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UNITEDSTATES SECURITIES AND EXCHANGECOMMISSIONWashington, D.C.20549

FORM10-Q

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the quarterly period ended:March  31,2006

OR

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |

For the transition period from                    to    

CommissionFile Number: 001-32213

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

|                                                                      |  |                                              |  |  |  |  |
|----------------------------------------------------------------------|--|----------------------------------------------|--|--|--|--|
| Maryland(Stateor other jurisdiction of incorporation ororganization) |  | 20-0947002(IRS EmployerIdentificationNumber) |
| 33Maiden LaneNew York, NewYork                                       |  | 10038                                        |
| (Address of principalexecutiveoffices)                               |  | (ZipCode)                                    |
|                                                                      |

Registrant's telephonenumber, including area code: (212)651-7700

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the Registrant was required to filesuch reports, and (2) has been subject to such filing requirements forthe past 90days.

Yes       No   

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of‘‘accelerated and large accelerated filer’’in Rule 12b-2 of the Exchange Act.(Checkone):

Large acceleratedfiler               Acceleratedfiler               Non-acceleratedfiler   

Indicate by check mark whether theRegistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).

Yes       No   

Indicatethe number of shares outstanding of each of the issuer's classesof common stock, as of the latest practicable date:

COMMONSTOCK, $0.01 PAR VALUE PER SHARE: 29,087,185 SHARES OUTSTANDING AS OFAPRIL 21, 2006.

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Table of Contents

TABLE OFCONTENTS

|                           |  |                                                                                     |  |               |  |  |  |  |  |  |
|---------------------------|--|-------------------------------------------------------------------------------------|--|---------------|--|--|--|--|--|--|
|                      |  |                                                                                |  | PAGE          |
| Forward-LookingStatements |  |   3                                                                       |
| PartI                     |  | FinancialInformation                                                                |  |   4 |
| Item1.                    |  | FinancialStatements                                                                 |  |   4 |
|                      |  | ConsolidatedBalanceSheets                                                           |  |   4 |
|                      |  | ConsolidatedStatements of Operations(Unaudited)                                     |  |   5 |
|                      |  | ConsolidatedStatements of Comprehensive Income (Loss)(Unaudited)                    |  |   6 |
|                      |  | ConsolidatedStatements of Changes in Stockholders' Equity(Unaudited)                |  |   7 |
|                      |  | ConsolidatedStatements of Cash Flows(Unaudited)                                     |  |   8 |
|                      |  | Notes toConsolidated FinancialStatements                                            |  |   9 |
| Item2.                    |  | Management's Discussionand Analysis of Financial Condition and Results ofOperations |  | 31            |
| Item 3.                   |  | Quantitativeand Qualitative Disclosures About MarketRisk                            |  | 51            |
| Item 4.                   |  | Controls AndProcedures                                                              |  | 56            |
| Part II.                  |  | OtherInformation                                                                    |  | 58            |
| Item 1.                   |  | LegalProceedings                                                                    |  | 58            |
| Item 1A.                  |  | RiskFactors                                                                         |  | 58            |
| Item 2.                   |  | UnregisteredSales of Equity Securities and Use ofProceeds                           |  | 58            |
| Item 3.                   |  | Defaults UponSenior Securities                                                      |  | 58            |
| Item4.                    |  | Submission of Matters to a Vote of SecurityHolders                                  |  | 58            |
| Item 5.                   |  | OtherInformation                                                                    |  | 58            |
| Item6.                    |  | Exhibits                                                                            |  | 59            |
|                      |  | Signatures                                                                          |  | 60            |
|                           |

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FORWARD-LOOKINGSTATEMENTS

This quarterly report on Form 10-Q containscertain ‘‘forward-looking statements,’’which are based on management's current expectations. Suchforward-looking statements include information concerning possible orassumed future results of operations, trends, financial results andbusiness plans, including, among other things, the Company'sability to fund a fully-leveraged, self-originated loan portfolio, itsanticipated loan funding volume and its ability to pay dividends. Forthese statements, the Company claims the protection of the safe harborfor forward-looking statements contained in Section 21E of theSecurities Exchange Act of 1934 , as amended. Forward-lookingstatements are statements that relate to future events and aregenerally identifiable by use of forward-looking terminology 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 the currenteconomic environment and management's current expectations andbeliefs, and are subject to a number of trends and uncertainties thatcould cause actual results to differ materially from those described inthe forward-looking statements. Forward-looking statements areinherently subject to significant economic, competitive, and othercontingencies that are beyond the control of management. The Companycan give no assurance that its expectations will be attained. Factorsthat could cause actual results to differ materially from theCompany's expectations include, but are not limited to, itsmortgage bank subsidiary’s continued ability to originate newloans, including loans that the Company deems suitable for itssecuritization portfolio; changes in the capital markets, includingchanges in interest rates and/or credit spreads; and the risk factorsor other uncertainties described from time to time in theCompany's filings with the Securities and Exchange Commission,including the Company’s annual report on Form 10-K..

Readers are cautioned not to place undue reliance on anyof these forward-looking statements, which reflect management'sviews as of the date of this report. Although we believe that theexpectations reflected in the forward-looking statements arereasonable, we cannot guarantee future results, levels of activity,performance or achievements. We do not undertake, and specificallydisclaim, any obligation to update or revise any of the forward-lookingstatements after the date of this quarterly report on Form 10-Q, toconform these forward-looking statements to actual results or to updatethe reasons why actual results could differ from those projected in theforward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM1. FINANCIAL STATEMENTS

MortgageIT Holdings, Inc. andSubsidiaries    CONSOLIDATED BALANCE SHEETS (Dollars inthousands)

|                                                                                                                                                                      |  |               |           |                  |  |        |           |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---------------|-----------|------------------|--|--------|-----------|---------|--|--|
|                                                                                                                                                                 |  | March31, 2006 |           | December 31,2005 |
|                                                                                                                                                                 |  | (Unaudited)   |           |             |
| ASSETS                                                                                                                                                               |  |          |           |             |
| Cashand cashequivalents                                                                                                                                              |  | $             | 55,079    |             |  | $      | 36,757    |    |
| Restrictedcash                                                                                                                                                       |  |          | 1,889     |             |  |   | 712       |    |
| Marketable securitiesheld tomaturity                                                                                                                                 |  |          | 1,489     |             |  |   | 3,675     |    |
| PortfolioARM Loans                                                                                                                                                   |  |          |      |             |  |   |      |    |
| ARM loanscollateralizing debt obligations,net                                                                                                                        |  |          | 5,214,439 |             |  |   | 4,681,554 |    |
| ARMloans held for securitization,net                                                                                                                                 |  |          | —   |             |  |   | 282       |    |
| TotalPortfolio ARMLoans                                                                                                                                              |  |          | 5,214,439 |             |  |   | 4,681,836 |    |
| Mortgageloans held forsale                                                                                                                                           |  |          | 2,856,370 |             |  |   | 3,378,197 |    |
| Mortgage-backedsecurities — available forsale                                                                                                                  |  |          | 23,211    |             |  |   | 23,357    |    |
| Hedginginstruments                                                                                                                                                   |  |          | 72,659    |             |  |   | 54,472    |    |
| Accountsreceivable, net ofallowance                                                                                                                                  |  |          | 148,752   |             |  |   | 146,043   |    |
| Prepaidsand otherassets                                                                                                                                              |  |          | 46,933    |             |  |   | 31,262    |    |
| Goodwill                                                                                                                                                             |  |          | 11,639    |             |  |   | 11,639    |    |
| Propertyand equipment,net                                                                                                                                            |  |          | 14,790    |             |  |   | 13,941    |    |
| Totalassets                                                                                                                                                          |  | $             | 8,447,250 |             |  | $      | 8,381,891 |    |
| LIABILITIESAND STOCKHOLDERS'EQUITY                                                                                                                                   |  |          |      |             |  |   |      |    |
| Liabilities:                                                                                                                                                         |  |          |      |             |  |   |      |    |
| Collateralizeddebtobligations                                                                                                                                        |  | $             | 4,992,895 |             |  | $      | 4,485,197 |    |
| Warehouselinespayable                                                                                                                                                |  |          | 2,689,694 |             |  |   | 3,177,990 |    |
| Repurchaseagreements                                                                                                                                                 |  |          | 102,282   |             |  |   | 87,058    |    |
| Hedginginstruments                                                                                                                                                   |  |          | 6,410     |             |  |   | 8,801     |    |
| Juniorsubordinateddebentures                                                                                                                                         |  |          | 128,871   |             |  |   | 77,324    |    |
| Notespayable and otherdebt                                                                                                                                           |  |          | 30,000    |             |  |   | 15,000    |    |
| Accounts payable,accrued expenses and otherliabilities                                                                                                               |  |          | 138,598   |             |  |   | 176,619   |    |
| Totalliabilities                                                                                                                                                     |  |          | 8,088,750 |             |  |   | 8,027,989 |    |
| STOCKHOLDERS'EQUITY:                                                                                                                                                 |  |          |      |             |  |   |      |    |
| Common stock, $.01 parvalue: 125,000,000 shares authorized; 29,177,585 issued and 29,087,185outstanding in 2006; 28,889,540 issued and 28,799,140 outstanding in2005 |  |          | 292       |             |  |   | 289       |    |
| Treasurystock                                                                                                                                                        |  |          | (1,178    | )           |  |   | (1,178    | )  |
| Additionalpaid-in capital                                                                                                                                            |  |          | 393,380   |             |  |   | 393,304   |    |
| Unearnedcompensation — restrictedstock                                                                                                                         |  |          | (5,060    | )           |  |   | (5,889    | )  |
| Accumulatedother comprehensive income(loss)                                                                                                                          |  |          | 28,732    |             |  |   | 13,225    |    |
| Accumulateddeficit                                                                                                                                                   |  |          | (57,666   | )           |  |   | (45,849   | )  |
| Totalstockholders' equity                                                                                                                                            |  |          | 358,500   |             |  |   | 353,902   |    |
| Totalliabilities and stockholders'equity                                                                                                                             |  | $             | 8,447,250 |             |  | $      | 8,381,891 |    |
|                                                                                                                                                                      |

Theaccompanying notes are an intregral part of the consolidated financialstatements.

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MortgageIT Holdings, Inc. andSubsidiaries

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

|                                                    |  |                            |          |         |  |        |         |         |  |  |
|----------------------------------------------------|--|----------------------------|----------|---------|--|--------|---------|---------|--|--|
|                                               |  | Threemonths ended March31, |
|                                               |  | 2006                       |          | 2005    |
| Revenues:                                          |  |                       |          |    |
| Gainon sale of mortgageloans                       |  | $                          | 45,752   |    |  | $      | 32,107  |    |
| Brokeragerevenues                                  |  |                       | 6,438    |    |  |   | 6,398   |    |
| Interestincome                                     |  |                       | 113,908  |    |  |   | 53,752  |    |
| Interestexpense                                    |  |                       | (104,981 | )  |  |   | (31,486 | )  |
| Netinterestincome                                  |  |                       | 8,927    |    |  |   | 22,266  |    |
| Realizedand unrealized gain on hedginginstruments  |  |                       | 420      |    |  |   | 8,922   |    |
| Other                                              |  |                       | 238      |    |  |   | 263     |    |
| Totalrevenues                                      |  |                       | 61,775   |    |  |   | 69,956  |    |
| Operatingexpenses:                                 |  |                       |     |    |  |   |    |    |
| Compensation andemployeebenefits                   |  |                       | 37,242   |    |  |   | 27,789  |    |
| Processingexpenses                                 |  |                       | 23,918   |    |  |   | 10,363  |    |
| General andadministrativeexpenses                  |  |                       | 7,580    |    |  |   | 6,818   |    |
| Rent                                               |  |                       | 3,688    |    |  |   | 2,275   |    |
| Marketing,loan acquisition and businessdevelopment |  |                       | 1,270    |    |  |   | 895     |    |
| Professionalfees                                   |  |                       | 2,597    |    |  |   | 2,310   |    |
| Depreciation andamortization                       |  |                       | 1,547    |    |  |   | 796     |    |
| Totaloperatingexpenses                             |  |                       | 77,842   |    |  |   | 51,246  |    |
| (Loss)income before incometaxes                    |  |                       | (16,067  | )  |  |   | 18,710  |    |
| Incometax (benefit) expense                        |  |                       | (11,340  | )  |  |   | 2,982   |    |
| Net(loss) income                                   |  | $                          | (4,727   | )  |  | $      | 15,728  |    |
| Persharedata:                                      |  |                       |     |    |  |   |    |    |
| Basic                                              |  | $                          | (0.17    | )  |  | $      | 0.81    |    |
| Diluted                                            |  | $                          | (0.17    | )  |  | $      | 0.79    |    |
| Weightedaverage number of shares — basic     |  |                       | 28,352   |    |  |   | 19,405  |    |
| Weighted averagenumber of shares — diluted   |  |                       | 28,352   |    |  |   | 19,846  |    |
|                                                    |

Theaccompanying notes are an intregral part of the consolidated financialstatements.

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MortgageIT Holdings, Inc.and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME (LOSS) (Unaudited) (Dollars inthousands)

|                                                                             |  |              |        |               |  |        |         |        |  |  |
|-----------------------------------------------------------------------------|--|--------------|--------|---------------|--|--------|---------|--------|--|--|
|                                                                        |  | March31,2006 |        | March 31,2005 |
| Net (loss)income                                                            |  | $            | (4,727 | )        |  | $      | 15,728  |   |
| Othercomprehensive income:                                                  |  |         |   |          |  |   |    |   |
| Realized andunrealized gain on hedging instruments arising during theperiod |  |         | 15,886 |          |  |   | 14,058  |   |
| Unrealized gainon mortgage-backed securities – available forsale      |  |         | 766    |          |  |   | — |   |
| Reclassificationof gains included in net income                             |  |         | (1,145 | )        |  |   | — |   |
| Netrealized and unrealized gain during theperiod                            |  |         | 15,507 |          |  |   | 14,058  |   |
| Comprehensiveincome                                                         |  | $            | 10,780 |          |  | $      | 29,786  |   |
|                                                                             |

Theaccompanying notes are an integral part of the consolidated financialstatements.

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY (Unaudited)Three months endedMarch  31,  2006 (Dollars and shares inthousands)

|                                                                   |  |             |         |               |  |                          |         |                    |  |                                  |         |                                   |  |                                   |         |         |  |        |         |         |  |        |         |         |  |        |         |        |  |        |         |         |  |  |
|-------------------------------------------------------------------|--|-------------|---------|---------------|--|--------------------------|---------|--------------------|--|----------------------------------|---------|-----------------------------------|--|-----------------------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|--------|--|--------|---------|---------|--|--|
|                                                              |  | CommonStock |         | TreasuryStock |  | AdditionalPaid-InCapital |         | AccumulatedDeficit |  | UnamortizedCostofRestrictedStock |         | AccumulatedOtherComprehensiveLoss |  | TotalStockholders'Equity(Deficit) |
|                                                              |  | Shares      |         | Amount        |
| Balanceat December  31,2005                                       |  |        | 28,799  |          |  | $                        | 289     |               |  | $                                | (1,178  | )                            |  | $                                 | 393,304 |    |  | $      | (45,849 | )  |  | $      | (5,889  | )  |  | $      | 13,225  |   |  | $      | 353,902 |    |
| Issuanceof common stock in connection with restricted stockgrants |  |        | 291     |          |  |                     | 3       |               |  |                             | — |                              |  |                              | 58      |    |  |   | — |    |  |   | — |    |  |   | — |   |  |   | 61      |    |
| Restrictedstockforfeitures                                        |  |        | (3      | )        |  |                     | — |               |  |                             | — |                              |  |                              | (56     | )  |  |   | — |    |  |   | 56      |    |  |   | — |   |  |   | — |    |
| Amortizationof the cost of restrictedstock                        |  |        | — |          |  |                     | — |               |  |                             | — |                              |  |                              | — |    |  |   | — |    |  |   | 773     |    |  |   | — |   |  |   | 773     |    |
| Stockbasedcompensation                                            |  |        | — |          |  |                     | — |               |  |                             | — |                              |  |                              | 74      |    |  |   | — |    |  |   | — |    |  |   | — |   |  |   | 74      |    |
| Othercomprehensive (loss)income                                   |  |        | — |          |  |                     | — |               |  |                             | — |                              |  |                              | — |    |  |   | — |    |  |   | — |    |  |   | 15,507  |   |  |   | 15,507  |    |
| Dividendsdeclared on common stock – $.25 pershare           |  |        | — |          |  |                     | — |               |  |                             | — |                              |  |                              | — |    |  |   | (7,090  | )  |  |   | — |    |  |   | — |   |  |   | (7,090  | )  |
| Netloss                                                           |  |        | — |          |  |                     | — |               |  |                             | — |                              |  |                              | — |    |  |   | (4,727  | )  |  |   | — |    |  |   | — |   |  |   | (4,727  | )  |
| Balanceat March  31,2006                                          |  |        | 29,087  |          |  | $                        | 292     |               |  | $                                | (1,178  | )                            |  | $                                 | 393,380 |    |  | $      | (57,666 | )  |  | $      | (5,060  | )  |  | $      | 28,732  |   |  | $      | 358,500 |    |
|                                                                   |

Theaccompanying notes are an integral part of the consolidated financialstatements.

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) (Dollars inthousands)

|                                                                                                  |  |                             |          |         |  |        |           |         |  |  |
|--------------------------------------------------------------------------------------------------|--|-----------------------------|----------|---------|--|--------|-----------|---------|--|--|
|                                                                                             |  | Threemonths ended March 31, |
|                                                                                             |  | 2006                        |          | 2005    |
| Cashflows from operatingactivities:                                                              |  |                        |     |    |  |   |      |    |
| Net (loss)income                                                                                 |  | $                           | (4,727   | )  |  | $      | 15,728    |    |
| Adjustmentsto reconcile net (loss) income to net cash provided by (used in)operating activities: |  |                        |     |    |  |   |      |    |
| Depreciationand amortization                                                                     |  |                        | 2,484    |    |  |   | 1,274     |    |
| Stockbasedcompensation                                                                           |  |                        | 908      |    |  |   | 787       |    |
| Unrealized gainon hedginginstruments                                                             |  |                        | (5,709   | )  |  |   | (2,097    | )  |
| Netamortization (accretion) of mortgage backedsecurities                                         |  |                        | 859      |    |  |   | —   |    |
| Impairmentof mortgage backedsecurities                                                           |  |                        | 95       |    |  |   | —   |    |
| Changesin operating assets:                                                                      |  |                        |     |    |  |   |      |    |
| (Increase)decrease in restrictedcash                                                             |  |                        | (1,177   | )  |  |   | 1,433     |    |
| Decrease(increase) in mortgage loans held forsale                                                |  |                        | 521,827  |    |  |   | (620,390  | )  |
| (Increase) inaccountsreceivable                                                                  |  |                        | (2,710   | )  |  |   | (6,677    | )  |
| Increasein prepaids and otherassets                                                              |  |                        | (13,710  | )  |  |   | (1,674    | )  |
| Changesin operatingliabilities:                                                                  |  |                        |     |    |  |   |      |    |
| (Decrease) increasein accounts payable, accrued expenses and otherliabilities                    |  |                        | (31,518  | )  |  |   | 2,239     |    |
| Netcash provided by (used in) operatingactivities                                                |  |                        | 466,622  |    |  |   | (609,377  | )  |
| Cashflows from investingactivities:                                                              |  |                        |     |    |  |   |      |    |
| Increase in ARMloans                                                                             |  |                        | (532,602 | )  |  |   | (464,821  | )  |
| Purchasesof property andequipment                                                                |  |                        | (2,396   | )  |  |   | (859      | )  |
| Proceedsfrom maturities of marketablesecurities                                                  |  |                        | 5,900    |    |  |   | 6,331     |    |
| Purchases ofmarketablesecurities                                                                 |  |                        | (3,715   | )  |  |   | (2,852    | )  |
| Netcash used in investingactivities                                                              |  |                        | (532,813 | )  |  |   | (462,201  | )  |
| Cashflows from financingactivities:                                                              |  |                        |     |    |  |   |      |    |
| Net proceeds fromissuance of junior subordinateddebentures                                       |  |                        | 48,497   |    |  |   | —   |    |
| Proceedsfrom collateralized debtobligations                                                      |  |                        | 733,093  |    |  |   | 979,105   |    |
| Paymentsmade on collateralized debtinstruments                                                   |  |                        | (225,395 | )  |  |   | (74,788   | )  |
| Netborrowings from repurchaseagreements                                                          |  |                        | 15,224   |    |  |   | 15,801    |    |
| Netpayments on hedginginstruments                                                                |  |                        | (15      | )  |  |   | (6,076    | )  |
| Distributionspaid                                                                                |  |                        | (13,595  | )  |  |   | (8,538    | )  |
| Proceeds fromnotespayable                                                                        |  |                        | 15,000   |    |  |   | —   |    |
| Proceedsfrom issuance of commonstock                                                             |  |                        | —  |    |  |   | 4         |    |
| Net (repayment)proceeds of warehouse linespayable                                                |  |                        | (488,296 | )  |  |   | 136,161   |    |
| Netcash provided by financingactivities                                                          |  |                        | 84,513   |    |  |   | 1,041,669 |    |
| Netincrease (decrease) in cash and cashequivalents                                               |  |                        | 18,322   |    |  |   | (29,909   | )  |
| Cashand cash equivalents at beginning ofperiod                                                   |  |                        | 36,757   |    |  |   | 70,224    |    |
| Cashand cash equivalents at end ofperiod                                                         |  | $                           | 55,079   |    |  | $      | 40,315    |    |
|                                                                                                  |

Theaccompanying notes are an integral part of the consolidated financialstatements.

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NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATIONAND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Theaccompanying unaudited consolidated financial statements have beenprepared in accordance with generally accepted accounting principlesfor interim financial information.

In the opinion ofmanagement, all material adjustments, consisting of normal recurringadjustments, considered necessary for a fair presentation have beenincluded. The operating results for the three months ended March31,  2006 are not necessarily indicative of the results that maybe expected for the year ending December  31,  2006. Theinterim financial information should be read in conjunction withMortgageIT Holdings, Inc.'s 2005 Annual Report on Form10-K.

Basis of Presentation

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 real estate investment trust(‘‘REIT’’) for federal income tax purposesand is focused on earning net interest income from mortgage loansoriginated by MortgageIT, Holdings' taxable REIT subsidiary.MortgageIT was incorporated in New York on February  1,1999 and began marketing mortgage loan services on May  4,1999. MortgageIT originates, sells and brokers residential mortgageloans in 50 states and the District of Columbia, and is an approvedU.S. Department of Housing and Urban Development(‘‘HUD’’) Title II Nonsupervised DelegatedMortgagee.

As discussed further in Note 11, 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 itsinvestment loan portfolio. Mortgage banking operations include loanorigination, underwriting, funding, secondary marketing and loanbrokerage, title and insurance activities.

Theconsolidated financial statements included herein contain results forHoldings, Holdings' wholly owned subsidiaries, MHL Funding Corp.,Next at Bat Lending, Inc., MHL Reinsurance, Ltd. and MortgageIT, andMortgageIT's wholly owned subsidiary Home Closer LLC(‘‘Home Closer’’). Home Closer providestitle, settlement and other mortgage related services to the Companyand its customers. All material intercompany account balances andtransactions have been eliminated inconsolidation.

Reclassification

Certain amounts inthe consolidated financial statements for prior periods have beenreclassified to conform to the current year presentation.

Use ofEstimates

The preparation of financial statements inconformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and theaccompanying notes. Management bases its estimates on certainassumptions, which it believes are reasonable under the circumstances,and does not believe that any change in those assumptions would have asignificant effect on the financial position or results of operationsof the Company. Actual results could differ materially from thoseestimates.

Adjustable Rate Mortgage(‘‘ARM’’) Loan InvestmentPortfolio

The Company's ARM loan investmentportfolio is comprised of ARM loans collateralizing debt obligationsand ARM loans held for securitization (collectively referred to as‘‘Portfolio ARM Loans’’ or‘‘ARM Loans’’). All of the Company'sPortfolio ARM Loans are traditional ARM Loans, meaning they haveinterest rates that reprice in one year or less(‘‘Traditional ARMs’’ or‘‘Traditional ARM 

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loans’’), hybrid ARM Loans thathave a fixed interest rate for an initial period of not more than fiveyears and then convert to Traditional ARMs for their remaining terms tomaturity (‘‘Hybrid ARMs’’ or‘‘Hybrid ARM loans’’), or pay option ARMLoans (‘‘POAs’’) that have a lowintroductory rate for the first 30-90 days and, thereafter, repricemonthly on the basis of an index, such as the 12-month Treasuryaverage.

Portfolio ARM Loans are designated as held tomaturity because the Company has the intent and ability to hold themuntil maturity or payoff. Portfolio ARM Loans are carried at cost,which includes unpaid principal balances, unamortized loan originationcosts and 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 the Company in structured financingarrangements.

