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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006.                                               
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | FOR THE TRANSITION PERIOD
    FROM                   TO                                     

COMMISSION FILE NUMBER: 001-32314


NEW CENTURY FINANCIAL CORPORATION


(Exact name of registrant as specified in its charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|MARYLAND                 |  | 56-2451736                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

18400 VON KARMAN, SUITE 1000,


IRVINE, CALIFORNIA 92612


(Address of principal executive offices) (Zip Code)


(949) 440-7030


(Registrants telephone number, including area code)


Not Applicable


(Former name, former address and former fiscal year, if
changed since last report)


þ o


12b-2




|                           |                      |                         
|-------------------------- | -------------------- | ------------------------
|Large accelerated filer  þ | Accelerated filer  o | Non accelerated filer  o

12b-2 o þ












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NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES


FORM 10-Q


QUARTER ENDED JUNE 30, 2006


INDEX


|                               |                                                                                                    |      |    |    | 
|------------------------------ | -------------------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                               |                                                                                                    | Page |   
|                               |                                                                                                    |      |   
|PART I  FINANCIAL INFORMATION |                                                                                                    |      | 5  |   
|                               | Item 1.  Financial Statements                                                                      |      |    | 5  | 
|                               | Item 2.  Managements Discussion and
    Analysis of Financial Condition and Results of Operations |      |    | 36 | 
|                               | Item 3.  Quantitative and Qualitative Disclosures
    About Market Risk                            |      |    | 73 | 
|                               | Item 4.  Controls and Procedures                                                                   |      |    | 74 | 
|                              
|PART II  OTHER INFORMATION    |                                                                                                    |      | 75 |   
|                               | Item 1.  Legal Proceedings                                                                         |      |    | 75 | 
|                               | Item 1A. Risk Factors                                                                              |      |    | 77 | 
|                               | Item 2.  Unregistered Sales of Equity Securities
    and Use of Proceeds                           |      |    | 77 | 
|                               | Item 4.  Submission of Matters to a Vote of
    Security Holders                                   |      |    | 77 | 
|                               | Item 6.  Exhibits                                                                                  |      |    | 78 | 
|                              
|SIGNATURES                     |                                                                                                    |      | 79 |   
|                              
|EXHIBIT INDEX                  |                                                                                                    |      | 80 |   

2



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3



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4



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PART I  FINANCIAL INFORMATION




|        |                     
|------- | --------------------
|Item 1. | Financial Statements

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES


Condensed Consolidated Balance Sheets


June 30, 2006 and December 31, 2005


(Dollars in thousands)


|                                                                                                                                                                                                                                  |  |             |            |  |              |  |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- |  | ------------ |  | ---------- | -
|                                                                                                                                                                                                                                  |  | June 30,    |            |  | December 31, | 
|                                                                                                                                                                                                                                  |  | 2006        |            |  | 2005         | 
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|                                                                                                                                                                                                                                  |  | (Unaudited) |            |  |             
|ASSETS                                                                                                                                                                                                                           
|Cash and cash equivalents                                                                                                                                                                                                         |  | $           | 380,847    |  |              |  | 503,723    |  
|Restricted cash                                                                                                                                                                                                                   |  |             | 717,201    |  |              |  | 726,697    |  
|Mortgage loans held for sale at lower of cost or market                                                                                                                                                                           |  |             | 9,303,086  |  |              |  | 7,825,175  |  
|Mortgage loans held for investment, net of allowance of $209,889
    and $198,131, respectively                                                                                                                                   |  |             | 15,905,636 |  |              |  | 16,143,865 |  
|Residual interests in securitizations 
    held-for-trading                                                                                                                                                                      |  |             | 209,335    |  |              |  | 234,930    |  
|Mortgage servicing assets                                                                                                                                                                                                         |  |             | 42,096     |  |              |  | 69,315     |  
|Accrued interest receivable                                                                                                                                                                                                       |  |             | 113,920    |  |              |  | 101,945    |  
|Income taxes, net                                                                                                                                                                                                                 |  |             | 65,520     |  |              |  | 80,823     |  
|Office property and equipment, net                                                                                                                                                                                                |  |             | 89,384     |  |              |  | 86,886     |  
|Goodwill                                                                                                                                                                                                                          |  |             | 95,792     |  |              |  | 92,980     |  
|Prepaid expenses and other assets                                                                                                                                                                                                 |  |             | 402,582    |  |              |  | 280,751    |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|Total assets                                                                                                                                                                                                                      |  | $           | 27,325,399 |  |              |  | 26,147,090 |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                             
|Credit facilities on mortgage loans held for sale                                                                                                                                                                                 |  | $           | 8,786,300  |  |              |  | 7,439,685  |  
|Financing on mortgage loans held for investment, net                                                                                                                                                                              |  |             | 15,794,335 |  |              |  | 16,045,459 |  
|Accounts payable and accrued liabilities                                                                                                                                                                                          |  |             | 578,475    |  |              |  | 508,163    |  
|Convertible senior notes, net                                                                                                                                                                                                     |  |             |           |  |              |  | 4,943      |  
|Notes payable                                                                                                                                                                                                                     |  |             | 27,984     |  |              |  | 39,140     |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|Total liabilities                                                                                                                                                                                                                 |  |             | 25,187,094 |  |              |  | 24,037,390 |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|Commitments and contingencies                                                                                                                                                                                                     |  |             |            |  |              |  |            |  
|Stockholders equity:                                                                                                                                                                                                             |  |             |            |  |              |  |            |  
|Preferred stock, $0.01 par value. Authorized
    25,000,000 shares at June 30, 2006 and
    10,000,000 shares at December 31, 2005; issued and
    outstanding 4,500,000 shares at June 30, 2006 and
    December 31, 2005        |  |             | 45         |  |              |  | 45         |  
|Common stock, $0.01 par value. Authorized
    300,000,000 shares at June 30, 2006 and
    December 31, 2005; issued and outstanding 56,076,773 and
    55,723,267 shares at June 30, 2006 and
    December 31, 2005, respectively |  |             | 561        |  |              |  | 557        |  
|Additional paid-in capital                                                                                                                                                                                                        |  |             | 1,221,929  |  |              |  | 1,234,362  |  
|Accumulated other comprehensive income                                                                                                                                                                                            |  |             | 83,040     |  |              |  | 61,045     |  
|Retained earnings                                                                                                                                                                                                                 |  |             | 832,730    |  |              |  | 828,270    |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|                                                                                                                                                                                                                                  |  |             | 2,138,305  |  |              |  | 2,124,279  |  
|Deferred compensation costs                                                                                                                                                                                                       |  |             |           |  |              |  | (14,579    | )
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|Total stockholders equity                                                                                                                                                                                                        |  |             | 2,138,305  |  |              |  | 2,109,700  |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 
|Total liabilities and stockholders equity                                                                                                                                                                                        |  | $           | 27,325,399 |  |              |  | 26,147,090 |  
|                                                                                                                                                                                                                                  |  |             |            |  |              | 



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NEW CENTURY FINANCIAL CORPORATION SUBSIDIARIES


Condensed Consolidated Statements of Earnings


(Dollars in thousands, except per share amounts)


(Unaudited)


