale                                         |  |                          | (100,201   | )  |  |   | 142,618  |    |
| Increase inreceivables                                                                    |  |                          | (14,241    | )  |  |   | (5,370   | )  |
| (Increase)decrease in prepaids and otherassets                                            |  |                          | (1,293     | )  |  |   | 695      |    |
| Changes inoperating liabilities:                                                          |  |
| Increase in accounts payable,accrued expenses and otherliabilities                        |  |                          | 11,970     |    |  |   | 3,795    |    |
| **Netcash (used in) provided by operatingactivities**                                     |  |                          | (100,313   | )  |  |   | 162,080  |    |
| **Cashflows from investingactivities:**                                                   |  |                          |       |    |  |
| Increase in ARMloans                                                                      |  |                          | (1,139,915 | )  |  |   | —  |    |
| Purchasesof property andequipment                                                         |  |                          | (1,719     | )  |  |   | (3,111   | )  |
| Proceedsfrom maturities of marketablesecurities                                           |  |                          | 7,105      |    |  |   | 4,130    |    |
| Purchases ofmarketablesecurities                                                          |  |                          | (7,106     | )  |  |   | (4,151   | )  |
| **Netcash used in investingactivities**                                                   |  |                          | (1,141,635 | )  |  |   | (3,132   | )  |
| **Cashflows from financingactivities:**                                                   |  |                          |       |    |  |
| Proceeds from issuance ofcommon stock                                                     |  |                          | 163,392    |    |  |   | 5        |    |
| Proceeds fromthe exercise of stockoptions                                                 |  |                          | 224        |    |  |   | —  |    |
| Netcollateralized debt obligationspayable                                                 |  |                          | 749,900    |    |  |   | —  |    |
| Purchase ofinterest rate capagreements                                                    |  |                          | (12,157    | )  |  |   | —  |    |
| Paymentsmade on Eurodollarcontracts                                                       |  |                          | (9,453     | )  |  |   | —  |    |
| Paymentsto former MortgageITshareholders                                                  |  |                          | (2,576     | )  |  |   | —  |    |
| Proceedsfrom notes payable and otherdebt                                                  |  |                          | 15,000     |    |  |   | 10,000   |    |
| Repayment ofnotes payable and otherdebt                                                   |  |                          | (1,125     | )  |  |   | (14,948  | )  |
| Net proceeds(repayment) of warehouse linespayable                                         |  |                          | 396,079    |    |  |   | (139,094 | )  |
| **Netcash provided by (used in) financingactivities**                                     |  |                          | 1,299,284  |    |  |   | (144,037 | )  |
| **Netincrease in cash and cashequivalents**                                               |  |                          | 57,336     |    |  |   | 14,911   |    |
| **Cashand cash equivalents at beginning ofperiod**                                        |  |                          | 22,261     |    |  |   | 2,104    |    |
| **Cashand cash equivalents at end ofperiod**                                              |  | $                             | 79,597     |    |  | $      | 17,015   |    |
|                                                                                           |

Theaccompanying notes are an integral part of the consolidated financialstatements.

8

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NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

NOTE 1-ORGANIZATION ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis ofPresentation

As discussed further inNote 8, MortgageIT Holdings, Inc. ("Holdings"or the "Company") is a residential mortgagelender that was formed in March 2004 to continue and expand thebusiness of MortgageIT,  Inc.("MortgageIT" or the"TRS").   Holdings is organized andconducts its operations to qualify as a REIT for federal income taxpurposes and is focused on earning net interest income from mortgageloans originated by its subsidiary, MortgageIT.   Holdings'taxable REIT subsidiary, MortgageIT, was incorporated in New York onFebruary  1, 1999 and began marketing mortgage loan services onMay  1, 1999. MortgageIT originates, sells and brokersresidential mortgage loans in 50 states and the District of Columbia,and is an approved U.S. Department of Housing and Urban Development("HUD") Title II Nonsupervised DelegatedMortgagee. 

As discussed further in Note 12, the Companyoperates its business in two primary segments, mortgage investmentoperations and mortgage banking operations. Mortgage investmentoperations are driven by the net interest income generated on ourinvestment loan portfolio. Mortgage banking operations includes loanorigination, underwriting, funding, secondary marketing and loanbrokerage activities.

All shares of common stock and commonstock equivalents have been retroactively restated, for all periodspresented, to reflect the exchange of approximately 12.80 shares ofMortgageIT common stock for each share of Holdings common stock and theretention and retirement of common stock pursuant to the reorganizationof MortgageIT.

The consolidated financial statements includedherein contain results for Holdings and its wholly owned subsidiary,MortgageIT and its wholly owned subsidiaries, IPI Skyscraper MortgageCorporation and Home Closer LLC, for the period from August 4, 2004(the date REIT operations commenced) to September 30, 2004, andexclusively for MortgageIT and its wholly owned subsidiaries, IPISkyscraper Mortgage Corporation and Home Closer LLC, for the precedingperiods. IPI provides residential mortgage banking and brokerageservices in the New York, New Jersey and Connecticut Tri-state area.Home Closer provides title, settlement and other mortgage relatedservices to the Company and its customers. All material intercompanyaccount balances and transactions have been eliminated inconsolidation.

Use of Estimates

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financialstatements and the accompanying notes. Management bases its estimateson certain assumptions, which they believe are reasonable under thecircumstances, and does not believe that any change in thoseassumptions would have a significant effect on the financial positionor results of operations of the Company. Actual results could differmaterially from those estimates.

Adjustable Rate Mortgage("ARM") Loan Investment Portfolio

TheCompany's ARM loan investment portfolio is comprised of ARM loanscollateralizing debt obligations and ARM loans held for securitization(collectively referred to as "Portfolio ARMLoans" or "ARM Loans"). All ofthe Company's Portfolio ARM Loans are either traditional ARMLoans, meaning they have interest rates that reprice in one year orless ("Traditional ARMs" or"Traditional ARM loans"), or hybrid ARM Loansthat have a fixed interest rate for an initial period of not more thanfive years and then convert to Traditional ARMs for their remainingterms to maturity ("Hybrid ARMs" or"Hybrid ARM loans").

In accordancewith GAAP, Portfolio ARM Loans are designated as held to maturitybecause the Company has the intent and ability to hold them for theforeseeable future, and until maturity or 

9

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payoff. Portfolio ARM Loans are carried atcost which includes unpaid principal balances, net of unamortized loanorigination costs, fees and the allowance for loan losses.

ARMloans collateralizing debt obligations are mortgage loans the Companyhas securitized into rated classes with the lower rated classesproviding credit support for higher rated certificates issued to thirdparty investors or retained by us in structured financingarrangements.

ARM loans held for securitization are mortgageloans the Company has originated and are intended to be securitized andretained by the Company.

The Company does not intend to sell anyof the securities created from its securitizations to generate gain onsale income. The loan securitization process benefits the Company bycreating highly liquid securitized assets that can be readily financedin the capital markets.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of adjustedcost or market value. Adjusted cost includes the loan principal amountoutstanding, net of deferred direct origination costs and fees. Formortgage loans held for sale that are hedged with forward salecommitments, the carrying value is adjusted for the change in marketvalue during the time the hedge was deemed to be highly effective. Themarket value is determined by outstanding commitments from investors orcurrent investor yield requirements calculated on an aggregate basis.Determining market value requires management judgment in determininghow the market would value a particular mortgage loan based oncharacteristics of the loan and available market information.

Loan Securitizations

The Company will regularly securitizemortgage loans by transferring them to independent trusts that issuesecurities collateralized by the transferred mortgage loans. Wegenerally retain interests in all or some of the securities issued bythe trusts. Certain of the securitization agreements may require us torepurchase loans that are found to have legal deficiencies, after thedate of transfer. The accounting treatment for transfers of assets uponsecuritization depends on whether or not we have retained control overthe transferred assets. The Company's accounting policy for ARMloan securitizations complies with the provisions of Statement ofFinancial Accounting Standards, or "SFAS,"No.  140, "Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities."Depending on the structure of the securitization, the accounting forsecuritizations is treated as either a sale or secured financing forfinancial statement purposes. The securitization transactions in ourmortgage investment operations segment are treated as securedfinancings under SFAS No.  140.

Derivative FinancialInvestments and Hedging Activities

The Company utilizesderivatives to manage interest rate risk exposure. In accordance withSFAS No.  133, "Accounting for DerivativeInvestments and Hedging Activities," all derivativeinstruments are recorded at fair value. The derivatives used inconjunction with interest rate risk management activities generallyqualify for hedge accounting under SFAS No.  133. To qualify forhedge accounting under SFAS No.  133, the Company mustdemonstrate, on an ongoing basis, that its interest rate riskmanagement activity is highly effective. The Company determines theeffectiveness of its interest rate risk management activities usingstandard statistical measures. If the Company is unable to qualifycertain of its interest rate risk management activities for hedgeaccounting, then the ineffective portion of the change in fair value ofthe associated derivative financial instruments would be reflected incurrent period earnings.

Risk Management of Portfolio ARMLoans

The Company utilizes various hedging instruments,including interest rate swaps, Eurodollar Futures Transactions and CapAgreements (collectively, "Hybrid HedgingInstruments") in order to manage the interest rateexposure associated with the financing for Portfolio ARM Loans. TheCompany 

10

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generally borrows money based on short-terminterest rates. The Company's Hybrid ARM loans have an initialfixed interest rate period up to a maximum of five years. As a result,the Company's borrowings reprice to a new rate on a more frequentbasis than do the Company's Hybrid ARM loans. Hybrid HedgingInstruments have the effect of fixing the interest rate on theCompany's forecasted LIBOR based liabilities in the event thatLIBOR-based funding costs rise.

The Company designates as cashflow hedges its Hybrid Hedging Instruments used to manage interest rateexposure when financing its Hybrid ARM loans. All unrealized gains andlosses on the effective portion of Hybrid Hedging Instruments arerecorded in other comprehensive income  and are reclassified tointerest expense when each of the forecasted financing transactionsoccurs. If it becomes probable that the forecasted transaction, whichin this case refers to interest payments to be made under theCompany's short-term borrowing agreements or its collateralizeddebt obligations, will not occur by the end of the originally specifiedtime period, as documented at the inception of the hedgingrelationship, then the related gain or loss in other comprehensiveincome  would be reclassified to interest expense. The carryingvalue of these Hybrid Hedging Instruments is included in hedginginstruments on the accompanying balance sheets.

Risk Managementof MortgageIT's Loan Pipeline

In connection with itsmortgage loan origination activities, MortgageIT issues interest ratelock commitments ("IRLCs") to loan applicantsand financial intermediaries. The IRLCs guarantee the loan terms,subject to credit approval, for a specified period while theapplication is in process, typically between 15 and 30  days.MortgageIT's risk management objective is to protect earningsfrom an unexpected change in the fair value of IRLCs.MortgageIT's strategy is to utilize forward delivery contractsand options on mortgage backed securities as economic hedgingderivatives to protect the value of its IRLCs.  Both the forwarddelivery contracts, and the above-described IRLCs, are derivativeinstruments as defined by SFAS No.  133 and, therefore, arerequired to be recorded at fair value with changes in fair valuereflected in current period earnings. MortgageIT estimates the fairvalue of an IRLC based on an estimate of the ultimate gain on sale ofthe underlying mortgage loan net of the estimated cost to originate theloan, and given the probability that the loan will fund within theterms of the IRLC. After issuance, the value of an IRLC can change andbe either positive or negative, depending on the change in value of theunderlying mortgage loan. The probability that the underlying loan willfund is driven by a number of factors, in particular, the change, ifany, in mortgage rates after the lock date. In general, the probabilityof funding increases if mortgage rates rise and decreases if mortgagerates fall. The probability that a loan will fund within the terms ofthe IRLC also is influenced by the source of the applicant, age of theapplicant, purpose for the loan (purchase or refinance) and theapplication approval rate. MortgageIT utilizes funding ratio estimatesusing its historical empirical data that take into account thesevariables, as well as renegotiations of rate and point commitments thattend to occur when mortgage rates fall.

Risk Management ofMortgageIT's Loans Held for Sale

MortgageIT's riskmanagement procedures also seek to protect earnings from an unexpectedchange in the fair value of mortgage loans held for sale.MortgageIT's strategy is to utilize forward delivery contracts asfair value hedging derivatives to protect the value of mortgage loansheld for sale. At inception of the hedge, MortgageIT formally documentsthe relationship between these derivatives and the mortgage loans heldfor sale, as well as its objective and strategy for undertaking thehedge transactions. The amount of the derivatives associated withmortgage loans held for sale is designed to substantially eliminateinterest rate and price risk to MortgageIT. MortgageIT classifies andaccounts for these forward delivery contracts as fair value hedges. Thederivatives are carried at fair value with the changes in fair valuerecorded into current period earnings. When the hedges are deemed to behighly effective, the carrying value of the hedged mortgage loans heldfor sale is also adjusted for changes in fair value during the hedgeperiod.

Termination of Hedging Relationships

TheCompany employs a number of risk management monitoring procedures thatare designed to ensure that its hedging arrangements are demonstrating,and are expected to continue to demonstrate, 

11

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a high level of effectiveness. Hedgeaccounting is discontinued on a prospective basis if it is determinedthat the hedging relationship is no longer highly effective or expectedto be highly effective in offsetting changes in fair value of thehedged item. Additionally, the Company may elect, pursuant to SFASNo.  133, to re-designate a hedge relationship during an interimperiod and re-designate upon the rebalancing of a hedge relationship.If hedge accounting is discontinued, the affected loans are carried atthe lower of cost or market, and the corresponding derivativeinstruments continue to be carried at fair value with changes in theirvalue recorded to current period earnings.

Other ComprehensiveIncome

The Financial Accounting Standard Board's, orFASB, Statement 130, "Reporting ComprehensiveIncome," divides comprehensive income into net income andother comprehensive income (loss), which includes unrealized gains andlosses on derivative financial instruments that qualify for hedgeaccounting under SFAS No. 133.

Revenue Recognition

Portfolio ARM Loans

Interest income is accrued basedon the outstanding principal amount and contractual terms of the loans.Direct loan origination costs and fees associated with the loans areamortized into interest income over the lives of the loans using theeffective yield method, adjusted for the effects of estimatedprepayments. Estimating prepayments and estimating the remaining livesof the loans requires management judgment, which involves considerationof possible future interest rate environments. The actual lives couldbe more or less than the amount estimated by management.

Mortgage Loans Held for Sale

Gains on sale of loansrepresent the difference between the net sales proceeds and thecarrying values of the mortgage loans sold, and are recognized at thetime of sale. Direct loan origination costs and fees associated withthe loans are initially recorded as an adjustment of the cost of theloans held for sale and are recognized in earnings when the loans aresold.

Brokerage fees represent revenues earned for the brokeringof mortgage loans to third party lenders and are earned and recognizedat the time the loan is closed by the third party lender. Revenues areprimarily comprised of borrower application and/or administrative feesand brokerage fees paid to the Company by third party lenders.

Interest income is accrued as earned. Interest on mortgage loansheld for sale accrues on loans from the date of funding through thedate of sale. Interest on loans is computed based on the contractualloan rate.

Generally, the Company is not exposed to significantcredit risk on its loans sold to investors. In the normal course ofbusiness, the Company is obligated to repurchase loans from investorsconsistent with the terms of its investor contracts. At the time ofloan sale, the Company records a repurchase reserve for potentialfuture losses applicable to loans sold. The repurchase reserve isincluded in accrued expenses on our balance sheet.

Loan LossReserves

We maintain an allowance for loan losses based onmanagement's estimate of credit losses inherent in our PortfolioARM Loans. The estimation of the allowance is based on a variety offactors including, but not limited to, industry statistics, currenteconomic conditions, loan portfolio composition, delinquency trends,credit losses to date on underlying loans and remaining creditprotection. If the credit performance of our Portfolio ARM Loans isdifferent than expected, we adjust the allowance for loan losses to alevel deemed appropriate by management to provide for estimated lossesinherent in our ARM loan portfolio. Two critical assumptions used inestimating the loan loss reserves are an 

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assumed rate of default, which is theexpected rate at which loans go into foreclosure over the life of theloans, and an assumed rate of loss severity, which represents theexpected rate of realized loss upon disposition of the properties thathave gone into foreclosure.

Stock Compensation

As ofSeptember 30, 2004, the Company had one stock-based employeecompensation plan in effect, the 2004 Long-Term Incentive Plan (the"2004 Plan"), which is described more fullyin Note  9.   Mortgage IT had previously adopted the 2001Stock Option Plan, which was terminated on August 4, 2004, pursuant tothe reorganization of MortgageIT (See Note 8.) The Company accounts forall transactions under which employees receive shares of stock or otherequity instruments in the Company based on the price of its stock inaccordance with the provisions of Accounting Principles Board OpinionNo.  25, "Accounting for Stock Issued toEmployees." Pursuant to these accounting standards, theCompany records deferred compensation for stock awards at the date ofgrant based on the estimated values of the shares on that date. Thereis no stock option-based employee compensation cost reflected in netincome because all options granted had an exercise price equal to themarket value of the underlying common stock on the date of grant. Thefollowing table illustrates the effect on net income (loss) if theCompany had applied the fair value recognition provisions of SFASNo.  123, "Accounting for Stock-BasedCompensation-Transition and Disclosure" (in thousands,except per share data):

|                                                                                                           |  |                                |        |                              |  |        |         |         |  |        |        |         |  |        |        |         |  |  |
|-----------------------------------------------------------------------------------------------------------|--|--------------------------------|--------|------------------------------|--|--------|---------|---------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                                                                                                      |  | (unaudited)                    |
|                                                                                                      |  | Threemonths endedSeptember 30, |        | Nine monthsendedSeptember30, |
|                                                                                                      |  | 2004                           |        | 2003                         |  | 2004   |         | 2003    |
| Netincome (loss) attributable to commonstockholders                                                       |  | $                              | (3,218 | )                       |  | $      | 4,420   |    |  | $      | (3,192 | )  |  | $      | 11,167 |    |
| Amortizationof restricted stock, net offorfeitures                                                        |  |                           | 84     |                         |  |   | — |    |  |   | 84     |    |  |   | (4     | )  |
| Stock-basedemployee compensation expense determined under the fair value method,net of related taxeffects |  |                           | (158   | )                       |  |   | (84     | )  |  |   | (387   | )  |  |   | (251   | )  |
| Proforma net income(loss)                                                                                 |  | $                              | (3,292 | )                       |  | $      | 4,336   |    |  | $      | (3,495 | )  |  | $      | 10,912 |    |
| Netincome (loss) per share attributable to commonstock:                                                   |  |
| Basic - asreported                                                                                        |  | $                              | (0.24  | )                       |  | $      | 8.55    |    |  | $      | (0.66  | )  |  | $      | 21.60  |    |
| Basic- proforma                                                                                           |  | $                              | (0.24  | )                       |  | $      | 8.39    |    |  | $      | (0.72  | )  |  | $      | 21.11  |    |
| Netincome (loss) per share for diluted earnings pershare:                                                 |  |
| Diluted - asreported                                                                                      |  | $                              | (0.24  | )                       |  | $      | 1.30    |    |  | $      | (0.66  | )  |  | $      | 3.47   |    |
| Diluted- proforma                                                                                         |  | $                              | (0.24  | )                       |  | $      | 1.28    |    |  | $      | (0.72  | )  |  | $      | 3.41   |    |
|                                                                                                           |

Underthe 2001 Stock Option Plan, which was terminated pursuant to ourreorganization, the fair value for each option granted was estimated atthe date of grant using the minimum value, option-pricing model, anallowable valuation method under SFAS No.  123"Accounting For Stock-Based Compensation,"with the following assumptions: risk-free interest rate of4.25%, expected option lives of eight years, and nodividends.