ARM loans held for securitization aremortgage loans the Company has originated and intends to securitize andretain.

Mortgage Loans Held for Sale

UnallocatedMortgage Loans Held For Sale

Unallocated mortgage loansheld for sale represent loans that have not yet been allocated to aforward sales commitment. At March  31,  2006 andDecember  31,  2005, unallocated mortgage loans held forsale are carried at the lower of adjusted cost or market value.Determining market value requires judgment by management in determininghow the market would value a particular mortgage loan based oncharacteristics of the loan and available marketinformation.

Allocated Mortgage Loans Held ForSale

Allocated mortgage loans held for sale representloans that have been allocated to a forward sales commitment. For thethree months ended March  31,  2006 and the year endedDecember  31,  2005, the Company qualified and elected toapply Statement of Financial Accounting Standards(‘‘SFAS’’) No. 133‘‘Accounting for Derivative Instruments and HedgingActivities’’ (‘‘SFAS No.133’’) fair value hedge accounting for allocated loansheld for sale. Allocated mortgage loans held for sale are carried atthe lower of adjusted cost or market value. Determining market valuerequires judgment by management in determining how the market wouldvalue a particular mortgage loan based on characteristics of the loanand available market information. Adjusted cost includes the loanprincipal amount outstanding, deferred direct origination costs andfees, and any adjustment to the carrying amount of loans resulting fromthe application of hedge accounting.

Mortgage-Backed Securities– Available for Sale

Mortgage-backed securities– available for sale represent beneficial interests the Companypurchased in the MortgageIT real estate mortgage investment conduit(‘‘REMIC’’)securitization.

Mortgage-backed securities classified asavailable for sale are reported at their estimated fair value withunrealized gains and losses reported in accumulated other comprehensiveincome (loss)(‘‘OCI’’). 

Mortgage-backedsecurities represent the retained interests in certain components ofthe cash flows of the underlying mortgage loans or mortgage securitiestransferred to securitization trusts. As payments are received, thepayments are applied to the cost basis of the mortgage relatedsecurity. Each period, the accretable yield for each mortgage securityis evaluated and, to the extent there has been a change in theestimated cash flows, it is adjusted and applied prospectively. Theestimated cash flows change as assumptions for credit losses, borrowerprepayments and interest rates are updated. The accretable yield isrecorded as interest income with a corresponding increase to the costbasis of the mortgage security.

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At each reporting period subsequentto the initial valuation of the purchased securities, the fair value ofmortgage securities is estimated based on different methods, includingindependent valuations from broker dealers. Management’s bestestimate of key assumptions, including credit losses, prepaymentspeeds, the market discount rates and forward yield curves commensuratewith the risks involved, are used in estimating future cash flows. Tothe extent that the cost basis of mortgage securities exceeds the fairvalue and the unrealized loss is considered to be other than temporary,an impairment charge is recognized and the amount recorded in OCI isreclassified to earnings as a realized loss.

LoanSecuritizations

The Company securitizes mortgage loans bytransferring them to independent trusts that issue securitiescollateralized by the transferred mortgage loans. The Company generallyretains interests in all or some of the securities issued by thetrusts. Certain of the securitization agreements may require theCompany to repurchase loans that are found to have legal deficienciesafter the date of transfer. The accounting treatment for transfers ofassets upon securitization depends on whether or not the Company hasretained control over the transferred assets. The Company'saccounting policy for ARM loan securitizations complies with theprovisions of SFAS No. 140 ‘‘Accounting for Transfers andServicing of Financial Assets and Extinguishments ofLiabilities’’ (‘‘SFAS No.140’’). Depending on the structure of the securitization,the accounting for securitizations is treated as either a sale orsecured financing for financial statement purposes. The securitizationtransactions in the Company's mortgage investment operationssegment are treated as secured financings under SFAS No. 140 as theCompany has retained control over the transferred assets. TheMortgageIT REMIC securitization completed in February  2006 wastreated as a financing under SFAS No. 140. The MortgageIT REMICsecuritization completed in November  2005 was treated as a saleunder SFAS No. 140.

Mortgage ServicingRights

Mortgage servicing rights retained in the REMICsecuritization are recorded at allocated cost based upon the relativefair values of the transferred loans and the servicing rights. Mortgageservicing rights are amortized in proportion to and over the projectednet servicing revenues. Periodically, the Company evaluates thecarrying value of mortgage servicing rights based on their estimatedfair value. If the estimated fair value is less than the carryingamount of the mortgage servicing rights, the mortgage servicing rightsare written down to the amount of the estimated fair value. Forpurposes of evaluating and measuring impairment of mortgage servicingrights the Company stratifies the mortgage servicing rights based ontheir predominant risk characteristics.

Mortgage servicingrights are recorded in other assets in the consolidated balance sheets.The servicing fee income associated with the mortgage servicing rightsis reported in other income in the consolidated statements ofoperations.

Derivative Instruments and HedgingActivities

The Company manages its interest rate riskexposure through the use of derivatives, including interest rate swaps,Eurodollar futures, forwards and interest rate caps. In accordance withSFAS No. 133, all derivative instruments are recorded on the balancesheets at fair value.

If certain conditions are met, theCompany may designate a derivative as a fair value hedge (the hedge ofthe exposure to changes in the fair value of a recognized asset,liability or commitment), or a cash flow hedge (a hedge of the exposureto variability in the cash flows related to a forecasted or recognizedliability).

Certain derivatives used in conjunction withinterest rate risk management activities qualify for hedge accountingunder SFAS No. 133. For derivative hedging activities to qualify forhedge accounting, the Company formally documents, at the inception ofeach hedge, the hedging relationship and its risk management objectiveand strategy for undertaking the hedge, the hedging instrument, theitem or, the nature of the risk being hedged, how the hedginginstrument's effectiveness in offsetting the hedged risk will beassessed, and a description of the method of measuring ineffectiveness.The Company also formally assesses, both at the hedge's inceptionand on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in fairvalues or cash flows of hedged items.

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The Company's fair valuehedges are primarily for mortgage loans held for sale. Changes in thefair value of a derivative that is highly effective and that isdesignated and qualifies as a fair value hedge, along with the changein fair value attributable to the hedged risk, are recorded inearnings. Derivatives that are utilized as fair value hedges and thatqualify for hedge accounting are carried at fair value with changes invalue included in gain on sale of mortgage loans in the accompanyingconsolidated statements of operations.

The Company'scash flow hedges, which are used for LIBOR based borrowings, have theeffect of fixing the interest rate on LIBOR based liabilities in theevent that LIBOR based funding costs change. Gains and losses on aderivative that is highly effective and that is designated andqualifies as a cash flow hedge are recorded in OCI to the extent thatthe derivative is effective as a hedge, until earnings are affected bythe variability in cash flows of the designated hedgeditem.

The ineffective portion of the change in fair valueof a derivative instrument that qualifies as either a fair value hedgeor a cash flow hedge was not material during the three months endedMarch  31,  2006. The change in value of a derivativeinstrument that does not qualify for hedge accounting, is reported inearnings under the caption realized and unrealized gain (loss) onhedging instruments.

The Company employs a number of riskmanagement monitoring procedures that are designed to ensure that itshedging arrangements are demonstrating, and are expected to continue todemonstrate, a high level of effectiveness. Hedge accounting isdiscontinued on a prospective basis if it is determined that thehedging relationship is no longer highly effective or expected to behighly effective in offsetting changes in fair value or cash flows ofthe hedged item. Additionally, the Company may elect, pursuant to SFASNo. 133, to re-designate a hedge relationship during an interim periodand re-designate upon the rebalancing of a hedgerelationship.

The Company's committed mortgagepipeline includes interest rate lock commitments(‘‘IRLCs’’) that have been extended toborrowers who have applied for loan funding and meet certain definedcredit and underwriting criteria. The Company classifies and accountsfor the IRLCs associated with loans expected to be sold asfree-standing derivatives. The Company does not assign fair value toIRLCs at inception of the loan commitment, but does record subsequentchanges in fair value in gain on sale of mortgage loans on theconsolidated statements of operations.

RepurchaseAgreements

Repurchase agreements represent legal sales ofthe Company's mortgage assets and an agreement to repurchase theassets at a future date. Repurchase agreements are accounted for ascollateralized financing transactions since the Company still hascontrol of the transferred assets and is both entitled and obligated torepurchase the transferred assets. They are carried at the amount atwhich the assets will be repurchased, including accruedinterest.

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Other ComprehensiveIncome

SFAS No. 130, ‘‘ReportingComprehensive Income,’’ divides comprehensive income intonet income and other comprehensive income (loss), which consists ofunrealized gains and losses on derivative financial instruments thatqualify for cash flow hedge accounting under SFAS No. 133, andmortgage-backed securities – available for sale. Accumulated OCIis comprised of thefollowing:

|                                                              |  |                                                                            |                                 |                                                                         |  |                                           |        |         |  |        |        |         |  |  |
|--------------------------------------------------------------|--|----------------------------------------------------------------------------|---------------------------------|-------------------------------------------------------------------------|--|-------------------------------------------|--------|---------|--|--------|--------|---------|--|--|
|                                                         |  | NetUnrealized Loss on Mortgage-Backed Securities –Available for Sale |                                 | Net Realized andUnrealized Gain(Loss) on DerivativeFinancialInstruments |  | AccumulatedOtherComprehensiveIncome(Loss) |
| Balance at December  31,2004                                 |  | $                                                                          |     — |                                                                    |  |                                      | (387   | )  |  |   | (387   | )  |
| Netchange                                                    |  |                                                                       | (948                            | )                                                                  |  |                                      | 14,560 |    |  |   | 13,612 |    |
| Balanceat December  31,2005                                  |  | $                                                                          | (948                            | )                                                                  |  | $                                         | 14,173 |    |  | $      | 13,225 |    |
| Balanceat January  1,2006                                    |  |                                                                       | (948                            | )                                                                  |  |                                      | 14,173 |    |  |   | 13,225 |    |
| Netchange                                                    |  |                                                                       | 766                             |                                                                    |  |                                      | 14,741 |    |  |   | 15,507 |    |
| Balanceat March  31, 2006(unaudited)     |  | $                                                                          | (182                            | )                                                                  |  | $                                         | 28,914 |    |  | $      | 28,732 |    |
|                                                              |

RevenueRecognition

Mortgage InvestmentOperations

Interest income is accrued based on theoutstanding principal amount and contractual terms of the loans. Directloan origination costs and fees associated with the loans are amortizedinto interest income over the lives of the loans using the effectiveyield method, adjusted for the effects of estimated prepayments.Estimating prepayments and estimating the remaining lives of the loansrequires judgment by management, which involves consideration ofpossible future interest rate environments. The actual lives could bemore or less than the amount estimated by management.

MortgageBanking Operations

Gain on sale of loans represents thedifference between the net sales proceeds and the carrying values ofthe mortgage loans sold, and is recognized at the time of sale. Directloan origination costs and fees associated with the loans are initiallyrecorded as an adjustment of the cost of the loans held for sale andare recognized in earnings when the loans aresold.

Brokerage fees represent revenues earned for thebrokering of mortgage loans to third party lenders and are earned andrecognized at the time the loan is closed by the third party lender.Revenues are primarily comprised of borrower application and/oradministrative fees and brokerage fees paid to the Company by thirdparty lenders.

Interest income is accrued as earned.Interest on mortgage loans held for sale accrues on loans from the dateof funding through the date of sale. Interest on loans is computedbased on the contractual loan note rate.

Generally, theCompany is not exposed to significant credit risk on its loans sold toinvestors. In the normal course of business, the Company is obligatedto repurchase loans from investors consistent with the terms of itsinvestor contracts. In connection with the sale of loans, the Companyrecords a repurchase reserve for potential future losses applicable toloans sold. The repurchase reserve is included in accrued expenses onthe Company's balance sheets.

Loan LossReserves

The Company maintains an allowance for loanlosses based on management's estimate of credit losses inherentin the Company's Portfolio ARM Loans. The estimation of theallowance is based on a variety of factors including, but not limitedto, industry statistics, current economic conditions, loan portfoliocomposition, delinquency trends, credit losses to date on underlyingloans and remaining 

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credit protection. If the credit performanceof the Company's Portfolio ARM Loans is different than expected,the Company adjusts the allowance for loan losses to a level deemedappropriate by management to provide for estimated losses inherent inthe Company's ARM loan portfolio. Two critical assumptions usedin estimating the loan loss reserves are an assumed rate of default,which is the expected rate at which loans go into foreclosure over thelife of the loans, and an assumed rate of loss severity, whichrepresents the expected rate of realized loss upon disposition of theproperties that have gone into foreclosure. In addition, once a loan is90 days or more delinquent or a borrower declares bankruptcy, theCompany adjusts the value of its accrued interest receivable to what itbelieves to be collectible and stops accruing interest on that loan.The Company will charge off losses against the credit loss reserve atthe time of loan disposition. The following table summarizes changes inthereserve:

|                                      |  |                                |       |                           |  |        |         |        |  |  |
|--------------------------------------|--|--------------------------------|-------|---------------------------|--|--------|---------|--------|--|--|
|                                 |  | Threemonthsended March 31,2006 |       | YearendedDecember 31,2005 |
|                                 |  | (unaudited)                    |       |                      |
| Loanloss reserve, beginning ofperiod |  | $                              | 4,123 |                      |  | $      | 674     |   |
| Loan lossprovision                   |  |                           | 348   |                      |  |   | 3,449   |   |
| Writeoffs                            |  |                           | (1    | )                    |  |   | — |   |
| Loanloss reserve, end ofperiod       |  | $                              | 4,470 |                      |  | $      | 4,123   |   |
|                                      |

StockCompensation

As of March  31,  2006, theCompany had in effect the 2004 Long-Term Incentive Plan (the‘‘2004 Plan’’) and the Amended Long-TermIncentive Plan (the ‘‘Amended Plan’’),which are described more fully in Note 8.

EffectiveJanuary  1,  2006, the Company adopted the provisions ofStatement of Financial Accounting Standards No. 123 (revised 2004),‘‘Share-Based Payment’’ (SFAS No. 123R),requiring that compensation cost relating to share-based paymenttransactions be recognized in the financial statements. The cost ismeasured at the grant date, based on the calculated fair value of theaward, and is recognized as an expense over the employee’srequisite service period (generally the vesting period of the equityaward). We adopted SFAS No. 123R using the modified prospective methodand, accordingly, financial statement amounts for prior periodspresented in this Form 10-Q have not been restated to reflect the fairvalue method of recognizing compensation cost relating to stockoptions.          

Therewas approximately $74,000 of before tax compensation cost related tostock options recognized in operating results during the three monthsended March  31,  2006. The associated future income taxbenefit recognized was approximately $30,000 during the three monthsended March  31,  2006.

At March31,  2006, there was approximately $438,000 of total unrecognizedcompensation cost related to non-vested stock option awards which isexpected to be recognized over a weighted-average period of 1.3years.

Through December  31,  2005, theCompany accounted for all transactions under which employees receivedshares of stock or other equity instruments in the Company based on theprice of its stock in accordance with the provisions of AccountingPrinciples Board Opinion No. 25, ‘‘Accounting for StockIssued to Employees.’’ Pursuant to these accountingstandards, the Company recorded deferred compensation for stock awardsat the date of grant based on the estimated values of the shares onthat date. There was no stock option-based employee compensation costreflected in net income

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because all options granted had an exerciseprice equal to the market value of the underlying common stock on thedate of grant. The following table illustrates the effect on net incomeif the Company had applied the fair value recognition provisions ofSFAS No. 123, ‘‘Accounting for Stock-Based Compensation– Transition and Disclosure’’ (‘‘SFASNo. 123’’) as of March  31,  2005. (Dollarsin thousands, except per sharedata):

|                                                                                                           |  |                               |        |         |  |  |
|-----------------------------------------------------------------------------------------------------------|--|-------------------------------|--------|---------|--|--|
|                                                                                                      |  | Threemonthsended March31,2005 |
|                                                                                                      |  | (unaudited)                   |
| Netincome attributable to commonstockholders                                                              |  | $                             | 15,728 |    |
| Amortization ofrestricted stock, including forfeitures, net of taxeffects                                 |  |                          | 554    |    |
| Stock-based employeecompensation expense determined under the fair value method, net ofrelated taxeffects |  |                          | (610   | )  |
| Pro formanetincome                                                                                        |  | $                             | 15,672 |    |
| Netincome per share attributable to commonstock:                                                          |  |                          |   |    |
| Basic – Asreported                                                                                  |  | $                             | .81    |    |
| Basic – Proforma                                                                                    |  | $                             | .81    |    |
| Netincome per share for diluted earnings pershare:                                                        |  |                          |   |    |
| Diluted – Asreported                                                                                |  | $                             | .79    |    |
| Diluted – Proforma                                                                                  |  | $                             | .79    |    |
|                                                                                                           |

Underthe 2004 Plan, the fair value for each option granted was estimated atthe date of grant using the Black-Scholes option-pricing model, withthe following assumptions: risk-free interest rate of 3.75%,expected option lives of five years, 26% volatility and9% dividend rate.

The weighted average fair valueof options issued under the 2004 Plan, for the three months endedMarch  31,  2005, under the Black-Scholes option-pricingmodel, was $1.01 per option.

No stock options have beengranted under the Amended Plan.

Restricted stock awardsgranted to employees under the 2004 Plan and the Amended Plan aresubject to certain sale and transfer restrictions. Unvested awards arealso subject to forfeiture if employment terminates prior to the end ofthe prescribed restriction period. The value of restricted stock awardsis expensed over the vesting period, generally threeyears.

Income Taxes

Income taxes are determinedusing 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 has elected to betaxed as a REIT and believes it complies with the provisions of theInternal Revenue Code of 1986, as amended (the‘‘Code’’), with respect thereto.Accordingly, the Company is not subject to federal income tax on thatportion of its income that is distributed to stockholders, as long ascertain asset, income and stock ownership tests are met. To maintainits REIT status, the Company is required to distribute a minimum of90% of its annual taxable income to itsstockholders.

MortgageIT made the election to be treatedas a taxable REIT subsidiary and, therefore, is subject to both federaland state corporate income taxes. Accordingly, the Company records atax provision based primarily on the taxable income of theTRS.

Fair Value of Financial Instruments

Cash andcash equivalents, marketable securities and accounts receivable arecarried at amounts approximating fair value. Unallocated and allocatedmortgage loans held for sale are carried at the lower of adjusted costor market value, or at market value.

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Mortgage-backed securities –available for sale are carried at fair value.

Derivativeinstruments related to the hedging of the Company's financingcosts, including interest rate swap agreements, Eurodollar futurescontracts and interest rate cap agreements (collectively‘‘Portfolio Hedging Instruments’’) arecarried at fair value and are classified as hedging instruments on thebalance sheets.

Derivative instruments, including IRLCsand those related to the hedging of the Company's locked pipelineloans and mortgage loans held for sale, including forward deliverycontracts on mortgage-backed securities (‘‘TBASecurities’’), options on TBA Securities, and Eurodollarfutures contracts, are carried at fair value and are classified ashedging instruments on the balance sheets.

Liabilities,including warehouse lines payable, collateralized debt obligations,notes payable and other debt, are carried at their contractual notionalamounts which approximate fair value. Portfolio ARM Loans are carriedat cost, as more fully described in Note 2.

The followingtable presents information as to the carrying amount and estimated fairvalue of certain of the Company's market risk sensitive assets,liabilities and hedging instruments at March  31,  2006 andDecember  31,2005:

|                                                     |  |                                             |           |                     |  |        |           |        |  |  |
|-----------------------------------------------------|--|---------------------------------------------|-----------|---------------------|--|--------|-----------|--------|--|--|
|                                                |  | March31, 2006                               |
|                                                |  | CarryingAmount                              |           | Estimated FairValue |
|                                                |  | (Dollars in thousands)(unaudited) |
| Assets:                                             |  |                                        |      |                |  |   |      |   |
| Mortgageloans held forsale                          |  | $                                           | 2,854,205 |                |  | $      | 2,865,434 |   |
| Forwarddeliverycommitments                          |  |                                        | 2,165     |                |  |   | 2,165     |   |
| Mortgageloans held for sale,net                     |  |                                        | 2,856,370 |                |  |   | 2,867,599 |   |
| ARM loansheld for securitization,net                |  |                                        | —   |                |  |   | —   |   |
| ARM loanscollateralizing debt obligations,net       |  |                                        | 5,214,439 |                |  |   | 5,135,849 |   |
| Mortgage-backedsecurities – available forsale |  |                                        | 23,211    |                |  |   | 23,211    |   |
| Hedginginstruments                                  |  |                                        | 72,659    |                |  |   | 72,659    |   |
| Liabilities:                                        |  |                                        |      |                |  |   |      |   |
| Warehouselinespayable                               |  | $                                           | 2,689,694 |                |  | $      | 2,689,694 |   |
| Collateralizeddebtobligations                       |  |                                        | 4,992,895 |                |  |   | 4,992,895 |   |
| Repurchaseagreements                                |  |                                        | 102,282   |                |  |   | 102,282   |   |
| Juniorsubordinateddebentures                        |  |                                        | 128,871   |                |  |   | 128,871   |   |
| Hedginginstruments                                  |  |                                        | 6,410     |                |  |   | 6,410     |   |
|                                                     |

|                                                     |  |                       |           |                     |  |        |           |         |  |  |
|-----------------------------------------------------|--|-----------------------|-----------|---------------------|--|--------|-----------|---------|--|--|
|                                                |  | December31, 2005      |
|                                                |  | CarryingAmount        |           | Estimated FairValue |
|                                                |  | (Dollars inthousands) |
| Assets:                                             |  |                  |      |                |  |   |      |    |
| Mortgageloans held forsale                          |  | $                     | 3,382,560 |                |  | $      | 3,388,115 |    |
| Forwarddeliverycommitments                          |  |                  | (4,363    | )              |  |   | (4,363    | )  |
| Mortgageloans held for sale,net                     |  |                  | 3,378,197 |                |  |   | 3,383,752 |    |
| ARM loansheld for securitization,net                |  |                  | 282       |                |  |   | 277       |    |
| ARM loanscollateralizing debt obligations,net       |  |                  | 4,681,554 |                |  |   | 4,624,237 |    |
| Mortgage-backedsecurities – available forsale |  |                  | 23,357    |                |  |   | 23,357    |    |
| Hedginginstruments                                  |  |                  | 54,472    |                |  |   | 54,472    |    |
| Liabilities:                                        |  |                  |      |                |  |   |      |    |
| Warehouselinespayable                               |  | $                     | 3,177,990 |                |  | $      | 3,177,990 |    |
| Collateralizeddebtobligations                       |  |                  | 4,485,197 |                |  |   | 4,485,197 |    |
| Repurchaseagreements                                |  |                  | 87,058    |                |  |   | 87,058    |    |
| Juniorsubordinateddebentures                        |  |                  | 77,324    |                |  |   | 77,324    |    |
| Hedginginstruments                                  |  |                  | 8,801     |                |  |   | 8,801     |    |
|                                                     |

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RECENTLY ISSUED ACCOUNTINGSTANDARDS

Historically, the Company has accounted forstock-based compensation in accordance with the provisions ofAccounting Principles Board Opinion No. 25, ‘‘Accountingfor Stock Issued to Employees.’’ The Company had notreflected stock option-based employee compensation cost in net income,prior to 2006, because all options granted had an exercise price equalto the market value of the underlying common stock on the date of thegrant.

Under the provisions of SFAS No. 123R, effective inthe period ended March  31,  2006, the Company has measuredthe cost of employee services received in exchange for an award ofequity instruments based on the grant date fair value of the award.That cost will be recognized over the vesting period during which anemployee is required to provide service in exchange for theaward.

The grant date fair value of employee stock optionswas measured using the Black-Scholes option-pricing model, anappropriate option pricing model. See ‘‘StockCompensation’’ of this Note 1 for an illustration of theeffects on net income (loss) had the Company applied the fair valuerecognition provisions of SFAS No. 123R as of January  1,2005.

In March  2005, SEC Staff Accounting Bulletin(‘‘SAB’’) No. 107, Application of SFAS No.123 (revised 2004), ‘‘Accounting for Stock-BasedCompensation,’’ was released. This release summarizes theSEC staff position regarding the interaction between SFAS No. 123(revised 2004), Stock-Based Compensation, and certain SEC rules andregulations and provides the SEC's views regarding the valuationof share-based payment arrangements for publiccompanies.

In February  2006, FASB issued SFAS No.155, ‘‘Accounting for Certain Hybrid FinancialInstruments’’, which addresses issues on the evaluationof beneficial interests issued in securitization transactions underSFAS No. 133. The statement also amends SFAS No. 140 to eliminate theprohibition on a qualifying special purpose entity from holding aderivative financial instrument that pertains to a beneficial interestother than another derivative financial instrument. This statementshall be effective for all financial instruments acquired, issued, orsubject to a remeasurement event occurring after December31,  2006. The Company will adopt this statement when effectiveand is currently evaluating its impact.