|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |         |         |  |            |         |         | 
|---------------------------------------------------------- | ---------------------------------------------- | --------------------------------------------- | ---------- | ------- | ------------------------- |  | ---------- | ------- | ------- |  | ---------- | ------- | ------- |  | ---------- | ------- | ------- | 
|                                                           |                                                | Three Months Ended June 30,                   |            |         | Six Months Ended June 30, | 
|                                                           |                                                |                                               |            |         |                           | 
|                                                           |                                                | 2006                                          |            |         | 2005                      |  |            | 2006    |         |  | 2005       |        
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|Interest income                                            |                                                | $                                             | 501,114    |         |                           |  | 420,861    |         |         |  | 964,116    |         |         |  | 751,932    |        
|Interest expense                                           |                                                |                                               | (361,111   | )       |                           |  | (218,555   | )       |         |  | (644,324   | )       |         |  | (380,636   | )      
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           | Net interest income                            |                                               |            | 140,003 |                           |  |            | 202,306 |         |  |            | 319,792 |         |  |            | 371,296 |        
|Provision for losses on mortgage loans held for investment |                                                |                                               | (32,325    | )       |                           |  | (36,875    | )       |         |  | (60,150    | )       |         |  | (67,113    | )      
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           | Net interest income after provision for losses |                                               |            | 107,678 |                           |  |            | 165,431 |         |  |            | 259,642 |         |  |            | 304,183 |        
|Other operating income:                                    |                                                |                                               |            |         |                           |  |            |         |         |  |            |         |         |  |            |        
|                                                           | Gain on sale of mortgage loans                 |                                               |            | 195,160 |                           |  |            | 110,604 |         |  |            | 324,687 |         |  |            | 233,556 |        
|                                                           | Servicing income                               |                                               |            | 14,012  |                           |  |            | 6,631   |         |  |            | 29,654  |         |  |            | 13,353  |        
|                                                           | Other income                                   |                                               |            | 24,961  |                           |  |            | 3,398   |         |  |            | 39,592  |         |  |            | 7,271   |        
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           |                                                | Total other operating income                  |            |         | 234,133                   |  |            |         | 120,633 |  |            |         | 393,933 |  |            |         | 254,180 | 
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|Operating expenses:                                        |                                                |                                               |            |         |                           |  |            |         |         |  |            |         |         |  |            |        
|                                                           | Personnel                                      |                                               |            | 126,922 |                           |  |            | 119,961 |         |  |            | 243,643 |         |  |            | 231,683 |        
|                                                           | General and administrative                     |                                               |            | 55,113  |                           |  |            | 42,324  |         |  |            | 112,588 |         |  |            | 84,099  |        
|                                                           | Advertising and promotion                      |                                               |            | 13,851  |                           |  |            | 20,711  |         |  |            | 26,554  |         |  |            | 40,543  |        
|                                                           | Professional services                          |                                               |            | 11,103  |                           |  |            | 9,677   |         |  |            | 20,293  |         |  |            | 17,483  |        
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           |                                                | Total operating expenses                      |            |         | 206,989                   |  |            |         | 192,673 |  |            |         | 403,078 |  |            |         | 373,808 | 
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           |                                                | Earnings before income taxes                  |            |         | 134,822                   |  |            |         | 93,391  |  |            |         | 250,497 |  |            |         | 184,555 | 
|                                                           | Income tax expense (benefit)                   |                                               |            | 29,279  |                           |  |            | (1,688  | )       |  |            | 41,219  |         |  |            | 4,716   |        
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           |                                                | Net earnings                                  |            |         | 105,543                   |  |            |         | 95,079  |  |            |         | 209,278 |  |            |         | 179,839 | 
|Dividends paid on preferred stock                          |                                                |                                               | 2,567      |         |                           |  | 285        |         |         |  | 5,133      |         |         |  | 285        |        
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|                                                           |                                                | Net earnings available to common stockholders |            | $       | 102,976                   |  |            |         | 94,794  |  |            |         | 204,145 |  |            |         | 179,554 | 
|                                                           |                                                |                                               |            |         |                           |  |            |         |         |  |            |        
|Basic earnings per share                                   |                                                | $                                             | 1.85       |         |                           |  | 1.71       |         |         |  | 3.67       |         |         |  | 3.26       |        
|Diluted earnings per share                                 |                                                | $                                             | 1.81       |         |                           |  | 1.65       |         |         |  | 3.59       |         |         |  | 3.13       |        
|Basic weighted average shares outstanding                  |                                                |                                               | 55,784,919 |         |                           |  | 55,376,001 |         |         |  | 55,652,977 |         |         |  | 55,079,377 |        
|Diluted weighted average shares outstanding                |                                                |                                               | 56,935,553 |         |                           |  | 57,396,098 |         |         |  | 56,816,074 |         |         |  | 57,331,721 |        



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NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Comprehensive Income


(Dollars in thousands)


(Unaudited)


|             |                                                                                  |                      |         |        |                  |  |        |         |       |  |         |        |         |  |         |         |         | 
|------------ | -------------------------------------------------------------------------------- | -------------------- | ------- | ------ | ---------------- |  | ------ | ------- | ----- |  | ------- | ------ | ------- |  | ------- | ------- | ------- | 
|             |                                                                                  | Three Months Ended   |         |        | Six Months Ended | 
|             |                                                                                  | June 30,             |         |        | June 30,         | 
|             |                                                                                  |                      |         |        |                  | 
|             |                                                                                  | 2006                 |         |        | 2005             |  |        | 2006    |       |  | 2005    |       
|             |                                                                                  |                      |         |        |                  |  |        |         |       |  |         |       
|Net earnings |                                                                                  | $                    | 105,543 |        |                  |  | 95,079 |         |       |  | 209,278 |        |         |  | 179,839 |        
|             | Net unrealized gains (losses) on derivative instruments
    designated as hedges |                      |         | 15,135 |                  |  |        | (95,520 | )     |  |         | 20,396 |         |  |         | (22,607 | )      
|             | Reclassification adjustment into earnings for derivative
    instruments         |                      |         | 812    |                  |  |        | 2,227   |       |  |         | 1,605  |         |  |         | 7,488   |        
|             | Tax effect                                                                       |                      |         | 77     |                  |  |        | 1,488   |       |  |         | (6     | )       |  |         | (849    | )      
|             |                                                                                  |                      |         |        |                  |  |        |         |       |  |         |       
|             |                                                                                  | Comprehensive income |         | $      | 121,567          |  |        |         | 3,274 |  |         |        | 231,273 |  |         |         | 163,871 | 
|             |                                                                                  |                      |         |        |                  |  |        |         |       |  |         |       



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NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


Year Ended December 31, 2005 and Six Months Ended
June 30, 2006


(In thousands, except per share amounts)


|                                                                               |  |             |       |  |           |  |    |             |  |  |        |             |  |            |     |   |               |  |           |          |  |  |              |   |  |       |          |   |  |  |         |   |  |  |           |  
|------------------------------------------------------------------------------ |  | ----------- | ----- |  | --------- |  | -- | ----------- |  |  | ------ | ----------- |  | ---------- | --- | - | ------------- |  | --------- | -------- |  |  | ------------ | - |  | ----- | -------- | - |  |  | ------- | - |  |  | --------- | -
|                                                                               |  |             |       |  |           |  |    |             |  |  |        | Accumulated |  |            |     |   |               |  |          
|                                                                               |  |             |       |  |           |  |    |             |  |  |        | Other       |  |            |     |   |               |  |          
|                                                                               |  | Preferred   |       |  | Preferred |  |    | Common      |  |  | Common |             |  | Additional |     |   | Comprehensive |  |           |          |  |  |              |  
|                                                                               |  | Shares      |       |  | Stock     |  |    | Shares      |  |  | Stock  |             |  | Paid-In    |     |   | Income        |  |           | Retained |  |  | Deferred     |   |  |      
|                                                                               |  | Outstanding |       |  | Amount    |  |    | Outstanding |  |  | Amount |             |  | Capital    |     |   | (Loss)        |  |           | Earnings |  |  | Compensation |   |  | Total |         
|                                                                               |  |             |       |  |           |  |    |             |  |  |        |             |  |            |     |   |               |  |           |          |  |  |              |   |  |       |         
|Balance at December 31, 2004                                                   |  |             |      |  |           |  |   |             |  |  | 54,703 |             |  |            | 547 |   |               |  | 1,108,590 |          |  |  | (4,700       | ) |  |       | 781,627  |   |  |  | (7,499  | ) |  |  | 1,878,565 |  
|Proceeds from issuance of common stock                                         |  |             |      |  |           |  |   |             |  |  | 1,880  |             |  |            | 19  |   |               |  | 26,440    |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 26,459    |  
|Proceeds from issuance of preferred stock                                      |  |             | 4,500 |  |           |  | 45 |             |  |  |       |             |  |            |    |   |               |  | 108,619   |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 108,664   |  
|Repurchases and cancellation of treasury stock                                 |  |             |      |  |           |  |   |             |  |  | (879   | )           |  |            | (9  | ) |               |  | (29,465   | )        |  |  |             |   |  |       |         |   |  |  |        |   |  |  | (29,474   | )
|Cancelled shares related to stock options                                      |  |             |      |  |           |  |   |             |  |  | (244   | )           |  |            | (2  | ) |               |  | (12,414   | )        |  |  |             |   |  |       |         |   |  |  |        |   |  |  | (12,416   | )
|Conversion of convertible senior notes                                         |  |             |      |  |           |  |   |             |  |  | 15     |             |  |            |    |   |               |  | 500       |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 500       |  
|Issuance of restricted stock, net                                              |  |             |      |  |           |  |   |             |  |  | 248    |             |  |            | 2   |   |               |  | 14,493    |          |  |  |             |   |  |       |         |   |  |  | (14,495 | ) |  |  |          |  
|Amortization of deferred compensation                                          |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       |         |   |  |  | 7,415   |   |  |  | 7,415     |  
|Net earnings                                                                   |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       | 416,543  |   |  |  |        |   |  |  | 416,543   |  
|Tax benefit related to non-qualified stock options                             |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  | 17,599    |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 17,599    |  
|Other comprehensive income, net of tax                                         |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  | 65,745       |   |  |       |         |   |  |  |        |   |  |  | 65,745    |  
|Dividends declared on common stock, $6.50 per share                            |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       | (364,482 | ) |  |  |        |   |  |  | (364,482  | )
|Dividends declared on preferred stock, $1.20 per share                         |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       | (5,418   | ) |  |  |        |   |  |  | (5,418    | )
|                                                                               |  |             |       |  |           |  |    |             |  |  |        |             |  |            |     |   |               |  |           |          |  |  |              |   |  |       |         
|Balance at December 31. 2005                                                   |  |             | 4,500 |  |           |  | 45 |             |  |  | 55,723 |             |  |            | 557 |   |               |  | 1,234,362 |          |  |  | 61,045       |   |  |       | 828,270  |   |  |  | (14,579 | ) |  |  | 2,109,700 |  
|Proceeds from issuance of common stock                                         |  |             |      |  |           |  |   |             |  |  | 547    |             |  |            | 5   |   |               |  | 11,411    |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 11,416    |  
|Repurchases and cancellation of treasury stock                                 |  |             |      |  |           |  |   |             |  |  | (552   | )           |  |            | (5  | ) |               |  | (25,134   | )        |  |  |             |   |  |       |         |   |  |  |        |   |  |  | (25,139   | )
|Cancelled shares related to stock options                                      |  |             |      |  |           |  |   |             |  |  | (88    | )           |  |            | (1  | ) |               |  | (1,355    | )        |  |  |             |   |  |       |         |   |  |  |        |   |  |  | (1,356    | )
|Compensation expense related to common stock options                           |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  | 6,000     |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 6,000     |  
|Excess tax benefits related to non-qualified stock options                     |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  | 1,944     |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 1,944     |  
|Conversion of convertible senior notes                                         |  |             |      |  |           |  |   |             |  |  | 166    |             |  |            | 2   |   |               |  | 4,998     |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 5,000     |  
|Restricted stock, net                                                          |  |             |      |  |           |  |   |             |  |  | 281    |             |  |            | 3   |   |               |  | (2,271    | )        |  |  |             |   |  |       |         |   |  |  |        |   |  |  | (2,268    | )
|Compensation expense related to restricted stock                               |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  | 6,553     |          |  |  |             |   |  |       |         |   |  |  |        |   |  |  | 6,553     |  
|Reclassification of deferred compensation related to adoption of
    SFAS 123R |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  | (14,579   | )        |  |  |             |   |  |       |         |   |  |  | 14,579  |   |  |  |          |  
|Net earnings                                                                   |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       | 209,278  |   |  |  |        |   |  |  | 209,278   |  
|Other comprehensive income, net of tax                                         |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  | 21,995       |   |  |       |         |   |  |  |        |   |  |  | 21,995    |  
|Dividends declared on common stock, $3.55 per share                            |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       | (199,685 | ) |  |  |        |   |  |  | (199,685  | )
|Dividends declared on preferred stock, $1.14 per share                         |  |             |      |  |           |  |   |             |  |  |       |             |  |            |    |   |               |  |          |          |  |  |             |   |  |       | (5,133   | ) |  |  |        |   |  |  | (5,133    | )
|                                                                               |  |             |       |  |           |  |    |             |  |  |        |             |  |            |     |   |               |  |           |          |  |  |              |   |  |       |         
|Balance at June 30, 2006                                                       |  |             | 4,500 |  |           |  | 45 |             |  |  | 56,077 |             |  |            | 561 |   |               |  | 1,221,929 |          |  |  | 83,040       |   |  |       | 832,730  |   |  |  |        |   |  |  | 2,138,305 |  
|                                                                               |  |             |       |  |           |  |    |             |  |  |        |             |  |            |     |   |               |  |           |          |  |  |              |   |  |       |         