Under the 2004 Long-Term Incentive Plan, whichreplaced the 2001 Stock Option Plan, the fair value for each optiongranted was estimated at the date of grant using the Black-Scholesoption-pricing model, an allowable valuation method under SFASNo.  123 "Accounting For Stock-BasedCompensation," with the following assumptions: risk-freeinterest rate of 3.75%, expected option lives of five years,26% volatility and 9% dividend rate.

Restrictedstock awards granted to employees under the 2004 Plan are subject tocertain sale and transfer restrictions. Unvested awards are alsosubject to forfeiture if employment terminates prior to the end of theprescribed restriction period. The value of restricted stock awards isexpensed over the vesting period, generally three years.

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Income Taxes

Income taxes aredetermined using the liability method under SFAS No.  109,"Accounting for Income Taxes." Under thismethod, deferred income taxes reflect the net tax effect of temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts reported for federal andstate income tax purposes.

The Company elected to be taxed as aREIT and believes it complies with the provisions of the InternalRevenue Code of 1986, as amended (the"Code"), with respect thereto. Accordingly,the Company will not be subject to federal income tax on that portionof its income that is distributed to stockholders, as long as certainasset, income and stock ownership tests are met. To maintain our REITstatus, we are required to distribute a minimum of 90% of ourannual taxable income to our stockholders.

MortgageIT made theelection to be treated as a taxable REIT subsidiary and therefore issubject to both federal and state corporate income taxes. Accordingly,the Company records a tax provision based primarily on the taxableincome of the TRS.

Fair Value of Financial Instruments

Assets generally are carried at amounts approximating fair value.For mortgage loans held for sale that are hedged with forward salecommitments, the carrying value is adjusted for the change in marketvalue during the time the hedge was deemed to be highly effective.Hybrid Hedging Instruments are carried at fair value and are includedin their related balance sheet classification. Liabilities, includingwarehouse lines payable, collateralized debt obligations, notes payableand other debt, are carried at their contractual notional amounts whichapproximate fair value. Portfolio ARM Loans are carried at cost, asmore fully described in Note 2.

New Accounting Standards

In 2004, the SEC issued Staff Accounting Bulletin("SAB") No.  105. SAB  No. 105contains guidance for valuing loan commitments accounted for asderivatives under SFAS  No. 133. Under SAB  No. 105, anyexpected future cash flows related to the customer relationship or loanservicing must be excluded from the estimation of fair value.SAB  No. 105 is effective for loan commitments accounted for asderivatives entered into subsequent to March  31, 2004. Theadoption SAB  No.  105 did not have any effect on theCompany's consolidated financial condition or results ofoperations.

NOTE 2-PORTFOLIO ARM LOANS

The followingtable presents the Company's Portfolio ARM Loans as of September30, 2004, which is the first reporting date that the Company hascarried Portfolio ARM Loans held to maturity on its balance sheet (inthousands):

|                                      |  |                                         |         |                                 |  |        |         |         |  |        |           |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|--------------------------------------|--|-----------------------------------------|---------|---------------------------------|--|--------|---------|---------|--|--------|-----------|---------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
| September30, 2004                    |  | ARMloanscollateralizingdebt obligations |         | ARM loansheld forsecuritization |  | Total  |         |
| Principalbalanceoutstanding          |  | $                                       | 810,682 |                            |  | $      | 319,623 |    |  | $      | 1,130,305 |    |  |
| Netunamortized loan originationcosts |  |                                    | 8,277   |                            |  |   | 1,476   |    |  |   | 9,753     |    |  |
| Loanlossreserves                     |  |                                    | (130    | )                          |  |   | (13     | )  |  |   | (143      | )  |  |
| Amortizedcost,net                    |  |                                    | 818,829 |                            |  |   | 321,086 |    |  |   | 1,139,915 |    |  |
| Grossunrealizedgains                 |  |                                    | 5,181   |                            |  |   | 1,046   |    |  |   | 6,227     |    |  |
| Fairvalue                            |  | $                                       | 824,010 |                            |  | $      | 322,132 |    |  | $      | 1,146,142 |    |  |
| Carryingvalue                        |  | $                                       | 818,829 |                            |  | $      | 321,086 |    |  | $      | 1,139,915 |    |  |
|                                      |

Sincethe completion of our initial public offering, the primary focus of ourbusiness is to build a leveraged portfolio of single-family residentialmortgage loans comprised largely of prime Traditional and Hybrid ARMloans. Our portfolio of ARM loans is 100% self-originatedthrough the loan production channels of our TRS. The loans that weretain in our portfolio are serviced through a 

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subservicing arrangement. The TRS sells allof its fixed rate loan production to third parties, as well as any ARMloans that do not meet our investment criteria or portfoliorequirements.

The Company does not account for mortgage-backedsecurities placed with third party investors as sales and, therefore,does not record any gain or loss in connection with securitizationtransactions. Instead, the Company accounts for the mortgage-backedsecurities it sells as a long-term collateralized financing. As ofSeptember 30, 2004, the Company held $818.8 million of ARM loans thatcollateralize the securities resulting from our securitizationactivities, and are classified on our balance sheet as ARM loanscollateralizing debt obligations.

Portfolio ARM Loans arecarried at cost which includes unpaid principal balances, net ofunamortized loan origination costs, fees and the allowance for loanlosses.

The Company has credit exposure on its ARM loaninvestment portfolio. During the three months ended September 30, 2004,the Company recorded loan loss provisions totaling $143,000 to reservefor estimated future credit losses on Portfolio ARM Loans, and therewere no credit losses charged against the allowance for losses duringthe period.

The following table summarizes Portfolio ARM Loandelinquency information as of September 30, 2004, which represents thefirst reporting date that the Company has carried ARM loans held tomaturity on its balance sheet (in thousands, except for loancount):

|                             |  |           |         |             |  |                             |         |                      |  |        |      |         |  |        |      |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|-----------------------------|--|-----------|---------|-------------|--|-----------------------------|---------|----------------------|--|--------|------|---------|--|--------|------|---------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
| September30, 2004           |  |
| DelinquencyStatus           |  | LoanCount |         | LoanBalance |  | PercentofPortfolio ARMLoans |         | PercentofTotalAssets |  |
| 60 to 89days                |  |      | 2       |        |  | $                           | 528     |                 |  |   | 0.05 | %  |  |   | 0.03 | %  |  |
| 90days ormore               |  |      | — |        |  |                        | — |                 |  |   | 0.00 |    |  |   | 0.00 |    |  |
| Inbankruptcy andforeclosure |  |      | — |        |  |                        | — |                 |  |   | 0.00 |    |  |   | 0.00 |    |  |
|                        |  |      | 2       |        |  | $                           | 528     |                 |  |   | 0.05 | %  |  |   | 0.03 | %  |  |
|                             |

Asof September 30, 2004, the Company had aggregate locked pipelinecommitments to fund ARM loans held for securitization of $604.4million.

NOTE 3-MORTGAGE LOANS HELD FOR SALE

Mortgageloans held for sale consist of the following components (inthousands):

|                                   |  |                   |         |                  |  |        |         |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|-----------------------------------|--|-------------------|---------|------------------|--|--------|---------|--------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|                              |  | September30, 2004 |         | December 31,2003 |  |
|                              |  | (unaudited)       |         |
| Mortgageloans held forsale        |  | $                 | 420,308 |             |  | $      | 320,829 |   |  |
| Deferredorigination costs andfees |  |              | 1,905   |             |  |   | 1,183   |   |  |
| Mortgageloans held forsale        |  | $                 | 422,213 |             |  | $      | 322,012 |   |  |
|                                   |

Mortgageloans are residential mortgages on properties located throughout theUnited States having maturities of up to 30  years, and includeARM loans that are not Portfolio ARM Loans. Pursuant to the terms ofthe mortgage loans, the borrowers have pledged the underlying realestate as collateral for the loans. It is the Company's practiceto sell to third party investors any loans that do not constitutePortfolio ARM Loans shortly after they are funded, generally within30  days.

As of September 30, 2004 and December  31,2003, the Company had loan purchase commitments from third partyinvestors for approximately $158.7 million and $91.7  million,respectively. Substantially all loans held for sale at September 30,2004 and December  31, 2003 were subsequently sold to third partyinvestors. All mortgage loans held for sale are pledged as collateralfor warehouse lines payable (See Note  6).

As of September30, 2004, the Company had aggregate locked pipeline commitments to fundmortgage loans held for sale of $755.5 million.

15

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NOTE 4–HEDGING OF MORTGAGELOANS

The Company is exposed to interest rate risk inconjunction with the origination, funding, sale and investment inmortgage loan assets. The Company manages the risk of interest ratechanges primarily through the use of derivative instruments that aredesignated as follows:

|              |                                                                                                                                                                                                  |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Fair valuehedges, which are intended to manage the risks associated withpotential changes in the fair value of loans held for sale, as well asthe IRLC pipeline of loans to be held for sale;and |

|              |                                                                                                                                                                                                              |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Cash flow hedges, which are intendedto manage the risks associated with potential changes in the financingcosts associated with the Portfolio ARM Loans, as well as the IRLCpipeline of Portfolio ARM Loans. |

In accordance with SFAS No.133, all hedging instruments are carried on the balance sheet at theirfair value. If a derivative is designated as a "fair valuehedge," the changes in the fair value of the derivativeinstrument and the changes in the fair value of the hedged item areboth recognized in earnings. If a derivative is designated as a"cash flow hedge," the effective amount ofchange in the fair value of the derivative instrument is recorded inother comprehensive income and is transferred to interest expense asthe hedged item affects earnings. The ineffective amount of all hedgesis recognized in earnings each quarter.

As the Company entersinto hedging transactions, it formally documents the relationshipbetween the hedges and the hedged items. The Company has alsodocumented its risk-management policies, including objectives andstrategies, as they relate to its hedging activities. The Companyassesses, both at inception of a hedging activity and on an on-goingbasis, whether or not the hedging activity is highly effective. If itis determined that a hedge is not highly effective, the Companydiscontinues hedge accounting prospectively.

Fair ValueHedges

The Company is exposed to certain risks in conjunctionwith the origination, funding and sale of mortgage loans includingchanges in both interest rates and estimated loan funding volume. TheCompany manages the risk of interest rate changes primarily through useof derivative financial instruments designed to hedge potential changesin the value of both loans held for sale and the IRLC pipeline. Forwarddelivery contracts represent the primary derivative instrument used forthis purpose.

The Company is also exposed to the risk thatactual new loan closings (also called "pull-throughrate") may deviate from the estimated pull-through rate.Loan pull-through rates are variable and can be impacted by severalfactors including changes in interest rates, the composition of thecommitted pipeline and remaining commitment periods.

TheCompany's risk management policy is to hedge 100% of loansheld for sale, and 100% of the estimated closed loan volume fromthe IRLC pipeline.

At September 30, 2004 and December  31,2003, the notional amount of the Company's committed pipeline(i.e.,IRLCs) was approximately $936.8  million and$294.3  million, respectively. The fair value of the IRLCs atSeptember 30, 2004 and December  31, 2003 reflected a loss ofapproximately $600,000 and $1.2 million, respectively.

The fairvalue adjustment of the mortgage loans held for sale at September 30,2004 and December  31, 2003 was a gain of approximately $2.1million and $406,000, respectively.

At September 30, 2004 andDecember 31,2003 the notional amount of forward sale contractsoutstanding was approximately $675.0 million and 504.9 million with afair value loss of approximately $542,000 and $2.0 million,respectively.

The fair value of the IRLCs, fair value adjustmentof mortgage loans held for sale, fair value of forward deliverycontracts and fair value of loan purchase commitments from investorsare included in the carrying value of mortgage loans held for sale inthe accompanying balance sheets. The related fair value adjustments areincluded in gain on sale of mortgage loans on the accompanyingstatements of operations.

16

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Cash Flow Hedges

The Companyutilizes Hybrid Hedging Instruments in order to manage potentialchanges in future financing costs for its Portfolio ARM Loans. TheCompany generally borrows money based on short-term interest rates. TheCompany's Hybrid ARM loans have an initial fixed interest rateperiod not greater than five years. As a result, the Company'sexisting and forecasted borrowings reprice to a new rate on a morefrequent basis than do the Company's Hybrid ARM loans. These cashflow hedges are intended to limit the increase in interest expense onour variable rate debt over the life of the related liabilities.

All changes in the unrealized gains and losses on these hedginginstruments are recorded in accumulated other comprehensive income(loss)  on the balance sheet and are reclassified to interestexpense when the forecasted financing transactions occurs. The carryingvalue of these hedging instruments is included in hedging instrumentson the accompanying balance sheets.

The Company purchases CapAgreements by incurring a one-time fee or premium. Pursuant to theterms of the Cap Agreements, the Company will receive cash payments ifthe interest rate index specified in the Cap Agreements increases abovecontractually specified levels. Therefore, such Cap Agreements have theeffect of capping the interest rate on a portion of the Company'sborrowings above a level specified by the Cap Agreement. The notionalbalances of the Caps generally decline over the life of theseinstruments approximating the declining balance of the Hybrid ARM loanscollateralizing the Company's collateralized debtobligations.

As of September 30, 2004, the net unrealized losseson Eurodollar Futures recorded in other comprehensive income  was$9.9 million. As of September 30, 2004, the Company's CapAgreements had remaining notional amounts of $1.43 billion. The fairvalue of all Cap Agreements at September 30, 2004 was $11.9 million andis included in hedging instruments on the accompanying balance sheets.As of September 30, 2004, the unrealized loss on these Cap Agreementsof $244,000 is included in other comprehensive income. Under these CapAgreements, the Company will receive cash payments should one-monthLIBOR increase above the contract rates of the Caps, which range from2.5% to 4.68%. The Cap Agreements had an average maturityof 3.8  years as of September 30, 2004 and will expire betweenJuly 2007 and July 2009.

NOTE 5-COLLATERALIZED DEBTOBLIGATIONS

On September 30, 2004, $811.2 million of ARM loansfrom the Company's investment loan portfolio were transferred toMortgageIT Trust 2004-1 and were securitized. In this transaction, theCompany issued AAA/AA-rated floating-rate pass-through certificatestotaling $752.4 million to third party investors and retained $56.0million of subordinated certificates, which provide credit support tothe higher-rated certificates that were placed with third partyinvestors. All of the securities retained by the Company were ratedinvestment grade. The interest rates on the floating-rate pass-throughcertificates reset monthly and are indexed to one-month LIBOR. Inconnection with the issuance of these collateralized debt obligations,which we also refer to as mortgage-backed securities, we incurred costsof $2.5 million. These costs are being amortized over the expected lifeof the securities. This transaction was accounted for as a financing ofloans and represents permanent financing that is not subject to margincalls. The Company's collateralized debt obligations are issuedby trusts and are secured by ARM loans. For financial reporting and taxpurposes, the trusts' ARM loans held as collateral are recordedas assets of the Company and the collateralized debt obligations arerecorded as the Company's debt. As of September 30, 2004,collateralized debt of $749.9 million, net of debt issuance costs, isclassified as collateralized debt obligations, net on the accompanyingbalance sheets.

As of September 30, 2004, the mortgage-backedsecurities were collateralized by ARM loans with a principal balance of$810.7 million. The debt matures between 2033 and 2044 and is callableby the Company at par once the total balance of the loanscollateralizing the debt is reduced to 20% of their originalbalance. The balance of this debt is reduced as the underlying loancollateral is paid down and is expected to have an average life ofapproximately four years.

17

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NOTE 6-WAREHOUSE LINES PAYABLE

The Company has various warehouse credit facilities with majorlenders that are used to fund mortgage loans.   As of September30, 2004, the first facility, with UBS Real Estate Securities, Inc.("UBS"), had an uncommitted credit limit of$1.15 billion, which includes a mortgage loan sale conduit facility.This credit facility may be terminated at the discretion of the lender.The facility provides for temporary increases in the line amount on anas-requested basis. Under the line, outstanding advances are secured bythe specific mortgage loans funded, and bear interest at the LondonInterbank Offered Rate ("LIBOR") plus aspread based on the types of loans being funded. Interest is payable atthe time the outstanding principal amount of the advance is due,generally within 30 days. All advances under this agreement areevidenced by a note, which is secured by all of the loans fundedthrough this facility. As of September 30, 2004 and December  31,2003, the Company had outstanding on the line $336.4 million and $164.2million, respectively. Under the conduit facility, the Company sellsmortgage loans to UBS at a price equal to the committed purchase pricefrom a third party investor, and records the transaction as a sale inaccordance with SFAS No.  140. UBS, in turn, sells the loan to athird party investor. The Company facilitates the sale to the thirdparty investor on behalf of UBS and receives a performance fee thatvaries depending on the time required by UBS to complete the transferof the loans to the third party investor. The Company accounts for theperformance fee as brokerage revenues in the amounts of $1.7 million,$6.7 million, $2.8 million and $8.3 million for the three and ninemonths ended September 30, 2004 and 2003, respectively. Loans on theconduit line, which totaled approximately $341.1 million and $190.1million at September 30, 2004 and December  31, 2003,respectively, reduce availability under the facility until they aretransferred to the third party investor by UBS. The mortgage loans soldto UBS are subject to repurchase under certain limited conditions,primarily if UBS determines that a mortgage loan was not properlyunderwritten.   This credit facility expires in August 2005.