In March2006, the FASB issued SFAS No. 156, ‘‘Accounting forServicing of Financial Assets’’, an amendment of SFAS No.140 (‘‘SFAS 156’’). This statement requiresthat an entity separately recognize a servicing asset or a servicingliability when it undertakes an obligation to service a financial assetunder a servicing contract in certain situations. Such servicing assetsor servicing liabilities are required to be initially measured at fairvalue, if practicable. SFAS 156 also allows an entity to choose one oftwo methods when subsequently measuring its servicing assets andservicing liabilities: (1) the amortization method or (2) thefair value measurement method. The amortization method existedunder SFAS 140 and remains unchanged in (1) allowing entities toamortize their servicing assets or servicing liabilities in proportionto and over the period of estimated net servicing income or netservicing loss and (2) requiring the assessment of those servicingassets or servicing liabilities for impairment or increased obligationbased on fair value at each reporting date. The fair value measurementmethod allows entities to measure their servicing assets or servicingliabilities at fair value each reporting date and report changes infair value in earnings in the period the change occurs. SFAS 156introduces the notion of classes and allows companies to make aseparate subsequent measurement election for each class of itsservicing rights. In addition, SFAS 156 requires certain comprehensiveroll−forward disclosures that must be presented for each class.The Statement is effective as of the beginning of an entity’sfirst fiscal year that begins after September  15,  2006.Earlier adoption is permitted as of the beginning of an entity’sfiscal year, so long as the entity has not yet issued financialstatements, including financial statements for any interim period, forthat fiscal year. The Company will adopt this statement when effectiveand is currently evaluating its impact.

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NOTE 2 — PORTFOLIO ARMLOANS

The following table presents the Company'sPortfolio ARM Loans as of March  31,  2006 andDecember  31,  2005 (Dollars inthousands):

|                                           |  |                                        |           |                                |  |        |         |        |  |        |           |         |  |  |
|-------------------------------------------|--|----------------------------------------|-----------|--------------------------------|--|--------|---------|--------|--|--------|-----------|---------|--|--|
| March31, 2006 (unaudited)                 |  | ARMloanscollateralizingdebtobligations |           | ARMloans heldforsecuritization |  | Total  |
| Principalbalanceoutstanding               |  | $                                      | 5,164,865 |                           |  | $      | — |   |  | $      | 5,164,865 |    |
| Unamortizedloan origination costs andfees |  |                                   | 54,044    |                           |  |   | — |   |  |   | 54,044    |    |
| Loanlossreserves                          |  |                                   | (4,470    | )                         |  |   | — |   |  |   | (4,470    | )  |
| Amortizedcost,net                         |  |                                   | 5,214,439 |                           |  |   | — |   |  |   | 5,214,439 |    |
| Grossunrealizedloss                       |  |                                   | (78,590   | )                         |  |   | — |   |  |   | (78,590   | )  |
| Estimatedfairvalue                        |  | $                                      | 5,135,849 |                           |  | $      | — |   |  | $      | 5,135,849 |    |
| Carryingvalue                             |  | $                                      | 5,214,439 |                           |  | $      | — |   |  | $      | 5,214,439 |    |
|                                           |

|                                           |  |                                        |           |                                |  |        |         |         |  |        |           |         |  |  |
|-------------------------------------------|--|----------------------------------------|-----------|--------------------------------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
| December31, 2005                          |  | ARMloanscollateralizingdebtobligations |           | ARM loansheldforsecuritization |  | Total  |
| Principalbalanceoutstanding               |  | $                                      | 4,641,588 |                           |  | $      | 278     |    |  | $      | 4,641,866 |    |
| Unamortizedloan origination costs andfees |  |                                   | 44,089    |                           |  |   | 4       |    |  |   | 44,093    |    |
| Loanlossreserves                          |  |                                   | (4,123    | )                         |  |   | — |    |  |   | (4,123    | )  |
| Amortizedcost,net                         |  |                                   | 4,681,554 |                           |  |   | 282     |    |  |   | 4,681,836 |    |
| Grossunrealizedloss                       |  |                                   | (57,317   | )                         |  |   | (5      | )  |  |   | (57,322   | )  |
| Estimatedfairvalue                        |  | $                                      | 4,624,237 |                           |  | $      | 277     |    |  | $      | 4,624,514 |    |
| Carryingvalue                             |  | $                                      | 4,681,554 |                           |  | $      | 282     |    |  | $      | 4,681,836 |    |
|                                           |

Theloans that the Company retains in its portfolio are serviced through asubservicing arrangement. The TRS sells all of its fixed rate loanproduction to third parties, as well as any ARM loans that the Companydoes not retain in its portfolio.

The Company does notaccount for mortgage-backed securities created in connection with thesecuritization of Portfolio ARM Loans and placed with third partyinvestors as sales and, therefore, does not record any gain or loss inconnection with these securitization transactions. Instead, the Companyaccounts for the securities it issues as a long-term collateralizedfinancing. As of March  31,  2006, the Company heldapproximately $5.2  billion of ARM loans that collateralize thesecurities resulting from its securitization activities, and areclassified on its balance sheet as ARM loans collateralizing debtobligations, net.

The Company has credit exposure on itsARM Loan investment portfolio. During the three months endedMarch  31,  2006, the Company recorded loan loss provisionstotaling $348,000 to reserve for estimated future credit losses onPortfolio ARM Loans, and charged $1,000 against the allowance forlosses during the period.

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The following table summarizesPortfolio ARM Loan delinquency information as of March31,  2006 and December  31,  2005 (Dollars inthousands):

March  31,  2006(unaudited)

|                             |  |            |    |             |  |                              |        |                      |  |        |      |         |  |        |      |         |  |  |
|-----------------------------|--|------------|----|-------------|--|------------------------------|--------|----------------------|--|--------|------|---------|--|--------|------|---------|--|--|
| DelinquencyStatus           |  | Loan Count |    | LoanBalance |  | Percent ofPortfolio ARMLoans |        | PercentofTotalAssets |
| 60 to 89days                |  |       | 45 |        |  | $                            | 12,540 |                 |  |   | 0.24 | %  |  |   | 0.14 | %  |
| 90days ormore               |  |       | 3  |        |  |                         | 1,400  |                 |  |   | 0.03 |    |  |   | 0.02 |    |
| Inbankruptcy andforeclosure |  |       | 48 |        |  |                         | 11,697 |                 |  |   | 0.22 |    |  |   | 0.14 |    |
|                        |  |       | 96 |        |  | $                            | 25,637 |                 |  |   | 0.49 | %  |  |   | 0.30 | %  |
|                             |

December31,2005

|                             |  |            |    |             |  |                              |        |                      |  |        |      |         |  |        |      |         |  |  |
|-----------------------------|--|------------|----|-------------|--|------------------------------|--------|----------------------|--|--------|------|---------|--|--------|------|---------|--|--|
| DelinquencyStatus           |  | Loan Count |    | LoanBalance |  | Percent ofPortfolio ARMLoans |        | PercentofTotalAssets |
| 60 to 89days                |  |       | 48 |        |  | $                            | 12,189 |                 |  |   | 0.26 | %  |  |   | 0.15 | %  |
| 90days ormore               |  |       | 19 |        |  |                         | 5,627  |                 |  |   | 0.12 |    |  |   | 0.07 |    |
| Inbankruptcy andforeclosure |  |       | 18 |        |  |                         | 4,461  |                 |  |   | 0.10 |    |  |   | 0.05 |    |
|                        |  |       | 85 |        |  | $                            | 22,277 |                 |  |   | 0.48 | %  |  |   | 0.27 | %  |
|                             |

NOTE3 — MORTGAGE LOANS HELD FOR SALE

Mortgage loansheld for sale consist of the following components (Dollars inthousands):

|                                               |  |               |           |                 |  |        |           |        |  |  |
|-----------------------------------------------|--|---------------|-----------|-----------------|--|--------|-----------|--------|--|--|
|                                          |  | March31, 2006 |           | December31,2005 |
|                                          |  | (unaudited)   |           |            |
| Mortgageloans held forsale                    |  | $             | 2,816,780 |            |  | $      | 3,331,966 |   |
| Deferredorigination costs andfees             |  |          | 39,590    |            |  |   | 46,231    |   |
| Carryingamount of mortgage loans held forsale |  | $             | 2,856,370 |            |  | $      | 3,378,197 |   |
|                                               |

Mortgageloans are residential mortgages on properties located throughout theUnited States having maturities of up to 40 years, and include ARMloans that are not Portfolio ARM Loans. Pursuant to the terms of themortgage loans, the borrowers have pledged the underlying real estateas collateral for the loans. It is the Company's practice to sellto third party investors any loans that do not constitute Portfolio ARMLoans shortly after they are funded, generally within 30 to 60days.

As of March  31,  2006 andDecember  31,  2005, the Company had loan purchasecommitments from third party investors for approximately $1.7billion, respectively. Substantially all loans held for sale atMarch  31,  2006 and December  31,  2005 weresubsequently sold to third party investors. Substantially all mortgageloans held for sale are pledged as collateral for warehouse linespayable (See Note 6).

As of March  31,  2006and December  31,  2005, the Company had aggregate lockedpipeline commitments to fund mortgage loans held for sale of$2.5  billion and $2.3  billion, respectively.

NOTE4 — DERIVATIVES AND HEDGING ACTIVITIES

The Companyis exposed to interest rate risk in conjunction with the origination,funding, sale and investment in mortgage loan assets. The Companymanages the risk of interest rate changes primarily through the use ofderivative instruments as follows:

|              |                                                                                                                                        |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------|
| •  | Fairvalue hedges, which are intended to manage the risks associated withpotential changes in the fair value of loans held for sale;and |

|              |                                                                                                                            |
|--------------|----------------------------------------------------------------------------------------------------------------------------|
| •  | Cash flow hedges, which are intendedto manage the risks associated with potential changes in theCompany's financing costs. |

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In connection with its mortgageloan origination activities, MortgageIT issues 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 60 days.MortgageIT's risk management objective is to protect earningsfrom an unexpected change in the fair value of IRLCs by economicallyhedging the estimated closed loan volume from the IRLC pipeline.MortgageIT's pipeline hedging strategy primarily utilizes TBASecurities to protect the value of its IRLCs. The TBA Securities,options on TBA Securities, forward sales commitments and IRLCs relatingto mortgage loans held for sale, are derivative instruments and havebeen classified as such by the Company. Accordingly, these derivativeshave been recorded at fair value with changes in fair value reflectedin gain on sale of loans.

At March  31,  2006and December  31,  2005, the notional amount of theCompany's IRLCs relating to mortgage loans held for sale, wasapproximately $1.65  billion and $1.59  billion,respectively. The fair value of the IRLCs at March  31,2006 and December  31,  2005 reflected a gain ofapproximately $1.4  million and $5.8  million,respectively.

At March  31,  2006 andDecember  31,  2005, the notional amount of TBA Securitiesand options on TBA Securities outstanding was approximately$1.22  billion and $1.03  billion, respectively, with afair value gain of approximately $5.4  million and a fair valueloss of approximately $2.9  million,respectively.

At March  31,  2006 andDecember  31,  2005, the notional amount of theCompany's forward sales commitments with third party investorswas approximately $2.1 billion and $1.8  billion, respectively,with a fair value gain of approximately $2.2  million and a fairvalue loss of approximately $4.6  million,respectively.

Fair Value Hedges

The Company isexposed to interest rate risk in conjunction with the sale of mortgageloans. The Company manages the risk of interest rate changes associatedwith its loans held for sale through use of TBA Securities, options onTBA Securities, forward sale commitments and Eurodollar futurescontracts. These derivative instruments are designed to hedge potentialchanges in the fair value of loans held for sale.

The fairvalue adjustments for IRLCs, TBA Securities, options, forward salescommitments and Eurodollar futures contracts are included in gain onsale of mortgage loans.

Cash Flow Hedges

TheCompany primarily utilizes Eurodollar futures contracts, interest ratecap agreements (‘‘Cap Agreements’’) andinterest rate swap agreements (‘‘SwapAgreements’’) in order to manage potential changes infuture LIBOR-based financing costs. The Company generally borrows fundsbased on short-term LIBOR-based interest rates to finance its PortfolioARM Loans. However, its Portfolio ARM Loans have an initial fixedinterest rate period up to five years. As a result, the Company'sexisting and forecasted borrowings reprice to a new rate morefrequently than its Portfolio ARM Loans. Therefore, the purpose ofthese hedges is to better match the average repricing of the variablerate debt with the average repricing of the Portfolio ARMLoans.

All changes in the fair value of Cap Agreements,designated as cash flow hedges, Swap Agreements and the effectiveportion of the Eurodollar futures contracts' gain or loss, arerecorded in OCI on the consolidated balance sheets and will berecognized as net interest income when the forecasted financingtransactions occur. If it becomes probable that the forecastedtransaction, which is the future interest payments on theCompany's collateralized debt obligations, will not occur asspecified at the inception of the hedging relationship, then therelated gain or loss in OCI would be reclassified out of OCI andrecognized in interest expense. The carrying value of these derivativeinstruments is included in hedging instruments on the accompanyingconsolidated 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 

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specified in the Cap Agreements increasesabove contractually specified levels. Therefore, such Cap Agreementshave the effect of capping the interest rate on a portion of theCompany's borrowings at a level specified by the Cap Agreement.The notional balances of the caps generally decline over the life ofthese instruments approximating the declining balance of theCompany's collateralized debt obligations.

Under theCompany's existing Cap Agreements, the Company will receive cashpayments should one-month LIBOR increase above the contract rates ofthe caps, which range from 2.50% to 6.02%. The CapAgreements had an average maturity of 4.63 years as of March31,  2006 and will expire between August  2007 and June,2014.

The Company enters into Swap Agreements to fix theinterest rate on a portion of the Company's borrowings asspecified in the Swap Agreement. When the Company enters into a SwapAgreement, it agrees to pay a fixed interest rate as specified in theagreement, typically based on LIBOR. Swap Agreements have the effect ofconverting the Company's variable-rate debt into fixed-rate debtover the life of the Swap Agreements.

Both Cap and SwapAgreements represent a means to lengthen the average repricing periodof the Company's variable-rate collateralized debt obligationssuch that the average repricing duration of the borrowings more closelymatches the average repricing duration of the Company's PortfolioARM Loans.

The Company uses Eurodollar futures contractsto hedge both forecasted and recognized LIBOR-based borrowings. WhenLIBOR-based interest rates change, the change in the value ofEurodollar futures contracts can be expected to approximately offsetthe change in the value of the hedged LIBOR-based fundingcosts.

The following table presents notional amount,carrying amount and realized and unrealized gains and (losses) recordedin OCI for the Company's cash flow hedges at March31,  2006 and December  31,  2005. The carryingamount of the cash flow derivative instruments is included in hedginginstruments in the accompanying balancesheets.

|                             |  |                          |            |                 |  |                |        |        |  |        |        |         |  |  |
|-----------------------------|--|--------------------------|------------|-----------------|--|----------------|--------|--------|--|--------|--------|---------|--|--|
|                        |  | March31, 2006(unaudited) |
|                        |  | NotionalAmount           |            | Carrying Amount |  | Net Gain(Loss) |
|                        |  | (Dollars inthousands)    |
| Eurodollar futurescontracts |  | $                        | 7,003,000  |            |  | $              | 1,835  |   |  | $      | (681   | )  |
| Capagreements               |  |                     | 4,399,787  |            |  |           | 43,552 |   |  |   | 16,695 |    |
| Swapagreements              |  |                     | 573,417    |            |  |           | 13,116 |   |  |   | 12,900 |    |
| Totalcash flowhedges        |  | $                        | 11,976,204 |            |  | $              | 58,503 |   |  | $      | 28,914 |    |
|                             |

|                             |  |                       |           |                 |  |                |        |        |  |        |        |         |  |  |
|-----------------------------|--|-----------------------|-----------|-----------------|--|----------------|--------|--------|--|--------|--------|---------|--|--|
|                        |  | December31,2005       |
|                        |  | NotionalAmount        |           | Carrying Amount |  | NetGain (Loss) |
|                        |  | (Dollars inthousands) |
| Eurodollar futurescontracts |  | $                     | 4,141,000 |            |  | $              | 469    |   |  | $      | (3,627 | )  |
| Capagreements               |  |                  | 3,971,027 |            |  |           | 31,524 |   |  |   | 6,801  |    |
| Swapagreements              |  |                  | 596,463   |            |  |           | 11,264 |   |  |   | 10,999 |    |
| Totalcash flowhedges        |  | $                     | 8,708,490 |            |  | $              | 43,257 |   |  | $      | 14,173 |    |
|                             |

Asof March  31,  2006, the net gain in OCI was $28,914,000.The Company estimates that, over the next twelve months, $1,629,000 ofthis net gain will be reclassified from OCI to net interestincome.

NOTE 5 — REMIC SECURITIZATION

InNovember  2005, MortgageIT completed its first REMICsecuritization, whereby a pool of ARM loans totaling approximately$388  million was securitized and sold to the public. The Companyretained the mortgage servicing rights and retained approximately$24  million in mortgage-backed securities created in thetransaction.

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The available for salemortgage-backed securities consist of the Company’s investmentin the interest-only, prepayment penalty and other subordinatedsecurities that the trust issued. The unrealized losses and estimatedfair value of the available for sale mortgage-backed securities as ofMarch  31,  2006 and December  31, 2005, areapproximately $182,000 and $23.2  million, and $948,000 and$23.4  million, respectively.

MortgageIT recordsmortgage servicing rights arising from the sale of loans in the REMICsecuritization. The carrying value of mortgage servicing rights and theestimated fair value of the servicing rights as of March31,  2006 and December  31,  2005, are approximately$3.2  million and $3.4  million, and $2.5  millionand $2.6  million, respectively.

In February2006, MortgageIT completed its second REMIC transaction, which wasstructured to qualify as a financing and, as such, is included incollateralized debt obligations, discussed below.

NOTE 6— BORROWINGS

Collateralized DebtObligations

In the February  2006 REMICsecuritization, the Company issued, through a trust, AAA and AA-ratedfloating-rate pass-through certificates totaling $723.0  millionand A-rated subordinated floating-rate securities totaling $10.1million to third party investors, and retained $33.3  million ofsubordinated certificates, which provide credit support to thehigher-rated certificates.

In addition, throughDecember  31,  2005, the Company had issued AAA/AA-ratedfloating-rate pass-through certificates totaling $5.25  billionand A+/BBB+ subordinated floating-rate securities totaling $55.1million to third party investors and retained $112.2  million ofsubordinated certificates, which provide credit support to thehigher-rated certificates that were placed with third party investors.The interest rates on the floating-rate pass-through certificates resetmonthly and are indexed to one-month LIBOR.

In connectionwith the issuance of these mortgage-backed securities, which are alsoreferred to as collateralized debt obligations, the Company incurredcosts of $17.7  million through March  31,  2006.These costs are being amortized over the expected life of thesecurities using the level yield method. These transactions wereaccounted for as financings of loans and represent permanent financingthat is not subject to margin calls. The Company's collateralizeddebt obligations are issued by trusts and are secured by ARM loansdeposited into the trust. For financial reporting and tax purposes, thetrusts' ARM loans held as collateral are recorded as assets ofthe Company and the issued mortgage-backed securities are recorded ascollateralized debt obligations.

As of March31,  2006 and December  31,  2005, themortgage-backed securities were collateralized by ARM loans with aprincipal balance of $5.2  billion and $4.6  billion,respectively. The debt matures between 2033 and 2036 and is callable bythe Company at par anytime after the total balance of the loanscollateralizing the debt is amortized down to 20%, or 10%for the February  2006 REMIC securitization, of the originalunpaid balance. The balance of this debt is reduced as the underlyingloan collateral is paid down by borrowers and is expected to have anaverage life of approximately 2.5 years.

RepurchaseAgreements

The Company had $102.3  million and$87.1  million outstanding under repurchase agreements with aweighted average borrowing rate of approximately 5.0% and3.5% and a weighted average remaining maturity of 25 days and 26days as of March  31,  2006 and December  31,2005, respectively.

Junior SubordinatedDebentures

During March  2006, MortgageIT issuedapproximately $51.5  million of junior subordinated debentures(the ‘‘2006 Debentures’’). The 2006Debentures were issued to a trust subsidiary of MortgageIT in order tofund such trust's obligations with respect to an aggregate of$50  million of trust preferred 

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securities which were issued by such trustsubsidiary. The 2006 Debentures are floating-rate and bear a variableinterest rate of 360 basis points above 3-month LIBOR, paid quarterly,and mature in 2036. They are redeemable, by MortgageIT, at par, afterfive years and at a premium to par in certain limited circumstancesover the first five years. In connection with the issuance of the 2006Debentures, the Company incurred costs of $1.5  million. Thesecosts are being amortized over the expected life of the 2006 Debenturesusing the interest method.

During April and May2005, MortgageIT issued an aggregate of approximately $77.3million of junior subordinated debentures (the ‘‘2005Debentures’’). The 2005 Debentures were issued to trustsubsidiaries of MortgageIT in order to fund such trust'sobligations with respect to an aggregate of $75  million of trustpreferred securities which were issued by such trust subsidiary. The2005 Debentures are floating-rate and bear a variable interest rate of375 basis points above 3-month LIBOR, paid quarterly, and mature in2035. They are redeemable, by MortgageIT, at par, after five years andat a premium to par in certain limited circumstances over the firstfive years. In connection with the issuance of the 2005 Debentures, theCompany incurred costs of $2.5  million. These costs are beingamortized over the expected life of the 2005 Debentures using theinterest method.

As of March  31,  2006, theCompany did not include in its consolidated financial statements theassets, liabilities and operations of the trust subsidiaries pursuantto FASB Interpretation No. 46 (revised December  2003),‘‘Consolidation of Variable InterestEntities’’ (‘‘FIN 46R’’). Asof March  31,  2006, the Company recorded its investment inthe trust subsidiaries, of approximately $3.8  million, inprepaids and other assets in the accompanying consolidated balancesheets.

Warehouse Lines Payable

The Company hassix warehouse credit facilities with major lenders that are used tofund mortgage loans.

The Company maintains a warehousecredit facility with JPMorgan Chase Bank, National Association(‘‘JPMorgan Chase’’) for a noncommittedcredit limit of $500  million. Under the line, outstandingadvances are secured by the specific mortgage loans funded, and bearinterest at LIBOR plus a spread based on the types of loans beingfunded. As of March  31,  2006 and December31,  2005, the Company had outstanding approximately$227.6  million and $153.4  million, respectively, on thisfacility. This credit facility expires in October2006.

The Company maintains a warehouse credit facilitywith Credit Suisse First Boston Mortgage Capital LLC(‘‘CSFB’’) for a partially committed creditlimit of $750  million. Under the line, outstanding advances aresecured by the specific mortgage loans funded, and bear interest atLIBOR plus a spread based on the types of loans being funded. As ofMarch  31,  2006 and December  31,  2005, theCompany had outstanding approximately $497.5  million and$384.1  million, respectively, on this facility. This creditfacility expires in May  2006.

The Company maintainsa warehouse credit facility with Greenwich Capital Financial ProductsInc. (‘‘Greenwich’’) for an uncommittedcredit limit of $750  million. Under the line, outstandingadvances are secured by the specific mortgage loans funded, and bearinterest at LIBOR plus a spread based on the types of loans beingfunded. As of March  31,  2006 and December31,  2005, the Company had outstanding approximately$575.0  million and $485.6  million, respectively, on thisfacility. This credit facility expires in July2006.

The Company maintains a credit facility (the‘‘UBS Warehouse Facility’’) with UBS RealEstate Securities, Inc. (‘‘UBS’’), whichhas an uncommitted credit limit of $2.0  billion, which includesa mortgage loan sale conduit facility. This credit facility may beterminated at the discretion of the lender. The facility provides fortemporary increases in the line amount on an as-requested basis. Underthe UBS Warehouse Facility, outstanding advances are secured by thespecific mortgage loans funded and bear interest at LIBOR plus a spreadbased on the types of loans being funded. Interest is payable at thetime the outstanding principal amount of the advance is due, generallywithin 30 to 60 days. As of March  31,  2006 andDecember  31,  2005, the Company had outstanding on theline approximately $409.6  million and $589.0  million,respectively, on this facility. Under the conduit 

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facility, the Company sells mortgage loansto UBS at a price equal to the committed purchase price from a thirdparty investor, and records the transaction as a sale in accordancewith SFAS No. 140. UBS, in turn, sells the loan to a third partyinvestor. The Company facilitates the sale to the third party investoron behalf of UBS and receives a performance fee that varies dependingon the time required by UBS to complete the transfer of the loans tothe third party investor. The performance fee of $1.6  millionand $1.1  million for the three months ended March31,  2006 and 2005, respectively, is included in brokeragerevenue on the statement of operations. Loans on the conduit line,which totaled approximately $697.8  million and $1.1billion at March  31,  2006 and December  31,2005, respectively, reduce availability under the facility until theyare transferred to the third party investor by UBS. The mortgage loanssold to 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 August2007.