8



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##### 



NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES


Condensed Consolidated Statements of Cash Flows


(Dollars in thousands)


(Unaudited)


|                                                                                        |                                                                                    |                           |          |             |      |  |            |             |  
|--------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------- | -------- | ----------- | ---- |  | ---------- | ----------- | -
|                                                                                        |                                                                                    | Six Months Ended June 30, |         
|                                                                                        |                                                                                    |                           |         
|                                                                                        |                                                                                    | 2006                      |          |             | 2005 | 
|                                                                                        |                                                                                    |                           |          |             |      | 
|Cash flows from operating activities:                                                   |                                                                                    |                           |          |             |      |  |            |            
|                                                                                        | Net earnings                                                                       |                           | $        | 209,278     |      |  |            | 179,839     |  
|Adjustments to reconcile net earnings to net cash provided by
    operating activities: |                                                                                    |                           |          |             |      |  |            |            
|                                                                                        | Depreciation and amortization of office property and equipment                     |                           |          | 15,689      |      |  |            | 10,111      |  
|                                                                                        | Other amortization                                                                 |                           |          | 53,369      |      |  |            | 43,402      |  
|                                                                                        | Stock-based compensation                                                           |                           |          | 12,553      |      |  |            | 3,798       |  
|                                                                                        | Excess tax benefits from stock-based compensation                                  |                           |          | (1,944      | )    |  |            |            |  
|                                                                                        | Cash flows received from residual interests in securitizations                     |                           |          | 570         |      |  |            | 12,210      |  
|                                                                                        | Accretion of Net Interest Receivables, or NIR                                    |                           |          | (13,737     | )    |  |            | (7,927      | )
|                                                                                        | NIR gains                                                                          |                           |          |            |      |  |            | 1,670       |  
|                                                                                        | Initial deposits to over-collateralization accounts                                |                           |          |            |      |  |            | (7,914      | )
|                                                                                        | Servicing gains                                                                    |                           |          | (6,796      | )    |  |            | (35,893     | )
|                                                                                        | Fair value adjustment of residual interests in securitizations                     |                           |          | 38,762      |      |  |            | 4,419       |  
|                                                                                        | Provision for losses on mortgage loans held for investment                         |                           |          | 60,150      |      |  |            | 67,113      |  
|                                                                                        | Provision for repurchase losses                                                    |                           |          | 5,701       |      |  |            | 6,072       |  
|                                                                                        | Mortgage loans originated or acquired for sale                                     |                           |          | (26,244,964 | )    |  |            | (15,587,599 | )
|                                                                                        | Mortgage loan sales, net                                                           |                           |          | 24,823,375  |      |  |            | 13,520,803  |  
|                                                                                        | Principal payments on mortgage loans held for sale                                 |                           |          | 65,148      |      |  |            | 115,017     |  
|                                                                                        | Increase in credit facilities on mortgage loans held for sale                      |                           |          | 1,346,615   |      |  |            | 1,922,939   |  
|                                                                                        | Net change in other assets and liabilities                                         |                           |          | (150,468    | )    |  |            | 29,359      |  
|                                                                                        |                                                                                    |                           |          |             |      | 
|Net cash provided by operating activities                                               |                                                                                    |                           | 213,301  |             |      |  | 277,419    |            
|                                                                                        |                                                                                    |                           |          |             |      | 
|                                                                                        | Cash flows from investing activities:                                              |                           |          |             |      |  |            |             |  
|                                                                                        | Mortgage loans originated or acquired for investment, net                          |                           |          | (3,376,627  | )    |  |            | (8,174,316  | )
|                                                                                        | Principal payments on mortgage loans held for investment                           |                           |          | 3,527,676   |      |  |            | 2,759,900   |  
|                                                                                        | Sale of mortgage servicing rights                                                  |                           |          | 24,516      |      |  |            |            |  
|                                                                                        | Purchase of office property and equipment                                          |                           |          | (18,187     | )    |  |            | (35,618     | )
|                                                                                        | Acquisition of net assets                                                          |                           |          | (9,795      | )    |  |            |            |  
|                                                                                        |                                                                                    |                           |          |             |      | 
|Net cash provided by (used in) investing activities                                     |                                                                                    |                           | 147,583  |             |      |  | (5,450,034 | )          
|                                                                                        |                                                                                    |                           |          |             |      | 
|Cash flows from financing activities:                                                   |                                                                                    |                           |          |             |      |  |            |            
|                                                                                        | Proceeds from issuance of financing on mortgage loans held for
    investment, net |                           |          | 3,281,351   |      |  |            | 8,574,456   |  
|                                                                                        | Repayments of financing on mortgage loans held for investment                      |                           |          | (3,545,751  | )    |  |            | (3,345,242  | )
|                                                                                        | (Increase) decrease in restricted cash                                             |                           |          | 9,496       |      |  |            | (282,224    | )
|                                                                                        | Net proceeds from issuance of common stock                                         |                           |          | 11,416      |      |  |            | 17,433      |  
|                                                                                        | Net proceeds from issuance of preferred stock                                      |                           |          |            |      |  |            | 108,956     |  
|                                                                                        | Increase (decrease) in notes payable, net                                          |                           |          | (11,156     | )    |  |            | 6,266       |  
|                                                                                        | Payment of dividends on common stock                                               |                           |          | (197,164    | )    |  |            | (168,938    | )
|                                                                                        | Payment of dividends on preferred stock                                            |                           |          | (5,133      | )    |  |            |            |  
|                                                                                        | Excess tax benefits from stock-based compensation                                  |                           |          | 1,944       |      |  |            |            |  
|                                                                                        | Purchase of common stock                                                           |                           |          | (28,763     | )    |  |            | (11,793     | )
|                                                                                        |                                                                                    |                           |          |             |      | 
|Net cash provided by (used in) financing activities                                     |                                                                                    |                           | (483,760 | )           |      |  | 4,898,914  |            
|                                                                                        |                                                                                    |                           |          |             |      | 
|                                                                                        | Net decrease in cash and cash equivalents                                          |                           |          | (122,876    | )    |  |            | (273,701    | )
|                                                                                        | Cash and cash equivalents, beginning of year                                       |                           |          | 503,723     |      |  |            | 842,854     |  
|                                                                                        |                                                                                    |                           |          |             |      | 
|Cash and cash equivalents, end of period                                                |                                                                                    | $                         | 380,847  |             |      |  | 569,153    |            
|                                                                                        |                                                                                    |                           |          |             |      | 
|Supplemental cash flow disclosure:                                                      |                                                                                    |                           |          |             |      |  |            |            
|Interest paid                                                                           |                                                                                    | $                         | 640,128  |             |      |  | 372,065    |            
|Income taxes paid                                                                       |                                                                                    |                           | 25,525   |             |      |  | 83,233     |            
|Supplemental noncash financing activity:                                                |                                                                                    |                           |          |             |      |  |            |            
|Restricted stock issued                                                                 |                                                                                    | $                         | 6,553    |             |      |  | 17,966     |            
|Restricted stock cancelled                                                              |                                                                                    |                           | 2,268    |             |      |  | 6,315      |            
|Accrued dividends on common stock                                                       |                                                                                    |                           | 100,922  |             |      |  | 90,176     |            