The second facility, with Residential Funding Corporation("RFC"), has a committed credit limit of$100  million collateralized by the specific mortgage loansfunded, and bears interest at LIBOR plus a spread based on the types ofloans being funded. As of September 30, 2004 and December  31,2003, the Company had outstanding approximately $48.8 million and $56.9million, respectively, on this facility. This credit facility expiresin January 2005.

The third facility, with Merrill LynchCommercial Finance Corp. ("Merrill Lynch"),has a partially committed credit limit of $500  millioncollateralized by the specific mortgage loans funded, and bearsinterest at LIBOR plus a spread based on the types of loans beingfunded. As of September 30, 2004 and December  31, 2003, theCompany had $311.6 million and $79.6 million outstanding on thisfacility. This credit facility expires in August  2005.

The weighted average effective rate of interest for the periods onborrowings under all warehouse lines of credit was approximately2.9% at September 30, 2004 and 3.0% at December31, 2003.

All mortgage loans held for sale have been pledged ascollateral under the above warehouse credit facilities. In addition,two of the facilities contain various financial covenants andrestrictions, including a requirement that the Company maintainspecified leverage ratios and net worth amounts.   As ofSeptember 30, 2004, the Company was not in compliance with the netincome covenant in the UBS facility. However, we obtained a waiver fromthe lender with respect to this covenant default. As of September 30,2004, the Company was in compliance with all other covenants andrestrictions described above.

18

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NOTE 7-NOTES PAYABLE AND OTHER DEBT (inthousands):

|                              |  |                   |         |                  |  |        |         |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|------------------------------|--|-------------------|---------|------------------|--|--------|---------|--------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|                         |  | September30, 2004 |         | December 31,2003 |  |
|                         |  | (unaudited)       |         |
| UnsecuredPromissory Notes(a) |  | $                 | — |             |  | $      | 1,125   |   |  |
| Senior SecuredNotes(b)       |  |              | 15,000  |             |  |   | — |   |  |
|                         |  | $                 | 15,000  |             |  | $      | 1,125   |   |  |
|                              |

|  |
|--|
|  |  |
|  |

|     |                                                                                               |
|-----|-----------------------------------------------------------------------------------------------|
| (a) | Promissorynote issued in connection with the IPI acquisition, which was paid inJanuary  2004. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | SeniorSecured Notes due 2007 with an aggregate principal amount of $15million were issued in March 2004. The Notes bear interest at a rate of10% per annum, payable in quarterly installments beginningJune  30, 2004. The notes are secured by a first prioritysecurity interest in all of the Company's assets with theexception of the Company's mortgage loans held for sale and ARMloans held for securitization. The Notes contain various restrictionsand covenants.  As of September 30, 2004, the Company was incompliance with restrictions and covenants contained in the NotePurchase Agreement pursuant to which we issued and sold the Notes. TheCompany's board of directors has approved an amendment that, onceeffective, will reduce the interest rate on the outstanding principalbalance of each Note from 10% per annum to71⁄2% per annum for the period beginning October1, 2004 and ending March 31, 2005. In addition, the amendment willprohibit the Company from prepaying the Notes from the period beginningOctober 1, 2004 and ending April 14, 2005. |

NOTE8-ISSUANCE OF COMMON STOCK

 On August 4, 2004, weconsummated the reorganization of MortgageIT.   In thereorganization, MortgageIT became a wholly owned subsidiary of itsholding company parent, Holdings, which is organized and conducts itsoperations to qualify as a REIT for U.S. federal income taxpurposes.   Concurrently with the reorganization, Holdingsconducted an initial public offering of its common stock, whereby itissued 14.6 million shares at a price to the public of $12.00 pershare. Net proceeds of the offering, after deducting the underwritingdiscount and estimated offering expenses, approximated $163.4 million.Concurrently with the closing of the initial public offering, on August4, 2004, holders of 6,764,338 shares of common stock and 14,859,659shares of preferred stock of MortgageIT exchanged their shares for4,804,473 shares of common stock of Holdings. In addition, holders of160,241 shares of common stock and 223,314 shares of preferred stock ofMortgageIT, who either did not submit a vote in connection with thereorganization or who did not certify that they were accreditedinvestors pursuant to applicable securities laws, exchanged theirshares for cash payments totaling$2,179,843.

19

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NOTE9-CONVERTIBLE REDEEMABLE PREFERRED STOCK ANDSTOCKHOLDERS'EQUITY

On August 4, 2004 holdersof MortgageIT Convertible Redeemable Preferred Stock exchanged theirshares for shares of common stock of Holdings or cash (See Note 8).Prior to the exchange, MortgageIT was authorized to issue 22,000,000shares of convertible preferred stock, par value $.01 per share, ofwhich 6,250,000 had been designated and issued as Series  AConvertible Preferred Stock, 7,000,000 had been designated and4,401,170 issued as Series  B Convertible Preferred Stock, and6,500,000 had been designated and 4,431,803 issued as Series  CConvertible Preferred Stock. MortgageIT's Board of Directors wasauthorized to fix the rights and preferences of the 2,250,000 shares ofundesignated preferred stock as necessary without further stockholderapproval.

The Series  A Convertible RedeemablePreferred Stock was held by private investors and was convertible atthe option of the holder into shares of Class  A Common Stock ata conversion rate of $1.00 per share, subject to adjustment. Theholders of the Series  A Convertible Preferred Stock had votingrights equal to the number of shares of Class  A Common Stockinto which the Series  A shares were convertible. Annualdividends on each share were cumulative and payable quarterly at thediscretion of the Company's Board of Directors at the rate of8% per annum on the liquidation value of $1.00 per share.No dividend could be declared or paid with respect to theSeries  A Convertible Preferred Stock until all accrued andunpaid dividends on the Series  B and Series  C PreferredStock for all prior dividend periods had been paid in full. Nodividends were declared during 2003 or 2002. Cumulative undeclared andunpaid dividends on the Series  A Convertible Preferred Stocktotaled approximately $3,179,000 and $2,753,000 at July 31, 2004 andDecember  31, 2003, respectively, and were included inSeries  A Convertible Redeemable Preferred Stock on the balancesheets. 

The Series  B ConvertibleRedeemable Preferred Stock was held by private investors and wasconvertible at the option of the holder into shares of Class  ACommon Stock at a conversion rate of $5.6821 per share. This pricereflected adjustments for the dilutive effect of the issuance ofSeries  C Convertible Preferred stock during 2001. The holders ofthe Series  B Convertible Preferred Stock had voting rights equalto the number of shares of Class  A Common Stock into which theSeries  B shares were convertible. Annual dividends on each sharewere cumulative and payable quarterly at the discretion of theCompany's Board of Directors at the greater of 10% of theliquidation value of $6.4151 per share, compounded quarterly, or theamount of dividends paid on each share of Class A Common Stock.Cumulative undeclared and unpaid dividends on the Series  BConvertible Preferred Stock totaled approximately $14,562,000 and$12,165,000 at July 31, 2004 and December  31, 2003,respectively, and were included in Series  B ConvertibleRedeemable Preferred Stock on the balance sheets. 

The Series  C Convertible Preferred Stock was held byprivate investors and was convertible at the option of the holder intoshares of Class  A Common Stock at a conversion rate of $2.4246per share. The holders of the Series  C Convertible PreferredStock had voting rights equal to the number of shares of Class  ACommon Stock into which the Series  C shares were convertible.Annual dividends on each share were cumulative and payable quarterly atthe discretion of the Company's Board of Directors at the greaterof 10% of the original issue price of the Series  CConvertible Preferred stock of $2.4246 per share, compounded quarterly,or the amount of dividends paid on each share of Common Stock.Cumulative undeclared and unpaid dividends on the Series  CConvertible Preferred Stock totaled approximately $3,923,000 and$3,101,000 at July 31, 2004 and December  31, 2003, respectively,and were included in Series  C Convertible Redeemable PreferredStock on the balance sheets.

Restricted Stock - 1999 EquityIncentive Stock Compensation Plan

MortgageIT hadreserved 116,000 shares of Class B Common Stock to issue to certainemployees pursuant to its 1999 Equity Incentive Stock Compensation Plan("1999 Plan"). In 2003, the Companyterminated the 1999 Plan and made no further awards under it. In August2004, as a result of the reorganization of MortgageIT andHoldings' initial public offering, all 59,000 shares of Class BCommon Stock issued and outstanding under the 1999 Plan were exchangedfor shares of Holdings common stock.

21

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In addition, in August 2004, theCompany adopted the MortgageIT Holdings, Inc. 2004 Long-Term IncentivePlan (See below in this Note 9).

Stock Options - 2001 StockOption Plan

In 2001, MortgageIT established the 2001Stock Option Plan ("2001 Plan"). The 2001Plan provided for the granting of stock options to employees, directorsand consultants of MortgageIT to purchase up to 776,000 shares ofClass  B Common Stock. The exercise price of the options was notto be less than the fair market value on the date of grant with amaximum term of ten years, or in the case of 10% stockholders,at 110% of the fair market value on the date of grant with amaximum term of five years. MortgageIT awarded options to purchase241,000 shares during 2004 and 256,000 shares for the year endedDecember 31, 2003, all of which had a ten-year life and vested at therate of one-third each year on the first three anniversaries of therespective grant date. The 2001 Plan terminated in August 2004.

In August 2004, options to purchase 45,000 shares of commonstock were exercised at an exercise price of $4.96 per share. Proceedsto MortgageIT approximated $224,000. As a result of the reorganizationof MortgageIT and Holdings' initial public offering, options topurchase 56,000 shares of common stock were exchanged for approximately$390,000 and options to purchase 535,000 shares were cancelled.

2004 Long-Term Incentive Plan

In August 2004,Holdings adopted the MortgageIT Holdings, Inc. 2004 Long-Term IncentivePlan (the "2004 Plan").   A total of1,725,000 shares of common stock have been reserved for issuance underthe 2004 Plan, which terminates in 2014. The 2004 Plan provides for thegrant of incentive stock options, non-qualified stock options, stockappreciation rights and restricted stock. In connection with theinitial public offering, Holdings granted options to purchase 1,062,775shares of common stock at an exercise price of $12.00 per share and anaggregate of 216,577 shares of restricted stock. The options andrestricted stock will vest over a three-year period.

22

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NOTE 10-EARNINGS PER SHARE

Basic and diluted income per share are calculated inaccordance with SFAS No.  128, "Earnings PerShare." The basic and diluted income per common share forall periods presented were computed based on the weighted-averagenumber of common shares outstanding, as follows (in thousands, exceptper share data):

|                                                                           |  |                                |         |                              |  |        |        |        |  |        |         |         |  |        |        |        |  |  |
|---------------------------------------------------------------------------|--|--------------------------------|---------|------------------------------|--|--------|--------|--------|--|--------|---------|---------|--|--------|--------|--------|--|--|
|                                                                      |  | (unaudited)                    |
|                                                                      |  | Threemonths endedSeptember 30, |         | Nine monthsendedSeptember30, |
|                                                                      |  | 2004                           |         | 2003                         |  | 2004   |        | 2003   |
| Netincome(loss)                                                           |  | $                              | (2,631  | )                       |  | $      | 6,024  |   |  | $      | 755     |    |  | $      | 15,825 |   |
| Dividendson convertible redeemable preferredstock:                        |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| SeriesA                                                                   |  |                           | 63      |                         |  |   | 175    |   |  |   | 426     |    |  |   | 508    |   |
| SeriesB                                                                   |  |                           | 358     |                         |  |   | 969    |   |  |   | 2,397   |    |  |   | 2,806  |   |
| SeriesC                                                                   |  |                           | 123     |                         |  |   | 332    |   |  |   | 822     |    |  |   | 962    |   |
| Accretionof discount on preferredstock                                    |  |                           | 43      |                         |  |   | 128    |   |  |   | 302     |    |  |   | 382    |   |
| Totaldividends on preferredstock                                          |  |                           | 587     |                         |  |   | 1,604  |   |  |   | 3,947   |    |  |   | 4,658  |   |
| Netincome (loss) attributable to commonstockholders                       |  | $                              | (3,218  | )                       |  | $      | 4,420  |   |  | $      | (3,192  | )  |  | $      | 11,167 |   |
|                                                                      |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| Basicearnings (loss) pershare:                                            |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| Netincome (loss) attributable to commonstockholders                       |  | $                              | (3,218  | )                       |  | $      | 4,420  |   |  | $      | (3,192  | )  |  | $      | 11,167 |   |
| Weightedaverage common stock outstanding for basic earnings pershare(1)   |  |                           | 13,451  |                         |  |   | 517    |   |  |   | 4,861   |    |  |   | 517    |   |
| Basicearnings (loss) pershare                                             |  | $                              | (0.24   | )                       |  | $      | 8.55   |   |  | $      | (0.66   | )  |  | $      | 21.60  |   |
|                                                                      |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| Dilutedearnings pershare:                                                 |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| Netincome (loss) attributable to commonstockholders                       |  | $                              | (3,218  | )                       |  | $      | 4,420  |   |  | $      | (3,192  | )  |  | $      | 11,167 |   |
|                                                                      |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| Addpreferred stockdividends                                               |  |                           | — |                         |  |   | 1,604  |   |  |   | — |    |  |   | 4,658  |   |
| Netincome (loss) for diluted earnings pershare                            |  | $                              | (3,218  | )                       |  | $      | 6,024  |   |  | $      | (3,192  | )  |  | $      | 15,825 |   |
| Commonstock outstanding for basic earnings per sharecomputation           |  |                           | 13,451  |                         |  |   | 517    |   |  |   | 4,861   |    |  |   | 517    |   |
| Assumedconversion ofdilutive:                                             |  |                           |    |                         |  |   |   |   |  |   |    |    |  |   |   |   |
| Convertiblepreferredstock                                                 |  |                           | — |                         |  |   | 4,069  |   |  |   | — |    |  |   | 3,986  |   |
| Stockoptions                                                              |  |                           | — |                         |  |   | 59     |   |  |   | — |    |  |   | 59     |   |
| Weightedaverage common stock outstanding for diluted earnings pershare(1) |  |                           | 13,451  |                         |  |   | 4,645  |   |  |   | 4,861   |    |  |   | 4,562  |   |
| Dilutedearnings (loss) pershare                                           |  | $                              | (0.24   | )                       |  | $      | 1.30   |   |  | $      | (0.66   | )  |  | $      | 3.47   |   |
|                                                                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Reflects,on a retroactive basis, for all periods presented, the exchange ofapproximately 12.80 shares of MortgageIT common stock for each share ofHoldings common stock and the retention and retirement of common sharespursuant to the reorganization of MortgageIT. |

Options and warrants aggregating approximately 535,000,661,000, 420,000 and 420,000 were excluded from the computation for thethree and nine months ended September 30, 2004 and 2003, respectively,as their effect would have been anti-dilutive. Potentially dilutiveshares amounting to approximately 5.8 million relating to theconversion of Series  A, Series  B and Series  CPreferred Stock, restricted stock and options were excluded from thecomputation for the three and nine months ended September  30,2004, as their effect would have been anti-dilutive.

23

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NOTE 11-STATEMENT OF CASH FLOWS

Supplemental disclosure of cash flow information (inthousands):

|              |  |                               |        |        |  |        |        |        |  |  |
|--------------|--|-------------------------------|--------|--------|--|--------|--------|--------|--|--|
|         |  | (unaudited)                   |
|         |  | Ninemonths ended September30, |
|         |  | 2004                          |        | 2003   |
| Cashpaidfor: |  |                          |   |   |  |   |   |   |
| Interest     |  | $                             | 8,462  |   |  | $      | 8,833  |   |
| Incometaxes  |  |                          | 6,006  |   |  |   | 1,848  |   |
|              |

NOTE 12-SEGMENTREPORTING

The Company operates its business in twoprimary segments, mortgage investment operations conducted in the REITand mortgage banking operations conducted in the TRS. Mortgageinvestment operations are driven by the balance of Portfolio ARM Loansand the net interest income generated on those balances. Mortgagebanking operations includes loan origination, underwriting, funding,brokering and secondary marketing. Following is a summary of theCompany's segment operating results for the three and nine monthsended September 30, 2004 and 2003 (in thousands).