The Company maintains a warehouse credit facilitywith Merrill Lynch Bank USA (‘‘MerrillLynch’’), which has a partially committed credit limit of$1.25  billion. Under the line the outstanding advances aresecured by the specific mortgage loans funded, and bear interest atLIBOR plus a spread based on the types of loans being funded. As ofMarch  31,  2006 and December  31,  2005, theCompany had outstanding approximately $503.7  million and$1.1  billion, respectively, on this facility. This creditfacility expires in July  2006.

The Companymaintains a credit facility with Residential Funding Corporation(‘‘RFC’’), which has a committed creditlimit of $650  million, collateralized by the specific mortgageloans funded, and bears interest at LIBOR plus a spread based on thetypes of loans being funded. As of March  31,  2006 andDecember  31,  2005, the Company had outstandingapproximately $476.3  million and $510.1  million,respectively, on this facility. This credit facility expires inJune  2006.

The weighted average effective rate ofinterest for borrowings under all warehouse lines of credit wasapproximately 5.7% and 4.3% for the three months endedMarch  31,  2006 and the year ended December31,  2005, respectively.

Substantially all mortgageloans held for sale have been pledged as collateral under the warehousecredit facilities described above. In addition, the facilities containvarious financial covenants and restrictions, including a requirementthat the Company maintain specified leverage ratios and net worthamounts. As of March  31,  2006, the Company was not incompliance with a covenant contained in four of its warehouse creditfacilities, for which waivers have been obtained. No assurance can bemade that the Company's lenders will waive future covenantviolations, if violations occur.

Maturities of borrowingsare as follows at March  31,  2006 (Dollars inthousands):

|                                   |  |                      |           |                |  |           |           |           |  |                 |           |        |  |        |           |        |  |                                  |         |        |  |  |
|-----------------------------------|--|----------------------|-----------|----------------|--|-----------|-----------|-----------|--|-----------------|-----------|--------|--|--------|-----------|--------|--|----------------------------------|---------|--------|--|--|
|                              |  | Paymentsdue byPeriod |
|                              |  | (unaudited)          |
|                              |  | Total                |           | Lessthan 1year |  | 1-3 years |           | 3-5 years |  | More than5years |
| Collateralized debtobligations(1) |  | $                    | 4,992,895 |           |  | $         | 1,222,171 |      |  | $               | 1,746,502 |   |  | $      | 1,585,236 |   |  |     $438,986 |
| Warehouselinespayable             |  |                 | 2,689,694 |           |  |      | 2,689,694 |      |  |            | —   |   |  |   | —   |   |  |                             | — |   |
| Repurchaseagreements              |  |                 | 102,282   |           |  |      | 102,282   |      |  |            | —   |   |  |   | —   |   |  |                             | — |   |
| Juniorsubordinateddebentures      |  |                 | 128,871   |           |  |      | —   |      |  |            | —   |   |  |   | —   |   |  |                             | 128,871 |   |
|                                   |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Paymentson the Company's collateralized debt obligations are dependentupon cash flows received from underlying loans receivable. TheCompany's estimate of its repayment is based on scheduledprincipal payments on the underlying loans receivable, adjusted forestimated pre-payments. This estimate will differ from actualpre-payment amounts. |

Special-Purpose Warehouse FinanceSubsidiary

The Company's UBS Warehouse Facility,described above under ‘‘— Warehouse LinesPayable,’’ is administered by an agent on behalf of aninstitutionally managed medium term note conduit. Under the fundingagreements governing the UBS Warehouse Facility, the Company transfersfinance receivables to MortgageIT SPV I, a Delaware statutory trust(the ‘‘Trust’’) that has been establishedby the Company as a special purpose warehouse finance subsidiary of theCompany. The Trust, in 

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turn, issues notes (the‘‘Notes’’) to the agent, collateralized bysuch finance receivables and cash. Through consolidation of the Trust,these transactions are treated as secured financing arrangements forfinancial reporting purposes. The agent provides funding under theNotes to the Trust pursuant to an advance formula, and the Trustforwards the funds to the Company in consideration for the transfer offinance receivables. Advances under the funding agreements bearinterest at LIBOR plus specified fees depending upon the source offunds provided by the agent. The Company is required to hold certainfunds in restricted cash accounts to provide additional collateral forborrowings under the facility. Additionally, the funding agreementscontain various covenants requiring certain minimum financial ratios,asset quality, and portfolio performance ratios (cumulative net loss,delinquency and repossession ratios) as well as deferment levels.Failure to meet any of these covenants, financial ratios or financialtests could result in an event of default under these agreements. If anevent of default occurs under these agreements, the lenders could electto declare all amounts outstanding under these agreements to beimmediately due and payable, enforce their interests against collateralpledged under these agreements or restrict the Company's abilityto obtain additional borrowings under these agreements.

Inaddition, under the agreements that document the issuance and sale ofthe Notes:

|              |                                                                                                                |
|--------------|----------------------------------------------------------------------------------------------------------------|
| •  | all assets which are from timeto time owned by the Trust are legally owned by the Trust and not bythe Company; |

|              |                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------|
| •  | the Trust is a legal entityseparate and distinct from the Company and all other affiliates of theCompany; |

|              |                                                                                                                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the assets of the Trust arelegally assets only of the Trust, and are not legally available to theCompany and all other affiliates of the Company or their respectivecreditors, for pledge to other creditors or to satisfy the claims ofother creditors; |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | none of the Company orany other affiliate of the Company is legally liable on the debts ofthe Trust, except for an amount limited to 10% of the greater of(i) the total principal amount of Notes then outstanding under therelated note purchase agreement plus the aggregate outstandingprincipal of all mortgage loans sold under the loan repurchaseagreement and the loan sale agreement and (ii) the facility limit;and |

|              |                                                                               |
|--------------|-------------------------------------------------------------------------------|
| •  | assets of the Company which resultfrom the issuance and sale of the Notesare: |

|  |          |                                                                                                                                                   |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1)  | any cash portion of the purchase pricepaid from time to time by the Trust in consideration of mortgage loanssold to the Trust by the Company; and |

|  |          |                                                              |
|--|----------|--------------------------------------------------------------|
|  | 2)  | thevalue of the Company's net equity investment in theTrust. |

As of March  31,  2006, the Trust hadthe following assets (in thousands):

|  |          |                           |
|--|----------|---------------------------|
|  | a)  | wholeloans: $418,358; and |

|  |          |                                    |
|--|----------|------------------------------------|
|  | b)  | cash and cashequivalents: $15,426. |

As of March  31,  2006,the Trust had the following liabilities and equity (inthousands):

|  |          |                                          |
|--|----------|------------------------------------------|
|  | a)  | short-term debt due to UBS:$409,646; and |

|  |          |                                       |
|--|----------|---------------------------------------|
|  | b)  | $24,138 in members' equityinvestment. |

As of March  31,  2006, theCompany included in its consolidated financial statements the assets,liabilities and operations of the Trust pursuant to FIN46R.

NOTE 7 — NOTES PAYABLE

MortgageITissued senior secured notes due 2007, with an aggregate principalamount of $15  million, in March  2004. The notes aresecured by a first priority security interest in all ofMortgageIT's assets, with the exception of its mortgage loansheld for sale and ARM loans held for securitization. The note purchaseagreement governing the notes contains various restrictions andcovenants. As of March  31,  2006, MortgageIT was incompliance with all of the restrictions and covenants contained in

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the related note purchase agreement. Ifcovenant violations occur in the future, there can be no assurance thatthe investor will waive them.

In November  2004,MortgageIT entered into an amendment of the note purchase agreement,which reduced the interest rate on the outstanding principal balancethereunder from 10% per annum to 71⁄2%per annum for the period beginning October  1,  2004 andending March  31,  2005. In addition, the amendmentprohibited MortgageIT from prepaying the notes prior to April14,  2005. In August  2005, MortgageIT entered into anamendment and restatement of the note purchase agreement, which reducedthe interest rate on the outstanding principal balance thereunder from10% per annum to 5.5% for the period as of August23,  2005 and ending at maturity. In addition, this amendmentrequired MortgageIT to pay a premium on any optional prepayment of thenotes on or prior to July  31,  2006.

InFebruary  2006, MortgageIT sold an additional aggregate principalamount of $15  million of senior secured notes to the investor,and amended the interest rate to 6.5% for all notes outstandingas of February  21,  2006 and ending atmaturity.

NOTE 8 — STOCKHOLDERS EQUITY

StockRepurchase Plan

In October  2005, the Companyannounced that its board of directors authorized a program torepurchase up to $30  million of the Company's outstandingcommon stock. The repurchase program allows for shares to be purchasedfrom time to time at management's discretion based upon ongoingassessments of the capital needs of the Company and the marketvaluation of its stock. Through December  31,  2005, theCompany has repurchased 90,400 shares of common stock at an averageprice of $13.03 per share. There were no repurchases during the threemonths ended March  31,  2006.

2004 and AmendedLong-Term Incentive Plans

In August  2004, theCompany 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.

In April2005, the board of directors adopted the MortgageIT Holdings, Inc.Amended Long-Term Incentive Plan (the ‘‘AmendedPlan’’), which was subsequently approved by theCompany's stockholders. Under the Amended Plan, an additional1,000,000 shares of the Company's common stock were reserved forissuance; this addition of shares is the only material differencebetween the 2004 Plan and the Amended Plan. The Amended Plan willterminate in 2015.

Both the 2004 Plan and the Amended Planprovide for the grant of incentive stock options, non-qualified stockoptions, stock appreciation rights and restricted stock. During thethree months ended March  31,  2006, options to purchase21,532 shares of common stock, at an average exercise price of $12.06per share, and 3,300 shares of restricted stock were forfeited, and theCompany granted 291,345 shares of restricted stock. The stock optionsand restricted stock will vest over a three-year period. There havebeen no stock option grants made under the AmendedPlan.

During the three months ended March31,  2006, 39,886 shares of restricted stockvested.

Stock option activity under the 2004 Plan issummarized as follows: (Shares inthousands)

|                                     |  |             |     |                               |  |        |       |        |  |  |
|-------------------------------------|--|-------------|-----|-------------------------------|--|--------|-------|--------|--|--|
|                                |  | 2004Plan    |
|                                |  | (unaudited) |
|                                |  | Options     |     | WeightedAverageExercise Price |
| Options outstanding,January  1,2006 |  |        | 859 |                          |  | $      | 12.15 |   |
| Forfeited                           |  |        | (21 | )                        |  |   | 12.06 |   |
| Optionsoutstanding, March  31,2006  |  |        | 838 |                          |  | $      | 12.16 |   |
|                                     |

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The followingtable summarizes information pertaining to outstanding options atMarch  31,  2006 (Shares inthousands):

|                         |  |                   |     |                                  |  |                   |  |        |     |        |  |  |  |  |
|-------------------------|--|-------------------|-----|----------------------------------|--|-------------------|--|--------|-----|--------|--|--|--|--|
| Rangeof Exercise Prices |  | NumberOutstanding |     | Average RemainingContractualLife |  | NumberExercisable |
| $12.01                  |  |              | 799 |                             |  | 8.3years          |  |   | 216 |   |
| $12.80-$17.91           |  |              | 39  |                             |  | 8.5years          |  |   | 12  |   |
|                         |

There were approximately828,000 shares available for future grant at March  31,2006, under both the 2004 Plan and the Amended Plan.

NOTE 9— EARNINGS PER SHARE

Basic and diluted income pershare are calculated in accordance with SFAS No. 128,‘‘Earnings Per Share.’’ The basic anddiluted income per common share for all periods presented were computedbased on the weighted-average number of common shares outstanding, asfollows (Dollars and shares in thousands, except per sharedata):

|                                                                            |  |                            |         |         |  |        |        |        |  |  |
|----------------------------------------------------------------------------|--|----------------------------|---------|---------|--|--------|--------|--------|--|--|
|                                                                       |  | (unaudited)                |
|                                                                       |  | Threemonths ended March31, |
|                                                                       |  | 2006                       |         | 2005    |
| Net(loss)income                                                            |  | $                          | (4,727  | )  |  | $      | 15,728 |   |
| Basicearnings pershare:                                                    |  |                       |    |    |  |   |   |   |
| Weighted averagecommon stock outstanding for basic earnings pershare       |  |                       | 28,352  |    |  |   | 19,405 |   |
| Basicearnings pershare                                                     |  | $                          | (0.17   | )  |  | $      | 0.81   |   |
| Dilutedearnings per share:                                                 |  |                       |    |    |  |   |   |   |
| Net(loss) income for diluted earnings pershare                             |  | $                          | (4,727  | )  |  | $      | 15,728 |   |
| Commonstock outstanding for basic earnings per sharecomputation            |  |                       | 28,352  |    |  |   | 19,405 |   |
| Assumedconversion ofdilutive:                                              |  |                       |    |    |  |   |   |   |
| Stock options andunvested restrictedstock                                  |  |                       | — |    |  |   | 441    |   |
| Weightedaverage common stock outstanding for diluted earnings per share(1) |  |                       | 28,352  |    |  |   | 19,846 |   |
| Dilutedearnings pershare                                                   |  | $                          | (0.17   | )  |  | $      | 0.79   |   |
|                                                                            |

Potentiallydilutive common equivalent shares amounting to 87,000 relating torestricted stock were excluded from the computation for the threemonths ended March  31,  2006, as their effect would havebeen anti-dilutive.

NOTE 10 — STATEMENT OF CASHFLOWS

Supplemental disclosure of cash flow information(Dollars inthousands)

|                              |  |                                       |         |        |  |        |        |        |  |  |
|------------------------------|--|---------------------------------------|---------|--------|--|--------|--------|--------|--|--|
|                         |  | (unaudited)Threemonths ended March31, |
|                         |  | 2006                                  |         | 2005   |
| Cashpaid during the yearfor: |  |                                  |    |   |  |   |   |   |
| Interest                     |  | $                                     | 105,483 |   |  | $      | 29,579 |   |
| Incometaxes                  |  |                                  | 1,556   |   |  |   | 89     |   |
|                              |

NOTE 11 —SEGMENT REPORTING

The Company operates its business intwo primary segments, mortgage investment operations conducted in theREIT and mortgage banking operations conducted in the TRS. Mortgageinvestment operations are driven by the balance of Portfolio ARM Loansand the net interest income generated 

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on those balances. Mortgage bankingoperations includes loan origination, underwriting, funding, secondarymarketing and loan brokerage, title and insurance activities. Followingis a summary of the Company's segment operating results for thethree months ended March  31,  2006 and 2005 (Dollars inthousands).

Three months ended March  31,  2006(unaudited)

|                                                   |  |                              |           |                           |  |              |           |         |  |        |          |         |  |        |           |         |  |  |
|---------------------------------------------------|--|------------------------------|-----------|---------------------------|--|--------------|-----------|---------|--|--------|----------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations |           | MortgageBankingOperations |  | Eliminations |           | Total   |
| Gainon sale of mortgageloans                      |  | $                            | —   |                      |  | $            | 45,696    |    |  | $      | 56       |    |  | $      | 45,752    |    |
| Brokeragerevenues                                 |  |                         | —   |                      |  |         | 6,438     |    |  |   | —  |    |  |   | 6,438     |    |
| Interestincome                                    |  |                         | 66,238    |                      |  |         | 52,990    |    |  |   | (5,320   | )  |  |   | 113,908   |    |
| Interestexpense                                   |  |                         | (56,165   | )                    |  |         | (55,618   | )  |  |   | 6,802    |    |  |   | (104,981  | )  |
| Netinterestincome                                 |  |                         | 10,073    |                      |  |         | (2,628    | )  |  |   | 1,482    |    |  |   | 8,927     |    |
| Realizedand unrealized gain on hedginginstruments |  |                         | 420       |                      |  |         | —   |    |  |   | —  |    |  |   | 420       |    |
| Other                                             |  |                         | (95       | )                    |  |         | 333       |    |  |   | —  |    |  |   | 238       |    |
| Totalrevenues                                     |  |                         | 10,398    |                      |  |         | 49,839    |    |  |   | 1,538    |    |  |   | 61,775    |    |
| Operatingexpenses                                 |  |                         | 1,496     |                      |  |         | 76,165    |    |  |   | 181      |    |  |   | 77,842    |    |
| Incomebefore incometax                            |  |                         | 8,902     |                      |  |         | (26,326   | )  |  |   | 1,357    |    |  |   | (16,067   | )  |
| Incometax (benefit)expense                        |  |                         | —   |                      |  |         | (11,340   | )  |  |   | —  |    |  |   | (11,340   | )  |
| Netincome(loss)                                   |  | $                            | 8,902     |                      |  | $            | (14,986   | )  |  | $      | 1,357    |    |  | $      | (4,727    | )  |
| Segmentassets                                     |  | $                            | 5,468,876 |                      |  | $            | 3,855,880 |    |  | $      | (877,506 | )  |  | $      | 8,447,250 |    |
|                                                   |

Allocationofeliminations:

|                                      |  |                              |        |                            |  |        |         |         |  |        |        |         |  |  |
|--------------------------------------|--|------------------------------|--------|----------------------------|--|--------|---------|---------|--|--------|--------|---------|--|--|
|                                 |  | MortgageInvestmentOperations |        | Mortgage BankingOperations |  | Total  |
| Net income (loss) beforeeliminations |  | $                            | 8,902  |                       |  | $      | (14,986 | )  |  | $      | (6,084 | )  |
| Eliminations                         |  |                         | 1,337  |                       |  |   | 20      |    |  |   | 1,357  |    |
| Netincome(loss)                      |  | $                            | 10,239 |                       |  | $      | (14,966 | )  |  | $      | (4,727 | )  |
|                                      |

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Three months ended March31,  2005(unaudited)

|                                                   |  |                              |           |                           |  |              |           |         |  |        |          |         |  |        |           |         |  |  |
|---------------------------------------------------|--|------------------------------|-----------|---------------------------|--|--------------|-----------|---------|--|--------|----------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations |           | MortgageBankingOperations |  | Eliminations |           | Total   |
| Gainon sale of mortgageloans                      |  | $                            | —   |                      |  | $            | 39,166    |    |  | $      | (7,059   | )  |  | $      | 32,107    |    |
| Brokeragerevenues                                 |  |                         | —   |                      |  |         | 6,398     |    |  |   | —  |    |  |   | 6,398     |    |
| Interestincome                                    |  |                         | 33,271    |                      |  |         | 19,555    |    |  |   | 926      |    |  |   | 53,752    |    |
| Interestexpense                                   |  |                         | (21,835   | )                    |  |         | (9,651    | )  |  |   | —  |    |  |   | (31,486   | )  |
| Netinterestincome                                 |  |                         | 11,436    |                      |  |         | 9,904     |    |  |   | 926      |    |  |   | 22,266    |    |
| Realizedand unrealized gain on hedginginstruments |  |                         | 7,308     |                      |  |         | —   |    |  |   | 1,614    |    |  |   | 8,922     |    |
| Other                                             |  |                         | —   |                      |  |         | 263       |    |  |   | —  |    |  |   | 263       |    |
| Totalrevenues                                     |  |                         | 18,744    |                      |  |         | 55,731    |    |  |   | (4,519   | )  |  |   | 69,956    |    |
| Operatingexpenses                                 |  |                         | 3,014     |                      |  |         | 48,801    |    |  |   | (569     | )  |  |   | 51,246    |    |
| Incomebefore incometax                            |  |                         | 15,730    |                      |  |         | 6,930     |    |  |   | (3,950   | )  |  |   | 18,710    |    |
| Incometaxes                                       |  |                         | 2         |                      |  |         | 2,980     |    |  |   | —  |    |  |   | 2,982     |    |
| Netincome                                         |  | $                            | 15,728    |                      |  | $            | 3,950     |    |  | $      | (3,950   | )  |  | $      | 15,728    |    |
| December31,2005                                   |  |                         |      |                      |  |         |      |    |  |   |     |    |  |   |      |    |
| Segmentassets                                     |  | $                            | 4,926,820 |                      |  | $            | 3,584,137 |    |  | $      | (129,066 | )  |  | $      | 8,381,891 |    |
|                                                   |

Allocationofeliminations:

|                               |  |                              |        |                            |  |        |        |         |  |        |        |         |  |  |
|-------------------------------|--|------------------------------|--------|----------------------------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                          |  | MortgageInvestmentOperations |        | Mortgage BankingOperations |  | Total  |
| Net income beforeeliminations |  | $                            | 15,728 |                       |  | $      | 3,950  |    |  | $      | 19,678 |    |
| Eliminations                  |  |                         | 926    |                       |  |   | (4,876 | )  |  |   | (3,950 | )  |
| Netincome                     |  | $                            | 16,654 |                       |  | $      | (926   | )  |  | $      | 15,728 |    |
|                               |

NOTE12 — COMMITMENTS AND CONTINGENCIES

OnFebruary  16,  2006, EMC Mortgage Corp.(‘‘EMC’’) filed suit against MortgageIT inthe 95th Judicial District Court of Dallas County, Texas. This suitalleges, among other things, that MortgageIT is obligated to repurchasefrom EMC approximately $70.5  million in sub-prime mortgage loanssold to EMC pursuant to a Mortgage Loan Purchase and Interim ServicingAgreement dated January  1,  2003, as amended, due toalleged breaches of representations and warranties as well as allegedearly payment default repurchase obligations with respect to suchloans. The case was subsequently removed to the U.S. District Court forthe Northern District of Texas, Dallas Division. MortgageIT is in theprocess of evaluating the claims and potential counterclaims, andintends to vigorously defend the suit. At this stage of theproceedings, it is not possible to predict the outcome of thislitigation.

On September  29,  2004, asamended on October  12,  2004, an action was filed in theU.S. District Court for the Southern District of New York against oursubsidiary, MortgageIT, and IPI Skyscraper Mortgage, which was, at thetime, a subsidiary of, and has now been merged with and into,MortgageIT. The case was filed by four former loan officers of aMortgageIT branch in Newburgh, New York, and seeks to recover allegedlyunpaid minimum wage and overtime under both federal and New York laborlaws. The Court has preliminarily approved a settlement. Final approvalby the Court and the amount of any settlement are contingent on theoutcome of the claims process.

In addition to these cases,in the ordinary course of business, the Company is a defendant in orparty to a number of pending and threatened legal actions andproceedings, and is also involved from time to time in investigationsand administrative proceedings by governmental agencies. Certain ofsuch actions and proceedings involve alleged violations of consumerprotection laws, including claims relating to the Company’s loanorigination and collection efforts, and other federal and state banking

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laws. Certain of such actions andproceedings include claims for breach of contract, restitution,compensatory damages, punitive damages and other forms of relief. Dueto the difficulty of predicting the outcome of such matters, theCompany can give no assurance that it will prevail on all claims madeagainst it; however, management believes, based on current knowledgeand after consultation with counsel, that these legal matters andadministrative proceedings and the losses, if any, resulting from thefinal outcome thereof, will not have a material adverse effect on theCompany’s financial position, results of operations orliquidity, but can give no assurance that they will not have such aneffect.

Although it is difficult to predict the outcome ofany litigation, the Company has established litigation reserves wherenecessary in accordance with generally accepted accountingprinciples.

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

Unless thecontext suggests otherwise, the terms‘‘Company,’’‘‘Holdings,’’‘‘we,’’ ‘‘us,’’and ‘‘our’’ refer to MortgageIT Holdings,Inc., a Maryland corporation incorporated in March  2004, and itssubsidiaries. ‘‘MortgageIT’’ or‘‘TRS’’ refers to our wholly ownedsubsidiary, MortgageIT, Inc., a New Yorkcorporation.

GENERAL

Formed in March  2004,Holdings is organized and conducts its operations to qualify as REITfor federal income tax purposes, and is focused on earning net interestincome from mortgage loans originated by MortgageIT, its taxable REITsubsidiary. MortgageIT was incorporated in New York in February1999, and began marketing mortgage loan services in May  1999.MortgageIT is a full-service residential mortgage banking company thatis licensed to originate mortgage loans throughout the United States.MortgageIT originates single-family mortgage loans of all types, with aparticular focus on prime ARM and fixed-rate, first lien residentialmortgage loans. Prior to August  4,  2004, MortgageIT soldall of the loans it originated through both its retail and wholesaleoperations to third party investors. Home Closer LLC(‘‘Home Closer’’), a subsidiary ofMortgageIT, Inc., provides settlement, title and related services.