9



---



##### 





|   |                      
|-- | ---------------------
|1. | Basis of Presentation











10



---



##### 







10-Q 10-01 S-X. 10-K


Reclassification




Recent Accounting
Developments






11



---



##### 







Cash and Cash Equivalents




Restricted Cash




Mortgage Loans Held for Sale




Mortgage Loans Held for
Investment




Allowance for Losses on
Mortgage Loans Held for Investment




12



---



##### 





Residual Interests in
Securitizations




interest-bearing




interests-in




13



---



##### 







(6-month, 1-year, 2-year, 3-year, 5-year




14



---



##### 









Derivative Instruments
Designated as Hedges






Income Taxes






15



---



##### 





|   |                             
|-- | ----------------------------
|2. | Mortgage Loans Held for Sale



|                              |                                             |          |           |           |              |  |           |           | 
|----------------------------- | ------------------------------------------- | -------- | --------- | --------- | ------------ |  | --------- | --------- | 
|                              |                                             | June 30, |           |           | December 31, | 
|                              |                                             | 2006     |           |           | 2005         | 
|                              |                                             |          |           |           |              | 
|Mortgage loans held for sale: |                                             |          |           |           |              |  |           |          
|                              | First trust deeds                           |          | $         | 8,423,267 |              |  |           | 7,110,772 | 
|                              | Second trust deeds                          |          |           | 844,623   |              |  |           | 704,430   | 
|                              | Net deferred origination costs and other(1) |          |           | 35,196    |              |  |           | 9,973     | 
|                              |                                             |          |           |           |              | 
|                              |                                             | $        | 9,303,086 |           |              |  | 7,825,175 |          
|                              |                                             |          |           |           |              | 






|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other includes approximately $10.0 million of lower of cost
    or market valuation allowance, primarily related to hurricane
    exposure, at December 31, 2005. The amount is immaterial at
    June 30, 2006.





|   |                                   
|-- | ----------------------------------
|3. | Mortgage Loans Held for Investment



|                                    |                                |          |            |            |              |  |            |            |  
|----------------------------------- | ------------------------------ | -------- | ---------- | ---------- | ------------ |  | ---------- | ---------- | -
|                                    |                                | June 30, |            |            | December 31, | 
|                                    |                                | 2006     |            |            | 2005         | 
|                                    |                                |          |            |            |              | 
|Mortgage loans held for investment: |                                |          |            |            |              |  |            |           
|                                    | First trust deeds              |          | $          | 15,372,695 |              |  |            | 15,877,535 |  
|                                    | Second trust deeds             |          |            | 632,762    |              |  |            | 334,689    |  
|                                    | Allowance for loan losses      |          |            | (209,889   | )            |  |            | (198,131   | )
|                                    | Net deferred origination costs |          |            | 110,068    |              |  |            | 129,772    |  
|                                    |                                |          |            |            |              | 
|                                    |                                | $        | 15,905,636 |            |              |  | 16,143,865 |           
|                                    |                                |          |            |            |              | 



16



---



##### 





|                             |                  |                        |         |         |                  |  |         |        |         |  |         |         |         |  |        |         |         | 
|---------------------------- | ---------------- | ---------------------- | ------- | ------- | ---------------- |  | ------- | ------ | ------- |  | ------- | ------- | ------- |  | ------ | ------- | ------- | 
|                             |                  | Three Months Ended     |         |         | Six Months Ended | 
|                             |                  | June 30,               |         |         | June 30,         | 
|                             |                  |                        |         |         |                  | 
|                             |                  | 2006                   |         |         | 2005             |  |         | 2006   |         |  | 2005    |        
|                             |                  |                        |         |         |                  |  |         |        |         |  |         |        
|Balance, beginning of period |                  | $                      | 209,804 |         |                  |  | 117,495 |        |         |  | 198,131 |         |         |  | 90,227 |        
|                             | Additions        |                        |         | 32,325  |                  |  |         | 36,875 |         |  |         | 60,150  |         |  |        | 67,113  |        
|                             | Charge-offs, net |                        |         | (32,240 | )                |  |         | (8,805 | )       |  |         | (48,392 | )       |  |        | (11,775 | )      
|                             |                  |                        |         |         |                  |  |         |        |         |  |         |        
|                             |                  | Balance, end of period |         | $       | 209,889          |  |         |        | 145,565 |  |         |         | 209,889 |  |        |         | 145,565 | 
|                             |                  |                        |         |         |                  |  |         |        |         |  |         |        



|   |                                      
|-- | -------------------------------------
|4. | Residual Interests in Securitizations



|                               |  |          |          |   |              |  |          |  
|------------------------------ |  | -------- | -------- | - | ------------ |  | -------- | -
|                               |  | June 30, |          |   | December 31, | 
|                               |  | 2006     |          |   | 2005         | 
|                               |  |          |          |   |              | 
|Over-collateralization account |  | $        | 348,742  |   |              |  | 350,785  |  
|Net interest receivable (NIR)  |  |          | (139,407 | ) |              |  | (115,855 | )
|                               |  |          |          |   |              | 
|                               |  | $        | 209,335  |   |              |  | 234,930  |  
|                               |  |          |          |   |              | 







|                             |                                    |                        |         |        |         |  |         |        |         | 
|---------------------------- | ---------------------------------- | ---------------------- | ------- | ------ | ------- |  | ------- | ------ | ------- | 
|                             |                                    | Six Months Ended       |        
|                             |                                    | June 30,               |        
|                             |                                    |                        |        
|                             |                                    | 2006                   |         |        | 2005    | 
|                             |                                    |                        |         |        |         | 
|Balance, beginning of period |                                    | $                      | 350,785 |        |         |  | 158,755 |       
|                             | Initial deposits to OC accounts    |                        |         |       |         |  |         | 7,914  |        
|                             | Additional deposits to OC accounts |                        |         | 1,498  |         |  |         | 1,305  |        
|                             | Release of cash from OC accounts   |                        |         | (3,541 | )       |  |         | (9,353 | )      
|                             |                                    |                        |         |        |         | 
|                             |                                    | Balance, end of period |         | $      | 348,742 |  |         |        | 158,621 | 
|                             |                                    |                        |         |        |         | 

17



---



##### 





|                             |                         |                        |          |         |          |   |         |        |         |  
|---------------------------- | ----------------------- | ---------------------- | -------- | ------- | -------- | - | ------- | ------ | ------- | -
|                             |                         | Six Months Ended       |         
|                             |                         | June 30,               |         
|                             |                         |                        |         
|                             |                         | 2006                   |          |         | 2005     |  
|                             |                         |                        |          |         |          |  
|Balance, beginning of period |                         | $                      | (115,855 | )       |          |   | (10,734 | )     
|                             | NIR gains               |                        |          |        |          |   |         | (1,670 | )      
|                             | Cash received from NIRs |                        |          | 1,473   |          |   |         | (4,162 | )      
|                             | Accretion of NIRs       |                        |          | 13,737  |          |   |         | 7,927  |        
|                             | Fair value adjustment   |                        |          | (38,762 | )        |   |         | (4,419 | )      
|                             |                         |                        |          |         |          |  
|                             |                         | Balance, end of period |          | $       | (139,407 | ) |         |        | (13,058 | )
|                             |                         |                        |          |         |          |  





|   |                          
|-- | -------------------------
|5. | Mortgage Servicing Assets



|                             |                           |                        |        |         |        |  |       |        |        | 
|---------------------------- | ------------------------- | ---------------------- | ------ | ------- | ------ |  | ----- | ------ | ------ | 
|                             |                           | Six Months Ended       |       
|                             |                           | June 30,               |       
|                             |                           |                        |       
|                             |                           | 2006                   |        |         | 2005   | 
|                             |                           |                        |        |         |        | 
|Balance, beginning of period |                           | $                      | 69,315 |         |        |  | 8,249 |       
|                             | Additions                 |                        |        | 6,796   |        |  |       | 35,893 |       
|                             | Sales of servicing rights |                        |        | (24,516 | )      |  |       |       |       
|                             | Amortization              |                        |        | (9,499  | )      |  |       | (3,747 | )     
|                             |                           |                        |        |         |        | 
|                             |                           | Balance, end of period |        | $       | 42,096 |  |       |        | 40,395 | 
|                             |                           |                        |        |         |        | 





18



---



##### 





|   |         
|-- | --------
|6. | Goodwill







|                                                                                                     |                          |   |        |        | 
|---------------------------------------------------------------------------------------------------- | ------------------------ | - | ------ | ------ | 
|Balance at January 1, 2006                                                                           |                          | $ | 92,980 |       
|Acquisition of Access Lending operating platform                                                     |                          |   | 3,200  |       
|Purchase price allocation adjustment related to acquisition of
    RBC Mortgage origination platform |                          |   | (388   | )     
|                                                                                                     |                          |   |       
|                                                                                                     | Balance at June 30, 2006 |   | $      | 95,792 | 
|                                                                                                     |                          |   |       



|   |                                                  
|-- | -------------------------------------------------
|7. | Credit Facilities and Other Short-Term Borrowings