Three monthsended September 30, 2004

|                               |  |                           |         |                                 |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|-------------------------------|--|---------------------------|---------|---------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                          |  | MortgageBankingOperations |         | MortgageInvestmentOperations(1) |  | Eliminations |           | Total   |
| Gain on saleof mortgageloans  |  | $                         | 18,954  |                            |  | $            | —   |    |  | $      | (4,685  | )  |  | $      | 14,269    |    |
| Brokeragerevenues             |  |                      | 8,955   |                            |  |         | —   |    |  |   | — |    |  |   | 8,955     |    |
| Interestincome                |  |                      | 11,128  |                            |  |         | 4,676     |    |  |   | — |    |  |   | 15,804    |    |
| Interestexpense               |  |                      | (4,848  | )                          |  |         | (2,077    | )  |  |   | — |    |  |   | 6,925     |    |
| Netinterestincome             |  |                      | 6,280   |                            |  |         | 2,599     |    |  |   | — |    |  |   | 8,879     |    |
| Other                         |  |                      | 248     |                            |  |         | —   |    |  |   | — |    |  |   | 248       |    |
| Totalrevenues                 |  |                      | 34,437  |                            |  |         | 2,599     |    |  |   | (4,685  | )  |  |   | 32,351    |    |
| Operatingexpenses             |  |                      | 34,361  |                            |  |         | 973       |    |  |   | (496    | )  |  |   | 34,838    |    |
| Income(loss) before incometax |  |                      | 76      |                            |  |         | 1,626     |    |  |   | (4,189  | )  |  |   | (2,487    | )  |
| Incometaxes                   |  |                      | 144     |                            |  |         | —   |    |  |   | — |    |  |   | 144       |    |
| Netincome(loss)               |  | $                         | (68     | )                          |  | $            | 1,626     |    |  | $      | (4,189  | )  |  | $      | (2,631    | )  |
| Segmentassets                 |  | $                         | 676,639 |                            |  | $            | 1,037,603 |    |  | $      | (10,196 | )  |  | $      | 1,704,046 |    |
|                               |

|  |
|--|
|  |  |
|  |

|     |                                        |
|-----|----------------------------------------|
| (1) | Commencedoperations on August 4, 2004. |

24

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Three months ended September 30,2003

|                               |  |          |         |         |  |  |
|-------------------------------|--|----------|---------|---------|--|--|
|                          |  | Total(1) |
| Gain on sale of mortgageloans |  | $        | 23,552  |    |
| Brokeragerevenues             |  |     | 18,013  |    |
| Interestincome                |  |     | 6,793   |    |
| Interestexpense               |  |     | (3,484  | )  |
| Netinterestincome             |  |     | 3,309   |    |
| Other                         |  |     | 39      |    |
| Totalrevenues                 |  |     | 44,913  |    |
| Operatingexpenses             |  |     | 36,873  |    |
|                          |  |
| Incomebefore income tax       |  |     | 8,040   |    |
| Incometaxes                   |  |     | 2,016   |    |
| Netincome                     |  | $        | 6,024   |    |
| **December31, 2003**          |  |
| Segmentassets                 |  | $        | 379,980 |    |
|                               |

|  |
|--|
|  |  |
|  |

|     |                                                          |
|-----|----------------------------------------------------------|
| (1) | Consistsof Mortgage Banking Operations only during 2003. |

NineMonths Ended September 30, 2004

|                              |  |                           |         |                                 |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|------------------------------|--|---------------------------|---------|---------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                         |  | MortgageBankingOperations |         | MortgageInvestmentOperations(1) |  | Eliminations |           | Total   |
| Gain on saleof mortgageloans |  | $                         | 56,626  |                            |  | $            | —   |    |  | $      | (4,685  | )  |  | $      | 51,941    |    |
| Brokeragerevenues            |  |                      | 29,543  |                            |  |         | —   |    |  |   | — |    |  |   | 29,543    |    |
| Interestincome               |  |                      | 22,721  |                            |  |         | 4,676     |    |  |   | — |    |  |   | 27,397    |    |
| Interestexpense              |  |                      | (9,833  | )                          |  |         | (2,077    | )  |  |   | — |    |  |   | (11,910   | )  |
| Netinterestincome            |  |                      | 12,888  |                            |  |         | 2,599     |    |  |   | — |    |  |   | 15,487    |    |
| Other                        |  |                      | 265     |                            |  |         | —   |    |  |   | — |    |  |   | 265       |    |
| Totalrevenues                |  |                      | 99,322  |                            |  |         | 2,599     |    |  |   | (4,685  | )  |  |   | 97,236    |    |
| Operatingexpenses            |  |                      | 93,601  |                            |  |         | 973       |    |  |   | (496    | )  |  |   | 94,078    |    |
| Incomebefore incometax       |  |                      | 5,721   |                            |  |         | 1,626     |    |  |   | (4,189  | )  |  |   | 3,158     |    |
| Incometaxes                  |  |                      | 2,403   |                            |  |         | —   |    |  |   | — |    |  |   | 2,403     |    |
| Netincome                    |  | $                         | 3,318   |                            |  | $            | 1,626     |    |  | $      | (4,189  | )  |  | $      | 755       |    |
| Segmentassets                |  | $                         | 676,639 |                            |  | $            | 1,037,603 |    |  | $      | (10,196 | )  |  | $      | 1,704,046 |    |
|                              |

|  |
|--|
|  |  |
|  |

|     |                                        |
|-----|----------------------------------------|
| (1) | Commencedoperations on August 4, 2004. |

25

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Nine Months Ended September 30, 2003

|                               |  |          |         |         |  |  |
|-------------------------------|--|----------|---------|---------|--|--|
|                          |  | Total(1) |
| Gain on sale of mortgageloans |  | $        | 65,810  |    |
| Brokeragerevenues             |  |     | 48,818  |    |
| Interestincome                |  |     | 18,865  |    |
| Interestexpense               |  |     | (10,693 | )  |
| Netinterestincome             |  |     | 8,172   |    |
| Other                         |  |     | 960     |    |
| Totalrevenues                 |  |     | 123,760 |    |
| Operatingexpenses             |  |     | 103,134 |    |
| Incomebefore income tax       |  |     | 20,626  |    |
| Incometaxes                   |  |     | 4,801   |    |
| Netincome                     |  | $        | 15,825  |    |
| **December31, 2003**          |  |
| Segmentassets                 |  | $        | 379,980 |    |
|                               |

|  |
|--|
|  |  |
|  |

|     |                                                         |
|-----|---------------------------------------------------------|
| (1) | Consistsof Mortgage Banking Operations only during2003. |

26

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|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| ITEM2.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS |

Thefollowing should be read in conjunction with our consolidated financialstatements and notes thereto contained in Part I., Item 1. of thisreport on Form 10-Q.

GENERAL

TheCompany's business strategy is to self-originate prime ARM Loansto hold in our investment portfolio, fund them using equity capital andborrowed funds, and generate earnings from the spread between the yieldon our assets and our cost of borrowings. Our investment strategy isdesigned to mitigate credit risk and interest rate risk. Our mortgageloan investment portfolio consists primarily of prime ARM Loans thatcollateralize multi-class pass-through securities that we issue insecuritization transactions, certain subordinate pass-throughsecurities that we retain, and "A" or primequality ARM Loans that we intend to securitize.

Weconduct our mortgage banking operations through a taxable REITsubsidiary, MortgageIT (the "TRS"). The TRSis a full-service residential mortgage banking company that is licensedto originate loans throughout the United States. MortgageIT originatessingle-family mortgage loans of all types, with a particular focus onprime ARM and fixed-rate, first lien residential mortgage loans.Historically, MortgageIT has sold all of the loans it originatesthrough both its retail and wholesale operations to third partyinvestors.

On August 4, 2004, we closed our initialpublic offering and sold 14.6 million shares of our common stock at aprice to the public of $12.00 per share, for net proceeds ofapproximately $163.4 million, after deducting the underwriters'discount and other offering-related expenses. Since the completion ofour initial public offering, the primary focus of our business is tobuild a leveraged portfolio of single-family residential mortgage loanscomprised largely of prime ARM and Hybrid ARM loans, which have aninitial fixed-rate period followed by an adjustable-rate period. Ourportfolio of mortgage loans consists of loans originated by the retailand wholesale operations of the TRS. As of September 30, 2004, we hadtransferred to our investment portfolio approximately $941 million ofsingle-family residential prime ARM and Hybrid ARM loans originated byMortgageIT.

The loans that we retain in our portfolio areserviced through a subservicing arrangement. Generally, we expect tocontinue to sell the fixed rate loans originated by MortgageIT to thirdparties as well as any ARM or hybrid ARM loans that do not meet ourinvestment criteria or portfolio requirements.

MortgageInvestment Operations

The Company's mortgageinvestment operations generate net interest income from its investmentloan portfolio. Our business strategy is to manage an investmentportfolio consisting of high-quality securitized prime ARM and HybridARM loans collateralized by single family residential properties. Forpurposes of maintaining liquidity for borrowings or as collateral, wemay also invest in U.S. Treasury securities and debentures and discountnotes guaranteed by two government-sponsored corporations,"Fannie Mae" and "FreddieMac."

It is our general policy to originate100% of the ARM Loans we hold in our investment portfolio.However, we may invest in mortgage-backed securities guaranteed by anagency of the U.S. federal government ("GinnieMae") or by Fannie Mae ("FNMA")or Freddie Mac ("FHLMC").

Weselect loans for inclusion in our investment portfolio based on avariety of credit risk factors. Our Portfolio Management Committee hasestablished specific loan investment guidelines including minimum FICOscores, maximum loan-to-value ratios, maximum loans size and otherapplicable credit quality criteria. We invest at least 85% ofassets in high quality ARM Loans and short-term investmentsincluding:

|              |                                    |
|--------------|------------------------------------|
| •  | FNMA and FHLMCmortgage securities; |

|              |                                                                                                                                                                                                                                                                                                |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | ARMsecurities rated within one of the two highest rating categories by atleast one of the nationally recognized statistical ratings agencies(Moody's Investors Service("Moody's"); Standard &Poor's, a division of The McGraw-Hill Companies, Inc.("S&P"); or Fitch Ratings("Fitch")); |

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|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | securitiesand loans that are unrated but that we determine to be of comparablequality to comparable high-quality mortgagesecurities; |

|              |                                                                                                               |
|--------------|---------------------------------------------------------------------------------------------------------------|
| •  | cash and cashequivalents, including short-term investments in U.S. Treasury andagency non-mortgagesecurities; |

|              |                                                                                                                                                              |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the portion of ARMor Hybrid ARM loans that have been deposited into a trust and havereceived a credit rating of AA or better from at least one ratingagency. |

The remainder of our loan portfolio willcollateralize securities rated at least between A and BBB (on theS&P scale) or securities or loans that are unrated but arecomparable to at least "A" credit quality.The portfolio also may retain certain classes of our mortgage-backedsecurities that are below investment grade (below BBB). Interests innon-investment grade assets will comprise no more than 25% ofstockholders' equity on an historical cost basis.

At September  30, 2004, we held total assets of $1.70billion, of which $1.56  billion consisted of loans held for saleand ARM Loans held to maturity. That compares to $380.0 million intotal assets at December  31, 2003, of which $322.0 millionconsisted exclusively of loans held for sale. At September 30, 2004,over 85% of the assets we held, including cash and cashequivalents, were high quality ARM Loans and short-term investments.Thus, we met our investment policy minimum requirement of investing atleast 85% of our total assets in high quality ARM assets andcash and cash equivalents.

Mortgage Banking Operations

The TRS generates revenue through the origination, sale andbrokering of mortgage loans sourced through its loan productionchannels. This revenue primarily consists of gain on sale of mortgageloans, loan brokerage revenues and net interest income. Gain on sale ofmortgage loans consists of the gain on the sale of mortgage loans,which are sold to investors generally within 30 to 45  days offunding. This gain is recognized based on the difference between thenet sales proceeds and the carrying value of the mortgage loans soldand is recognized at the time of sale. The carrying value of themortgage loans sold includes direct loan-related origination costs andfees. Brokerage revenue consists of fees and commissions earned bybrokering mortgage loans to third party lenders. Interest on mortgageloans held for sale accrues on loans from the date of funding throughthe date of sale.

All of the loans originated at the TRSare either transferred to our investment loan portfolio, or sold orbrokered to third party investors. Our mortgage banking operationsconsist primarily of the following activities:

|              |                                                                                                                                                                                                                                                                                                  |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | retail prime production operations,including both brokered loans and funded loans held for sale, that areoriginated through MortgageIT's network of retail branch offices,through its wholly owned subsidiary, IPI Skyscraper MortgageCorporation, and through its Internet origination channel; |

|              |                                                                                                                                                                                                      |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | wholesale production operations,including loans originated through retail loan brokers andcorrespondents that are not MortgageIT employees and funded byMortgageIT through its MIT Lending Division; |

|              |                                                                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | subprime production operations,including both retail loans originated through MortgageIT'sretail subprime department, and wholesale loans originated throughMortgageIT's New Beginnings LendingDivision; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | secondary loanmarketing operations; and |

|              |                                                                                                                     |
|--------------|---------------------------------------------------------------------------------------------------------------------|
| •  | mortgage loan title, settlement andother mortgage related services through MortgageIT's subsidiary,Home Closer LLC. |

All of the Company's subprime loanproduction is sold to third party investors.

MortgageIToriginates both mortgage loans to finance home purchases, referred toas purchase mortgage loans, and loans to refinance existing mortgageloans. For the three and nine months ended September 30, 2004,MortgageIT's purchase loan originations represented approximately60.3% and 48.7%, respectively, of MortgageIT'stotal residential mortgage loan originations measured by principalbalance.

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MortgageIT's mortgage bankingoperations expenses consist primarily of:

|              |                                    |
|--------------|------------------------------------|
| •  | compensation and employeebenefits; |

|              |                                   |
|--------------|-----------------------------------|
| •  | mortgage loanprocessing expenses; |

|              |                                     |
|--------------|-------------------------------------|
| •  | generaland administrative expenses; |

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | marketing, loan acquisitions andbusiness development; and |

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | rentexpense, professional fees, and depreciation expense. |

Asubstantial portion of MortgageIT's expenses are variable innature. Loan origination commissions are paid only upon the originationof the mortgage loan, making them 100% variable. Salaries,benefits and other related payroll costs may fluctuate based uponmanagement's assessment of current and predicted future levels ofmortgage loan origination volume.

Organization

We are organized and conduct our operations to qualify, andwill elect to be taxed, as a REIT for federal income tax purposes,commencing with our short taxable year beginning on July 30, 2004 andending December  31, 2004. MortgageIT and its subsidiaries will,together with us, elect for MortgageIT and its subsidiaries to betreated as taxable REIT subsidiaries.   We are currentlyexploring forming a new subsidiary, which would originate ARM andHybrid ARM loans for retention in our portfolio and would be treated asa "qualified REIT subsidiary" for federalincome tax purposes. A "qualified REITsubsidiary" is not subject to the same types oflimitations nor is it a fully taxable corporation as MortgageIT is as a"taxable REIT subsidiary." Consequently, theutilization of a "qualified REIT subsidiary"in order to originate ARM and Hybrid ARM loans for retention in ourportfolio would result in certain tax savings for us on a consolidatedbasis.

Information Regarding MortgageIT'sHistorical, and Changes to Our, Accounting Policies and FinancialStatements

As a result of the reorganization ofMortgageIT and our initial public offering, combined with our REITelection, we have adopted new accounting policies and made significantchanges to our consolidated financial statements as compared toMortgageIT's historical accounting policies and consolidatedfinancial statements. The primary change to our consolidated financialstatements results from the inclusion of loans held to maturity and, toa lesser extent, mortgage-backed and other securities held to maturity.MortgageIT has historically generated revenues consisting primarily ofgain on sale of mortgage loans, loan brokerage revenues and, to alesser extent, interest income (consisting of interest earned duringthe short duration (30 to 60 days) that the loans are held forsale).   However, going forward, a substantial portion of ourconsolidated revenues consist of interest income since our primarybusiness strategy is now focused on retaining loans in our investmentportfolio. MortgageIT's mortgage banking operations, as describedabove, will continue to generate gains on sale of mortgage loans andloan brokerage revenues, but such revenues will comprise a smallerpercentage of our total revenues. Because we now hold loans to maturityin our investment loan portfolio, we now incur incremental operatingexpenses related to these activities. These expenses primarily consistof compensation expense relating to portfolio management and outsourcedservicing expense.

CRITICAL ACCOUNTING POLICIES ANDESTIMATES

Management's discussion and analysis ofthe Company's financial condition and results of operationsincludes amounts reported in MortgageIT's historical consolidatedfinancial statements included in Part I., Item 1, of this report onForm 10-Q. These consolidated financial statements have been preparedin conformity with accounting principles generally accepted in theUnited States of America, or ("GAAP"), manyof which require the use of estimates, judgments and assumptions thataffect reported amounts. Changes in the estimates and assumptions couldhave a material effect on these consolidated financial statements. Inaccordance with recent SEC guidance, those material accounting policiesthat we believe are the most critical to an investor'sunderstanding of the Company's financial 

29

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results and condition and require complexmanagement judgment have been described below. We will continue toapply these accounting policies except where otherwise noted in thissection.

General

As a result of the changes inour business operations since the completion of our initial publicoffering on August 4, 2004, we believe it is important to describe theprimary differences that investors will see in our current consolidatedfinancial statements compared to our historical financialstatements.

We retain in our portfolio certain ARM andHybrid ARM loans that MortgageIT originates and that meet ourinvestment criteria and portfolio requirements. Consistent with theInternal Revenue Code's REIT requirements, we purchase loans fromMortgageIT at market value. MortgageIT determines market value by usingpublicly available pricing information for comparable loan productsfrom independent third party investors. MortgageIT has not historicallyserviced loans, except for a limited period of time between originationand sale. We service the loans in our investment portfolio through asubservicer. Servicing primarily consists of collecting monthlypayments from mortgage borrowers.

Portfolio ARM Loans arerecorded net of unamortized direct loan origination costs and feeswhich are deferred  and amortized over the estimated life of theloans using the level yield method. The estimated life of the loanswill reflect our estimated rate of future mortgage loanprepayments.

Interest is recognized as revenue whenearned. The accrual of interest on loans is discontinued when, inmanagement's opinion, the interest is not collectible in thenormal course of business. In no case, however, is interest accrued ona loan that has become 90  days delinquent.

MortgageIT's historical operations had an insignificantamount of loan losses due to default or non-performance on the loansprimarily because mortgage loans were sold soon after being originated.Because we now hold loans to maturity, we record an allowance for loanlosses reflecting our estimate of future loan default losses. Ourportfolio of ARM loans held to maturity is collectively evaluated forimpairment, as the loans are homogeneous in nature. The allowance isbased upon management's assessment of the various risk factorsaffecting our investment loan portfolio, including current economicconditions, the makeup of the portfolio based on credit grade,loan-to-value ratios, delinquency status, historical credit losses,purchased mortgage insurance and other factors deemed to warrantconsideration. The allowance is maintained through ongoing lossprovisions charged to operating income and are reduced by loans thatare charged off. Determining the allowance for loan losses issubjective in nature due to the estimates required and the potentialfor imprecision. This is a key accounting policy and our management hascreated methodologies to assist in the periodic and reasonablecalculation of the allowance.

Portfolio ARM Loans

The Company's ARM loan investment portfolio iscomprised of ARM loans collateralizing debt obligations and ARM loansheld for securitization. All of the Company's Portfolio ARM Loansare either traditional ARM Loans, meaning they have interest rates thatreprice in one year or less ("TraditionalARMs" or "Traditional ARMloans"), or Hybrid ARM Loans that have a fixed interestrate for an initial period of not more than five years and then convertto Traditional ARMs for their remaining terms to maturity("Hybrid ARMs" or "Hybrid ARMloans").

ARM loans held to maturity, whichinclude ARM loans collateralizing debt obligations and ARM loans heldfor securitization, are designated as such because the Company has theintent and ability to hold them for the foreseeable future, and untilmaturity or payoff. ARM Loans are carried at their unpaid principalbalances, net of unamortized loan origination costs and fees and theallowance for loan losses.

ARM loans collateralizing debtobligations are loans the Company has securitized into rated classeswith the lower rated classes providing credit support for higher ratedcertificates issued to third party investors or retained by us instructured financing arrangements.

ARM loans held forsecuritization are loans the Company has originated and are intended tobe securitized and retained by the Company.

30

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The Company does not sell any ofthe securities created from its securitizations to generate gain onsale income. The loan securitization process benefits the Company bycreating highly liquid securitized assets that can be readily financedin the capital markets.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of theadjusted cost or market value. Adjusted cost is the principal amountoutstanding net of deferred direct origination costs and fees. Formortgage loans held for sale that are hedged with forward salecommitments, the carrying value is adjusted for the change in marketvalue during the time the hedge was deemed to be highly effective. Themarket value is determined by outstanding commitments from investors orcurrent investor yield requirements calculated on an aggregate basis.Determining market value requires management judgment in determininghow the market would value a particular mortgage loan based oncharacteristics of the loan and available market information.