The Company's business strategy is to self-originateprime ARM loans that are used to collateralize debt obligations, andgenerate earnings by holding these loans or investment securities inour portfolio and receiving the spread between the yield on our assetsand the cost of borrowings. Our investment strategy is designed tomitigate credit risk and interest rate risk. Our mortgage loaninvestment portfolio consists primarily of self-originated prime ARMLoans that collateralize multi-class pass-through securities that weissue in securitization transactions, and prime ARM Loans that weintend to securitize. A small portion of the portfolio consists ofmortgage-backed securities (‘‘MBS’’) issuedby the TRS through a real estate mortgage investment conduit(‘‘REMIC’’). Mortgage-backed securities aredebt obligations that represent claims to the cash flows from pools ofmortgage loans. A REMIC is an entity through which an issuer can sellmultiple-class securities to investors. The entity invests in a pool ofmortgages, and sells interests in those mortgages through securitieswith one or more senior classes as well as subordinated classes thatassume the credit risk of defaults and delinquencies.

AREMIC securitization may be structured to qualify as either a sale or afinancing for accounting purposes. The REMIC securitization executed bythe TRS in November  2005 is structured to qualify as a sale, andas such, the loans are removed from our balance sheet, but the Companyretains excess interest, prepayment penalty and subordinated securitiesfor its investment portfolio. In such transactions the TRS generatesgain on sale revenue through the sale of loans to the REMIC, and mayalso retain mortgage servicing rights(‘‘MSR’’) on the underlying loans, therebygenerating a stream of revenue over the life of the loans. Thesecurities purchased by the Company for its investment portfolio arefunded with a combination of repurchase line financing and equitycapital. The REMIC securitization executed by the TRS inFebruary  2006 is structured to qualify as a financing. The loanstherefore remain on our balance sheet, and the Company generatesearnings by receiving the spread between the yield on these loan assetsand the cost of borrowings. The Company used a combination ofmulti-class pass-through securities, repurchase line financing andequity capital for this REMIC securitization.

The loansthat we retain in portfolio are serviced through a subservicingarrangement. Generally, we expect to continue to sell the fixed rateloans originated by MortgageIT to third parties as well as any ARM orhybrid ARM loans that we do not retain in portfolio.

OnAugust  4,  2004, we closed our initial public offering andsold 14.6  million shares of common stock at a price to thepublic of $12.00 per share, for net proceeds of approximately$163.4  million, after deducting the underwriters' discountand other offering-related expenses. Since the completion of ourinitial public offering, the primary focus of our business has been tobuild a leveraged portfolio of single-family residential mortgage loanscomprised largely of traditional ARM and hybrid ARM loans,

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the majority of which have an initialfixed-rate period followed by an adjustable-rate period. Our portfolioof mortgage loans consists exclusively of loans originated by the TRS.As of March  31,  2006, we had transferred to ourinvestment portfolio approximately $6.3  billion of residentialtraditional ARM and hybrid ARM loans originated by MortgageIT, as wellas $24.3  million of investment securities collateralized byself-originated ARM loans.

In June  2005, theCompany conducted a secondary public offering of its common stock andsold 7,289,428 shares at a price to the public of $18.25 per share. InJuly  2005, the underwriters of the secondary public offeringexercised, in full, their option to purchase an additional 1,422,646shares of common stock from the Company at the public offering price of$18.25 to cover over-allotments. Net proceeds to the Company, afterdeducting the underwriting discount and estimated offering expenses,were approximately $150  million. In addition, certainstockholders sold 2,194,878 shares in the secondary public offering.The Company did not receive any proceeds from the sale of shares by theselling stockholders.

In April and May  2005, theCompany issued, in two private placements, an aggregate of $75million of trust preferred securities(‘‘TPS’’) through trust subsidiaries andsold them to collateralized debt obligation pool vehicles under Rule144A of the Securities Act of 1933. The floating-rate TPS bear avariable interest rate of 375 basis points above 3-month LIBOR, paidquarterly, and will mature in 2035. They are redeemable at par afterfive years and, in certain limited circumstances, at a premium to parin less than five years. Proceeds from the TPS sale were used to growthe Company’s self-originated loan portfolio as well as tosupport the continued expansion of the Company’s taxable REITsubsidiary.

In March  2006, the Company issued$50  million of TPS through a trust subsidiary and sold them tocollateralized debt obligation pool vehicles under Rule 144A of theSecurities Act of 1933. The floating-rate TPS bear a variable interestrate of 360 basis points above 3-month LIBOR, paid quarterly, and willmature in 2036. They are redeemable at par after five years and, incertain limited circumstances, at a premium to par in less than fiveyears. Proceeds from the TPS sale were used to grow theCompany’s self-originated loan portfolio as well as to supportthe continued expansion of the Company’s taxable REITsubsidiary.

In October  2005, the Company announceda program to repurchase up to $30  million of its outstandingcommon stock, depending upon management’s discretion based uponongoing assessments of the capital needs of the Company and the marketvaluation of its stock. During the fourth quarter of 2005, the Companyrepurchased approximately $1.2  million of stock. There were norepurchases during the three months ended March  31,2006.

Also, in October  2005, Holdings established acaptive mortgage reinsurance company, which generates earnings frommortgage insurance premiums paid on a portion of the loans originatedby MortgageIT. Approximately 7.0% of the loans originated byMortgageIT during the first quarter of 2006 required mortgageinsurance.

In December  2005, the TRS declared a$10  million dividend to Holdings, substantially all of which wasincluded in the 2005 dividend payments paid to shareholders of theCompany.

During the fourth quarter of 2005, gain on salemargins for sub-prime loans narrowed significantly industry-wide. Inresponse to these adverse industry conditions, the Company reduced itspresence in the sub-prime origination market by decreasing the numberof its sub-prime branches from six to three and implementing relatedwork force reductions. In the first quarter of 2006, the Company exitedthe national wholesale sub-prime market by decreasing the number of itssub-prime branches from three to one and reducing the number ofemployees from 412 as of December  31,  2005 to 16 as ofMarch  31,  2006. Funded sub-prime volume during the firstquarter of 2006 was reduced to $109  million, or 2% ofMortgageIT’s total originations during the quarter. As ofMarch  31,  2006, all but $28.6  million of sub-primeinventory had been allocated to trades. The Company expects futuresub-prime loan volume not to be a material component of its totaloriginations. All of the sub-prime loan production is sold to thirdparty investors and we do not hold sub-prime loans in our investmentportfolio.

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DESCRIPTION OF BUSINESS

TheCompany operates its business in two primary segments, mortgageinvestment operations and mortgage banking operations. Mortgageinvestment operations are driven by the net interest income generatedon our leveraged prime mortgage loan investment portfolio. Mortgagebanking operations are driven by income generated from our mortgageloan origination business and include sales, loan processing,underwriting, funding, secondary marketing and brokerageactivities.

Financial information regarding theCompany's business segments can be found in Note 11 to theconsolidated financial statements included elsewhere in this quarterlyreport on Form 10-Q.

Mortgage InvestmentOperations

Our mortgage investment operationsinvolve the acquisition and retention, in a leveraged portfolio, oftraditional ARM loans, hybrid ARM loans, pay option ARMs andmortgage-backed securities (collectively, ‘‘PortfolioAssets’’). Traditional ARM loans are mortgage loans thathave interest rates that reprice in one year or less(‘‘Traditional ARMs’’ or‘‘Traditional ARM loans’’), and hybrid ARMloans are mortgage loans that have a fixed interest rate for an initialperiod of not more than five years and then convert to Traditional ARMsfor their remaining terms to maturity (‘‘HybridARMs’’ or ‘‘Hybrid ARMloans’’, and together with the Traditional ARM loans andpay option ARMs, collectively referred to as (‘‘PortfolioARM Loans’’). Pay optionARMs ("POAs") are mortgage loans thatcarry a low introductory or ‘‘teaser’’ ratefor the first 30-90 days, and thereafter reprice monthly on the basisof an index such as the 12-month Treasury Average. POAs offer threemonthly payment options each month: permitting the borrower to pay afully amortizing amount, including principal and interest; interestonly; or an amount that is less than the accrued interest. This lastoption results in an increase in the loan balance due, which iscommonly referred to as ‘‘negativeamortization.’’ Approximately one-third of the loancollateral in the REMIC securitization completed by the TRS inFebruary  2006 consisted of POAs. Although the loans from thisREMIC remain on the balance sheet of the TRS for reportingpurposes, we consider them to be part of the Company’sinvestment portfolio.

All of the Portfolio ARM Loans weacquire are originated by our mortgage banking operations and must meetthe underwriting criteria and guidelines set forth in our investmentand risk management policy. For purposes of maintaining liquidity forborrowings or as collateral, we may also invest in U.S. Treasurysecurities or debentures and discount notes guaranteed by either of twogovernment-sponsored corporations, Federal National MortgageAssociation (‘‘FNMA’’ or‘‘Fannie Mae’’) and Federal Home LoanMortgage Corporation (‘‘FHLMC’’ or‘‘Freddie Mac’’).

The fundingof our mortgage loan portfolio primarily consists of borrowings fromour warehouse lines of credit for loans awaiting securitization, theissuance of collateralized debt obligations(‘‘CDOs’’) and repurchase agreements. Weoriginate ARM loans for our investment portfolio and either securitizethem from the TRS with subsequent purchase of a portion of thesecurities by Holdings, or transfer the loans to Holdings with theintention of securitizing them by transferring them to independenttrusts. In order to facilitate the securitization of our loans, wegenerally create subordinate certificates, which provide a specifiedamount of credit enhancement to the higher rated certificates. Uponsecuritization, we finance the loans through the issuance of CDOs inthe capital markets and occasionally retain certain subordinatecertificates. We service Portfolio ARM Loans through asubservicer.

When a securitization is accomplished throughHoldings, we do not account for CDOs placed with third party investorsas sales and, therefore, do not record any gain or loss in connectionwith securitization transactions. The securitizations are accounted foras long-term collateralized financings. Consequently, the Portfolio ARMLoans transferred to the independent trust are shown as assets on ourbalance sheet. On our balance sheet, our Portfolio ARM Loans consist ofARM loans collateralizing debt obligations and ARM loans held forsecuritization. We, therefore, generate revenue in our mortgageinvestment operations from the spread between the interest income onour Portfolio ARM Loans and our cost of borrowings (i.e., theinterest expense on our CDOs, warehouse lines of credit, and repurchaseagreements).

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The loan securitization processbenefits us by creating highly liquid securitized assets that can bereadily financed in the capital markets.

When asecuritization is accomplished through the TRS and the securitizationis structured to qualify as a sale, we account for MBS placed withthird party investors as sales and consequently record a gain or lossin connection with the securitization transaction. The TRS may alsoretain the MSR associated with the securitized loans. The securitiespurchased by Holdings are shown as assets on our balance sheet. Thesesecurities are classified as available for sale and, therefore, arecarried at fair value on the balance sheet.

When asecuritization is accomplished through the TRS and the securitizationis structured to qualify as a financing, we do not record a gain orloss in connection with the securitization transaction. The loans usedas collateral in the securitization are shown as assets on the balancesheet of the TRS. Although the loans from such securitizations remainon the balance sheet of the TRS for reporting purposes, weconsider them to be part of the Company’s investmentportfolio.

Portfolio Strategy

It is our generalpolicy to originate 100% of the ARM Loans we hold in ourinvestment portfolio. However, we retain the right to purchasemortgage-backed securities guaranteed by Fannie Mae or Freddie Mac orthe Government National Mortgage Association(‘‘GNMA’’ or ‘‘GinnieMae’’).

We select loans for inclusion in ourinvestment portfolio based on a variety of credit risk factors. OurCorporate Risk Committee has established specific loan investmentguidelines, including minimum FICO scores, maximum loan-to-valueratios, maximum loan size and other applicable credit qualitycriteria.

According to our investment guidelines, weinvest at least 85% of assets in high quality ARMs and HybridARMs, and short-term investments,including:

|              |                                                                                                                                         |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| •  | Traditional ARM and Hybrid ARMmortgage loans that have been deposited into trusts that issue MBScollateralized by the transferredloans; |

|              |                                    |
|--------------|------------------------------------|
| •  | FNMA and FHLMC mortgagesecurities; |

|              |                                                                                                                                                                                                                                                                                                                                                                               |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | ARM securities rated withinone of the two highest rating categories by at least one of thenationally recognized statistical ratings agencies (Moody'sInvestors Service (‘‘Moody's’’);Standard & Poor's, a division of The McGraw-Hill Companies,Inc. (‘‘S&P’’); or Fitch Ratings(‘‘Fitch’’)); |

|              |                                                                                                                                                |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | securitiesand loans that are unrated but that we determine to be of comparablequality to comparable high-quality rated mortgage securities;and |

|              |                                                                                                                |
|--------------|----------------------------------------------------------------------------------------------------------------|
| •  | cash and cash equivalents, includingshort-term investments in U.S. Treasury and agency non-mortgagesecurities. |

The portfolio also may retain certain classesof our MBS 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.

AtMarch  31,  2006, our investment operations held totalassets of $5.5  billion, of which $4.5  billion consistedof securitized loans, loans awaiting securitization and securitiesavailable for sale. That compares to $4.9  billion in totalassets at December  31,  2005, of which $4.7  billionconsisted of securitized loans, loans awaiting securitization andsecurities available for sale.

Mortgage BankingOperations

Our mortgage banking operations areconducted through MortgageIT and its subsidiaries. The TRS is afull-service residential mortgage banking company that is licensed tooriginate loans throughout the United States.

The TRSgenerates revenue through the origination, sale and brokering ofmortgage loans sourced through its loan production channels. Thisrevenue primarily consists of gain on sale of mortgage 

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loans, loan brokerage revenues and netinterest income. Gain on sale of mortgage loans is typically generatedfrom the sale of mortgage loans to investors, on a servicing releasedbasis, generally within 30 to 60 days of funding. Accordingly, we donot generally capitalize the value of MSR. Gain is recognized based onthe difference between the net sales proceeds and the carrying value ofthe mortgage loans sold and is recognized in earnings at the time ofsale. The carrying value of the mortgage loans sold includes directloan-related origination costs and fees. When the TRS securitizes loansthrough a REMIC transaction, structured to qualify as a sale, itgenerates gain on sale revenue when the loans are sold to the REMIC,and it also may capitalize the value of MSR and amortize it inproportion to, and over the period of, estimated net servicing income(the excess of servicing revenues over servicing costs). Brokeragerevenue consists of fees and commissions earned by brokering mortgageloans ultimately funded by third party lenders. Interest on mortgageloans held for sale accrues on loans from the date of funding throughthe date of sale.

The first REMIC securitization completedby the TRS in November  2005 was collateralized by POAs. In thistransaction, a pool POA loans totaling approximately $388million were securitized and sold to the public. We retained themortgage servicing rights and retained approximately $24  millionin MBS created in the transaction. MortgageIT has historically soldPOAs on a whole loan, non-recourse basis to third party investors andcontinues to do so on an ongoing basis.

In February2006, MortgageIT completed its second REMIC transaction, which wasstructured to qualify as a financing. In the February  2006 REMICtransaction, we issued, through a trust, AAA and AA-rated floating-ratepass-through certificates totaling $723.0  million and Asubordinated floating-rate securities totaling $10.1  million tothird party investors, and retained $33.3  million ofsubordinated certificates, which provide credit support to thehigher-rated certificates.

MortgageIT's mortgagebanking operations expenses consist primarilyof:

|              |                                                              |
|--------------|--------------------------------------------------------------|
| •  | loan origination commissions, salariesand employee benefits; |

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

|              |                                     |
|--------------|-------------------------------------|
| •  | general andadministrative expenses; |

|              |                                                                  |
|--------------|------------------------------------------------------------------|
| •  | marketing, loanacquisition and business development expenses;and |

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | rent expense, professional fees, anddepreciation expense. |

A substantial portion ofMortgageIT's expenses are variable in nature. Loan originationcommissions are paid to loan production officers only upon theorigination of the mortgage loan, making such commission expenses100% variable. Salaries, benefits and other related payrollcosts may fluctuate based upon management's assessment of currentand predicted future levels of mortgage loan originationvolume.

Loan Underwriting

We follow a specificunderwriting methodology based on the following philosophy —first, evaluate the borrower's ability to repay the loan and,then, evaluate the value of the property securing the loan. We havedeveloped underwriting guidelines and practices that establish clearparameters for our loan underwriters and credit officers to make loanapproval decisions. For mortgage loans retained in our investmentportfolio, we seek those loans that we believe have low risk of defaultand resulting loss. Although our loan underwriting procedures arestructured to predict future borrower payment patterns and financialcapability, based on the borrower's past history and currentfinancial information, as well as our ability to collect the remainingloan balance through foreclosure in the event of a default, noassurance can be made that every loan originated will perform asanticipated.

In evaluating the borrower's abilityand willingness to repay a loan, we review and analyze the followingaspects of the borrower: credit score, income and its source,employment history, debt levels in revolving, installment and othermortgage loans, credit history and use of credit in the past, and theability and/or willingness to provide verification for the above.Credit scores, credit history, use of credit in the past andinformation as to debt levels typically can be obtained from a thirdparty credit 

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report through a credit repository. Thosesources are used in all instances, as available. Sometimes, borrowershave little or no credit history that can be tracked by one of theprimary credit repositories. In these instances, the reason for thelack of history is considered and taken into account. In ourexperience, most prospective borrowers have accessible credithistories.

In evaluating a potential property to be usedas collateral for a mortgage loan, we consider all of the followingaspects of the property: the loan balance versus the property value,e.g., the loan-to-value ratio, the property type, how theproperty will be occupied (a primary residence, second home orinvestment property), if the property's apparent value issupported by recent sales of similar properties in the same or a nearbyarea, any unique characteristics of the property and our confidence inthe data and their sources.

Other considerations that mayeffect our decision regarding a borrower's loan application arethe borrower's purpose in requesting the loan (e.g.,purchase of a home as opposed to cashing equity out of the home througha refinancing), the loan type (e.g., adjustable-rate, includingadjustment periods and loan life rate caps, or fixed-rate), and anyitems unique to a loan that we believe could affect creditperformance.

Business Strategy

All of the loansoriginated at the TRS are transferred to our investment loan portfolio,sold or brokered to third party investors, or used in REMICtransactions to collateralize MBS that are sold to third partyinvestors as well as to the REIT. Our mortgage banking operationsconsist primarily of the followingactivities:

|              |                                                                                                                                                                           |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | wholesale prime productionoperations, including loans originated through retail loan brokers andcorrespondents that are not MortgageIT employees and funded byMortgageIT; |

|              |                                                                                                                                                                                  |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | correspondent lendingoperations, including loans originated through banks, credit unions andmortgage bankers and funded by MortgageIT through its correspondentlending division; |

|              |                                                                                                                                                                                          |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | retail prime productionoperations, including both brokered loans and funded loans that areoriginated through retail branch offices and through MortgageIT'sinternet origination channel; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | secondaryloan marketing operations; and |

|              |                                                                                        |
|--------------|----------------------------------------------------------------------------------------|
| •  | mortgageloan title, settlement and other mortgage related services through HomeCloser. |

Sale of Loans

We generally sell ourmortgage loans on a whole loan, non-recourse basis. However, we do havepotential liability under the representations and warranties we make topurchasers and insurers of the loans. In the event of a breach of suchrepresentations and warranties, we may be required to either repurchasethe subject mortgage loans or indemnify the investor or insurer. Insuch cases, any subsequent credit loss on the mortgage loans isrecognized by MortgageIT. When we execute a REMIC transactionstructured to qualify as a sale from the TRS, we use our loans tocollateralize MBS that are sold to third party investors as well as tothe REIT.

All of our sub-prime loan production is sold tothird party investors.

Loan Products

MortgageIToriginates both mortgage loans to finance home purchases, referred toas purchase mortgage loans, and loans to refinance existing mortgageloans. For the three months ended March  31,  2006,MortgageIT's purchase loan originations represented approximately44% of its total residential mortgage loan originations measuredby principal balance.

MortgageIT originates prime firstlien conventional and non-conventional, conforming single-familyresidential mortgage loans. In addition, MortgageIT also originates alesser amount of non-conforming first lien single-family residentialmortgage loans such as jumbo loans, sub-prime loans and‘‘Alt A’’ loans, as well as home equity andsecond lien mortgage loans.

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HedgingActivities

We generally do not seek to anticipatethe direction of interest rates as a part of our business strategy. Weseek to maintain hedge positions that avoid the effects of severeinterest rate movements, which might otherwise impair our ability toearn net interest income and gain on sale revenues. Accordingly, wegenerally seek to mitigate interest rate risk by matching the repricingdurations of our Portfolio ARM Loans with the repricing durations ofour liabilities. We also seek to mitigate the interest rate riskassociated with our mortgage loans held for sale and interest rate lockcommitments issued to borrowers.

For our mortgageinvestment operations, subject to the limitations imposed by the REITqualification tests, some or all of the following financial instrumentsare used for hedging financing cost interest rate risk: Eurodollarfutures contracts; interest rate swaps; interest rate caps, collars andfloors; and other instruments that may be determined to be advantageousand are permitted under the investment and risk management policyadopted by our board of directors.

For our mortgagebanking operations, some or all of the following financial instrumentsare used for hedging the fair value of loans held for sale: forwardsale loan commitments and forward sales and purchases of MBS andoptions on such securities in the forward delivery TBA market;Eurodollar futures contracts; and other instruments that may bedetermined to be advantageous and are permitted under the investmentand risk management policy adopted by our board ofdirectors.

For further information on our interest raterisk management, see Item 3 Quantitative and Qualitative DisclosuresAbout Market Risk — Interest Rate Risk Management of thisquarterly report on Form 10-Q and Note 4 — Derivatives andHedging Activities to the consolidated financialstatements.