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |         |  |              |  |         | 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | ------- |  | ------------ |  | ------- | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | June 30, |         |  | December 31, | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 2006     |         |  | 2005         | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |         |  |              | 
| |  | A $2.0 billion asset-backed commercial paper facility for
    Von Karman Funding Trust, a wholly-owned subsidiary of New
    Century Mortgage, expiring in February 2009, secured by mortgage
    loans held for sale and cash, bearing interest based on a margin
    over one-month LIBOR.                                                                                                                                                                                                           |  | $        | 980,308 |  |              |  |        | 
| |  | A $2.0 billion master repurchase agreement ($1 billion
    of which is uncommitted) among New Century Mortgage, NC Capital,
    NC Asset Holding, L.P. (formerly known as NC Residual II
    Corporation) (NC Asset Holding), New Century Credit
    and Bank of America, N.A. expiring in September 2006, secured by
    mortgage loans held for sale, bearing interest based on a margin
    over one-month LIBOR. The Company expects to renew or extend
    this facility before its expiration. |  |          | 776,231 |  |              |  | 916,714 | 
| |  | A $1.0 billion master repurchase agreement among New
    Century Mortgage, Home 123 and Bank of America, N.A. expiring in
    September 2006, secured by mortgage loans held for sale, bearing
    interest based on a margin over one-month LIBOR. The Company
    expects to renew or extend this facility before its
    expiration.                                                                                                                                                                |  |          | 367,558 |  |              |  | 277,484 | 
| |  | A $1.0 billion master repurchase agreement among New
    Century Credit, NC Asset Holding, New Century Mortgage, NC
    Capital and Barclays Bank PLC expiring in March 2007, secured by
    mortgage loans held for sale, bearing interest based on a margin
    over one-month LIBOR.                                                                                                                                                                                                                |  |          | 706,655 |  |              |  | 821,856 | 

19



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          |         |  |              |  |         | 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- |  | ------------ |  | ------- | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | June 30, |         |  | December 31, | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | 2006     |         |  | 2005         | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          |         |  |              | 
| |  | An $800 million uncommitted master repurchase agreement
    among NC Capital, NC Asset Holding, New Century Credit and Bear
    Stearns Mortgage Capital expiring in November 2006, secured by
    mortgage loans held for sale, bearing interest based on a margin
    over one-month LIBOR. The company expects to renew or extend
    this facility before its expiration.                                                                                                            |  |          | 567,215 |  |              |  | 610,365 | 
| |  | A $150 million master repurchase agreement between New
    Century Funding SB-1, a Delaware business trust and wholly-owned
    subsidiary of New Century Mortgage, and Citigroup Global Markets
    Realty Corp., which expired in July 2006, secured by mortgage
    loans held for sale, bearing interest based on a margin over
    one-month LIBOR. The Company did not renew this facility as it
    has been replaced with a new Citigroup warehouse line of credit
    facility. |  |          |        |  |              |  |        | 
| |  | A $650 million master repurchase agreement among New
    Century Credit, NC Capital and Citigroup Global Markets Reality
    Corp., which expired in July 2006, secured by mortgage loans
    held for sale, bearing interest based on a margin over one-month
    LIBOR. The Company did not renew this facility as it has been
    replaced with a new Citigroup warehouse line of credit
    facility.                                                                                |  |          | 100,009 |  |              |  | 276,816 | 
| |  | A $250 million master repurchase agreement among New
    Century Mortgage, NC Capital, New Century and Citigroup Global
    Markets Realty Corp., which expired in July 2006, secured by
    delinquent loans and real estate owned, or REO, properties,
    bearing interest based on a margin over one-month LIBOR. The
    Company did not renew this facility as it has been replaced with
    a new Citigroup warehouse line of credit facility.                                    |  |          | 223,659 |  |              |  | 109,076 | 
| |  | A $1.5 billion master repurchase agreement
    ($500 million of which is uncommitted) among New Century
    Credit, New Century Mortgage, NC Capital, Home123 and Credit
    Suisse First Boston Mortgage Capital LLC expiring in December
    2006, secured by mortgage loans held for sale, bearing interest
    based on a margin over one-month LIBOR. The Company expects to
    renew or extend this facility prior to its expiration.                                             |  |          | 922,391 |  |              |  | 452,239 | 
| |  | A $1.0 billion master repurchase agreement among New
    Century Credit, New Century Mortgage, NC Capital, Home123 and
    Deutsche Bank expiring in September 2006, secured by mortgage
    loans held for sale, bearing interest based on a margin over
    one-month LIBOR. The Company expects to renew or extend this
    facility prior to its expiration.                                                                                                                         |  |          | 496,384 |  |              |  | 441,227 | 
| |  | A $150 million master repurchase agreement among New
    Century Mortgage, Home 123, NC Capital, and Deutsche Bank, Aspen
    Funding Corp., Newport Funding Corp. and Gemini Securitization
    Corp., LLC expiring in April 2007, secured by delinquent or real
    estate owned, or REO, properties, bearing interest based on a
    margin over one-month LIBOR.                                                                                                                     |  |          |        |  |              |  |        | 
| |  | An $850 million master repurchase agreement
    ($150 million of which is uncommitted) among New Century
    Credit, New Century Mortgage, NC Capital, NC Asset Holding,
    Home123, and IXIS Real Estate Capital Inc. expiring in October
    2006, secured by mortgage loans held for sale, bearing interest
    based on a margin over one-month LIBOR. The Company expects to
    renew or extend this facility prior to its expiration.                                            |  |          | 660,327 |  |              |  | 404,696 | 

20



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |          |           |   |              |  |           |  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --------- | - | ------------ |  | --------- | -
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | June 30, |           |   | December 31, | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | 2006     |           |   | 2005         | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |          |           |   |              | 
| |  | A $3.0 billion master repurchase agreement among New
    Century Credit, New Century Mortgage, NC Capital, NC Asset
    Holding, Morgan Stanley Bank, and Morgan Stanley Mortgage
    Capital Inc. expiring in February 2007, secured by mortgage
    loans held for sale, bearing interest based on a margin over
    one-month LIBOR.                                                                                                                                                                                                        |  |          | 1,447,266 |   |              |  | 1,469,860 |  
| |  | A $2.0 billion asset-backed note purchase and security
    agreement ($500 million of which is uncommitted) between
    New Century Funding I, a special-purpose vehicle
    established as a Delaware statutory trust, which is a
    wholly-owned subsidiary of New Century Mortgage, and UBS Real
    Estate Securities Inc. expiring in June 2008, secured by
    mortgage loans held for sale, bearing interest based on a margin
    over one-month LIBOR.                                                                               |  |          | 1,342,052 |   |              |  | 1,673,225 |  
| |  | A $450 million master repurchase agreement
    ($250 million of which is uncommitted) among New Century
    Warehouse, New Century Mortgage, New Century, and Goldman Sachs
    Mortgage Company expiring in February 2007, secured by mortgage
    loans held for sale, bearing interest based on a margin over
    one-month LIBOR.                                                                                                                                                                                                          |  |          | 81,752    |   |              |  |          |  
| |  | A $55 million master repurchase agreement among New
    Century, New Century Warehouse, Access Investments II
    L.L.C. a direct subsidiary of New Century Warehouse, Access
    Lending, Galleon Capital Corporation, State Street Capital
    Markets, LLC and State Street Bank and Trust Company expiring in
    August 2006, secured by mortgage loans held for sale, bearing
    interest based on a margin over one-month commercial paper rate.
    The Company expects to renew or extend this facility prior to
    its expiration. |  |          | 35,717    |   |              |  |          |  
| |  | A $125 million master repurchase agreement among New
    Century Warehouse and Guaranty Bank expiring in February 2007,
    secured by mortgage loans held for sale, bearing interest based
    on a margin over one-month LIBOR.                                                                                                                                                                                                                                                                                                              |  |          | 78,859    |   |              |  |          |  
| |  | Less: Credit facility amounts reclassified to financing on
    mortgage loans held for investment.                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          | (83       | ) |              |  | (13,873   | )
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |          |           |   |              | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $        | 8,786,300 |   |              |  | 7,439,685 |  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |          |           |   |              | 

debt-to


21



---



##### 





|   |                                                
|-- | -----------------------------------------------
|8. | Financing on Mortgage Loans Held for Investment



|                                                                          |                                                       |          |            |            |              |  |            |            | 
|------------------------------------------------------------------------- | ----------------------------------------------------- | -------- | ---------- | ---------- | ------------ |  | ---------- | ---------- | 
|                                                                          |                                                       | June 30, |            |            | December 31, | 
|                                                                          |                                                       | 2006     |            |            | 2005         | 
|                                                                          |                                                       |          |            |            |              | 
|Securitized bonds                                                         |                                                       | $        | 15,837,897 |            |              |  | 16,071,460 |           
|Short-term financing on retained bonds                                    |                                                       |          |           |            |              |  | 1,903      |           
|2005-NC3 NIM bond                                                         |                                                       |          | 23,596     |            |              |  | 21,405     |           
|Debt issuance costs                                                       |                                                       |          | (67,241    | )          |              |  | (63,182    | )         
|Credit facility amounts reclassified from warehouse credit
    facilities |                                                       |          | 83         |            |              |  | 13,873     |           
|                                                                          |                                                       |          |            |            |              | 
|                                                                          | Total financing on mortgage loans held for investment |          | $          | 15,794,335 |              |  |            | 16,045,459 | 
|                                                                          |                                                       |          |            |            |              | 



|                        |  |   |            | 
|----------------------- |  | - | ---------- | 
|Due in less than 1 year |  | $ | 5,549,244  | 
|Due in 2 years          |  |   | 3,548,834  | 
|Due in 3 years          |  |   | 1,989,899  | 
|Thereafter              |  |   | 4,706,358  | 
|                        |  |   |           
|                        |  | $ | 15,794,335 | 
|                        |  |   |           



|   |                         
|-- | ------------------------
|9. | Convertible Senior Notes





|    |                                               
|--- | ----------------------------------------------
|10. | Series A Cumulative Redeemable Preferred Stock