Loan Securitizations

The Company will regularlysecuritize mortgage loans by transferring them to independent truststhat issue securities collateralized by the transferred mortgage loans.We generally retain interests in all or some of the securities issuedby the trusts. Certain of the securitization agreements may require usto repurchase loans that are found to have legal deficiencies, afterthe date of transfer. The accounting treatment for transfers of assetsupon securitization depends on whether or not we have retained controlover the transferred assets. We service, through a subservicer, loansthat MortgageIT originates for retention in our portfolio.

ARM loan securitizations comply with the provisions of SFASNo.  140, "Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities."Depending on the structure of the securitization, it is treated as asale or secured financing for financial statement purposes. Oursecuritizations are generally treated as secured financings under SFASNo.  140. The Company's strategy of retaining ownership ofcertain mortgage loans held to maturity and included in itssecuritization pools reduces the number of loans MortgageIT sells tothird party investors and, therefore, total gains on sales of mortgageloans for financial accounting purposes may be lower than MortgageIThas historically recognized.

Revenue Recognition for PortfolioARM Loans

Interest income is accrued based on theoutstanding principal amount and contractual terms of the loans.Estimating prepayments and estimating the remaining lives of the loansrequires management judgment, which involves consideration of possiblefuture interest environments. The actual lives could be more or lessthan the amount estimated by management. Direct loan origination feesand costs are deferred and amortized as an interest income yieldadjustment over the life of the related loans using the effective yieldmethod.

Revenue Recognition for Mortgage Loans Held forSale

Gains on sale of loans represent the differencebetween the net sales proceeds and the carrying values of the mortgageloans sold, and are recognized at the time of sale. Direct loanorigination costs and fees are initially recorded as an adjustment ofthe cost of the loans held for sale and are recognized in earnings whenthe loans are sold.

Brokerage fees represent revenuesearned for the brokering of mortgage loans to third party lenders andare earned and recognized at the time the loan is closed by the thirdparty lender. Revenues are comprised primarily of application fees fromborrowers and brokerage fees paid to the Company by third partylenders.

Interest income is accrued as earned. Intereston mortgage loans held for sale accrues on loans from the date offunding through the date of sale. Interest on loans is computed basedon the contractual loan rate.

31

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Loan Loss Reserves

TheCompany maintains an allowance for loan losses based onmanagement's estimate of credit losses inherent in our PortfolioARM Loans. The estimation of the allowance is based on a variety offactors including, but not limited to, industry statistics, currenteconomic conditions, loan portfolio composition, delinquency trends,credit losses to date on underlying loans and remaining creditprotection. If the credit performance of our loans is different thanexpected, we adjust the allowance for loan losses to a level deemedappropriate by management to provide for estimated losses inherent inour investment loan portfolio.

Derivative Financial Investmentsand Hedging Activities

The Company utilizes derivativesto manage interest rate risk exposure. In accordance with SFASNo.  133, "Accounting for Derivative Investments andHedging Activities," all derivative instruments arerecorded at fair value. The derivatives used in conjunction withinterest rate risk management activities generally qualify for hedgeaccounting under SFAS No.  133. To qualify for hedge accountingunder SFAS No.  133, the Company must demonstrate, on an ongoingbasis, that its interest rate risk management activity is highlyeffective. The Company determines the effectiveness of its interestrate risk management activities using standard statistical measures. Ifthe Company is unable to qualify certain of its interest rate riskmanagement activities for hedge accounting, then the change in fairvalue of the associated derivative financial instruments would bereflected in current period earnings.

Risk Management ofPortfolio ARM Loans

The Company enters into EurodollarFutures Transactions and Cap Agreements in order to manage the interestrate exposure associated with the financing for Portfolio ARM Loans.The Company generally borrows money based on short-term interest rates.The Company's Hybrid ARM loans have an initial fixed interestrate period up to a maximum of five years. As a result, theCompany's borrowings reprice to a new rate on a more frequentbasis than do the Company's Hybrid ARM loans. Eurodollar FuturesTransactions have the effect, when used as a cash flow hedge, of fixingthe interest rate on the Company's forecasted LIBOR-basedliabilities in the event that LIBOR-based funding costs rise.

The Company enters into Cap Agreements by incurring aone-time fee or premium. Pursuant to the terms of the Cap Agreements,the Company will receive cash payments if the LIBOR-based interest rateindex specified in any such Cap Agreement increases above contractuallyspecified levels. Therefore, such Cap Agreements have the effect ofcapping the interest rate expense on a portion of the Company'sborrowings above a level specified by the Cap Agreement. The purchaseprice of these Cap Agreements is expensed over the life of the CapAgreements and the expense generally increases as the Cap Agreementsapproach maturity. Therefore, the expense in future periods is expectedto be greater than that experienced currently.

TheCompany designates as cash flow hedges its Hybrid Hedging Instrumentsused to manage interest rate exposure when financing its Hybrid ARMloans. All unrealized gains and losses on the effective portion ofHybrid Hedging Instruments are recorded in other comprehensiveincome  and are reclassified to interest expense when each of theforecasted financing transactions occurs. If it becomes probable thatthe forecasted transaction, which in this case refers to interestpayments to be made under the Company's short-term borrowingagreements or its collateralized debt obligations, will not occur bythe end of the originally specified time period, as documented at theinception of the hedging relationship, then the related gain or loss inother comprehensive income  would be reclassified to interestexpense. The carrying value of these Hybrid Hedging Instruments isincluded in hedging instruments on the accompanying balance sheets.

Risk Management of MortgageIT's Loan Pipeline

In connection with its mortgage loan origination activities,MortgageIT issues interest rate lock commitments("IRLCs") to loan applicants and financialintermediaries. The IRLCs guarantee the loan terms, subject to creditapproval, for a specified period while the application is in process,

32

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typically between 15 and 30  days.MortgageIT's risk management objective is to protect earningsfrom an unexpected change in the fair value of IRLCs.MortgageIT's strategy is to utilize forward delivery contracts aseconomic hedging derivatives to protect the value of its IRLCs.Both the forward delivery contracts and the above-described IRLCs arederivative instruments as defined by SFAS No.  133 and,therefore, are required to be recorded at fair value with changes infair value reflected in current period earnings. MortgageIT estimatesthe fair value of an IRLC based on an estimate of the ultimate gain onsale of the underlying mortgage loan net of the estimated cost tooriginate the loan, and given the probability that the loan will fundwithin the terms of the IRLC. After issuance, the value of an IRLC canchange and be either positive or negative, depending on the change invalue of the underlying mortgage loan. The probability that theunderlying loan will fund is driven by a number of factors, inparticular, the change, if any, in mortgage rates after the lock date.In general, the probability of funding increases if mortgage rates riseand decreases if mortgage rates fall. The probability that a loan willfund within the terms of the IRLC also is influenced by the source ofthe applicant, age of the applicant, purpose for the loan (purchase orrefinance) and the application approval rate. MortgageIT utilizesfunding ratio estimates using its historical empirical data that takeinto account these variables, as well as renegotiations of rate andpoint commitments that tend to occur when mortgage rates fall.

Risk Management of MortgageIT's Loans Held for Sale

MortgageIT's risk management procedures also seek toprotect earnings from an unexpected change in the fair value ofmortgage loans held for sale. MortgageIT's strategy is to utilizeforward delivery contracts as fair value hedging derivatives to protectthe value of mortgage loans held for sale. At inception of the hedge,MortgageIT formally documents the relationship between thesederivatives and the mortgage loans held for sale, as well as itsobjective and strategy for undertaking the hedge transactions. Theamount of the derivatives associated with mortgage loans held for saleis designed to substantially eliminate interest rate and price risk toMortgageIT. MortgageIT classifies and accounts for these forwarddelivery contracts as fair value hedges. The derivatives are carried atfair value with the changes in fair value recorded into current periodearnings. When the hedges are deemed to be highly effective, thecarrying value of the hedged mortgage loans held for sale is alsoadjusted for changes in fair value during the hedge period.

Termination of Hedging Relationships

The Companyemploys a number of risk management monitoring procedures that aredesigned to ensure that its hedging arrangements are demonstrating, andare expected to continue to demonstrate, a high level of effectiveness.Hedge accounting is discontinued on a prospective basis if it isdetermined that the hedging relationship is no longer highly effectiveor expected to be highly effective in offsetting changes in fair valueof the hedged item. Additionally, the Company may elect, pursuant toSFAS No.  133, to re-designate a hedge relationship during aninterim period and re-designate upon the rebalancing of a hedgerelationship. If hedge accounting is discontinued, the affected loansare carried at the lower of cost or market, and the correspondingderivative instruments continue to be carried at fair value withchanges in their value recorded to current period earnings.

Goodwill

Goodwill represents the excess purchaseprice over the fair value of net assets attributable to businessacquisitions. In accordance with the provisions of SFAS No.  142,"Goodwill and Other IntangibleAssets," effective January  1, 2002, the Companyno longer amortizes goodwill, but instead tests for impairment at leastannually. The Company will test for impairment more frequently ifevents or circumstances indicate that an asset may be impaired. Inaccordance with SFAS No.  142, The Company tests for impairmentby comparing the fair value of goodwill, as determined by using adiscounted cash flow method, with its carrying value. Any excess ofcarrying value over the fair value of the goodwill would be recognizedas an impairment loss in continuing operations. The discounted cashflow calculation includes a forecast of the expected future loanoriginations and the related revenues and expense associated withbusiness acquisitions. These cash flows are discounted using an

33

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appropriate interest rate that is consistentwith management's required return on invested capital. AtSeptember 30, 2004, there was no impairment of goodwill.

 Managing Interest Rate Risk

We may hedge theaggregate risk of interest rate fluctuations with respect to certaincash flows of our variable interest rate borrowings. Some or all of thefollowing hedging instruments may be used for hedging interest raterisk: interest rate swaps, Eurodollar futures or options contracts;interest rate caps; and other instruments that may be determined to beadvantageous and are permitted under the hedging  policy that wasadopted by our board of directors and is described in Part I., Item 3.,"Quantitative and Qualitative Disclosures About MarketRisk—Risk Management."

To qualify forcash flow hedge accounting the hedge instruments must meet certaincriteria, including:

|              |                                                                  |
|--------------|------------------------------------------------------------------|
| •  | the itemsto be hedged must be exposed to interest rate risk; and |

|              |                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------|
| •  | the derivative instruments must behighly effective in reducing our exposure to interest rate risk. |

Correlation and effectiveness of these hedging instrumentsare periodically assessed based upon a comparison of the relativechanges in the fair values or cash flows of the hedge instruments.

For derivative instruments that are designated and qualify asa cash flow hedge (meaning hedging the exposure to variability inexpected future cash flows that is attributable to a particular risk),the effective portion of the hedge gain or loss is reported as acomponent of other comprehensive income and reclassified into earningsin the same period or periods during which the hedged transactionaffects earnings. The ineffective portion of the hedge gain or loss, ifany, will be reclassified into earnings during the period of change.With respect to hedging instruments that have not been designated ashedges, any net payments under, or fluctuations in the fair value of,these instruments will be recognized as current income or loss.

Derivative financial instruments contain credit risk to theextent that the institutional counterparties may be unable to meet theterms of the agreements. We expect to minimize this risk by usingmultiple counterparties and limiting our counterparties to majorfinancial institutions with good credit ratings, and in some cases, wewill have rights to collateral posted by a derivative counterparty. Inaddition, we plan to regularly monitor the potential risk of loss withany one party resulting from this type of credit risk. Accordingly, wedo not expect any material losses as a result of default by otherparties.

REIT COMPLIANCE

We intend to qualify,and will elect to be taxed, as a REIT for federal income tax purposes,and to make an election to treat MortgageIT and its corporatesubsidiaries as taxable REIT subsidiaries. In order to meet certain ofthe requirements for us to qualify as a REIT, we intend to continue toconduct all of our loan sales and loan brokerage activities, as well ascertain origination functions, through MortgageIT and itssubsidiaries. 

MORTGAGEIT HOLDING'S RESULTS OFOPERATIONS

The following table sets forth MortgageITHoldings' financial data as a percentage of total revenues forthe three months ended September 30, 2004 and 2003 and the nine monthsended September 30, 2004 and 2003.

34

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|                                                    |  |                                  |        |                               |  |        |        |         |  |        |        |         |  |        |        |         |  |  |
|----------------------------------------------------|--|----------------------------------|--------|-------------------------------|--|--------|--------|---------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                                               |  | Threemonths ended September  30, |        | Nine monthsended September30, |
|                                               |  | 2004                             |        | 2003                          |  | 2004   |        | 2003    |
| Revenues:                                          |  |                             |   |                          |  |   |   |    |  |   |   |    |  |   |   |    |
| Gainson sale of mortgageloans                      |  |                             | 44.1   | %                        |  |   | 52.4   | %  |  |   | 53.4   | %  |  |   | 53.2   | %  |
| Brokeragerevenues                                  |  |                             | 27.7   | %                        |  |   | 40.1   | %  |  |   | 30.4   | %  |  |   | 39.4   | %  |
| Netinterestincome                                  |  |                             | 27.4   | %                        |  |   | 7.4    | %  |  |   | 15.9   | %  |  |   | 6.6    | %  |
| Other                                              |  |                             | 0.8    | %                        |  |   | 0.1    | %  |  |   | 0.3    | %  |  |   | 0.8    | %  |
| Totalrevenues                                      |  |                             | 100.0  | %                        |  |   | 100.0  | %  |  |   | 100.0  | %  |  |   | 100.0  | %  |
| Operatingexpenses:                                 |  |
| Compensation and employeebenefits                  |  |                             | 63.4   | %                        |  |   | 48.1   | %  |  |   | 58.7   | %  |  |   | 48.4   | %  |
| Processingexpenses                                 |  |                             | 22.1   | %                        |  |   | 17.9   | %  |  |   | 17.4   | %  |  |   | 17.8   | %  |
| Generaland administrativeexpenses                  |  |                             | 8.7    | %                        |  |   | 5.0    | %  |  |   | 7.8    | %  |  |   | 5.8    | %  |
| Marketing,loan acquisition and businessdevelopment |  |                             | 2.8    | %                        |  |   | 3.6    | %  |  |   | 3.2    | %  |  |   | 4.1    | %  |
| Rent                                               |  |                             | 6.2    | %                        |  |   | 3.9    | %  |  |   | 5.8    | %  |  |   | 3.9    | %  |
| Professionalfees                                   |  |                             | 2.4    | %                        |  |   | 2.2    | %  |  |   | 1.9    | %  |  |   | 1.9    | %  |
| Depreciationandamortization                        |  |                             | 2.1    | %                        |  |   | 1.4    | %  |  |   | 2.0    | %  |  |   | 1.4    | %  |
| Totaloperatingexpenses                             |  |                             | 107.7  | %                        |  |   | 82.1   | %  |  |   | 96.8   | %  |  |   | 83.3   | %  |
| Income(loss) before incometaxes                    |  |                             | (7.7   | )%                       |  |   | 17.9   | %  |  |   | 3.2    | %  |  |   | 16.7   | %  |
| Incometaxes                                        |  |                             | 0.4    | %                        |  |   | 4.5    | %  |  |   | 2.4    | %  |  |   | 3.9    | %  |
| Netincome(loss)                                    |  |                             | (8.1   | )%                       |  |   | 13.4   | %  |  |   | 0.8    | %  |  |   | 12.8   | %  |
|                                                    |

Threemonths ended September 30, 2004 compared to three months endedSeptember 30, 2003

Net Income

Net incomedecreased approximately 143.7% to a net loss of $2.6 million forthe quarter ended September 30, 2004 from net income of $6.0million for the quarter ended September 30, 2003. The decrease in netincome was primarily the result of a decrease in loan sales volume tothird party investors, an after-tax hedging loss of $2.1 million andlower margins, partially offset by lower expenses. At September 30,2004, the TRS was holding approximately $192.1 million of funded loansin inventory for transfer and subsequent securitization at the REIT.During the three months ended September 30, 2004, MortgageIT originated$3.1  billion of loans, as compared to $3.4  billion ofloan originations during the three months ended September 30, 2003. Thedecrease in loan originations reflected a 49.6% decline inrefinance activity, partially offset by an 87.9% increase in thevolume of purchase mortgage loans.

Revenues

**Gain on sale of mortgage loans**.    Gain on sales ofmortgage loans decreased approximately 39.4% to $14.3million for the quarter ended September 30, 2004 from $23.6million for the comparable period in 2003. The decrease was primarilydue to decreased loan sales volume resulting from the overall declinein industry volume, the accumulation of loans in anticipation ofsubsequent transfer and securitization by the REIT, and decreased loansales margins.  The Company does not sell and recognize gain onsale for the loans that are funded and held for subsequent transfer andsecuritization by the REIT.

**Brokeragerevenue**.    Brokerage revenue decreased approximately50.3% to $9.0  million for the quarter ended September 30,2004 from $18.0  million for the comparable period in 2003. Thedecline is attributable to a decrease in the volume of loans brokeredto third party financial institutions, due to a reduction in refinanceactivity as well as a greater emphasis on banking retail originationsas opposed to brokering such originations to third party financialinstitutions.

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**Net interestincome**.    Net interest income increased approximately168.3% to $8.9  million for the quarter ended September30, 2004 from $3.3 million for the comparable period in 2003. Theincrease is primarily attributable to an increase in Portfolio ARMLoans and greater net interest spreads on Portfolio ARM Loans andmortgage loans held for sale. The following table presents the averagebalance for each category of our interest-earning assets as well as ourinterest-bearing liabilities, with the corresponding annualizedeffective rate of interest and the related interest income orexpense.