RESULTS OF OPERATIONS

The followingtable sets forth certain financial data as a percentage of totalrevenues for the three months ended March  31,  2006 and2005.

|                                                          |  |                            |        |          |  |        |        |         |  |  |
|----------------------------------------------------------|--|----------------------------|--------|----------|--|--------|--------|---------|--|--|
|                                                     |  | Threemonths ended March31, |
|                                                     |  | 2006                       |        | 2005     |
| Revenues:                                                |  |                       |   |     |  |   |   |    |
| Gainon sale of mortgageloans                             |  |                       | 74.0   | %   |  |   | 45.9   | %  |
| Brokeragerevenues                                        |  |                       | 10.4   | %   |  |   | 9.1    | %  |
| Netinterestincome                                        |  |                       | 14.5   | %   |  |   | 31.8   | %  |
| Realizedand unrealized gain (loss) on hedginginstruments |  |                       | 0.7    | %   |  |   | 12.8   | %  |
| Other                                                    |  |                       | 0.4    | %   |  |   | 0.4    | %  |
| Totalrevenues                                            |  |                       | 100.0  | %   |  |   | 100.0  | %  |
| Operatingexpenses:                                       |  |                       |   |     |  |   |   |    |
| Compensation andemployeebenefits                         |  |                       | 60.2   | %   |  |   | 39.8   | %  |
| Processingexpenses                                       |  |                       | 38.7   | %   |  |   | 14.8   | %  |
| Generaland administrativeexpenses                        |  |                       | 12.3   | %   |  |   | 9.7    | %  |
| Rent                                                     |  |                       | 6.0    | %   |  |   | 3.3    | %  |
| Marketing,loan acquisition and businessdevelopment       |  |                       | 2.1    | %   |  |   | 1.3    | %  |
| Professionalfees                                         |  |                       | 4.2    | %   |  |   | 3.3    | %  |
| Depreciationandamortization                              |  |                       | 2.5    | %   |  |   | 1.1    | %  |
| Totaloperatingexpenses                                   |  |                       | 126.0  | %   |  |   | 73.3   | %  |
| Income(loss) before incometaxes                          |  |                       | (26.0  | )%  |  |   | 26.7   | %  |
| Incometax (benefit)expense                               |  |                       | (18.3  | )%  |  |   | 4.2    | %  |
| Netincome(loss)                                          |  |                       | (7.7   | )%  |  |   | 22.5   | %  |
|                                                          |

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Three months ended March31,  2006 compared to three months ended March  31,2005

Net (loss) income

On aconsolidated basis, our net income decreased from $15.7  millionin the first quarter of 2005 to a loss of $4.7  million in thefirst quarter of 2006. The decrease is primarily attributable to lossesincurred for the wind-down of our national wholesale sub-primeoperations during the first quarter of 2006, lower gain on sale marginson prime mortgage loans, and lower net interest income in mortgagebanking and in the investment portfolio. Total revenues decreasedquarter over quarter by approximately 12% from $70.0million to $61.8  million, while total expenses increasedapproximately 52% quarter over quarter from $51.2  millionto $77.8  million driven by a 66% increase in funded loansfrom $4.3  billion to $7.2  billion. Gain on sale ofmortgage loans increased by 43% to $45.8  million in thefirst quarter of 2006 compared to $32.1  million in the firstquarter of 2005, while net interest income decreased by approximately60% from $22.3  million to $8.9  million. Inaddition, the gain on derivatives used in our investment portfoliohedging program decreased by 96% from $8.9  million in thefirst quarter of 2005 to $0.4  million in the first quarter of2006. Brokerage revenue remained flat at $6.4  million quarterover quarter. The following table presents the average balance for eachcategory of our interest-earning assets and interest-bearingliabilities, with the corresponding annualized effective rate ofinterest and the related interest income or expense for the sameperiod:

Average Balance, Rate and Interest Income/ExpenseTable (Dollars inthousands)

|                                      |  |                                    |           |                     |  |                          |        |                |  |                     |         |                          |  |        |           |        |  |        |        |         |  |        |        |        |  |  |
|--------------------------------------|--|------------------------------------|-----------|---------------------|--|--------------------------|--------|----------------|--|---------------------|---------|--------------------------|--|--------|-----------|--------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                                 |  | Forthe three months ended March31, |
|                                 |  | 2006                               |           | 2005                |
|                                 |  | AverageBalance                     |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |         | InterestIncomeandExpense |
| Interest-earningassets:              |  |                               |      |                |  |                     |   |           |  |                |    |                     |  |   |      |   |  |   |   |    |  |   |   |   |
| PortfolioAssets                      |  | $                                  | 4,939,246 |                |  |                     | 5.30   | %         |  | $                   | 65,499  |                     |  | $      | 2,785,694 |   |  |   | 4.97   | %  |  | $      | 34,061 |   |
| Mortgageloans held forsale           |  |                               | 3,348,291 |                |  |                     | 5.75   |           |  |                | 48,139  |                     |  |   | 1,224,643 |   |  |   | 6.48   |    |  |   | 19,525 |   |
| Cashand cashequivalents              |  |                               | 35,242    |                |  |                     | 3.07   |           |  |                | 270     |                     |  |   | 37,450    |   |  |   | 1.80   |    |  |   | 166    |   |
|                                 |  |                               | 8,322,779 |                |  |                     | 5.48   |           |  |                | 113,908 |                     |  |   | 4,047,787 |   |  |   | 5.40   |    |  |   | 53,752 |   |
| Interest-bearingliabilities:         |  |                               |      |                |  |                     |   |           |  |                |    |                     |  |   |      |   |  |   |   |    |  |   |   |   |
| Collateralizeddebtobligations        |  |                               | 4,683,266 |                |  |                     | 4.70   |           |  |                | 55,012  |                     |  |   | 2,154,269 |   |  |   | 3.22   |    |  |   | 17,039 |   |
| Warehouselinespayable                |  |                               | 3,287,586 |                |  |                     | 5.68   |           |  |                | 46,708  |                     |  |   | 1,695,768 |   |  |   | 3.26   |    |  |   | 13,612 |   |
| Otherdebt                            |  |                               | 200,704   |                |  |                     | 6.50   |           |  |                | 3,261   |                     |  |   | 96,983    |   |  |   | 3.50   |    |  |   | 835    |   |
|                                 |  |                               | 8,171,556 |                |  |                     | 5.14   |           |  |                | 104,981 |                     |  |   | 3,947,020 |   |  |   | 3.24   |    |  |   | 31,486 |   |
| Netinterest-earning assets andspread |  | $                                  | 151,223   |                |  |                     | 0.34   | %         |  | $                   | 8,927   |                     |  | $      | 100,767   |   |  |   | 2.16   | %  |  | $      | 22,266 |   |
| Netinterestmargin(1)                 |  |                               |      |                |  |                     | 0.43   | %         |  |                |    |                     |  |   |      |   |  |   | 2.24   | %  |  |   |   |   |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earningassets. |

Mortgage InvestmentOperations

Revenues

Net interestincome.    REIT net interest income decreased 12% to$10.0  million for the three months ended March  31,2006 from $11.4  million for the period ended March31,  2005. The decrease was due to a lower net interest margin,driven by the flattening yield curve, partly offset by higher averageearning assets of $5.0  billion for the three months endedMarch  31,  2006 compared with average earning assets of$2.8  billion for the period ended March  31,  2005.Net interest margin at the REIT declined to .80% for the threemonths ended March  31,  2006 from 1.65% for theperiod ended March  31,  2005 due to continued flatteningof the yield curve as average 1-month LIBOR rose to 

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4.61% in the first quarter of 2006from 2.64% in the first quarter of 2005. The following tablepresents the average balance for each category of our interest-earningassets and interest-bearing liabilities, with the correspondingannualized effective rate of interest and the related interest incomeor expense for the same period:

Average Balance, Rate andInterest Income/Expense Table

(Dollars inthousands)

|                                          |  |                                     |           |               |  |                          |        |                |  |               |        |                          |  |        |           |        |  |        |        |         |  |        |        |        |  |  |
|------------------------------------------|--|-------------------------------------|-----------|---------------|--|--------------------------|--------|----------------|--|---------------|--------|--------------------------|--|--------|-----------|--------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                                     |  | Forthe three months ended March 31, |
|                                     |  | 2006                                |           | 2005          |
|                                     |  | AverageBalance                      |           | EffectiveRate |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate |        | InterestIncomeandExpense |
| Interest-earningassets:                  |  |                                |      |          |  |                     |   |           |  |          |   |                     |  |   |      |   |  |   |   |    |  |   |   |   |
| PortfolioAssets                          |  | $                                   | 4,937,610 |          |  |                     | 5.20   | %         |  | $             | 64,215 |                     |  | $      | 2,785,694 |   |  |   | 4.84   | %  |  | $      | 33,135 |   |
| Cashand cash equivalents and otherassets |  |                                | 104,979   |          |  |                     | 7.71   |           |  |          | 2,023  |                     |  |   | 30,014    |   |  |   | 1.84   |    |  |   | 136    |   |
|                                     |  |                                | 5,042,589 |          |  |                     | 5.25   |           |  |          | 66,238 |                     |  |   | 2,815,708 |   |  |   | 4.80   |    |  |   | 33,271 |   |
| Interest-bearingliabilities:             |  |                                |      |          |  |                     |   |           |  |          |   |                     |  |   |      |   |  |   |   |    |  |   |   |   |
| Collateralizeddebtobligations            |  |                                | 4,683,266 |          |  |                     | 4.69   |           |  |          | 54,918 |                     |  |   | 2,154,269 |   |  |   | 3.22   |    |  |   | 17,039 |   |
| Warehouselinespayable                    |  |                                | 6,978     |          |  |                     | 4.69   |           |  |          | 82     |                     |  |   | 510,651   |   |  |   | 3.38   |    |  |   | 4,242  |   |
| Repurchaseagreements                     |  |                                | 92,504    |          |  |                     | 5.04   |           |  |          | 1,165  |                     |  |   | 81,983    |   |  |   | 2.75   |    |  |   | 554    |   |
|                                     |  |                                | 4,782,748 |          |  |                     | 4.70   |           |  |          | 56,165 |                     |  |   | 2,746,903 |   |  |   | 3.23   |    |  |   | 21,835 |   |
| Netinterest-earning assets andspread     |  | $                                   | 259,841   |          |  |                     | 0.55   | %         |  | $             | 10,073 |                     |  | $      | 68,805    |   |  |   | 1.57   | %  |  | $      | 11,436 |   |
| Netinterestmargin(1)                     |  |                                |      |          |  |                     | 0.80   | %         |  |          |   |                     |  |   |      |   |  |   | 1.65   | %  |  |   |   |   |
|                                          |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earningassets. |

Expenses

Compensation andemployee benefits.    Compensation and employee benefitsexpenses decreased 60% to $339,000 for the three months endedMarch  31,  2006 from $850,000 for the period endedMarch  31,  2005. The decrease was primarily due to adecrease in the number of employees dedicated to the investmentoperations as the business achieved economies ofscale.

Processing expenses.    Mortgage loanprocessing expenses decreased 29% to $771,000 for the threemonths ended March  31,  2006 from $1.1  million forthe period ended March  31,  2005. The decrease wasprimarily due to lower loan loss provision.

Generaland administrative expenses.    General and administrativeexpenses decreased 64% to $211,000 for the three months endedMarch  31,  2006 from $588,000 for the period endedMarch  31,  2005. This decrease was primarily due to lowerinsurance and other administrativeexpenses.

Professional fees.    Professionalfees decreased 65% to $175,000 for the three months endedMarch  31,  2006 from $496,000 for the period endedMarch  31,  2005. This decrease was primarily due to lowerlegal and other professional expenses.

MortgageBanking Operations

Revenues

Gain onsale of mortgage loans.    Gain on sale of mortgage loansincreased approximately 17% to $45.7  million for thethree months ended March  31,  2006 from $39.2million for the three months ended March  31,  2005.Mortgage whole loan sales to third parties increased by approximately79% to 

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$6.4  billion for the three monthsended March  31,  2006 from $3.6  billion for thethree months ended March  31,  2005. Sub-prime gain on saledecreased to a loss of $9.4  million for the three months endedMarch  31,  2006 from a gain of $4.6  million for thethree months ended March  31,  2005.

Brokerage revenue.    Brokerage revenue remainedflat at $6.4  million for the three months ended March31,  2006 compared with the three months ended March31,  2005.

Net interest income.    Netinterest income decreased by approximately 126% to a loss of$2.6  million for the three months ended March  31,2006 from a gain of $9.9  million for the three months endedMarch  31,  2005. The decrease is attributable to a highercost of funds for loans held for sale in the first quarter of 2006 inline with an increase in average 1-month LIBOR to 4.61% from2.64% in the first quarter of 2005, as well as a lower averagecoupon driven by low teaser rates on POAs. The following table presentsthe average balance for each category of our interest-earning assetsand interest-bearing liabilities, with the corresponding annualizedeffective rate of interest and the related interest income orexpense.

Average Balance, Rate and Interest Income/ExpenseTable(Dollars inthousands)

|                                              |  |                                    |           |               |  |                          |        |                |  |               |        |                          |  |        |           |        |  |        |         |         |  |        |         |        |  |  |
|----------------------------------------------|--|------------------------------------|-----------|---------------|--|--------------------------|--------|----------------|--|---------------|--------|--------------------------|--|--------|-----------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                         |  | Forthe three months ended March31, |
|                                         |  | 2006                               |           | 2005          |
|                                         |  | AverageBalance                     |           | EffectiveRate |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate |        | InterestIncomeandExpense |
| Interest-earningassets:                      |  |                               |      |          |  |                     |   |           |  |          |   |                     |  |   |      |   |  |   |    |    |  |   |    |   |
| Mortgageloans held forsale                   |  | $                                  | 3,348,291 |          |  |                     | 5.75   | %         |  | $             | 48,138 |                     |  | $      | 1,224,643 |   |  |   | 6.48    | %  |  | $      | 19,525  |   |
| PortfolioAssets                              |  |                               | 382,534   |          |  |                     | 4.83   |           |  |          | 4,623  |                     |  |   | —   |   |  |   | — |    |  |   | — |   |
| Cashand cashequivalents                      |  |                               | 27,313    |          |  |                     | 3.35   |           |  |          | 229    |                     |  |   | 7,436     |   |  |   | 1.63    |    |  |   | 30      |   |
|                                         |  |                               | 3,758,138 |          |  |                     | 5.64   |           |  |          | 52,990 |                     |  |   | 1,232,079 |   |  |   | 6.45    |    |  |   | 19,555  |   |
| Interest-bearingliabilities:                 |  |                               |      |          |  |                     |   |           |  |          |   |                     |  |   |      |   |  |   |    |    |  |   |    |   |
| Warehouselinespayable                        |  |                               | 3,280,608 |          |  |                     | 5.69   |           |  |          | 46,626 |                     |  |   | 1,185,117 |   |  |   | 3.21    |    |  |   | 9,370   |   |
| Juniorsubordinated debentures and other debt |  |                               | 587,568   |          |  |                     | 6.12   |           |  |          | 8,992  |                     |  |   | 15,000    |   |  |   | 7.63    |    |  |   | 281     |   |
|                                         |  |                               | 3,868,176 |          |  |                     | 5.75   |           |  |          | 55,618 |                     |  |   | 1,200,117 |   |  |   | 3.27    |    |  |   | 9,651   |   |
| Netinterest-earning assets andspread         |  | $                                  | (110,038  | )        |  |                     | (0.11  | )%        |  | $             | (2,628 | )                   |  | $      | 31,962    |   |  |   | 3.18    | %  |  | $      | 9,904   |   |
| Netinterestmargin(1)                         |  |                               |      |          |  |                     | (0.28  | )%        |  |          |   |                     |  |   |      |   |  |   | 3.27    | %  |  |   |    |   |
|                                              |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earningassets. |

Expenses

Compensation andemployee benefits.    Compensation and employee benefitsexpenses increased approximately 37% to $36.9  million forthe three months ended March  31,  2006 from $26.9million for the three months ended March  31,  2005. Theincrease was primarily due to higher staffing resulting from a66% increase in origination volume to $7.2  billion in thefirst quarter of 2006 from $4.3  billion in the first quarter of2005.

Processing expenses.    Mortgage loanprocessing expenses increased approximately 134% to $23.2million for the three months ended March  31,  2006 from$9.9  million for the three months ended March  31,2005. The increase was primarily due to higher origination volume, aswell as higher loan repurchase expenses in the first quarter of 2006relative to the first quarter of 2005, especially in regard tosub-prime loans.

General and administrativeexpenses.    General and administrative expenses increased byapproximately 15% to $7.1  million for the three monthsended March  31,  2006 from $6.2  million for thethree months ended March  31,  2005. This increase wasprimarily due to staffing growth resulting from higher quarter overquarter origination volumes.

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Marketing, loan acquisition andbusiness development expenses.    Marketing, loan acquisitionand business development expenses increased approximately 44% to$1.3  million for the three months ended March  31,2006 from $895,000  million for the three months endedMarch  31,  2005. The increase was primarily due to higherbusiness development expenses associated with the expansion of branchesin new geographic areas and higher quarter over quarteroriginations.

Rent expense.    Rent expenseincreased approximately 61% to $3.7  million for the threemonths ended March  31,  2006 from $2.3  million forthe three months ended March  31,  2005. This increase wasprimarily due to expansion of existing branches, as well as terminationfees associated with the wind-down of branches within our wholesalesub-prime division during the first quarter of 2006.

Professional fees.    Professional fees increasedapproximately 33% to $2.4  million for the three monthsended March  31,  2006 from $1.8  million for thethree months ended March  31,  2005. This increase wasprimarily due to higher technology consultingexpenses.

Depreciation and amortizationexpenses.    Depreciation and amortization expenses increasedapproximately 88% to $1.5  million for the three monthsended March  31,  2006 from $796,000 for the three monthsended March  31,  2005. The increase was primarily due toleasehold improvements for branch expansions as well as investments incomputer system hardware.

Income taxexpense.    MortgageIT made the election to be treated as ataxable REIT subsidiary and, therefore, is subject to federal and statecorporate income taxes. Accordingly, the Company records a taxprovision on the taxable income of the TRS, which includes intercompanyincome that is eliminated in our consolidated statements ofoperations.

FINANCIAL CONDITION

At March31,  2006 and December  31,  2005, our assetsconsisted of both Portfolio ARM Loans and mortgage loans held for sale,representing 62% and 34%, respectively, of total assetsat March  31,  2006, and 56% and 40%,respectively, of total assets at December  31,2005.

Total assets increased by $65.4  million fromDecember  31,  2005 to March  31,  2006. Theincrease primarily reflects an increase in Portfolio Arm Loans in theamount of $532.9  million, as well as increases in, cash of$18.3  million, hedging instruments of $18.2  million andprepaid and other current assets of $15.7  million, offset by adecrease in mortgage loans held for sale in the amount of $521.8million.

The following table presents variouscharacteristics of our Portfolio ARM Loans as of March31,  2006. The aggregate unpaid principal balance of the loansincluded in this table is approximately $5.2billion.

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|                                       |  |         |         |         |  |        |           |         |  |        |        |         |  |  |
|---------------------------------------|--|---------|---------|---------|--|--------|-----------|---------|--|--------|--------|---------|--|--|
|                                  |  | Average |         | High    |  | Low    |
| Originalloanbalance                   |  | $       | 286,480 |    |  | $      | 1,500,000 |    |  | $      | 18,374 |    |
| Couponrate onloans                    |  |    | 5.64    | %  |  |   | 8.00      | %  |  |   | 1.00   | %  |
| %Grossmargin                          |  |    | 2.20    | %  |  |   | 3.00      | %  |  |   | 1.75   | %  |
| Lifetimecap                           |  |    | 5.17    | %  |  |   | 13.25     | %  |  |   | 2.00   | %  |
| Originalterm(months)                  |  |    | 360     |    |  |   | 360       |    |  |   | 360    |    |
| Remainingterm(months)                 |  |    | 349     |    |  |   | 359       |    |  |   | 332    |    |
| Geographicdistribution (top 5states): |  |    |    |    |  |   |      |    |  |   |   |    |
| California                            |  |    |         |    |  |   | 53.5      | %  |
| Arizona                               |  |    |         |    |  |   | 7.6       |    |
| Washington                            |  |    |         |    |  |   | 6.6       |    |
| Florida                               |  |    |         |    |  |   | 5.2       |    |
| Illinois                              |  |    |         |    |  |   | 3.1       |    |
| Other                                 |  |    |         |    |  |   | 24.0      |    |
| Occupancystatus:                      |  |    |         |    |  |   |      |    |
| Owneroccupied                         |  |    |         |    |  |   | 89.2      | %  |
| Investor                              |  |    |         |    |  |   | 8.2       |    |
| Secondhome                            |  |    |         |    |  |   | 2.6       |    |
| Documentationtype:                    |  |    |         |    |  |   |      |    |
| FullDocumentation                     |  |    |         |    |  |   | 40.3      | %  |
| StatedIncome/VerifiedAssets           |  |    |         |    |  |   | 47.5      |    |
| StatedIncome/Stated Assets            |  |    |         |    |  |   | 4.6       |    |
| VerifiedAssets                        |  |    |         |    |  |   | 2.7       |    |
| NoDocumentation                       |  |    |         |    |  |   | 4.9       |    |
| Loanpurpose:                          |  |    |         |    |  |   |      |    |
| Purchase                              |  |    |         |    |  |   | 55.4      | %  |
| Cash-outrefinance                     |  |    |         |    |  |   | 28.2      |    |
| Rate& termrefinance               |  |    |         |    |  |   | 16.4      |    |
| Originalloan-to-value:                |  |    |         |    |  |   |      |    |
| 80.01%andover                         |  |    |         |    |  |   | 2.1       | %  |
| 70.01%-80.00%                         |  |    |         |    |  |   | 71.4      |    |
| 60.01%-70.00%                         |  |    |         |    |  |   | 15.8      |    |
| 50.01%-60.00%                         |  |    |         |    |  |   | 6.1       |    |
| 50.00%or less                         |  |    |         |    |  |   | 4.6       |    |
| Weightedaverage originalloan-to-value |  |    |         |    |  |   | 74.0      | %  |
| Propertytype:                         |  |    |         |    |  |   |      |    |
| Singlefamily                          |  |    |         |    |  |   | 60.6      | %  |
| PUD                                   |  |    |         |    |  |   | 23.6      |    |
| Condominium                           |  |    |         |    |  |   | 11.6      |    |
| Otherresidential                      |  |    |         |    |  |   | 4.2       |    |
| ARMloan type:                         |  |    |         |    |  |   |      |    |
| 3-yearhybrid                          |  |    |         |    |  |   | 19.7      | %  |
| 5-yearhybrid                          |  |    |         |    |  |   | 74.7      |    |
| PayOption                             |  |    |         |    |  |   | 5.0       |    |
| Other                                 |  |    |         |    |  |   | 0.6       |    |
| ARMinterest ratecaps:                 |  |    |         |    |  |   |      |    |
| Initialcap:                           |  |    |         |    |  |   |      |    |
| Under3.00                             |  |    |         |    |  |   | 5.5       | %  |
| 3.01-4.00                             |  |    |         |    |  |   | 0.0       |    |
| 4.01-5.00                             |  |    |         |    |  |   | 21.1      |    |
| 5.01-6.00                             |  |    |         |    |  |   | 73.4      |    |
| Periodiccap:                          |  |    |         |    |  |   |      |    |
| None                                  |  |    |         |    |  |   | 0.2       | %  |
| Under1.00%                            |  |    |         |    |  |   | 0.1       |    |
| Over1.00%                             |  |    |         |    |  |   | 99.7      |    |
| Percentof interest-only loanbalances  |  |    |         |    |  |   | 78.9      | %  |
| FICOscore atorigination:              |  |    |         |    |  |   |      |    |
| 801andover                            |  |    |         |    |  |   | 2.7       | %  |
| 751to 800                             |  |    |         |    |  |   | 31.5      |    |
| 701 to750                             |  |    |         |    |  |   | 43.2      |    |
| 651 to700                             |  |    |         |    |  |   | 21.8      |    |
| 650 orless                            |  |    |         |    |  |   | 0.8       |    |
| Weighted averageFICO(1)score:         |  |    |         |    |  |   | 732       |    |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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. |

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CRITICAL ACCOUNTING POLICIES ANDESTIMATES

Management's discussion and analysis offinancial condition and results of operations is based on the amountsreported in our consolidated financial statements. These consolidatedfinancial statements have been prepared in conformity with accountingprinciples generally accepted in the United States of America(‘‘GAAP’’), many of which require the useof estimates, judgments and assumptions that affect reported amounts.Changes in the estimates and assumptions could have a material effecton these consolidated financial statements. In accordance with recentSEC guidance, those material accounting policies that we believe arethe most critical to an investor's understanding of our financialresults and condition, and require complex management judgment aredescribed below. Additional information regarding our accountingpolicies is contained in Note 1 to the consolidated financialstatements included elsewhere in this quarterly report on Form10-Q.

Derivatives and Hedging Activities

Weutilize derivatives to manage interest rate risk exposure. Inaccordance with SFAS No. 133, ‘‘Accounting for DerivativeInvestments and Hedging Activities,’’ all derivativeinstruments are recorded at fair value. We designate every derivativeinstrument as either (1) a hedge of the fair value of a recognizedasset or liability or of an unrecognized firm commitment, (2) a hedgeof the variability of cash flows to be paid related to either aforecasted or recognized liability, or (3) a free-standing derivativeinstrument.

To qualify for hedge accounting under SFAS No.133, we must demonstrate, on an ongoing basis, that our interest raterisk management activity is highly effective. We determine theeffectiveness of our interest rate risk management activities usingstandard statistical measures. If we are unable to qualify certain ofour interest rate risk management activities for hedge accounting, thenthe gain or loss on the associated derivative financial instrumentswould be reflected in current period earnings. See Note 4 of ourconsolidated financial statements included elsewhere in this quarterlyreport on Form 10-Q for further information pertaining to ouraccounting for derivatives and hedging activities.

Changesin the fair value of a derivative that is highly effective and that isdesignated and qualifies as a fair value hedge, along with the changein the fair value of the hedged asset or liability, are recorded inearnings. Our fair value hedges are used primarily for mortgage loansheld for sale.

Gains and losses on a derivative that ishighly effective and that is designated and qualifies as a cash flowhedge are recorded in accumulated other comprehensive income (loss) tothe extent that the derivative is effective as a hedge, until earningsare affected by the variability in cash flows of the designated hedgeditem. Our cash flow hedges are used primarily to hedge the financingcost for forecasted or recognized mortgage-backed collateralized debtobligations.

We obtain the fair value of Eurodollarfutures, forward delivery contracts on MBS (‘‘TBASecurities’’), options on TBA Securities and interestrate swaps and caps from quoted market prices.

The fairvalue of forward sale commitments to deliver mortgages is estimatedusing current quoted market prices for dealer or investor commitmentsas applies to our existing positions.

The fair value of aninterest rate lock commitment (‘‘IRLC’’) isbased on an estimate of the fair value of the underlying mortgage loan,and given the probability that the loan will fund within the terms ofthe IRLC. After issuance, the value of an IRLC can change and be eitherpositive 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, purpose forthe loan (purchase or refinance) and the application approvalrate.

Fair value estimates are made as of a specific pointin time based on estimates using present value or other valuationtechniques. These techniques may involve uncertainties and aresignificantly affected by the assumptions used and the judgments maderegarding risk characteristics of various financial 

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instruments, discount rates, estimates offuture cash flows, future expected loss experience and other factors.Changes in assumptions could significantly affect these estimates andthe resulting fair values.

Interest Income on Portfolio ARMLoans

Interest income is accrued based on the outstandingprincipal amount and contractual terms of our loans. Direct loanorigination fees and costs are deferred and amortized as an interestincome yield adjustment over the life of the related loans using theeffective yield method. Estimating prepayments and estimating theremaining lives of the loans requires management judgment, whichinvolves consideration of possible future interest rate environments.The actual lives could be more or less than the amount estimated bymanagement. See Item 3 — Quantitative and QualitativeDisclosures About Market Risk — Interest Rate Risk Management inthis quarterly report on Form 10-Q for further details.