22



---



##### 





|    |                
|--- | ---------------
|11. | Interest Income



|                                               |  |                    |         |  |                  |  |         |      |  |  |         |  |  |  |         | 
|---------------------------------------------- |  | ------------------ | ------- |  | ---------------- |  | ------- | ---- |  |  | ------- |  |  |  | ------- | 
|                                               |  | Three Months Ended |         |  | Six Months Ended | 
|                                               |  | June 30,           |         |  | June 30,         | 
|                                               |  |                    |         |  |                  | 
|                                               |  | 2006               |         |  | 2005             |  |         | 2006 |  |  | 2005    | 
|                                               |  |                    |         |  |                  |  |         |      |  |  |         | 
|Interest on mortgage loans held for investment |  | $                  | 301,856 |  |                  |  | 315,887 |      |  |  | 591,487 |  |  |  | 563,547 | 
|Interest on mortgage loans held for sale       |  |                    | 191,297 |  |                  |  | 98,830  |      |  |  | 355,510 |  |  |  | 175,029 | 
|Residual interest income                       |  |                    | 6,430   |  |                  |  | 3,903   |      |  |  | 13,737  |  |  |  | 7,927   | 
|Other interest income                          |  |                    | 1,531   |  |                  |  | 2,241   |      |  |  | 3,382   |  |  |  | 5,429   | 
|                                               |  |                    |         |  |                  |  |         |      |  |  |         | 
|                                               |  | $                  | 501,114 |  |                  |  | 420,861 |      |  |  | 964,116 |  |  |  | 751,932 | 
|                                               |  |                    |         |  |                  |  |         |      |  |  |         | 



|    |                 
|--- | ----------------
|12. | Interest Expense



|                                                              |  |                    |         |  |                  |  |         |      |  |  |         |  |  |  |         | 
|------------------------------------------------------------- |  | ------------------ | ------- |  | ---------------- |  | ------- | ---- |  |  | ------- |  |  |  | ------- | 
|                                                              |  | Three Months Ended |         |  | Six Months Ended | 
|                                                              |  | June 30,           |         |  | June 30,         | 
|                                                              |  |                    |         |  |                  | 
|                                                              |  | 2006               |         |  | 2005             |  |         | 2006 |  |  | 2005    | 
|                                                              |  |                    |         |  |                  |  |         |      |  |  |         | 
|Interest on financing on mortgage loans held for investment   |  | $                  | 216,944 |  |                  |  | 160,646 |      |  |  | 386,098 |  |  |  | 278,366 | 
|Interest on credit facilities and other short-term borrowings |  |                    | 132,696 |  |                  |  | 54,850  |      |  |  | 240,070 |  |  |  | 97,056  | 
|Interest on convertible senior notes                          |  |                    |        |  |                  |  | 60      |      |  |  | 59      |  |  |  | 123     | 
|Other interest expense                                        |  |                    | 11,471  |  |                  |  | 2,999   |      |  |  | 18,097  |  |  |  | 5,091   | 
|                                                              |  |                    |         |  |                  |  |         |      |  |  |         | 
|                                                              |  | $                  | 361,111 |  |                  |  | 218,555 |      |  |  | 644,324 |  |  |  | 380,636 | 
|                                                              |  |                    |         |  |                  |  |         |      |  |  |         | 



|    |                   
|--- | ------------------
|13. | Hedging Activities







23



---



##### 







Cash Flow Hedge Instruments




24



---



##### 



Fair Value Hedge Instruments


Interest Rate Cap Contracts


Non-designated Hedge Instruments


Free-standing Derivatives (Interest Rate Locks, Forward Sales
Commitments and Interest Rate Swaps) 


25



---



##### 







|    |             
|--- | ------------
|14. | Income Taxes







|                                              |  |                |        |   |                |  |        |      |  |  |        |   |  |  |        |  
|--------------------------------------------- |  | -------------- | ------ | - | -------------- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                              |  | Three Months   |        |   | Six Months     | 
|                                              |  | Ended June 30, |        |   | Ended June 30, | 
|                                              |  |                |        |   |                | 
|                                              |  | 2006           |        |   | 2005           |  |        | 2006 |  |  | 2005   |  
|                                              |  |                |        |   |                |  |        |      |  |  |        |  
|Federal statutory rate                        |  |                | 35.0   | % |                |  | 35.0   | %    |  |  | 35.0   | % |  |  | 35.0   | %
|State and local taxes, net of federal benefit |  |                | 5.0    | % |                |  | 6.0    | %    |  |  | 5.0    | % |  |  | 6.0    | %
|Benefit of REIT election                      |  |                | (18.0) | % |                |  | (44.3) | %    |  |  | (23.8) | % |  |  | (40.1) | %
|Other                                         |  |                | (0.3)  | % |                |  | 1.5    | %    |  |  | 0.3    | % |  |  | 1.7    | %
|                                              |  |                |        |   |                |  |        |      |  |  |        |  
|Consolidated effective tax rate               |  |                | 21.7   | % |                |  | (1.8)  | %    |  |  | 16.5   | % |  |  | 2.6    | %
|                                              |  |                |        |   |                |  |        |      |  |  |        |  

26



---



##### 





|    |                   
|--- | ------------------
|15. | Earnings per Share



|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         |  |  |  |         | 
|------------------------------------------------------------------------------------------------- |  | ------------------ | ------- |  | ---------------- |  | ------ | ---- |  |  | ------- |  |  |  | ------- | 
|                                                                                                  |  | Three Months Ended |         |  | Six Months Ended | 
|                                                                                                  |  | June 30,           |         |  | June 30,         | 
|                                                                                                  |  |                    |         |  |                  | 
|                                                                                                  |  | 2006               |         |  | 2005             |  |        | 2006 |  |  | 2005    | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|Basic:                                                                                            |  |                    |         |  |                  |  |        |      |  |  |         |  |  |  |         | 
|Net earnings                                                                                      |  | $                  | 105,543 |  |                  |  | 95,079 |      |  |  | 209,278 |  |  |  | 179,839 | 
|Less: Preferred stock dividends                                                                   |  |                    | 2,567   |  |                  |  | 285    |      |  |  | 5,133   |  |  |  | 285     | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|Net earnings available to common stockholders                                                     |  | $                  | 102,976 |  |                  |  | 94,794 |      |  |  | 204,145 |  |  |  | 179,554 | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|Weighted average common shares outstanding                                                        |  |                    | 55,785  |  |                  |  | 55,376 |      |  |  | 55,653  |  |  |  | 55,079  | 
|Earnings per share                                                                                |  | $                  | 1.85    |  |                  |  | 1.71   |      |  |  | 3.67    |  |  |  | 3.26    | 
|Diluted:                                                                                          |  |                    |         |  |                  |  |        |      |  |  |         |  |  |  |         | 
|Net earnings available to common stockholders                                                     |  | $                  | 102,976 |  |                  |  | 94,794 |      |  |  | 204,145 |  |  |  | 179,554 | 
|Add: Interest and amortization of debt issuance costs on
    convertible senior notes, net of tax |  |                    | 44      |  |                  |  | 77     |      |  |  | 102     |  |  |  | 95      | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|Diluted net earnings                                                                              |  | $                  | 103,020 |  |                  |  | 94,871 |      |  |  | 204,247 |  |  |  | 179,649 | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|Weighted average number of common shares outstanding                                              |  |                    | 55,785  |  |                  |  | 55,376 |      |  |  | 55,653  |  |  |  | 55,079  | 
|Effect of dilutive securities:                                                                    |  |                    |         |  |                  |  |        |      |  |  |         |  |  |  |         | 
|Restricted stock awards                                                                           |  |                    | 150     |  |                  |  | 145    |      |  |  | 128     |  |  |  | 152     | 
|Stock options                                                                                     |  |                    | 998     |  |                  |  | 1,708  |      |  |  | 992     |  |  |  | 1,936   | 
|Convertible senior notes                                                                          |  |                    |        |  |                  |  | 165    |      |  |  | 40      |  |  |  | 163     | 
|Directors deferred compensation plan awards                                                      |  |                    | 3       |  |                  |  | 2      |      |  |  | 3       |  |  |  | 2       | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|                                                                                                  |  |                    | 56,936  |  |                  |  | 57,396 |      |  |  | 56,816  |  |  |  | 57,332  | 
|                                                                                                  |  |                    |         |  |                  |  |        |      |  |  |         | 
|Earnings per share                                                                                |  | $                  | 1.81    |  |                  |  | 1.65   |      |  |  | 3.59    |  |  |  | 3.13    | 







|    |                         
|--- | ------------------------
|16. | Stock-Based Compensation