Average Balance, Rate and Interest Income/ExpenseTable

(Dollars in thousands)

|                                      |  |                                         |           |               |  |                          |       |                |  |               |        |                           |  |        |         |        |  |        |         |         |  |        |         |        |  |  |
|--------------------------------------|--|-----------------------------------------|-----------|---------------|--|--------------------------|-------|----------------|--|---------------|--------|---------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                 |  | Forthe three months ended September 30, |
|                                 |  | 2004                                    |           | 2003          |
|                                 |  | AverageBalance                          |           | EffectiveRate |  | InterestIncomeandExpense |       | AverageBalance |  | EffectiveRate |        | InterestIncome andExpense |
| Interest-earningassets:              |  |
| Portfolio ARMloans                   |  | $                                       | 519,928   |          |  |                     | 5.31  | %         |  | $             | 6,864  |                      |  | $      | — |   |  |   | — |    |  | $      | — |   |
| Mortgageloans held forsale           |  |                                    | 549,846   |          |  |                     | 6.24  |           |  |          | 8,530  |                      |  |   | 501,131 |   |  |   | 5.41    | %  |  |   | 6,759   |   |
| Cashand cashequivalents              |  |                                    | 96,376    |          |  |                     | 1.71  |           |  |          | 410    |                      |  |   | 19,044  |   |  |   | 0.73    |    |  |   | 34      |   |
|                                 |  |                                    | 1,166,150 |          |  |                     | 5.45  |           |  |          | 15,804 |                      |  |   | 520,175 |   |  |   | 5.25    |    |  |   | 6,793   |   |
| Interest-bearingliabilities(1):      |  |
| Warehouse linespayable               |  |                                    | 879,895   |          |  |                     | 2.99  |           |  |          | 6,541  |                      |  |   | 476,392 |   |  |   | 2.79    |    |  |   | 3,310   |   |
| Notepayable and otherdebt            |  |                                    | 15,000    |          |  |                     | 10.11 |           |  |          | 384    |                      |  |   | 6,996   |   |  |   | 10.00   |    |  |   | 174     |   |
|                                 |  |                                    | 894,895   |          |  |                     | 3.11  |           |  |          | 6,925  |                      |  |   | 483,388 |   |  |   | 2.90    |    |  |   | 3,484   |   |
| Netinterest-earning assets andspread |  | $                                       | 271,255   |          |  |                     | 2.34  | %         |  | $             | 8,879  |                      |  | $      | 36,787  |   |  |   | 2.35    | %  |  | $      | 3,309   |   |
| Netinterest margin(2)                |  |                                    |      |          |  |                     | 3.05  | %         |  |          |   |                      |  |   |    |   |  |   | 2.55    | %  |  |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Does not include collateralized debt obligations of$749,900, issued on September 30, 2004, which did not have a meaningfulimpact on interest expense for the period. |

|     |                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (2) | Net interest margin is computed bydividing annualized net interest income by the average daily balance ofinterest-earning assets |

Expenses

**Compensation and employee benefits**.    Compensationand employee benefits expenses decreased approximately 5.1% to$20.5  million for the quarter ended September 30, 2004 from$21.6  million for the comparable period in 2003. The decreasewas due to lower commissions paid as a result of declining loanbrokerage volume, partially offset by staff additions resulting fromthe addition of eight branches and the establishment of theCompany's REIT operations, which necessitated the hiring ofadditional personnel. 

**Processingexpenses**.    Mortgage loan processing expenses decreasedapproximately 10.9% to $7.2  million for the quarter endedSeptember 30, 2004 from $8.0  million in the comparable period in2003. The decrease was due to the overall decline in loan productionduring the quarter ended September 30, 2004.

**Generaland administrative expenses**.    General and administrativeexpenses increased approximately 24.7% to $2.8  millionfor the quarter ended September 30, 2004 from $2.3  million forthe comparable period in 2003. The increase was primarily due to thereversal of an accrual in the quarter ended September 30, 2003 for apotential liability that was satisfactorily resolved with no liabilityto the Company.

**Marketing, loan acquisition andbusiness development expenses**.    Marketing, loan acquisition andbusiness development expenses decreased approximately 44.8% to$902,000 for the quarter ended 

36

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September 30, 2004 from $1.6  millionfor the comparable period in 2003. The decrease was due to thereduction in retail loan volume combined with a decline in the use ofInternet leads by retail loan officers.

**Rentexpense**.    Rent expense increased approximately 14.1% to$2.0  million for the quarter ended September 30, 2004 from$1.7  million for the comparable period in 2003. The increase wasprimarily due to the addition of eight branch locations in 2004.

**Professional fees**.    Professional fees decreasedapproximately 18.6% to $792,000 for the quarter ended September30, 2004 from $1.0 million for the comparable period in 2003. Thedecrease was primarily due to lower legal fees as compared to thecomparable period in 2003.

**Depreciation andamortization**.    Depreciation and amortization increasedapproximately 10.5% to $621,000 for the quarter ended September30, 2004 from $686,000 for the comparable period in 2003. The increasewas primarily due to generally increased capital expenditures as wellas the addition of eight branch locations in 2004.

Nine monthsended September 30, 2004 compared to nine months ended September 30,2003

Net income

Net income decreasedapproximately 95.2% to $755,000 for the nine months endedSeptember 30, 2004 from $15.8  million for the nine months endedSeptember 30, 2003. The decrease in net income in 2004 was primarilythe result of an 11.0% decrease in loan production as well asmore than $1.1 billion of loans that MortgageIT did not sell to thirdparties as of September 30, 2004 because those loans were securitizedby or being held for securitization at the REIT.   Total revenuesdecreased approximately 21.4% with a corresponding 8.8%decrease in total expenses during the nine months ended September 30,2004, as compared to the nine months ended September 30, 2003.

Revenues

**Gains on sales of mortgageloans**.    Gain on sales of mortgage loans decreased approximately21.1% to $51.9  million for the nine months endedSeptember 30, 2004 from $65.8  million for the nine months endedSeptember 30, 2003. The decrease was primarily due to decreased loansales volume resulting from the overall decline in industry volume, theaccumulation and retention of loans in anticipation of subsequenttransfer and securitization by the REIT, and decreased loan salesmargins.  The Company does not sell and recognize gain on salefor the loans that are funded and held for subsequent transfer andsecuritization by the REIT.

**BrokerageRevenue**.    Brokerage revenue decreased approximately39.5% to $29.5  million for the nine months endedSeptember 30, 2004 from $48.8  million for the nine months endedSeptember 30, 2003.   The decrease was attributable to a43.2% decrease in the volume of loans brokered due to thegeneral industry decline in loan production during the nine monthsended September 30, 2004.

**Net interestincome**.    Net interest income increased approximately89.5% to $15.5  million for the nine months endedSeptember 30, 2004 from $8.2  million for the nine months endedSeptember 30, 2003. The increase is primarily attributable to anincrease in Portfolio ARM Loans, and greater net interest spreads onPortfolio ARM Loans and mortgage loans held for sale. The followingtable presents the average balance for each category of ourinterest-earning assets as well as our interest-bearing liabilities,with the corresponding annualized effective rate of interest and therelated interest income or expense.

37

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AverageBalance, Rate and Interest Income/Expense Table(Dollars inthousands)

|                                      |  |                                        |         |               |  |                          |        |                |  |               |        |                          |  |        |         |        |  |        |         |         |  |        |         |        |  |  |
|--------------------------------------|--|----------------------------------------|---------|---------------|--|--------------------------|--------|----------------|--|---------------|--------|--------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                 |  | Forthe nine months ended September 30, |
|                                 |  | 2004                                   |         | 2003          |
|                                 |  | AverageBalance                         |         | EffectiveRate |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate |        | InterestIncomeandExpense |
| Interest-earningassets:              |  |                                   |    |          |  |                     |   |           |  |          |   |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| PortfolioARMloans                    |  | $                                      | 172,677 |          |  |                     | 5.31   | %         |  | $             | 6,864  |                     |  | $      | — |   |  |   | — | %  |  | $      | — |   |
| Mortgageloans held forsale           |  |                                   | 464,577 |          |  |                     | 5.77   |           |  |          | 20,052 |                     |  |   | 452,050 |   |  |   | 5.54    |    |  |   | 18,800  |   |
| Cashand cashequivalents              |  |                                   | 39,368  |          |  |                     | 1.63   |           |  |          | 481    |                     |  |   | 4,617   |   |  |   | 1.88    |    |  |   | 65      |   |
|                                 |  |                                   | 676,622 |          |  |                     | 5.41   |           |  |          | 27,397 |                     |  |   | 456,667 |   |  |   | 5.52    |    |  |   | 18,865  |   |
| Interest-bearingliabilities(1):      |  |
| Warehouse linespayable               |  |                                   | 504,382 |          |  |                     | 2.95   |           |  |          | 11,139 |                     |  |   | 441,333 |   |  |   | 2.97    |    |  |   | 9,987   |   |
| Notepayable and otherdebt            |  |                                   | 10,000  |          |  |                     | 10.13  |           |  |          | 771    |                     |  |   | 9,281   |   |  |   | 10.00   |    |  |   | 706     |   |
|                                 |  |                                   | 514,382 |          |  |                     | 3.09   |           |  |          | 11,910 |                     |  |   | 450,614 |   |  |   | 3.17    |    |  |   | 10,693  |   |
| Netinterest-earning assets andspread |  | $                                      | 162,240 |          |  |                     | 2.32   | %         |  | $             | 15,487 |                     |  | $      | 6,053   |   |  |   | 2.35    |    |  | $      | 8,172   |   |
| Netinterest margin(2)                |  |                                   |    |          |  |                     | 3.05   | %         |  |          |   |                     |  |   |    |   |  |   | 2.39    | %  |  |   |    |   |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                    |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Does not include collateralized debt obligations of$749,900 issued on September 30, 2004 which did not have a meaningfulimpact on interest expense for the period. |

|     |                                                                                                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Net interest margin on netinterest-earning assets is computed by dividing annualized net interestincome by the average daily balance of interest-earningassets |

Expenses

**Compensation andemployee benefits.**    Compensation and employee benefits expensesdecreased approximately 4.9% to $56.9  million for thenine months ended September 30, 2004 from $59.9  million for thenine months ended September 30, 2003. The decrease was due to decreasedcommissions paid as a result of declining loan brokerage volume,partially offset by staff additions resulting from the addition ofeight branches and the establishment of the Company's REIToperations, which necessitated the hiring of additionalpersonnel. 

**Processing expenses.**    Mortgageloan processing expenses decreased approximately 23.1% to$16.9  million for the nine months ended September 30, 2004, a$5.1  million decrease as compared to the nine months endedSeptember 30, 2003. The decrease was due to an overall decline in thenumber of loans processed during the quarter ended September 30,2004.

**General and administrative expenses.**    Generaland administrative expenses increased by 6.2% to $7.6million for the nine months ended September 30, 2004 from $7.2million for the nine months ended September 30, 2003, primarily as aresult of the increase in general and administrative expenses thatresulted from the addition of eight new branches during the nine monthsended September 30, 2004, MortgageIT's reorganization as a REITand our initial public offering.

**Marketing, loan acquisitionand business development expenses.**    Marketing, loan acquisitionand business development expenses decreased approximately 37.7%to $3.1  million for the nine months ended September 30, 2004from $5.0  million for the nine months ended September 30, 2003.The decrease was due to the reduction in retail loan volume and adecline in the use of Internet leads by retail loan officers.

38

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**Rent expense.**    Rent expenseincreased approximately 15.9% to $5.7  million for thenine months ended September 30, 2004 from $4.9  million for thenine months ended September 30, 2003. This increase was primarily dueto the addition of eight new branch locations during the nine monthsended September 30, 2004.

**Professionalfees.**    Professional fees decreased approximately 21.1%to $1.9  million for the nine months ended September 30, 2004from $2.3  million for the nine months ended September 30, 2003.This decrease was primarily due to increased legal expenses in 2003attributable to a matter that was favorably resolved.

**Depreciation and amortization expenses.**    Depreciation andamortization increased 9.5% to $2.0  million for the ninemonths ended September 30, 2004 from $1.8  million for the ninemonths ended September 30, 2003. This increase was primarily due to anincrease in capital expenditures as a result of the eight branchesopened during the year.

**Income taxexpense.**    MortgageIT made the election to be treated as ataxable REIT subsidiary and therefore is subject to both federal andstate corporate income taxes. Accordingly, the Company records a taxprovision based primarily on the taxable income of the TRS, whichincludes intercompany taxable gains that are eliminated in ourconsolidated statements of operations.

LIQUIDITY AND CAPITALRESOURCES

Liquidity is a measure of our ability to meetpotential cash requirements, including ongoing commitments to repayborrowings, fund and maintain investments, pay dividends to ourstockholders and other general business needs. It is our policy to haveadequate liquidity available at all times. We believe our existing cashbalances, funds available under our credit facilities and cash flowsfrom operations are sufficient to fund our liquidity requirements forat least the next 12 months.  We manage liquidity to ensure thatwe have the continuing ability to maintain cash flows that are adequateto fund operations and meet commitments on a timely and cost-effectivebasis.

Liquidity from Mortgage Investment Operations andSecuritizations

For our investment operations, our principalsources of liquidity are the issuance of mortgage-backed securities,reverse repurchase agreements, principal and interest payments fromretained ARM assets, and net interest earned from securitized loans. Webelieve there is a reliable and stable market for term financing ofinvestment grade mortgage-backed securities of the type that we issue,and that this type of financing effectively eliminates rollover andmargin call risk. We believe that our liquidity level is in excess ofthat necessary to satisfy our operating requirements and we expect tocontinue to use diverse funding sources to maintain our financialflexibility.

On September 30, 2004, we completed asecuritization transaction in which we securitized ARM loans into aseries of pro rata pay, floating-rate securities. The securitizationprocess benefits us by enabling us to issue floating-ratemortgage-backed securities that represent permanent financing and arenot subject to margin calls, and by creating highly liquid assets thatcan be readily financed in the reverse repurchase agreement market.

In this transaction, we issued AAA and AA-rated floating-ratepass-through certificates totaling $752.4 million to third partyinvestors, and retained $56.0 million of subordinated certificates,which provide credit support to the higher-rated certificates. Theinterest rates on the floating-rate pass-through certificates resetmonthly and are indexed to the one-month LIBOR rate. In connection withthe issuance of these mortgage-backed securities we incurred costs of$2.5 million. These costs are being amortized over the expected life ofthe mortgage-backed securities. The ARM loans collateralizing themortgage-backed securities are carried at cost, net of deferredorigination costs and the allowance for loan losses, and are classifiedon our balance sheet as ARM loans collateralizing debt obligations,net.

As of September 30, 2004, the mortgage-backed securitieswere collateralized by ARM loans with a principal balance of $810.7million. These mortgage-backed securities mature in 2033 and arecallable by the Company at par once the total balance of the loanscollateralizing the debt is reduced to 20% of their originalbalance. The balance of this debt is reduced as the underlying loancollateral is paid down and is expected to have an average life ofapproximately four years.

39

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We also intend to utilize repurchaseagreements as a source of financing for our investment portfolio. Thesearrangements, some of which are currently being negotiated, will varyin size and other characteristics among multiple providers. Inparticular, repurchase agreements will have terms that will vary withrespect to advance rates, interest spreads, size, duration and othercharacteristics depending on the nature of the underlying collateral inthe program. These financing arrangements are short-duration facilitiessecured by our underlying investment in residential mortgage-backedsecurities, the value of which may move inversely with changes ininterest rates. A decline in the market value of our investments maylimit our ability to borrow or result in lenders requiring additionalcollateral. As a result, we could be required to sell some of ourinvestments under adverse market conditions in order to maintainliquidity. If such sales are made at prices lower than the amortizedcosts of such investments, we will incur losses.

40

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ARM Loan SecuritizationCharacteristics

The following table presents variouscharacteristics of our ARM loans held as collateral for collateralizeddebt obligations as of September 30, 2004. The aggregate unpaidprincipal balance of the loans included in this table is approximately$811 million.

|                       |  |         |         |         |  |        |           |         |  |        |        |         |  |  |
|-----------------------|--|---------|---------|---------|--|--------|-----------|---------|--|--------|--------|---------|--|--|
|                  |  | Average |         | High    |  | Low    |
| Original loanbalance  |  |    | 290,282 |    |  | $      | 1,000,000 |    |  | $      | 38,700 |    |
| Couponrate onloans    |  |    | 5.36    | %  |  |   | 7.00      | %  |  |   | 3.25   | %  |
| Grossmargin           |  |    | 2.30    | %  |  |   | 3.00      | %  |  |   | 1.75   | %  |
| Originalterm(months)  |  |    | 360     |    |  |   | 360       |    |  |   | 360    |    |
| Remainingterm(months) |  |    | 360     |    |  |   | 361       |    |  |   | 354    |    |
|                       |

|                                        |  |        |        |        |  |        |        |         |  |  |
|----------------------------------------|--|--------|--------|--------|--|--------|--------|---------|--|--|
| Geographicdistribution (top 4states):  |  |   |   |   |  |   |   |    |
| California                             |  |   |   |   |  |   | 71.1   | %  |
| Washington                             |  |   |   |   |  |   | 4.0    |    |
| Arizona                                |  |   |   |   |  |   | 3.4    |    |
| Florida                                |  |   |   |   |  |   | 3.3    |    |
| Other(40 states)                       |  |   |   |   |  |   | 18.2   |    |
| Occupancystatus:                       |  |   |   |   |  |   |   |    |
| Owneroccupied                          |  |   |   |   |  |   | 91.2   | %  |
| Secondhome                             |  |   |   |   |  |   | 1.7    |    |
| Investor                               |  |   |   |   |  |   | 7.1    |    |
| Documentationtype:                     |  |   |   |   |  |   |   |    |
| Full/Alternative                       |  |   |   |   |  |   | 44.3   | %  |
| Other                                  |  |   |   |   |  |   | 55.7   |    |
| Loanpurpose:                           |  |   |   |   |  |   |   |    |
| Purchase                               |  |   |   |   |  |   | 64.3   | %  |
| Cash-outrefinance                      |  |   |   |   |  |   | 24.4   |    |
| Rate &term refinance               |  |   |   |   |  |   | 11.3   |    |
| Originalloan-to-value:                 |  |   |   |   |  |   |   |    |
| 80.01%andover                          |  |   |   |   |  |   | 3.5    | %  |
| 70.01%-80.00%                          |  |   |   |   |  |   | 71.8   |    |
| 60.01%-70.00%                          |  |   |   |   |  |   | 14.6   |    |
| 50.01%-60.00%                          |  |   |   |   |  |   | 5.6    |    |
| 50.00%or less                          |  |   |   |   |  |   | 4.5    |    |
| Weighted averageoriginalloan-to-value: |  |   |   |   |  |   | 74.5   | %  |
| Propertytype:                          |  |   |   |   |  |   |   |    |
| Singlefamily                           |  |   |   |   |  |   | 64.7   |    |
| Condominium                            |  |   |   |   |  |   | 12.0   |    |
| PUD                                    |  |   |   |   |  |   | 18.5   |    |
| Otherresidential                       |  |   |   |   |  |   | 4.8    |    |
| ARM loantype:                          |  |   |   |   |  |   |   |    |
| 3-yearhybrid                           |  |   |   |   |  |   | 42.5   |    |
| 5-yearhybrid                           |  |   |   |   |  |   | 54.3   |    |
| Other                                  |  |   |   |   |  |   | 3.2    |    |
| ARMinterest rate caps:                 |  |   |   |   |  |   |   |    |
| Initialcap:                            |  |   |   |   |  |   |   |    |
| Under1.01                              |  |   |   |   |  |   | 3.1    | %  |
| 2.00                                   |  |   |   |   |  |   | 5.0    |    |
| 5.00                                   |  |   |   |   |  |   | 9.2    |    |
| 6.00                                   |  |   |   |   |  |   | 82.7   |    |
| Periodiccap:                           |  |   |   |   |  |   |   |    |
| None                                   |  |   |   |   |  |   | 2.3    | %  |
| 1.00%                                  |  |   |   |   |  |   | 0.8    |    |
| 2.00%                                  |  |   |   |   |  |   | 96.9   |    |
| Percentof interest-only loanbalances   |  |   |   |   |  |   | 79.2   | %  |
| Weightedaverage FICO(1)score:          |  |   |   |   |  |   | 731    |    |
|                                        |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | FICOis a credit score, ranging from 300 to 850, with 850 being the bestscore, based upon the credit evaluation methodology developed by Fair,Isaac and Company, a consulting firm specializing in creating creditevaluation models. |

41

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Liquidity from Mortgage BankingOperations

To originate a mortgage loan, MortgageIT may drawagainst its short-term warehouse facilities that are available to fundmortgage loans held for sale. These facilities are secured by themortgage loans owned by MortgageIT and by certain of its other assetsincluding cash deposited in an interest-bearing collateral account.Advances drawn under these facilities bear interest at rates that varydepending on the type of mortgage loans securing the advances. Thesefacilities are subject to sub-limits, advance rates and terms that varydepending on the type of mortgage loans securing these financings andthe ratio of MortgageIT's liabilities to its tangible net worth.These facilities generally require MortgageIT to maintain a minimumtangible net worth. Also, MortgageIT is required to maintain a minimumratio of indebtedness to tangible net worth and minimum amounts of cashand cash equivalents. As of September 30, 2004, the aggregate maximumamount available for additional borrowings under these warehousefacilities was approximately $712.1 million.