LoanLoss Reserves

MortgageIT's historical operationshad an insignificant amount of loan losses due to default ornon-performance on the loans primarily because mortgage loans were soldsoon after being originated. Because we now hold loans for investment,we record an allowance for loan losses reflecting our estimate offuture loan default losses. Our Portfolio ARM Loans are collectivelyevaluated for impairment, as the loans are homogeneous in nature. Theallowance is based upon management's assessment of the variousrisk factors affecting our investment loan portfolio, including currenteconomic conditions, 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 is reduced by loans that arecharged off. Determining the allowance for loan losses is subjective innature due to the estimates required and the potential for imprecision.Two critical assumptions used in estimating the loan loss reserves arean assumed rate of default, which is the expected rate at which loansgo into foreclosure over the life of the loans, and an assumed rate ofloss severity, which represents the expected rate of realized loss upondisposition of the properties that have gone intoforeclosure.

REMIC Securitization

MortgageITstructured its November  2005, REMIC securitization so thatcontrol over the collateral was transferred and the transfer wasaccounted for as a sale. In accordance with SFAS No. 140, a gainor loss on the sale is recognized based on the carrying amount of thefinancial assets involved in the transfer, allocated between the assetstransferred and the retained interests based on their relative fairvalue at the date of transfer. In the REMIC securitization, MortgageITretained the right to service the underlying mortgage loans andHoldings also purchased certain mortgage securities issued by the trust(see Note 5 to the consolidated financial statements included elsewherein this quarterly report on Form 10-Q). The gain recognized uponsecuritization depends on, among other things, the estimated fair valueof the components of the REMIC securitization — the loanstransferred, the mortgage securities purchased and the mortgageservicing rights. We obtain the estimated fair value of the MBS fromdifferent sources, including broker dealers. The initial value of theMBS we purchase in a REMIC securitization is derived from the allocatedcost, based upon the relative fair value of the entire REMICsecuritization.

An implied yield (discount rate) iscalculated based on the initial value derived above and using projectedcash flows generated using assumptions for prepayments, expected creditlosses and interest rates. Additionally, this yield serves as theinitial accretable yield used to recognize income on thesecurities.

Mortgage Servicing Rights

MortgageITrecorded MSR arising from the sale of mortgages in the November2005, REMIC securitization at the allocated cost, utilizing therelative fair value allocation method based upon an 

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estimate of what a third party would pay forthe MSR. The MSR are amortized in proportion to and over the estimatedperiod of net servicing income. MortgageIT subsequently evaluates andmeasures the MSR for impairment by comparing the unamortized balanceagainst the fair value obtained from a broker dealer. An impairmentloss is recognized for MSR that have an unamortized balance in excessof the estimated fair value.

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 manage liquidity toensure that we have the continuing ability to maintain cash flows thatare adequate to fund operations and meet commitments on a timely andcost-effective basis.

Liquidity from Mortgage InvestmentOperations

The principal sources of liquidity from ourmortgage investment operations are the issuance of MBS, repurchaseagreements, and principal payments and net interest earned from ourPortfolio ARM Loans. The net interest income earned from our PortfolioARM Loans is the primary source of income and liquidity for the paymentof dividends to our stockholders. We believe that our liquidity levelis in excess of that necessary to pay dividends to our stockholders andto satisfy our operating requirements.

Loansecuritizations are the primary funding source for our Portfolio ARMLoans.

We securitize mortgage loans by transferring themto independent trusts that issue securities collateralized by thetransferred mortgage loans. The loan securitization process benefits usby creating highly liquid securitized assets that can be readilyfinanced in the capital markets. We believe there is a reliable andstable market for term financing of investment grade MBS that we issue.Through March  31,  2006, we completed seven securitizationtransactions, in which we securitized ARM loans into a series of prorata pay, floating-rate securities, and the February  2006 REMICsecuritization.

In these transactions, we issued AAA andAA− rated floating-rate pass-through certificates totaling$5.97  billion and A+/BBB+ subordinated floating-rate securitiestotaling $65.2  million to third party investors, and retained$145.5  million of subordinated certificates, which providecredit support to the higher-rated certificates. The interest rates onthe floating-rate pass-through certificates reset monthly and areindexed to the one-month LIBOR rate. In connection with the issuance ofthese MBS, we incurred securitization costs of $15.5  million,including investment banking fees, legal fees and other related costs.The securitization costs are amortized over the expected life ofMBS.

As of March  31,  2006 andDecember  31,  2005, outstanding MBS were collateralized byARM loans with a remaining principal balance of approximately$5.2  billion and $4.6  billion, respectively. These MBSmature between 2033 and 2036 and are callable at par by us after thetotal remaining balance of the loans collateralizing the debt is paiddown to 20%, or 10% for the February  2006 REMICsecuritization, of its original balance. The balance of our debt isalso reduced as the underlying loan collateral is paid down, and isexpected to have an average life of approximately 2.5years.

We also utilize repurchase agreements as a sourceof financing for our mortgage investment operations. These arrangementsvary in size and other characteristics among multiple providers. Inparticular, repurchase agreements 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.

Under these agreements, we sell some or allof the retained interest in our MBS to a counterparty and we agree torepurchase those assets at a future date. At maturity, we repurchasethe assets from the counterparty at an amount equal to the originalsales price plus interest. During the term of a repurchase agreement,we continue to earn principal and interest on the underlying mortgageassets. As of March  31,  2006 and December31,  2005, we had $102.3  million and $67.7  millionof securities outstanding under the repurchase agreements,respectively.

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These financing arrangements areshort-duration facilities, generally 30 days, secured by the retainedinterest in our MBS, the value of which may move inversely with changesin interest 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.

Inaddition, we draw down on all but one of our warehouse creditfacilities to finance loans that are held for securitization by theREIT.

Liquidity from Mortgage BankingOperations

The principal sources of liquidity from ourmortgage banking operations are our warehouse credit facilities and ourprincipal use of liquidity is the origination of new mortgageloans.

To originate a mortgage loan, MortgageIT utilizesits six short-term warehouse credit facilities that are available tofund mortgage loans held for sale. These facilities are secured by themortgage loans owned by MortgageIT and by certain other assets,including cash deposited in interest-bearing collateral accounts.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.Warehouse credit facilities generally have a term of one year and havebeen renewed annually. As of March  31,  2006, theaggregate amount of our warehouse facilities was $5.9  billionand the amount available for additional borrowings under thesefacilities was approximately $2.2  billion.

Thesefacilities bear interest at LIBOR plus a spread based on the types ofloans being funded. The weighted average effective rate of interest forborrowings under all warehouse credit facilities was approximately5.7% and 4.3% for the three months ended March31,  2006 and the year ended December  31,  2005,respectively.

All mortgage loans held for sale have beenpledged as collateral under the above warehouse credit facilities. Thedocuments governing MortgageIT's warehouse credit facilitiescontain a number of compensating balance requirements and restrictivefinancial and other covenants that, among other things, require it tomaintain minimum levels of tangible net worth, liquidity andstockholders' equity, and maximum leverage ratios, as well as tocomply with applicable regulatory and investorrequirements.

As of March  31,  2006, theCompany was not in compliance with a covenant contained in four of itswarehouse credit facilities, for which waivers have been obtained. Noassurance can be made that the Company's lenders will waivefuture covenant violations, if violations occur. These facilitiescontain covenants limiting the Company's abilityto:

|              |                                                                    |
|--------------|--------------------------------------------------------------------|
| •  | consolidate, merge or enter intosimilar extraordinarytransactions; |

|              |                                                 |
|--------------|-------------------------------------------------|
| •  | transfer or sell asubstantial amount of assets; |

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

|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | change the nature of its business,without obtaining the prior consent of the lenders, which consent maynot be unreasonably withheld. |

These limits may in turnrestrict the Company's ability to pay cash or stock dividends onits common stock. In addition, under the facilities, the Company cannotcontinue to finance a mortgage loan that it holds through the facilityif:

|              |                                                                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the loan is rejected as‘‘unsatisfactory for purchase’’ by theultimate investor and has exceeded its permissible warehouse period,which varies by facility; |

|              |                                                                                                                                   |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------|
| •  | the Companyfails to deliver the applicable note, mortgage or other documentsevidencing the loan within the requisite time period; |

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

|              |                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------|
| •  | the loan ceases to be an eligible loan(as determined pursuant to the warehouse credit facilityagreement). |

In addition to the warehouse creditfacilities, MortgageIT has entered into a mortgage loan purchaseagreement with one of its warehouse lenders, which the Company refersto as a conduit facility. Under this agreement, the lender purchases aloan from MortgageIT, which enables MortgageIT to record the sale andrecognize the gain on sale. Upon sale, MortgageIT removes both theloans and the corresponding warehouse liability from its balance sheet.A third party subsequently purchases the loan directly from the lender.MortgageIT facilitates the final settlement of the loan sale betweenthe lender and the third party, and receives a performance fee forservices provided to the lender. MortgageIT classifies the performancefee as brokerage revenue. The capacity available under the conduitfacility is included in the aggregate capacity under the warehousecredit facility with the lender. The overall facility capacity at anygiven time is reduced by the outstanding balance on the warehousecredit facility plus the outstanding balance of the conduit facility.The conduit facility is not a committed facility and may be terminatedat the discretion of the lender.

In addition to thewarehouse facilities and the conduit facility, MortgageIT issues juniorsubordinated debentures (the‘‘Debentures’’).

DuringMarch  2006, MortgageIT issued $51.5  million of theDebentures. The Debentures were issued to a trust subsidiary ofMortgageIT in order to fund the trust's obligations with respectto an aggregate of $50  million of trust preferred securitieswhich were issued by such trust subsidiary. The Debentures arefloating-rate and bear a variable interest rate of 360 basis pointsabove 3-month LIBOR, paid quarterly, and mature in 2036. They areredeemable, by MortgageIT, at par after five years and at a premium topar in certain limited circumstances over the first five years. Inconnection with the issuance of the Debentures, the Company incurredcosts of $1.5  million. These costs are being amortized over theexpected life of the securities.

During April andMay  2005, MortgageIT issued $77.3  million of theDebentures in two separate private placements. The Debentures wereissued to a trust subsidiary of MortgageIT in order to fund thetrust's obligations with respect to an aggregate of $75million of trust preferred securities which were issued by such trustsubsidiary. The Debentures are floating-rate securities and bear avariable interest rate of 375 basis points above 3-month LIBOR, paidquarterly, and mature in 2035. They are redeemable, by MortgageIT, atpar after five years and at a premium to par in certain limitedcircumstances over the first five years. In connection with theissuance of the Debentures, the Company incurred costs of $2.5million. These costs are being amortized over the expected life of thesecurities.

Also, MortgageIT entered into a note purchaseagreement in March  2004, whereby MortgageIT sold an aggregateprincipal amount of $15  million of senior secured notes (the‘‘Notes’’) to an investor; MortgageIT soldan additional aggregate principal amount of $15  million of Notesto the investor in February  2006. The proceeds from the sale ofthe Notes provide working capital for MortgageIT. Under the relatednote purchase agreement, as amended, the Notes bore interest at (i) arate of 10% per annum through September  30,  2004,(ii) a rate of 7.5% per annum from October  1,  2004through March  31,  2005, (iii) a rate of 10% perannum from April  1,  2005 to August  23,2005, (iv) a rate of 5.5% per annum from August24,  2005 to February  20,  2006 and (v) a rate of6.5% per annum from February  21,  2006 to maturity.Interest on the Notes is payable quarterly in arrears. The Notesprovide for a single payment of the entire amount of the unpaidprincipal and any unpaid accrued interest on the Notes on March29,  2007. As of March  31,  2006, MortgageIT was incompliance with all of the restrictions and covenants contained in thenote purchase agreement. If covenant violations occur in the future,there can be no assurance that the investor will waivethem.

MortgageIT makes certain representations andwarranties, and is subject to various affirmative and negativefinancial and other covenants, under the terms of both the warehousecredit facilities and certain investor loan sale agreements regarding,among other things, the loans' compliance with laws 

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and regulations, their conformity with theinvestors' underwriting standards and the accuracy ofinformation. In the event of a breach of these representations,warranties or covenants or in the event of an early payment default,these loans may become ineligible collateral for the warehouse creditfacilities or may become ineligible for sale to an investor, andMortgageIT may be required to repurchase the loans from the warehouselender or the investor. MortgageIT has implemented procedures to helpensure quality control and conformity to underwriting standards and tominimize the risk of being required to repurchase loans. MortgageIT hasbeen required to repurchase loans it has sold from time to time;however, to date, these repurchases have not had a material impact onthe results of operations ofMortgageIT.

MortgageIT's ability to originate andfund loans has historically depended in large part on its ability tosell the mortgage loans it originates at a premium in the secondarymarket so that it may generate cash proceeds to repay borrowings underits warehouse facilities. The value of MortgageIT's loans isrelevant in determining the overall amount of borrowings that will beavailable to it under its financing facilities. The value of our loansdepends on a number of factors,including:

|              |                                                               |
|--------------|---------------------------------------------------------------|
| •  | interest rates on our loanscompared to market interest rates; |

|              |                                        |
|--------------|----------------------------------------|
| •  | theborrower credit riskclassification; |

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

|              |                             |
|--------------|-----------------------------|
| •  | general economicconditions. |

Cash and Cash Equivalents

TheCompany's cash and cash equivalents increased to $55.1million at March  31,  2006 from $36.8  million atDecember  31,  2005. The Company's primary sources ofcash and cash equivalents during the three months ended March31,  2006 were as follows:

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | a$521.8  million decrease in mortgage loans held forsale; |

|              |                                                               |
|--------------|---------------------------------------------------------------|
| •  | a $507.8  million increase incollateralized debt obligations; |

|              |                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------|
| •  | a$48.5  million increase from net proceeds from the issuance ofjunior subordinated debentures; and |

|              |                                                                   |
|--------------|-------------------------------------------------------------------|
| •  | a$15.2  million increase in borrowings from repurchaseagreements. |

The Company's primary uses of cash andcash equivalents during the three months ended March  31,2006 were as follows:

|              |                                                  |
|--------------|--------------------------------------------------|
| •  | a $532.6million increase in Portfolio ARM Loans; |

|              |                                                       |
|--------------|-------------------------------------------------------|
| •  | a$488.3  million decrease in warehouse lines payable; |

|              |                                                                                          |
|--------------|------------------------------------------------------------------------------------------|
| •  | a $31.5  million decrease in accountspayable, accrued expenses and other liabilities;and |

|              |                                       |
|--------------|---------------------------------------|
| •  | a $13.6  million distributionpayment. |

Payment of Distributions

OnDecember  16,  2004, we declared our initial distributionon our common stock of $0.44 per share. The distribution was made inJanuary  2005 and, for financial reporting purposes, wasreflected as an increase in our accumulated deficit. The total cashdistribution of approximately $8.5  million exceeded the minimumtaxable income distribution requirements for the year.

OnMarch  16,  2005, we declared a common stock dividend of$0.48 per share. The dividend was distributed in April  2005 and,for financial reporting purposes, was reflected as an increase in ouraccumulated deficit. The total cash dividend of approximately$9.3  million exceeded the minimum taxable income distributionrequirements for the quarter.

On May  17,2005, we declared a common stock dividend of $0.48 per share. Thedividend was distributed in July  2005 and, for financialreporting purposes, was reflected as an increase in our 

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accumulated deficit. The total cash dividendof approximately $9.3  million exceeded the minimum taxableincome distribution requirements for the quarter.

OnSeptember  21,  2005, we declared a distribution on ourcommon stock of $0.48 per share. The distribution was made inOctober  2005 and, for financial reporting purposes, wasreflected as an increase in our accumulated deficit. The total cashdistribution of approximately $13.6  million exceeded the minimumtaxable income distribution requirements for thequarter.

On December  12,  2005, we declared adistribution on our common stock of $0.48 per share. The distributionwas made in January  2006 and, for financial reporting purposes,was reflected as an increase in our accumulated deficit. The total cashdistribution of approximately $13.6  million exceeded the minimumtaxable income distribution requirements for thequarter.

On March  17,  2006, we declared adistribution on our common stock of $0.25 per share. The distributionwas made in April  2006 and, for financial reporting purposes,was reflected as an increase in our accumulated deficit. The total cashdistribution of approximately $7.1  million exceeded the minimumtaxable income distribution requirements for thequarter.

We are required to make annual distributions ofour income to our stockholders in order to maintain our REIT status andto avoid corporate income tax and the nondeductible excise tax.However, differences in timing between the recognition of REIT taxableincome and the actual receipt of cash could require us to sell assetsor to borrow 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, for example, include MBS we hold that have been issued at adiscount and require the accrual of taxable income in advance of thereceipt of cash. As a result, our taxable income may exceed our cashavailable 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 unfavorableterms; or (3) distribute amounts that would otherwise be invested infuture acquisitions, capital expenditures or repayment of debt in orderto 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 our results of operations. To theextent inflation increases in the future at a rate that is faster thanthe market currently anticipates, interest rates are also likely torise, which would likely reduce the number of mortgage loans weoriginate. A reduction in the number of loans we originate resultingfrom increased inflation would adversely affect our future results ofoperations. Additionally, to the extent that the investment portfolioearnings are sensitive to rising interest rates, unanticipatedincreases in inflation may adversely affect our results ofoperations.

OFF-BALANCE SHEET ARRANGEMENTS

In ourREMIC securitization, we pooled the loans we originated and sold themto a trust where they serve as collateral for asset-backed securities,which the trust issues to the public and to the REIT.

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CONTRACTUAL OBLIGATIONS

Wehad the following commitments (excluding derivative financialinstruments) at March  31,2006:

|                                   |  |                                 |           |                |  |           |           |           |  |                  |           |        |  |        |           |        |  |                                  |         |        |  |  |
|-----------------------------------|--|---------------------------------|-----------|----------------|--|-----------|-----------|-----------|--|------------------|-----------|--------|--|--------|-----------|--------|--|----------------------------------|---------|--------|--|--|
|                              |  | Paymentsdue by Period           |
|                              |  | (Dollarsinthousands)(unaudited) |
|                              |  | Total                           |           | Lessthan 1year |  | 1-3 years |           | 3-5 years |  | Morethan 5 years |
| Collateralized debtobligations(1) |  | $                               | 4,992,895 |           |  | $         | 1,222,171 |      |  | $                | 1,746,502 |   |  | $      | 1,585,236 |   |  |     $438,986 |
| Warehouselinespayable             |  |                            | 2,689,694 |           |  |      | 2,689,694 |      |  |             | —   |   |  |   | —   |   |  |                             | — |   |
| Repurchaseagreements              |  |                            | 102,282   |           |  |      | 102,282   |      |  |             | —   |   |  |   | —   |   |  |                             | — |   |
| Juniorsubordinateddebentures      |  |                            | 128,871   |           |  |      | —   |      |  |             | —   |   |  |   | —   |   |  |                             | 128,871 |   |
| Operatingleases                   |  |                            | 46,703    |           |  |      | 13,027    |      |  |             | 21,796    |   |  |   | 11,546    |   |  |                             | 334     |   |
| Notespayable                      |  |                            | 30,000    |           |  |      | 30,000    |      |  |             | —   |   |  |   | —   |   |  |                             | — |   |
|                                   |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                       |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Paymentson our collateralized debt obligations are dependent upon cash flowsreceived from underlying loans receivable. Our estimate of theirrepayment is based on scheduled principal payments on the underlyingloans receivable, adjusted for pre-payments. This estimate will differfrom actual pre-paymentamounts. |

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ITEM3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK

Market risk is the exposure to losses resulting fromchanges in interest rates, credit spreads, foreign currency exchangerates, commodity prices and equity prices. As we are invested solely inU.S. dollar-denominated instruments, primarily single-familyresidential mortgage instruments, and our borrowings are also domesticand U.S. dollar denominated, we are not subject to foreign currencyexchange, or commodity and equity price risk. The primary market riskthat we are exposed to is interest rate risk and its related ancillaryrisks. Interest rate risk is highly sensitive to many factors,including governmental monetary and tax policies, domestic andinternational economic and political considerations, and other factorsbeyond our control. Our interest bearing assets, liabilities andrelated derivative instruments used for hedging purposes, are marketrisk sensitive and may change in value if interest rates fluctuate. Thefollowing table presents information as to the notional amount,carrying amount and estimated fair value of certain of our market risksensitive assets, liabilities and hedging instruments at March31,  2006 and December  31,2005:

|                                                     |  |                          |            |                |  |                     |           |        |  |        |           |        |  |  |
|-----------------------------------------------------|--|--------------------------|------------|----------------|--|---------------------|-----------|--------|--|--------|-----------|--------|--|--|
|                                                |  | March31, 2006(unaudited) |
|                                                |  | NotionalAmount           |            | CarryingAmount |  | EstimatedFair Value |
|                                                |  | (Dollars inthousands)    |
| Assets:                                             |  |                     |       |           |  |                |      |   |  |   |      |   |
| Mortgageloans held forsale                          |  | $                        | 2,809,023  |           |  | $                   | 2,854,205 |   |  | $      | 2,865,434 |   |
| Forwarddeliverycommitments                          |  |                     | 1,650,779  |           |  |                | 2,165     |   |  |   | 2,165     |   |
| Mortgageloans held for sale,net                     |  |                     |       |           |  |                | 2,856,370 |   |  |   | 2,867,599 |   |
| ARMloans held for securitization,net                |  |                     | —    |           |  |                | —   |   |  |   | —   |   |
| ARMloans collateralizing debt obligations,net       |  |                     | 5,164,865  |           |  |                | 5,214,439 |   |  |   | 5,135,849 |   |
| Mortgage-backedsecurities — available forsale |  |                     |       |           |  |                | 23,211    |   |  |   | 23,211    |   |
| Hedginginstruments                                  |  |                     | 19,698,957 |           |  |                | 72,659    |   |  |   | 72,659    |   |
| Liabilities:                                        |  |                     |       |           |  |                |      |   |  |   |      |   |
| Warehouselinespayable                               |  | $                        | 2,689,694  |           |  | $                   | 2,689,694 |   |  | $      | 2,689,694 |   |
| Collateralizeddebtobligations                       |  |                     | 4,992,895  |           |  |                | 4,992,895 |   |  |   | 4,992,895 |   |
| Repurchaseagreements                                |  |                     | 102,282    |           |  |                | 102,282   |   |  |   | 102,282   |   |
| Juniorsubordinateddebentures                        |  |                     | 128,871    |           |  |                | 128,871   |   |  |   | 128,871   |   |
| Hedginginstruments                                  |  |                     | 807,915    |           |  |                | 6,410     |   |  |   | 6,410     |   |
|                                                     |

|                                                     |  |                       |            |                |  |                    |           |         |  |        |           |         |  |  |
|-----------------------------------------------------|--|-----------------------|------------|----------------|--|--------------------|-----------|---------|--|--------|-----------|---------|--|--|
|                                                |  | December31,  2005     |
|                                                |  | NotionalAmount        |            | CarryingAmount |  | EstimatedFairValue |
|                                                |  | (Dollars inthousands) |
| Assets:                                             |  |                  |       |           |  |               |      |    |  |   |      |    |
| Mortgageloans held forsale                          |  | $                     | 3,327,144  |           |  | $                  | 3,382,560 |    |  | $      | 3,388,115 |    |
| Forwarddeliverycommitments                          |  |                  | 1,733,257  |           |  |               | (4,363    | )  |  |   | (4,363    | )  |
| Mortgageloans held for sale,net                     |  |                  |       |           |  |               | 3,378,197 |    |  |   | 3,383,752 |    |
| ARMloans held for securitization,net                |  |                  | 278        |           |  |               | 282       |    |  |   | 277       |    |
| ARM loanscollateralizing debt obligations,net       |  |                  | 4,641,588  |           |  |               | 4,681,554 |    |  |   | 4,624,237 |    |
| Mortgage-backedsecurities — available forsale |  |                  |       |           |  |               | 23,357    |    |  |   | 23,357    |    |
| Hedginginstruments                                  |  |                  | 11,152,164 |           |  |               | 54,472    |    |  |   | 54,472    |    |
| Liabilities:                                        |  |                  |       |           |  |               |      |    |  |   |      |    |
| Warehouselinespayable                               |  | $                     | 3,177,990  |           |  | $                  | 3,177,990 |    |  | $      | 3,177,990 |    |
| Collateralizeddebtobligations                       |  |                  | 4,485,197  |           |  |               | 4,485,197 |    |  |   | 4,485,197 |    |
| Repurchaseagreements                                |  |                  | 87,058     |           |  |               | 87,058    |    |  |   | 87,058    |    |
| Juniorsubordinateddebentures                        |  |                  | 77,324     |           |  |               | 77,324    |    |  |   | 77,324    |    |
| Hedginginstruments                                  |  |                  | 7,242,693  |           |  |               | 8,801     |    |  |   | 8,801     |    |
|                                                     |

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INTEREST RATE RISKMANAGEMENT

We utilize a variety of derivative instrumentsin order to hedge our interest rate risk. Our hedging transactionsusing derivative instruments involve certain risks such as counterpartycredit risk, the enforceability of hedging contracts and the risk thatunanticipated and significant changes in interest rates will cause asignificant loss of basis in the contract. The counterparties to ourderivative arrangements are major financial institutions and securitiesdealers that are well capitalized with high credit ratings and withwhich we may also have other financial relationships. While we do notanticipate nonperformance by any counterparty, we are exposed topotential credit losses in the event the counterparty fails to perform.Our exposure to credit risk in the event of default by a counterpartycan be measured as the difference between the value of the contract andthe current market price. We manage this risk by using multiplecounterparties and limiting our counterparties to major financialinstitutions with good credit ratings, and in some cases, establishingrights to collateral posted by the derivative counterparty. Inaddition, we monitor the credit quality of our derivativecounterparties. Accordingly, we do not expect any material losses as aresult of default by such counterparties. However, there can be noassurance that we will be able to adequately manage the foregoingrisks, or ultimately realize an economic benefit that exceeds the costsrelated to these hedging strategies.