27



---



##### 





paid-in








paid-in






28



---



##### 







|                                                   |                                                  |               |   |        |               |  |  |         |  
|-------------------------------------------------- | ------------------------------------------------ | ------------- | - | ------ | ------------- |  |  | ------- | -
|                                                   |                                                  | Three Months  |   |        | Six Months    | 
|                                                   |                                                  | Ended         |   |        | Ended         | 
|                                                   |                                                  | June 30, 2005 |   |        | June 30, 2005 | 
|                                                   |                                                  |               |   |        |               | 
|Basic earnings available to common stockholders:   |                                                  |               |   |        |               |  |  |        
|                                                   | As reported                                      |               | $ | 94,794 |               |  |  | 179,554 |  
|                                                   | Compensation expense, net of related tax effects |               |   | (1,664 | )             |  |  | (3,189  | )
|                                                   |                                                  |               |   |        |               | 
|                                                   | Pro forma                                        |               | $ | 93,130 |               |  |  | 176,365 |  
|                                                   |                                                  |               |   |        |               | 
|Diluted earnings available to common stockholders: |                                                  |               |   |        |               |  |  |        
|                                                   | As reported                                      |               | $ | 94,871 |               |  |  | 179,649 |  
|                                                   | Compensation expense, net of related tax effects |               |   | (1,664 | )             |  |  | (3,189  | )
|                                                   |                                                  |               |   |        |               | 
|                                                   | Pro forma                                        |               | $ | 93,207 |               |  |  | 176,460 |  
|                                                   |                                                  |               |   |        |               | 
|Basic earnings per share:                          |                                                  |               |   |        |               |  |  |        
|                                                   | As reported                                      |               | $ | 1.71   |               |  |  | 3.26    |  
|                                                   | Pro forma                                        |               |   | 1.68   |               |  |  | 3.20    |  
|Diluted earnings per share:                        |                                                  |               |   |        |               |  |  |        
|                                                   | As reported                                      |               | $ | 1.65   |               |  |  | 3.13    |  
|                                                   | Pro forma                                        |               |   | 1.64   |               |  |  | 3.11    |  
|Basic weighted average shares outstanding:         |                                                  |               |   |        |               |  |  |        
|                                                   | As reported                                      |               |   | 55,376 |               |  |  | 55,079  |  
|                                                   | Pro forma                                        |               |   | 55,376 |               |  |  | 55,079  |  
|Diluted weighted average shares outstanding:       |                                                  |               |   |        |               |  |  |        
|                                                   | As reported                                      |               |   | 57,396 |               |  |  | 57,332  |  
|                                                   | Pro forma                                        |               |   | 56,684 |               |  |  | 56,665  |  



29



---



##### 





|                                |  |                    |           |   |                  |  |      |      |  |  |           |   |  |  |      |  
|------------------------------- |  | ------------------ | --------- | - | ---------------- |  | ---- | ---- |  |  | --------- | - |  |  | ---- | -
|                                |  | Three Months Ended |           |   | Six Months Ended | 
|                                |  | June 30,           |           |   | June 30,         | 
|                                |  |                    |           |   |                  | 
|                                |  | 2006               |           |   | 2005             |  |      | 2006 |  |  | 2005      |  
|                                |  |                    |           |   |                  |  |      |      |  |  |           |  
|Fair value                      |  | $                  | 8.00      |   |                  |  | 8.98 |      |  |  | 6.31      |   |  |  | 9.21 |  
|Expected life (years)           |  |                    | 2.9       |   |                  |  | 4.5  |      |  |  | 4.0       |   |  |  | 4.5  |  
|Risk-free interest rate         |  |                    | 5.1 - 5.2 | % |                  |  | 3.8  | %    |  |  | 4.4 - 4.7 | % |  |  | 4.2  | %
|Volatility                      |  |                    | 40.0      | % |                  |  | 60.0 | %    |  |  | 40.9      | % |  |  | 60.5 | %
|Expected annual dividend yield  |  |                    | 10.9      | % |                  |  | 13.8 | %    |  |  | 11.1      | % |  |  | 13.7 | %
|Expected annual forfeiture rate |  |                    | 13.3      | % |                  |  |     |      |  |  | 11.1      | % |  |  |     |  



|                             |           |                        |           |          |           |   |       |       |       | 
|---------------------------- | --------- | ---------------------- | --------- | -------- | --------- | - | ----- | ----- | ----- | 
|                             |           |                        |           | Weighted |          
|                             |           |                        |           | Average  |          
|                             |           | Number of              |           |          | Excise    |  
|                             |           | Shares                 |           |          | Price     |  
|                             |           |                        |           |          |           |  
|Balance, beginning of period |           |                        | 3,819,533 |          |           | $ | 27.29 |      
|                             | Granted   |                        |           | 386,959  |           |   |       | 40.25 |      
|                             | Exercised |                        |           | (417,577 | )         |   |       | 15.04 |      
|                             | Cancelled |                        |           | (95,853  | )         |   |       | 37.07 |      
|                             |           |                        |           |          |           |  
|                             |           | Balance, end of period |           |          | 3,693,062 |   |       |       | 29.76 | 
|                             |           |                        |           |          |           |  



|                         |  |             |           |         |             |  |          |          |  |   |           |          |  |          |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | ------- | ----------- |  | -------- | -------- |  | - | --------- | -------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Outstanding |           |         | Exercisable | 
|                         |  |             |           |         |             | 
|                         |  |             |           | Average |             |  | Weighted |          |  |   |           | Weighted | 
|                         |  | Number of   |           |         | Remaining   |  |          | Average  |  |   | Number of |          |  | Average  |          
|                         |  | Stock       |           |         | Term        |  |          | Exercise |  |   | Stock     |          |  | Exercise |          
|Range of Exercise Prices |  | Options     |           |         | (in years)  |  |          | Price    |  |   | Options   |          |  | Price    |          
|                         |  |             |           |         |             |  |          |          |  |   |           |          |  |          |          
|$ 0.33 -  5.59           |  |             | 90,533    |         |             |  | 1.44     |          |  | $ | 5.27      |          |  |          | 90,533    |  |  | $ | 5.27  | 
|6.00 -  6.79             |  |             | 400,350   |         |             |  | 5.16     |          |  |   | 6.65      |          |  |          | 363,600   |  |  |   | 6.65  | 
|7.33 -  9.27             |  |             | 234,298   |         |             |  | 4.01     |          |  |   | 8.38      |          |  |          | 112,575   |  |  |   | 7.87  | 
|10.47 - 12.17            |  |             | 240,981   |         |             |  | 5.61     |          |  |   | 10.49     |          |  |          | 190,356   |  |  |   | 10.49 | 
|14.43 - 17.83            |  |             | 228,719   |         |             |  | 6.22     |          |  |   | 15.18     |          |  |          | 85,244    |  |  |   | 15.53 | 
|18.65 - 18.66            |  |             | 355,066   |         |             |  | 6.48     |          |  |   | 18.66     |          |  |          | 164,116   |  |  |   | 18.66 | 
|19.47 - 26.97            |  |             | 228,524   |         |             |  | 6.96     |          |  |   | 26.30     |          |  |          | 91,260    |  |  |   | 26.61 | 
|35.74 - 39.10            |  |             | 387,676   |         |             |  | 9.27     |          |  |   | 38.32     |          |  |          | 98,865    |  |  |   | 38.31 | 
|41.60 - 44.06            |  |             | 448,724   |         |             |  | 8.73     |          |  |   | 44.01     |          |  |          | 28,717    |  |  |   | 43.99 | 
|45.04 - 45.96            |  |             | 364,496   |         |             |  | 7.61     |          |  |   | 45.86     |          |  |          | 286,070   |  |  |   | 45.87 | 
|46.02 - 46.78            |  |             | 373,568   |         |             |  | 8.30     |          |  |   | 46.62     |          |  |          | 248,562   |  |  |   | 46.63 | 
|47.29 - 49.92            |  |             | 225,025   |         |             |  | 8.80     |          |  |   | 49.18     |          |  |          | 16,011    |  |  |   | 47.59 | 
|50.47 - 60.47            |  |             | 115,102   |         |             |  | 8.25     |          |  |   | 55.18     |          |  |          | 83,955    |  |  |   | 56.47 | 
|                         |  |             |           |         |             |  |          |          |  |   |           |          |  |          |          
|                         |  |             | 3,693,062 |         |             |  |          |          |  |   |           |          |  |          | 1,859,864 |  |  |   |       | 
|                         |  |             |           |         |             |  |          |          |  |   |           |          |  |          |          