MortgageITmaintains three warehouse facilities that total $1.75 billion withmajor lenders that are used to fund mortgage loans.   Thesefacilities bear interest at LIBOR plus a spread based on the types ofloans being funded. The documents governing MortgageIT'swarehouse facilities contain a number of compensating balancerequirements and restrictive financial and other covenants that, amongother things, require it to maintain a minimum ratio of totalliabilities to tangible net worth, minimum levels of tangible networth, liquidity and stockholders' equity and maximum leverageratios, as well as to comply with applicable regulatory and investorrequirements.

As of September 30, 2004, the first facility, withUBS Real Estate Securities, Inc. ("UBS"), hadan uncommitted credit limit of $1.15 billion, which includes a mortgageloan sale conduit facility. As of September 30, 2004 andDecember  31, 2003, the Company had outstanding on the line$336.4 million and $164.2 million, respectively. This credit facilityexpires in August 2005.

The second facility, with ResidentialFunding Corporation ("RFC"), has a committedcredit limit of $100  million collateralized by the specificmortgage loans funded. As of September 30, 2004 and December  31,2003, MortgageIT had outstanding approximately $48.8 million and $56.9million, respectively, on this facility. This credit facility expiresin January 2005.

The third facility, with Merrill LynchCommercial Finance Corp. ("Merrill Lynch"),has a partially committed credit limit of $500  millioncollateralized by the specific mortgage loans funded. As of September30, 2004 and December  31, 2003, the Company had $311.6 millionand $79.6 million outstanding on this facility. This credit facilityexpires in August  2005.

The weighted average effectiverate of interest for the periods on borrowings under all warehouselines of credit was approximately 2.9% at September 30, 2004 and3.0% at December  31, 2003.

All mortgage loans heldfor sale have been pledged as collateral under the above warehousecredit facilities. In addition, two of the facilities contain variousfinancial covenants and restrictions, including a requirement that theCompany maintain specified leverage ratios and net worthamounts.   As of September 30, 2004, the Company was not incompliance with the net income covenant in the UBS facility. Inaddition, as of July 31, 2004, MortgageIT was still not in compliancewith the leverage ratio covenants contained in certain of its creditfacilities. However, we obtained waivers from the lenders with respectto these covenant defaults. As of September 30, 2004, the Company wasin compliance with all other covenants and restrictions, including theleverage ratio covenants.

The agreements also contain covenantslimiting MortgageIT's ability to:

|              |                                                       |
|--------------|-------------------------------------------------------|
| •  | consolidate, merge or enter into similartransactions; |

|              |                          |
|--------------|--------------------------|
| •  | transfer or sell assets; |

|              |                                    |
|--------------|------------------------------------|
| •  | create liens on the collateral; or |

|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | change the nature of its business, without obtainingthe prior consent of the lenders, which consent may not be unreasonablywithheld. |

42

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These limits may in turn restrict ourability to pay cash or stock dividends on Holdings' common stock.In addition, under the warehouse facilities, MortgageIT cannot continueto finance a mortgage loan that MortgageIT holds through the warehousefacility if:

|              |                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the loan is rejected as"unsatisfactory for purchase" by the ultimateinvestor and has exceeded its permissible warehouse period, whichvaries by facility; |

|              |                                                                                                                                  |
|--------------|----------------------------------------------------------------------------------------------------------------------------------|
| •  | MortgageIT fails to deliverthe applicable note, mortgage or other documents evidencing the loanwithin the requisite time period; |

|              |                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------|
| •  | the underlyingproperty that secures the loan has sustained a casualty loss in excessof 5% of its appraised value; or |

|              |                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------|
| •  | the loanceases to be an eligible loan (as determined pursuant to the warehousefacility agreement). |

In addition to the UBS, MerrillLynch and RFC warehouse facilities, MortgageIT has entered into amortgage loan purchase agreement with UBS, which we refer to as aconduit facility. Under this agreement, UBS purchases a loan fromMortgageIT, which enables MortgageIT to accelerate sale of the loan.MortgageIT recognizes the gain on sale upon the sale of the loan toUBS. Upon the sale, MortgageIT removes both the loans and thecorresponding liability incurred by MortgageIT under the UBS warehousefacility from its balance sheet. A third party subsequently purchasesthe loan directly from UBS. MortgageIT facilitates the final settlementof the loan sale between UBS and the third party, and receives aperformance fee for these services from UBS. MortgageIT accounts forthe performance fee as brokerage revenue.   The capacityavailable under the conduit facility is included in the $1.15 billionwarehouse facility with UBS, meaning that the overall facility capacityis reduced by the balance of loans outstanding under the warehousefacility plus the amount of loans sold to UBS under the conduitfacility. This conduit facility is not a committed facility and may beterminated at the discretion of UBS.

In addition to the UBS,Merrill Lynch and RFC warehouse facilities and the UBS conduitfacility, MortgageIT has entered into a $15 million Note PurchaseAgreement with Technology Investment Capital Corp.("TICC"), whereby MortgageIT sold anaggregate principal amount of $15 million of senior secured promissorynotes (the "Notes") to TICC. The proceedsfrom the sale of the Notes provide for the working capital needs ofMortgageIT. The Notes bear interest at a rate of 10% per annum,payable quarterly in arrears. The Notes provide for a single payment ofthe entire amount of the unpaid principal and any unpaid accruedinterest on the Notes on March  29, 2007.

MortgageIT makescertain representations and warranties, and is subject to variousaffirmative and negative financial and other covenants, under the termsof both the warehouse credit facilities and certain investor loan saleagreements regarding, among other things, the loans' compliancewith laws and regulations, their conformity with the investors'underwriting standards and the accuracy of information. In the event ofa breach of these representations, warranties or covenants or in theevent of an early payment default, these loans may become ineligiblecollateral for the warehouse credit facilities or may become ineligiblefor sale to an investor, and MortgageIT may be required to repurchasethe loans from the warehouse lender or the investor. MortgageIT hasimplemented strict procedures to ensure quality control and conformityto underwriting standards and to minimize the risk of being required torepurchase loans. MortgageIT has been required to repurchase loans ithas sold from time to time; however, these repurchases have not had amaterial impact on the results of operations of MortgageIT. 

MortgageIT's ability to originate and fund loans hashistorically depended in large part on its ability to sell the mortgageloans it originates at a premium in the secondary market so that it maygenerate cash proceeds to repay borrowings under its warehousefacilities. The value of MortgageIT's loans is relevant indetermining the overall amount of borrowings that will be available toit under its financing facilities. The value of our loans depends on anumber of factors, including:

|              |                                                               |
|--------------|---------------------------------------------------------------|
| •  | interest rates onour loans compared to market interest rates; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | theborrower credit risk classification; |

43

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|              |                                                                      |
|--------------|----------------------------------------------------------------------|
| •  | loan-to-value ratios, loanterms, underwriting and documentation; and |

|              |                             |
|--------------|-----------------------------|
| •  | generaleconomic conditions. |

Cash and Cash Equivalents

TheCompany's cash and cash equivalents increased to $79.6 million atSeptember 30, 2004 from $22.3 million at December 31, 2003. TheCompany's primary sources of cash and cash equivalents during thenine months ended September 30, 2004 were as follows:

|              |                                           |
|--------------|-------------------------------------------|
| •  | a $163.4 million initial public offering; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | a $749.9 million securitization transaction; |

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | a $396.1 million increase in warehouse linespayable; and |

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | a $13.9 million increase in notespayable and other debt. |

The Company's primary uses of cashand cash equivalents during the nine months ended September 30, 2004were as follows:

|              |                                                                                  |
|--------------|----------------------------------------------------------------------------------|
| •  | a $1.24 billion increase inPortfolio ARM Loans and mortgage loans held for sale; |

|              |                                                |
|--------------|------------------------------------------------|
| •  | a $12.2 million purchase of hedge instruments; |

|              |                                                     |
|--------------|-----------------------------------------------------|
| •  | a $14.2 million increase in accounts receivable;and |

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | a $1.1 million repayment of notes payable andother debt. |

Payment of Dividends

We intend to makeregular quarterly distributions of our income to our stockholders tocomply with the various requirements to maintain our REIT status and toavoid corporate income tax and the nondeductible excise tax. However,differences in timing between the recognition of REIT taxable incomeand the actual receipt of cash could require us to sell assets or toborrow funds on a short-term basis to meet the REIT distributionrequirements and to avoid corporate income tax and the nondeductibleexcise tax. Further, certain of our assets may generate substantialmismatches between REIT taxable income and available cash. Such assetscould include mortgage-backed securities we hold that have been issuedat a discount and require the accrual of taxable income in advance ofthe receipt of cash. As a result, our taxable income may exceed ourcash available for distribution and the requirement to distribute asubstantial portion of our net taxable income could cause us to:(1)  sell assets under adverse market conditions, (2)borrow on unfavorable terms or (3)  distribute amounts that wouldotherwise be invested in future acquisitions, capital expenditures orrepayment of debt in order to comply with the REIT distributionrequirements.

INFLATION

For the periods presentedherein, inflation has been relatively low and we believe that inflationhas not had a material effect on the Company's results ofoperations. To the extent inflation increases in the future at a ratethat is faster than the market currently anticipates, interest ratesare also likely rise, which would likely reduce the number of mortgageloans we originate. A reduction in the number of loans we originateresulting from increased inflation would adversely affect our futureresults of operations. Additionally, to the extent that the investmentportfolio earnings are sensitive to rising interest rates,unanticipated increases in inflation may adversely affect our resultsof operations.

44

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CONTRACTUAL OBLIGATIONS

TheCompany had the following commitments (excluding derivative financialinstruments) at September 30, 2004 (in thousands):

|                                       |  |                       |         |                |  |           |         |           |  |                 |         |        |  |        |         |        |  |        |         |        |  |  |
|---------------------------------------|--|-----------------------|---------|----------------|--|-----------|---------|-----------|--|-----------------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                                  |  | Paymentsdue by Period |
|                                  |  | (inthousands)         |
|                                  |  | Total                 |         | Lessthan1 year |  | 1-3 years |         | 3-5 years |  | Morethan5 years |
| Collateralized debt obligations(1)(2) |  | $                     | 752,416 |           |  | $         | 3,308   |      |  | $               | 4,805   |   |  | $      | 7,990   |   |  | $      | 736,313 |   |
| Warehouselinespayable                 |  |                  | 696,778 |           |  |      | 696,778 |      |  |            | — |   |  |   | — |   |  |   | — |   |
| Operatingleases(3)                    |  |                  | 29,763  |           |  |      | 7,952   |      |  |            | 11,552  |   |  |   | 7,949   |   |  |   | 2,310   |   |
| Notespayable                          |  |                  | 15,000  |           |  |      | — |      |  |            | 15,000  |   |  |   | — |   |  |   | — |   |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                                         |
|-----|-----------------------------------------|
| (1) | Beforededuction of debt issuance costs. |

|     |                                                                                                                                                                                                                                                                                                                                               |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Maturities of our collateralized debtobligations are dependent upon cash flows received from underlyingloans receivable. Our estimate of their repayment is based on scheduledprincipal payments on the underlying loans receivable. This estimatewill differ from actual amounts to the extent we experiencepre-payments and/or loan losses. |

|     |                  |
|-----|------------------|
| (3) | Net ofsubleases. |

45

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes ininterest rates, credit spreads, foreign currency exchange rates,commodity prices and equity prices. As we are invested solely in U.S.dollar-denominated instruments, primarily single-family residentialmortgage instruments, and our borrowings are also domestic and U.S.dollar denominated, we are not subject to foreign currency exchange, orcommodity and equity price risk. The primary market risk that we areexposed to is interest rate risk and its related ancillary risks.Interest rate risk is highly sensitive to many factors, includinggovernmental monetary and tax policies, domestic and internationaleconomic and political considerations and other factors beyond ourcontrol. All of our market risk sensitive assets, liabilities andrelated derivative positions are used for hedging purposes only and arenot entered into for trading.

The following tablepresents information as to the notional amount, carrying amount andestimated fair value of certain of the Company's assets andliabilities at September 30, 2004 and December  31, 2003:

|                                               |  |                  |           |                |  |                    |         |         |  |        |         |         |  |  |
|-----------------------------------------------|--|------------------|-----------|----------------|--|--------------------|---------|---------|--|--------|---------|---------|--|--|
|                                          |  | September30,2004 |
|                                          |  | NotionalAmount   |           | CarryingAmount |  | EstimatedFairValue |
|                                          |  |             |           | (Inthousands)  |  |               |
| Assets:                                       |  |             |      |           |  |               |    |    |  |   |    |    |
| Mortgageloans held forsale                    |  | $                | 415,375   |           |  | $                  | 423,362 |    |  | $      | 423,362 |    |
| Interestrate lockcommitments                  |  |             | 936,761   |           |  |               | (607    | )  |  |   | (607    | )  |
| Forwarddeliverycommitments                    |  |             | 675,000   |           |  |               | (542    | )  |  |   | (542    | )  |
| Mortgageloans held for sale,net               |  |             |      |           |  | $                  | 422,213 |    |  | $      | 422,213 |    |
| ARMloans held for securitization,net          |  | $                | 319,623   |           |  | $                  | 321,086 |    |  | $      | 322,132 |    |
| ARMloans collateralizing debt obligations,net |  |             | 810,682   |           |  |               | 818,829 |    |  |   | 824,010 |    |
| Hedginginstruments                            |  |             | 1,429,991 |           |  |               | 11,913  |    |  |   | 11,913  |    |
| Liabilities:                                  |  |
| Warehouselinespayable                         |  | $                | 696,778   |           |  | $                  | 696,778 |    |  | $      | 696,778 |    |
| Collateralizeddebt obligations,net            |  |             | 752,416   |           |  |               | 749,900 |    |  |   | 752,416 |    |
| Hedginginstruments                            |  |             | 1,503,000 |           |  |               | 159     |    |  |   | 159     |    |
|                                               |

|                                 |  |                 |         |                |  |                    |         |         |  |        |         |         |  |  |
|---------------------------------|--|-----------------|---------|----------------|--|--------------------|---------|---------|--|--------|---------|---------|--|--|
|                            |  | December31,2003 |
|                            |  | NotionalAmount  |         | CarryingAmount |  | EstimatedFairValue |
|                            |  | (Inthousands)   |
| Assets:                         |  |
| Mortgage loansheld forsale      |  | $               | 323,625 |           |  | $                  | 325,214 |    |  | $      | 325,214 |    |
| Interestrate lockcommitments    |  |            | 294,307 |           |  |               | (1,236  | )  |  |   | (1,236  | )  |
| Forwarddeliverycommitments      |  |            | 504,895 |           |  |               | (1,966  | )  |  |   | (1,966  | )  |
| Mortgageloans held for sale,net |  |            |    |           |  | $                  | 322,012 |    |  | $      | 322,012 |    |
| Liabilities:                    |  |
| Warehouselinespayable           |  | $               | 300,699 |           |  | $                  | 300,699 |    |  | $      | 300,699 |    |
|                                 |

INTERESTRATE RISK

Mortgage Investment Operations

Ourinvestment risk exposure is largely due to interest rate risk. Interestrate risk is defined as the sensitivity of our current and futureearnings to interest rate volatility, variability of spreadrelationships, the difference in repricing intervals between our assetsand liabilities and the effect that interest rates may have on our cashflows, especially Portfolio ARM Loan prepayments. Interest rate

46

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risk may affect our interest income, interestexpense and the market value on a large portion of our assets andliabilities. The management of interest rate risk attempts to maximizeearnings and to preserve capital by minimizing the negative effects ofchanging market rates, asset and liability mix, and prepaymentactivity.

We are subject to interest rate exposurerelating to the Portfolio ARM Loans that we hold. Changes in interestrates impact our earnings in various ways. While we invest primarily inARM Loans, rising short-term interest rates may temporarily negativelyaffect our earnings, and, conversely, falling short-term interest ratesmay temporarily increase our earnings. This impact can occur forseveral reasons and may be mitigated by portfolio prepayment activityas discussed below. First, our borrowings may react to changes ininterest rates sooner than our ARM Loans because the weighted averagenext repricing dates of the borrowings are likely to be shorter timeperiods than those of the ARM Loans. Second, interest rates ontraditional ARM Loans may be capped per adjustment period (commonlyreferred to as the periodic cap), and our borrowings may not havesimilar limitations. Third, changes in interest rates on ARM Loanstypically lag behind changes in applicable interest rate indices, dueto the notice period provided to ARM Loan borrowers when the interestrates on their loans are scheduled to change.