Mortgage InvestmentOperations

Our investment risk exposure is largely due tointerest rate risk. Interest rate risk is defined as the sensitivity ofour current and future earnings to interest rate volatility,variability of spread relationships, the difference in repricingintervals between our assets and liabilities, and the effect thatinterest rates may have on our cash flows, especially Portfolio ARMLoan prepayments. Interest rate risk may affect our interest income,interest expense and the market value of our interest raterisk-sensitive assets and liabilities. Our policies to manage interestrate risk aim to produce earnings stability and preserve capital byminimizing the negative effects of changing market interest rates andthe impact of prepayment risk.

We are subject to interestrate exposure with respect to our financing costs relating to ourPortfolio ARM Loans. Changes in interest rates impact our earnings invarious ways. While we invest primarily in ARM Loans, rising short-terminterest rates may temporarily negatively affect our earnings and,conversely, falling short-term interest rates may temporarily increaseour earnings. This impact can occur for several reasons and is affectedby portfolio prepayment activity as discussed below. First, ourborrowings may react to changes in interest rates sooner than our ARMLoans because the weighted average next repricing dates of theborrowings are likely to be shorter time periods than those of the ARMLoans. Second, interest rates on ARM Loans may be capped per adjustmentperiod (commonly referred to as the periodic cap), and our borrowingsmay not have similar limitations. Third, changes in interest rates onARM Loans typically lag behind changes in applicable interest rateindices due to the required notice period provided to ARM Loanborrowers when the interest rates on their loans are scheduled tochange.

Interest rates can also affect our net return onHybrid ARM loans. During a declining interest rate environment, theprepayment of Hybrid ARM loans may accelerate, possibly resulting in adecline in our net return on Hybrid ARM loans, as replacement HybridARM loans may have a lower yield than the older ones paying off. Incontrast, during an increasing interest rate environment, Hybrid ARMloans may prepay slower than expected, requiring us to finance agreater amount of Hybrid ARM loans than originally anticipated at atime when interest rates may be higher, resulting in a decline in ournet return on Hybrid ARM loans.

The rate of prepayment onmortgage loans may increase if interest rates decline or if thedifference between long-term and short-term interest rates diminishes.Increased prepayments would cause us to amortize the deferredorigination costs and fees for our mortgage loans over a shorterperiod, resulting in a reduced yield on our mortgage loans.Additionally, to the extent proceeds of prepayments cannot bereinvested at a rate of interest at least equal to the rate previouslyearned on such mortgage loans, our portfolio yield could be adverselyaffected.

Conversely, the rate of prepayment on mortgageloans may decrease if interest rates rise or if the difference betweenlong-term and short-term interest rates increases. Decreasedprepayments would 

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cause us to amortize the deferred originationcosts and fees for our mortgage loans over a longer period. Therefore,in rising interest rate environments where prepayments are declining,the yield on our ARM Loan portfolio could be expected to increase dueto higher interest rates and decreased amortization expenseattributable to slower prepayments.

The positions we taketo hedge our net interest income recognize the effect of prepayments onthe size and composition of the portfolio. We manage prepayment risk byregularly recalculating the notional amount of the required hedgepositions through the application of a prepayment model and implementhedge adjustments, as required.

While we have notexperienced any significant credit losses to date, such losses arepossible. For example, a rising interest rate environment or economicdownturn could cause our mortgage loan default rate and credit lossesto increase, which would adversely affect our liquidity and operatingresults.

The following table summarizes the repricingcharacteristics of our Portfolio ARM Loans:

RepricingCharacteristics of Portfolio ARMLoans

|                                   |  |                         |           |              |  |        |        |         |  |  |
|-----------------------------------|--|-------------------------|-----------|--------------|--|--------|--------|---------|--|--|
|                              |  | March31, 2006           |
|                              |  | UnpaidPrincipal Balance |           | PortfolioMix |
|                              |  | (Dollars inthousands)   |
| Traditional ARMLoans:             |  |                    |      |         |  |   |   |    |
| Index:                            |  |                    |      |         |  |   |   |    |
| Six-monthLIBOR                    |  | $                       | 21,827    |         |  |   | 0.4    | %  |
| One-yearconstant maturitytreasury |  |                    | 8,491     |         |  |   | 0.2    | %  |
|                              |  |                    | 30,318    |         |  |   | 0.6    | %  |
| HybridARMLoans:                   |  |                    |      |         |  |   |   |    |
| Index:                            |  |                    |      |         |  |   |   |    |
| 3years orless                     |  |                    | 1,018,103 |         |  |   | 19.7   | %  |
| Over3 years to 5years             |  |                    | 3,857,094 |         |  |   | 74.7   | %  |
|                              |  |                    | 4,875,197 |         |  |   | 94.4   | %  |
| PayOption ARMLoans                |  |                    | 259,350   |         |  |   | 5.0    | %  |
|                              |  |                    |      |         |  |   |   |    |
|                              |  | $                       | 5,164,865 |         |  |   | 100.0  | %  |
|                                   |

Aswe build our investment portfolio of mortgage loans, our riskmanagement is focused on protecting against possible‘‘compression’’ in the net interest marginearned on our investment 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 loans arethe primary loans requiring hedging of the corresponding fundingsources.

Traditional ARM loans have shorter repricingperiods (one year or less) than do Hybrid ARM loans. The interest rateon Traditional ARM loans will reset monthly, semi-annually or annuallyat a contractual margin over a U.S. Treasury index or a LIBOR index.The corresponding funding liabilities will similarly have shortercontractual repricing frequencies. Additionally, when Hybrid ARM loansreach 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. HybridARM loans initially have longer repricing periods than TraditionalARMs. We may not be able to obtain matched repricing features for thecorresponding funding sources since 

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our borrowings generally have shorterrepricing contractual terms than most of our Hybrid ARM loans where theinitial rate is fixed for up to five years.

To mitigatethe effect of interest rate fluctuations on our net interest income,including the effect of prepayment rates, we hedge the financing costsof our issued mortgage-backed securities with interest rate swapagreements, Eurodollar futures contracts and interest rate capagreements (collectively, ‘‘Portfolio HedgingInstruments’’) in order to better match the repricingdurations of our Portfolio ARM Loans and our issued mortgage-backedsecurities.

We may also use other instruments that may bedetermined to be advantageous and are permitted under the hedgingpolicy adopted by our board of directors.

We useEurodollar futures contracts to hedge for forecasted and recognizedLIBOR-based borrowings. Eurodollar futures contracts have the effect offixing the interest rate on LIBOR-based liabilities in the event thatLIBOR-based funding costs change.

We enter into interestrate cap agreements (‘‘Cap Agreements’’) byincurring a one-time fee or premium. Pursuant to the terms of the CapAgreements, we will receive cash payments if the LIBOR-based interestrate index specified in any such Cap Agreement increases abovecontractually specified levels. Therefore, such Cap Agreements have theeffect of capping the interest rate expense on a portion of ourborrowings above a level specified by the Cap Agreement. The purchaseprice of these Cap Agreements is amortized over the life of the CapAgreements, and the amortization expense generally increases as the CapAgreements approach maturity. Therefore, the cap premium amortizationexpense in future periods can be expected to increase from the currentamortization rate.

We enter into interest rate swapagreements (‘‘Swap Agreements’’) to fix theinterest rate on a portion of our borrowings as specified in the SwapAgreement. When we enter into a Swap Agreement, we generally agree topay a fixed interest rate, generally based on LIBOR. These SwapAgreements have the effect of converting our variable-rate debt intofixed-rate debt over the life of the Swap Agreements.

BothCap Agreements and Swap Agreements represent a way to lengthen theaverage repricing period of our variable-rate borrowings such that theaverage repricing of the borrowings more closely matches the averagerepricing of our Portfolio ARM Loans.

Management relies ona variety of tools to assess the interest rate risk exposure of theinvestment portfolio under various interest rate scenarios. Usingfinancial modeling, the fair value and interest rate sensitivity offinancial instruments, or groups of similar instruments, is estimatedand then aggregated to form a comprehensive picture of the riskcharacteristics of the investment portfolio.

The tablebelow presents the sensitivity of the market value of our portfoliousing a discounted cash flow simulation model. Application of thismethod results in an estimation of the change in the market value ofour assets and hedged liabilities per 50 basis point(‘‘bp’’) incremental instantaneous parallelshifts in the LIBOR yield curve as of March  31,  2006— a measure commonly referred to as sensitivity of equity.Positive sensitivity of equity indicates an increase in the marketvalue of our assets relative to the market value of our hedgedliabilities corresponding to the indicated shift in the yieldcurve.

As of March  31,2006

|                                                     |  |                                                |         |         |  |        |         |         |  |        |         |          |  |        |         |          |  |  |
|-----------------------------------------------------|--|------------------------------------------------|---------|---------|--|--------|---------|---------|--|--------|---------|----------|--|--------|---------|----------|--|--|
|                                                |  | BasisPoint Increase (Decrease) in InterestRate |
|                                                |  | (100)                                          |         | (50)    |  | +50    |         | +100    |
|                                                |  | (Dollarsin thousands)                          |
| Change in market valuesof:                          |  |                                           |    |    |  |   |    |    |  |   |    |     |  |   |    |     |
| Assets                                              |  | $                                              | 66,600  |    |  | $      | 37,200  |    |  | $      | (44,500 | )   |  | $      | (91,500 | )   |
| Hedgedliabilities                                   |  |                                           | (56,300 | )  |  |   | (32,700 | )  |  |   | 39,900  |     |  |   | 83,500  |     |
| Netchange in market value of portfolioequity        |  | $                                              | 10,300  |    |  | $      | 4,500   |    |  | $      | (4,600  | )   |  | $      | (8,000  | )   |
| Percentagechange in market value of portfolioequity |  |                                           | 4.50    | %  |  |   | 2.00    | %  |  |   | (2.00   | )%  |  |   | (3.50   | )%  |
|                                                     |

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The use of Portfolio HedgingInstruments is a critical part of our interest rate risk managementstrategies, and the effects of these Portfolio Hedging Instruments onthe market value of the investment portfolio are reflected in themodel's output. This analysis also takes into consideration thevalue of options embedded in our mortgage assets, including constraintson the repricing of the interest rate of ARM assets resulting fromperiodic and lifetime cap features, as well as prepayment options.Assets and liabilities that are not interest rate-sensitive, such ascash, payment receivables, prepaid expenses, payables and accruedexpenses are excluded. The sensitivity of equity calculated from thismodel is a key measure of the effectiveness of our interest rate riskmanagement strategies.

Changes in assumptions including,but not limited to, volatility, mortgage and financing spreads,prepayment behavior, defaults, as well as the timing and level ofinterest rate changes, will affect the results of the model. Therefore,actual results are likely to vary from modeledresults.

The table below presents the duration of ourassets and liabilities as of March  31,  2006, under thethen prevailing yield curve, as well as with instantaneous parallel 50bps shifts in the curve. Positive portfolio duration indicates that themarket value of the investment portfolio, net of borrowings and hedges,will decline if interest rates rise and increase if interest ratesdecline. The closer duration is to zero, the less interest rate changesare expected to affect the market value of portfolioequity.

As of March  31,2006

|                                 |  |                                                |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |       |         |  |  |
|---------------------------------|--|------------------------------------------------|------|--------|--|--------|------|--------|--|--------|------|--------|--|--------|------|--------|--|--------|-------|---------|--|--|
|                            |  | BasisPoint Increase (Decrease) in InterestRate |
|                            |  | (100)                                          |      | (50)   |  | Base   |      | +50    |  | +100   |
|                            |  | (Years)                                        |
| DurationofAssets                |  |                                           | 1.04 |   |  |   | 1.25 |   |  |   | 1.47 |   |  |   | 1.66 |   |  |   | 1.78  |    |
| Durationof Borrowings andHedges |  |                                           | 0.78 |   |  |   | 1.10 |   |  |   | 1.38 |   |  |   | 1.60 |   |  |   | 1.79  |    |
| NetPortfolioDuration            |  |                                           | 0.26 |   |  |   | 0.15 |   |  |   | 0.09 |   |  |   | 0.06 |   |  |   | (0.01 | )  |
|                                 |

Althoughmarket value sensitivity analysis is widely accepted in identifyinginterest rate risk, it does not take into consideration changes thatmay occur such as, but not limited to, changes in investment andfinancing strategies, changes in market spreads, changes in the shapeof the yield curve and changes in business volumes.

MortgageBanking Operations

Movements in interest rates can pose amajor risk to our mortgage banking operations in either a rising ordeclining interest rate environment. MortgageIT utilizes warehouselines of credit to fund its origination activity. The cost of theseborrowings is at variable interest rate terms that increase or decreaseas short term interest rates increase or decrease. In addition, we areexposed to price risk from the time an interest rate lock commitment ismade to a mortgage applicant (or financial intermediary) to the timethe related mortgage loan is sold. During this period, we are exposedto losses if mortgage rates rise, because the value of the IRLC ormortgage declines.

The committed pipeline consists of loanapplications in process where we have issued IRLCs to the applicants(or financial intermediaries). IRLCs guarantee the rate and points onthe underlying mortgage for a specified period, generally from seven tosixty days. Managing the price risk related to the committed pipelineis complicated by the fact that the ultimate percentage of applicationsthat close within the terms of the IRLC is variable. The primary factorthat drives the variability of the closing percentage is change inmortgage rates. In general, the percentage of applications in thecommitted pipeline that ultimately close within the terms of the IRLCincreases if mortgage rates rise and decreases if mortgage rates fall.This is due primarily to the relative attractiveness of currentmortgage rates compared to the applicants' committed rates. Theclosing percentage is also influenced by the source of theapplications, age of the applications, purpose for the loans (purchaseor refinance) and the application approval rate. We have developedclosing ratio estimates for the committed pipeline using empirical datataking into account all of these variables. To mitigate the effect ofthe interest rate risk inherent in issuing an IRLC from the lock-indate to the funding date of a loan, MortgageIT uses various derivativeinstruments, including forward sale loan commitments, Eurodollarfutures contracts and forward sales and purchases of mortgage-backedsecurities and options on such securities in the forward delivery TBAmarket to economically hedge the IRLCs.

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If MortgageIT does not deliver intoforward sale loan or TBA commitments, such instruments can be settledon a net basis. Net settlement entails paying or receiving cash basedupon the change in market value of the existing instrument. All forwardsale loan commitments and forward sales and purchases of TBAcommitments are typically settled within 90 days of the contractdate.

MortgageIT also hedges the economic value of fundedloans that 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 decline in value of its mortgage loans.Similar to IRLCs, MortgageIT's strategy is to use forward saleloan commitments, Eurodollar futures contracts and TBAs to hedge itsmortgage loans held for sale. The notional amount of the derivativecontracts, along with the underlying rate and terms of such contracts,are equivalent to the unpaid principal amount of the mortgage inventorybeing hedged; hence, the derivative contracts effectively fix theforward sales price and, thereby, substantially mitigate interest rateand price risk to MortgageIT.

The following furtherdescribes the derivative instruments we may use in our risk managementactivities related to the committed pipeline and mortgage loaninventory. The value of these derivative instruments generally moves inthe opposite direction to the value of the mortgage loan inventory. Wereview our committed pipeline and mortgage inventory risk profiles on adaily basis.

|              |                                                                                                                                                                                                |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Forward sales ofmortgage-backed securities: represents an obligation to sell amortgage-backed security at a specific price in the future; therefore,its value increases as mortgage ratesrise. |

|              |                                                                                                                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Forward purchases of mortgage-backedsecurities: represents an obligation to buy a mortgage-backed securityat a specific price in the future; therefore, its value increases asmortgage rates fall. |

|              |                                                                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long call options onmortgage-backed securities: represents a right to buy a mortgage-backedsecurity at a specific price in the future; therefore, its valueincreases as mortgage rates fall. |

|              |                                                                                                                                                                                             |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long putoptions on mortgage-backed securities: represents a right to sell amortgage-backed security at a specific price in the future; therefore,its value increases as mortgage ratesrise. |

|              |                                                                                                                                                                                                       |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long call options on Treasuryfutures: represents a right to acquire a Treasury futures contract at aspecific price in the future; therefore, its value increases as thebenchmark Treasury rate falls. |

|              |                                                                                                                                                                                                  |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long putoptions on Treasury futures: represents a right to sell a Treasuryfutures contract at a specific price in the future; therefore, itsvalue increases as the benchmark Treasury raterises. |

|              |                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Short Eurodollar futures contracts:represents a standardized exchange-traded contract, the value of whichis tied to spot Eurodollar rates at specified future dates; therefore,its value increases when Eurodollar rates rise. |

Finally,the mortgage banking industry is generally subject to seasonal trends.These seasonal trends reflect the pattern in the national housingmarket. Home sales typically rise during the spring and summer seasons,and decline during the fall and winter seasons. Seasonality has less ofan effect on mortgage refinancing activity, which is primarily drivenby prevailing mortgage rates.

ITEM 4.    CONTROLS ANDPROCEDURES

Evaluation of disclosure controls andprocedures

The Company carried out an evaluation, withthe participation of management, including its Chief Executive Officerand Chief Financial Officer, of the effectiveness of its disclosurecontrols and procedures (pursuant to Rule 13a-15(e) under theSecurities Exchange Act of 1934) as of the end of the period covered bythis quarterly report on Form 10-Q. Based upon that evaluation, theChief Executive Officer and Chief Financial Officer concluded that theCompany's disclosure controls and procedures are effective toensure that it is able to record, process, summarize and report theinformation the Company is required to disclose in the filings itsubmits to the SEC within the time periods required.

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Changes in internal control overfinancial reporting

During the quarter ended March31,  2006, there has been no change in our internal control overfinancial reporting that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control overfinancial reporting.

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PART II. OTHERINFORMATION

Item 1.    Legal Proceedings

OnFebruary  16,  2006, EMC Mortgage Corp.(‘‘EMC’’) filed suit against MortgageIT inthe 95th Judicial District Court of Dallas County, Texas. This suitalleges, among other things, that MortgageIT is obligated to repurchasefrom EMC approximately $70.5  million in sub-prime mortgage loanssold to EMC pursuant to a Mortgage Loan Purchase and Interim ServicingAgreement dated January  1,  2003, as amended, due toalleged breaches of representations and warranties as well as allegedearly payment default repurchase obligations with respect to suchloans. The case was subsequently removed to the U.S. District Court forthe Northern District of Texas, Dallas Division. MortgageIT is in theprocess of evaluating the claims and potential counterclaims, andintends to vigorously defend the suit. At this stage of theproceedings, it is not possible to predict the outcome of thislitigation.

On September  29,  2004, asamended on October  12,  2004, an action was filed in theU.S. District Court for the Southern District of New York against oursubsidiary, MortgageIT, and IPI Skyscraper Mortgage, which was, at thetime, a subsidiary of, and has now been merged with and into,MortgageIT. The case was filed by four former loan officers of aMortgageIT branch in Newburgh, New York, and seeks to recover allegedlyunpaid minimum wage and overtime under both federal and New York laborlaws. The Court has preliminarily approved a settlement. Final approvalby the Court and the amount of any settlement are contingent on theoutcome of the claims process,

In addition to these cases,in the ordinary course of business, the Company is a defendant in orparty to a number of pending and threatened legal actions andproceedings, and is also involved from time to time in investigationsand administrative proceedings by governmental agencies. Certain ofsuch actions and proceedings involve alleged violations of consumerprotection laws, including claims relating to the Company’s loanorigination and collection efforts, and other federal and state bankinglaws. Certain of such actions and proceedings include claims for breachof contract, restitution, compensatory damages, punitive damages andother forms of relief. Due to the difficulty of predicting the outcomeof such matters, the Company can give no assurance that it will prevailon all claims made against it; however, management believes, based oncurrent knowledge and after consultation with counsel, that these legalmatters and administrative proceedings and the losses, if any,resulting from the final outcome thereof, will not have a materialadverse effect on the Company’s financial position, results ofoperations or liquidity, but can give no assurance that they will nothave such an effect.

Although it is difficult to predictthe outcome of any litigation, the Company has established litigationreserves where necessary in accordance with generally acceptedaccounting principles.

Item 1A.    RiskFactors

There have been no material changes in our riskfactors from those disclosed in our 2005 Annual Report on Form10-K.

Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds

None.

Item 3.    Defaults UponSenior Securities

None.

Item 4.    Submissionof Matters to a Vote of Security Holders

None.

Item 5.    OtherInformation

None.

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ITEM 6.    EXHIBITS AND FINANCIALSTATEMENT SCHEDULES

Exhibits filed with this Form10-Q

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |  |
|------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.1 |  | ParentGuarantee Agreement, dated as of April  13,  2005, betweenMortgageIT Holdings, Inc., as Parent Guarantor, and JPMorgan ChaseBank, National Association, as GuaranteeTrustee                                                                                                                                                                                                                                                                                                                                                                |
| 10.2 |  | Junior Subordinated Indenture,dated as of April  13,  2005, between MortgageIT, Inc. andJPMorgan Chase Bank, National Association, asTrustee                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3 |  | Amended and Restated TrustAgreement, dated as of April  13,  2005, among MortgageIT,Inc., as Depositor, JPMorgan Chase Bank, National Association, asProperty Trustee,Chase Bank USA, National Association, as DelawareTrustee,and the Administrative Trustees Named Therein, asAdministrative Trustee                                                                                                                                                                                                                                           |
| 10.4 |  | JuniorSubordinated Indenture, dated as of May  26,  2005, betweenMortgageIT, Inc., as Issuer MortgageIT Holdings, Inc., as Guarantor,and Wilmington Trust Company, asTrustee                                                                                                                                                                                                                                                                                                                                                                     |
| 10.5 |  | Amended and Restated TrustAgreement, dated as of May  26,  2005, among MortgageIT,Inc., as Depositor, MortgageIT Holdings, Inc., as Guarantor, WilmingtonTrust Company, as Property Trustee, Wilmington Trust Company, asDelaware Trustee, and the Administrative Trustees Named Therein asAdministrative Trustees                                                                                                                                                                                                                               |
| 31.1 |  | Certificationof Chief Executive Officer pursuant to Rule 13a —14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of2002                                                                                                                                                                                                                                                                                                                                                   |
| 31.2 |  | Certification of Chief FinancialOfficer pursuant to Rule 13a — 14(a)/15d-14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of2002                                                                                                                                                                                                                                                                                                                                                   |
| 32.1 |  | Certification of Chief ExecutiveOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (This exhibit shall notbe deemed ‘‘filed’’ for purposes of Section18 of the Securities Exchange Act of 1934, as amended, or otherwisesubject to the liability of that section. Further, this exhibit shallnot be deemed to be incorporated by reference into any filing under theSecurities Act of 1933, as amended, or the Securities Exchange Act of1934, as amended.) |
| 32.2 |  | Certification ofChief Financial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (This exhibitshall not be deemed ‘‘filed’’ for purposesof Section 18 of the Securities Exchange Act of 1934, as amended, orotherwise subject to the liability of that section. Further, thisexhibit shall not be deemed to be incorporated by reference into anyfiling under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, asamended.)  |
|      |

|  |
|--|
|  |  |
|  |

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Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereuntoduly authorized:

|  |        |                          |
|--|--------|--------------------------|
|  |   | MORTGAGEIT HOLDINGS,INC. |

|  | By:    /s/ DOUG W.NAIDUS                               |
|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |        |                                                                                                                                          |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|  |   |    Name:Doug W. Naidus   Title: Chairman and Chief ExecutiveOfficer   Date: May 9,2006 |

|  | By:    /s/ GLENN J.MOURIDY                             |
|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |        |                                                                                                                                                   |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   |    Name: GlennJ. Mouridy   Title: President and Chief FinancialOfficer   Date:  May 9,2006 |

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