Interestrates can also affect our net return on Hybrid ARM loans. During adeclining interest rate environment, the prepayment of Hybrid ARM loansmay accelerate, possibly resulting in a decline in our net return onHybrid ARM loans, as replacement Hybrid ARM loans may have a loweryield than the ones paying off. In contrast, during an increasinginterest rate environment, Hybrid ARM loans may prepay slower thanexpected, requiring us to finance a higher amount of Hybrid ARM loansthan originally anticipated at a time when interest rates may behigher, resulting in a decline in our net return on Hybrid ARMloans.

The rate of prepayment on mortgage loans mayincrease if interest rates decline or if the difference betweenlong-term and short-term interest rates diminishes. Increasedprepayments would cause us to amortize the deferred origination costsand fees for our mortgage loans faster, resulting in a reduced yield onour mortgage loans. Additionally, to the extent proceeds of prepaymentscannot be reinvested at a rate of interest at least equal to the ratepreviously earned on such mortgage loans, our earnings would beadversely affected.

Conversely, the rate of prepayment onmortgage loans may decrease if interest rates rise or if the differencebetween long term and short term interest rates increases. Decreasedprepayments would cause us to amortize the deferred origination costsand fees for our ARM Loans over a longer time period, resulting in anincreased yield on our mortgage loans. Therefore, in risinginterest  rate environments where prepayments are declining, notonly would the interest rate on our ARM Loan portfolio increase inorder to re-establish a spread over the higher interest rates, but theyield also would rise due to slower prepayments. The combined effectcould significantly mitigate other negative effects that risingshort-term interest rates might have on earnings over a longer timeperiod, resulting in an increased yield on our mortgage loans.

While we have not experienced any significant credit losses,in the event of a significant rising interest rate environment and/oreconomic downturn, mortgage loan defaults may increase and result incredit losses that would adversely affect our liquidity and operatingresults.

47

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The following table summarizes therepricing characteristics of our Portfolio ARM Loans:

RepricingCharacteristics of Portfolio ARMLoans

|                                   |  |                         |           |              |  |        |        |         |  |  |
|-----------------------------------|--|-------------------------|-----------|--------------|--|--------|--------|---------|--|--|
|                              |  | September30, 2004       |
|                              |  | UnpaidPrincipal Balance |           | PortfolioMix |
|                              |  | (Inthousands)           |           |
| Traditional ARMAssets:            |  |                    |      |         |  |   |   |    |
| Index:                            |  |                    |      |         |  |   |   |    |
| Six-monthLIBOR                    |  | $                       | 37,652    |         |  |   | 3.4    | %  |
| One-yearconstant maturitytreasury |  |                    | 426       |         |  |   | 0.0    | %  |
|                              |  |                    | 38,078    |         |  |   | 3.4    | %  |
| HybridARMAssets:                  |  |                    |      |         |  |   |   |    |
| Index:                            |  |                    |      |         |  |   |   |    |
| 3years orless                     |  |                    | 486,769   |         |  |   | 43.1   | %  |
| Over 3years to 5years             |  |                    | 605,457   |         |  |   | 53.5   | %  |
|                              |  |                    | 1,092,226 |         |  |   | 96.6   | %  |
|                              |  |                    |      |         |  |   |   |    |
|                              |  | $                       | 1,130,304 |         |  |   | 100.0  | %  |
|                                   |

MortgageBanking Operations

Movements in interest rates can posea major risk to us in either a rising or declining interest rateenvironment. MortgageIT utilizes a substantial amount of borrowings inorder to conduct its business. These borrowings are all at variableinterest rate terms that will increase as short term interest ratesrise. Additionally, when interest rates rise, mortgage loans held forsale and any applications in process with IRLCs decrease in value.

When interest rates decline, loan pull-through may decline asa result of loan applicants withdrawing their open applications onwhich we have issued an IRLC. In those instances, MortgageIT may berequired to purchase loans at current market prices to fulfill existingforward sale loan commitments, thereby incurring losses upon sale.MortgageIT monitors its mortgage loan pipeline closely and on occasionmay choose to renegotiate locked loan terms with a borrower to preventwithdrawal of open applications and mitigate the associated losses.

MortgageIT utilizes a variety of derivative instruments inorder to hedge its interest rate risk. MortgageIT's hedgingtransactions using derivative instruments involve certain risks such ascounterparty credit risk, the enforceability of hedging contracts andthe risk that unanticipated and significant changes in interest rateswill cause a significant loss of basis in the contract. Thecounterparties to its derivative arrangements are major financialinstitutions and securities dealers that are well capitalized with highcredit ratings and with which we may also have other financialrelationships. While MortgageIT does not anticipate nonperformance byany counterparty, MortgageIT is exposed to potential credit losses inthe event the counterparty fails to perform. MortgageIT'sexposure to credit risk in the event of default by a counterparty isthe difference between the value of the contract and the current marketprice. There can be no assurance that MortgageIT will be able toadequately protect against the foregoing risks and will ultimatelyrealize an economic benefit that exceeds the related expenses incurredin connection with engaging in such hedging strategies.

RISKMANAGEMENT

Mortgage Investment Operations

As weare building the investment portfolio of mortgage loans, our riskmanagement is focused on protecting against possible"compression" in the net interest margin withrespect to the investment 

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portfolio. The "yieldcurve" creates this risk because of different repricingdurations for instruments with different maturities. In substance, thehedging objective is to protect the net interest margin by matchingrepricing durations for the ARM and Hybrid ARM loan portfolio and thecorresponding funding sources. As discussed below, Hybrid ARM loanswill be the primary loans requiring hedges.

TraditionalARM loans have shorter repricing periods (one year or less) than doHybrids. The interest rate on Traditional ARM loans will reset monthly,semi-annually or annually at a contractual margin over a U.S. Treasuryindex or a LIBOR index. The corresponding funding liabilities willsimilarly have shorter contractual repricing frequencies that arepositively correlated to these loans. Additionally, when Hybrid ARMloans reach the end of their fixed rate period and become"rolled Hybrids," they reprice based onsemi-annual or annual LIBOR or U.S. Treasury indices and behave muchlike Traditional ARMS. While there exists some "basisrisk" between the repricing of both the Traditional ARMsand rolled Hybrids versus the typical one month funding costs of theportfolio, management believes this basis risk is manageable. Thus, aproperly matched funding strategy will enable us to protect our netinterest margin for the segment of our investment portfolio thatincludes Traditional and rolled Hybrid ARMs.

Hybrid ARMloans initially have longer repricing periods than Traditional ARMs. Wemay not be able to obtain matched repricing features for thecorresponding funding sources since borrowings generally have shorterrepricing contractual terms than most Hybrid ARM loans where theinitial rate is fixed for as long as five years. We intend to hedge thefinancing costs of our mortgage-backed securities collateralized byHybrid ARMs with interest rate swap agreements, Eurodollar futures oroptions contracts and cap agreements in order to better match therepricing durations of the interest cash flows of the loans and ourissued mortgage-backed securities.

To mitigate the effectof interest rate fluctuations on our net interest income, some or allof the following financial instruments may be used for hedging interestrate risk: interest rate swaps and Eurodollar contracts, interest ratecaps, and other instruments that may be determined to be advantageousand are permitted under the hedging policy that was adopted by ourboard of directors.

Management relies on a variety oftools to assess the interest rate risk exposure of the portfolio undervarious interest rate scenarios. Using financial modeling, the fairvalue and interest rate sensitivity of financial instruments, or groupsof similar instruments, is estimated and then aggregated to form acomprehensive picture of the risk characteristics of the investmentportfolio.

The following table illustrates thesensitivity of the market value of our Portfolio ARM Loans to changesin interest rates (dollars inthousands):

|                                                     |  |                                                 |        |         |  |        |        |         |  |        |         |          |  |        |         |          |  |  |
|-----------------------------------------------------|--|-------------------------------------------------|--------|---------|--|--------|--------|---------|--|--------|---------|----------|--|--------|---------|----------|--|--|
| As of September 30,2004                             |  | Basis Point Increase(Decrease) in Interest Rate |
|                                                |  | (100)                                           |        | (50)    |  | 50     |        | 100     |
| Change in market valuesof:                          |  |                                            |   |    |  |   |   |    |  |   |    |     |  |   |    |     |
| Assets                                              |  | $                                               | 19,369 |    |  | $      | 9,805  |    |  | $      | (10,300 | )   |  | $      | (21,080 | )   |
| Hedgedliabilities                                   |  |                                            | (9,600 | )  |  |   | (5,103 | )  |  |   | 5,650   |     |  |   | 11,938  |     |
| Net change in market value of portfolioequity       |  | $                                               | 9,769  |    |  | $      | 4,702  |    |  | $      | (4,650  | )   |  | $      | (9,142  | )   |
| Percentage change inmarket value of portfolioequity |  |                                            | 5.8    | %  |  |   | 2.8    | %  |  |   | (2.8    | )%  |  |   | (5.4    | )%  |
|                                                     |

Changesin interest rates are assumed to be an instantaneous parallel shift incurrent LIBOR rates as of September 30, 2004. The values under theheadings "100,""50," "(50)" and"(100)" are management's estimates ofthe change in market value of assets and hedged liabilities assumingthat interest rates either increased or decreased, as applicable, by 50and 100 basis points.

Mortgage Banking Operations

MortgageIT enters into derivative transactions for thepurpose of minimizing the risks associated with the loan originationbusiness, while maximizing gain on sale of mortgage loans. The primaryrisk associated with the loan origination business is the risk offluctuating interest rates. The interest rate 

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risk is a direct result of timing delays (1)from the fixing of the mortgage loan interest rate with borrowers tothe funding of the loan and (2) from the funding of the loan to thesetting of terms for sale of loans to secondary market investors.

In the normal course of its mortgage loan originationbusiness, MortgageIT enters into IRLCs to extend credit to financeresidential mortgages. These commitments, which contain fixedexpiration dates, become effective when eligible borrowers lock-in aspecified interest rate within time frames established byMortgageIT's origination, credit and underwriting practices.Interest rate risk arises if interest rates change between the time ofthe lock-in of the rate by the borrower and the sale of the loan. TheIRLCs are considered free-standing derivatives.

Tomitigate the effect of the interest rate risk inherent in issuing anIRLC from the lock-in date to the funding date of a loan, MortgageITuses various derivative instruments, including forward sale loancommitments and forward sales and purchases of mortgage-backedsecurities and options on such securities in the forward delivery"to be announced"("TBA") market to economically hedge theIRLCs.

If MortgageIT does not deliver into forward saleloan or TBA commitments, such instruments can be settled on a netbasis. Net settlement entails paying or receiving cash based upon thechange in market value of the existing instrument. All forward saleloan commitments and forward sales and purchases of TBA commitments aretypically settled within 90 days of the contract date.

MortgageIT also hedges the economic value of funded loansthat are held for sale but not yet allocated to an investor salecommitment. Once a loan has been funded, MortgageIT's riskmanagement objective for its mortgage loans held for sale is to protectearnings from an unexpected charge due to a decline in value of itsmortgage loans. MortgageIT's strategy is to engage in a riskmanagement program involving forward sale loan commitments and/or thesale and purchase of mortgage-backed securities and options on suchsecurities in the forward delivery "to beannounced" market to hedge its mortgage loans held forsale. The notional amount of the derivative contracts, along with theunderlying rate and terms of such contracts, are equivalent to theunpaid principal amount of the mortgage inventory being hedged; hence,the derivative contracts effectively fix the forward sales price andthereby substantially eliminate interest rate and price risk toMortgageIT.

FAIR VALUES

The following describesthe methods and assumptions we use in estimating fair values of thefinancial instruments:

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Fairvalue estimates are made as of a specific point in time based onestimates using present value or other valuation techniques. Thesetechniques may involve uncertainties and are significantly affected bythe assumptions used and the judgments made regarding riskcharacteristics of various financial instruments, discount rates,estimates of future cash flows, future expected loss experience andother factors. Changes in assumptions could significantly affect theseestimates and the resulting fair values. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | The fair value of commitments tofund with agreed upon rates are estimated using the fees and ratescurrently charged to enter into similar agreements, taking into accountthe remaining terms of the agreements and the present creditworthinessof the counterparties. For fixed rate loan commitments, fair value alsoconsiders the difference between current market interest rates and theexisting committed rates. |

|              |                                                                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Thefair value of commitments to deliver mortgages is estimated usingcurrent market prices for dealer or investor commitments relative toour existing positions. |

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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

We carried out an evaluation, with the participation ofmanagement, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of our disclosure controls and procedures(pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934)as of the end of the period covered by this report. Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures are effective intimely alerting them to material information relating to our company(including its consolidated subsidiaries) required to be included inour periodic SEC filings.

(b) Internal control over financialreporting

There have been no changes in our internalcontrol over financial reporting (as such term is defined in Rule13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterended September 30, 2004 that have materially affected, or arereasonably likely to materially affect, our internal control overfinancial reporting.

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PART II.OTHER INFORMATION

Item 1.    Legal Proceedings

Because the nature of our business involves the collection ofnumerous accounts, the validity of liens and compliance with variousstate and federal lending laws, we are subject to various legalproceedings in the ordinary course of our business related toforeclosures, bankruptcies, condemnation and quiet title actions, andalleged statutory and regulatory violations. We are also subject tolegal proceedings in the ordinary course of business related toemployment matters. We believe all of these proceedings, taken as awhole, will not have a material adverse effect on our business,financial position or our results of operations.

Item2.    Unregistered Sales of Equity Securities and Use ofProceeds

On August 4, 2004, we consummated thereorganization of MortgageIT.   In the reorganization, MortgageITbecame a wholly owned subsidiary of its holding company parent,Holdings, which is organized and conducts its operations to qualify asa REIT for U.S. federal income tax purposes.   Concurrently withthe reorganization, Holdings conducted an initial public offering ofits common stock, whereby it issued 14.6 million shares at an aggregateprice of $175.2 million based on a price to the public of $12.00 pershare. The initial public offering was registered with the SEC pursuantto a registration statement that was declared effective by the SEC onJuly 29, 2004 (File No. 333-113825). The managing underwriters were UBSInvestment Bank, Merrill Lynch & Co., Piper Jaffrey, FlagstoneSecurities, JMP Securities, M.R. Beal & Company and Ryan Beck &Co. We paid underwriting discounts and commissions of approximately$10.5 million. Net proceeds of the offering, after deducting theunderwriting discount and estimated offering expenses, approximated$163.4 million. The Company used the net proceeds of the offering topurchase ARM loans for our investment loan portfolio from the TRS andto pay down debt on our warehouse lines of credit.

Noneof the expenses or uses of proceeds were direct or indirect payments toany directors or officers of Holdings or their associates or to anypersons owning 10 percent or more of any class of our equity securitiesor to our affiliates other than our wholly owned subsidiary,MortgageIT.

Concurrently with the closing of the initialpublic offering, on August 4, 2004, holders of 6,764,338 shares ofcommon stock and 14,859,659 shares of preferred stock of MortgageITexchanged their shares for 4,804,473 shares of common stock ofHoldings.The shares of common stock were offered and sold in relianceupon an exemption from registration under Section 4(2) of theSecurities Act of 1933. In addition, holders of 160,241 shares ofcommon stock and 223,314 shares of preferred stock of MortgageIT, whoeither did not submit a vote in connection with the reorganization orwho did not certify that they were accredited investors pursuant toapplicable securities laws, exchanged their shares for cash paymentstotaling $2,179,843.

Item 3.    Defaults Upon SeniorSecurities

None.

Item 4.    Submission ofMatters to a Vote of Security Holders

None.

Item5.    Other Information

None.

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Item 6.    Exhibits

Exhibits filed with this Form 10-Q:

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  |  |  |
|--------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| No.    |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.1   |  | Certificationof Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a) ofthe Securities Exchange Act of 1934, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                                                                                               |
|   |  |
| 31.2   |  | Certificationof Chief Financial Officer pursuant to Rule 13a - 14(a)/15d-14(a) ofthe Securities Exchange Act of 1934, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                                                                                               |
|   |  |
| 31.3   |  | Certificationof Chief Financial Officer of MortgageIT, Inc., pursuant to Rule13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                                                                            |
|   |  |
| 32.1   |  | Certificationof Chief Executive Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Thisexhibit shall not be deemed "filed" forpurposes of Section 18 of the Securities Exchange Act of 1934, asamended, or otherwise subject to the liability of that section.Further, this exhibit shall not be deemed to be incorporated byreference into any filing under the Securities Act of 1933, as amended,or the Securities Exchange Act of 1934, asamended.).                  |
|   |  |
| 32.2   |  | Certificationof Chief Financial Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Thisexhibit shall not be deemed "filed" forpurposes of Section 18 of the Securities Exchange Act of 1934, asamended, or otherwise subject to the liability of that section.Further, this exhibit shall not be deemed to be incorporated byreference into any filing under the Securities Act of 1933, as amended,or the Securities Exchange Act of 1934, asamended.).                  |
| 32.3   |  | Certification of ChiefFinancial Officer of MortgageIT, Inc. pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 (This exhibit shall not be deemed"filed" for purposes of Section 18 of theSecurities Exchange Act of 1934, as amend, or otherwise subject to theliability of that section. Further, this exhibit shall not be deemed tobe incorporated by reference into any filing under the Securities Actof 1933, as amended, or the Securities Exchange Act of 1934, asamended). |
|        |

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Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto dulyauthorized:

|        |  |         |  |                                                           |  |        |  |  |  |  |
|--------|--|---------|--|-----------------------------------------------------------|--|--------|--|--|--|--|
|   |  |    |  | **MORTGAGEITHOLDINGS,INC.**                               |
|   |  |
|   |  |
|   |  | **By:** |  |   /s/  DOUGW.NAIDUS                   |  |   |
|   |  |    |  | **Name:**  DougW.Naidus                         |
|   |  |    |  | **Title:**  Chairmanand Chief ExecutiveOfficer  |
|   |  |    |  | **Date:**  November15,2004                      |
|   |  |
|   |  | **By:** |  |   /s/  GLENNJ.MOURIDY                 |  |   |
|   |  |    |  | **Name:**  GlennJ.Mouridy                       |
|   |  |    |  | **Title:**  Presidentand Chief FinancialOfficer |
|   |  |    |  | **Date:**  November15, 2004                     |
|        |

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