30



---



##### 







|                             |           |                        |           |          |           |   |       |       |       | 
|---------------------------- | --------- | ---------------------- | --------- | -------- | --------- | - | ----- | ----- | ----- | 
|                             |           |                        |           | Weighted |          
|                             |           |                        |           | Average  |          
|                             |           |                        |           | Grant    |          
|                             |           | Number of              |           |          | Date Fair |  
|                             |           | Options                |           |          | Value     |  
|                             |           |                        |           |          |           |  
|Balance, beginning of period |           |                        | 2,075,965 |          |           | $ | 11.26 |      
|                             | Granted   |                        |           | 386,959  |           |   |       | 40.25 |      
|                             | Vested    |                        |           | (557,819 | )         |   |       | 10.73 |      
|                             | Forfeited |                        |           | (71,907  | )         |   |       | 11.19 |      
|                             |           |                        |           |          |           |  
|                             |           | Balance, end of period |           |          | 1,833,198 |   |       |       | 10.38 | 
|                             |           |                        |           |          |           |  



|                             |           |                        |         |          |           |   |       |       |       | 
|---------------------------- | --------- | ---------------------- | ------- | -------- | --------- | - | ----- | ----- | ----- | 
|                             |           |                        |         | Weighted |          
|                             |           |                        |         | Average  |          
|                             |           |                        |         | Grant    |          
|                             |           | Number of              |         |          | Date Fair |  
|                             |           | Shares                 |         |          | Value     |  
|                             |           |                        |         |          |           |  
|Balance, beginning of period |           |                        | 441,630 |          |           | $ | 45.03 |      
|                             | Granted   |                        |         | 285,457  |           |   |       | 41.56 |      
|                             | Vested    |                        |         | (149,905 | )         |   |       | 37.37 |      
|                             | Forfeited |                        |         | (4,593   | )         |   |       | 45.37 |      
|                             |           |                        |         |          |           |  
|                             |           | Balance, end of period |         |          | 572,589   |   |       |       | 45.30 | 
|                             |           |                        |         |          |           |  











|    |                  
|--- | -----------------
|17. | Segment Reporting





|  |                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The portfolio segment reflects the Companys investment in
    its mortgage loan portfolio, which produces net interest income.
    The mortgage loan operations segment reflects purchases and
    originations of residential mortgage loans.

31



---



##### 





|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The mortgage loan operations segment, comprised of the Wholesale
    and Retail origination divisions, records (i) interest
    income, interest expense and a provision for mortgage loan
    losses on the mortgage loans it holds prior to selling its loans
    to the portfolio segment or in the whole loan market,
    (ii) interest income, interest expense and a provision for
    mortgage loan losses on mortgage loans it holds in its portfolio
    and (iii) gain on sale of mortgage loans.
| 
| | The servicing segment services loans, seeking to ensure that
    loans are repaid in accordance with their terms and the Company
    earns a servicing fee based upon the dollar amount of the
    servicing portfolio. The Companys recently acquired Access
    Lending platform is included in the servicing and other segment,
    although it has not had a material impact on the companys
    results of operations or financial position for the first six
    months of 2006.                   







|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |        |  |         |          |          |   |            |         |         | 
|---------------------------------------------------------- | ------------------------------- | ---------------------------------------------- | ---------- | -------------------------------- | --------- |  | ------------------------ | --------- | ------ | ----- | ---------- | ------- | --------- | --------- | --------- | ------ | ------------ |  | ------ | ------------ | ------ |  | ------- | -------- | -------- | - | ---------- | ------- | ------- | 
|                                                           |                                 |                                                |            | Three Months Ended June 30, 2006 |           |  |                         
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |       
|                                                           |                                 |                                                |            | Taxable REIT Subsidiary          |           |  |                         
|                                                           |                                 |                                                |            |                                  |           |  |                         
|                                                           |                                 | REIT &                                         |            |                                  |           |  |                          |           |        |       |           
|                                                           |                                 | Qualified                                      |            |                                  |           |  | Mortgage Loan Operations |           |        |       |            |        
|                                                           |                                 | REIT                                           |            |                                  |           |  |                          |           |        |       |            |        
|                                                           |                                 | Subsidiaries                                   |            |                                  |           |  | Total                    |           |        | Total |            |         | Servicing |           |           |       
|                                                           |                                 | Portfolio                                      |            |                                  | Portfolio |  |                          | Wholesale |        |       | Retail     |         |           | and Other |           |        | Eliminations |  |        | Consolidated |       
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|Interest income                                            |                                 | $                                              | 265,738    |                                  |           |  | 40,075                   |           |        |       | 164,282    |         |           |           | 28,546    |        |              |  | 2,473  |              |        |  |        |          |          |   | 501,114    |        
|Interest expense                                           |                                 |                                                | (189,888   | )                                |           |  | (25,361                  | )         |        |       | (121,476   | )       |           |           | (22,691   | )      |              |  | (1,695 | )            |        |  |        |          |          |   | (361,111   | )      
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|                                                           |                                 | Net interest income                            |            |                                  | 75,850    |  |                          |           | 14,714 |       |            |         | 42,806    |           |           |        | 5,855        |  |        |              | 778    |  |         |          |         |   |            |         | 140,003 | 
|Provision for losses on mortgage loans held for investment |                                 |                                                | (30,675    | )                                |           |  | (1,650                   | )         |        |       |           |         |           |           |          |        |              |  |       |              |        |  |        |          |          |   | (32,325    | )      
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|                                                           |                                 | Net interest income after provision for losses |            |                                  | 45,175    |  |                          |           | 13,064 |       |            |         | 42,806    |           |           |        | 5,855        |  |        |              | 778    |  |         |          |         |   |            |         | 107,678 | 
|Other operating income (loss):                             |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |        |  |         |          |          |   |            |        
|                                                           | Gain on sale of mortgage loans  |                                                |            |                                 |           |  |                          |          |        |       |            | 263,100 |           |           |           | 86,236 |              |  |        | 1,131        |        |  |         | (155,307 | )        |   |            | 195,160 |        
|                                                           | Servicing & other income (loss) |                                                |            | 14,139                           |           |  |                          |          |        |       |            | (53     | )         |           |           | (668   | )            |  |        | 25,555       |        |  |         |         |          |   |            | 38,973  |        
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|                                                           |                                 | Total other operating income                   |            |                                  | 14,139    |  |                          |           |       |       |            |         | 263,047   |           |           |        | 85,568       |  |        |              | 26,686 |  |         |          | (155,307 | ) |            |         | 234,133 | 
|Operating expenses                                         |                                 |                                                | 7,361      |                                  |           |  |                         |           |        |       | 120,943    |         |           |           | 82,645    |        |              |  | (3,960 | )            |        |  |        |          |          |   | 206,989    |        
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|                                                           | Earnings before income taxes    |                                                | $          | 51,953                           |           |  |                          | 13,064    |        |       |            | 184,910 |           |           |           | 8,778  |              |  |        | 31,424       |        |  |         | (155,307 | )        |   |            | 134,822 |        
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|Funding volume                                             |                                 | $                                              |           |                                  |           |  |                         |           |        |       | 13,840,942 |         |           |           | 2,350,723 |        |              |  |       |              |        |  |        |          |          |   | 16,191,665 |        
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|Securitizations structured as financings                   |                                 | $                                              | 1,714,853  |                                  |           |  |                         |           |        |       |           |         |           |           |          |        |              |  |       |              |        |  |        |          |          | $ | 1,714,853  |        
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       
|Total assets at June 30, 2006                              |                                 | $                                              | 13,293,312 |                                  |           |  | 1,916,406                |           |        |       | 10,339,548 |         |           |           | 1,808,977 |        |              |  |       |              |        |  | (32,844 | )        |          |   | 27,325,399 |        
|                                                           |                                 |                                                |            |                                  |           |  |                          |           |        |       |            |         |           |           |           |        |              |  |        |              |       

32



---



##### 



|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |        |  |         |          |          |   |            |         |         | 
|---------------------------------------------------------- | ------------------------------- | ---------------------------------------------- | ---------- | ------------------------------ | --------- |  | ------------------------ | --------- | ------ | ----- | ---------- | ------- | --------- | --------- | --------- | ------- | ------------ |  | ------- | ------------ | ------ |  | ------- | -------- | -------- | - | ---------- | ------- | ------- | 
|                                                           |                                 |                                                |            | Six Months Ended June 30, 2006 |           |  |                         
|                                                           |                                 |                                                |            |                                |           |  |                          |           |       
|                                                           |                                 |                                                |            | Taxable REIT Subsidiary        |           |  |                         
|                                                           |                                 |                                                |            |                                |           |  |                         
|                                                           |                                 | REIT &                                         |            |                                |           |  |                          |           |        |       |           
|                                                           |                                 | Qualified                                      |            |                                |           |  | Mortgage Loan Operations |           |        |       |            |        
|                                                           |                                 | REIT                                           |            |                                |           |  |                          |           |        |       |            |        
|                                                           |                                 | Subsidiaries                                   |            |                                |           |  | Total                    |           |        | Total |            |         | Servicing |           |           |        
|                                                           |                                 | Portfolio                                      |            |                                | Portfolio |  |                          | Wholesale |        |       | Retail     |         |           | and Other |           |         | Eliminations |  |         | Consolidated |       
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|Interest income                                            |                                 | $                                              | 519,695    |                                |           |  | 81,875                   |           |        |       | 304,896    |         |           |           | 53,996    |         |              |  | 3,654   |              |        |  |        |          |          |   | 964,116    |        
|Interest expense                                           |                                 |                                                | (331,738   | )                              |           |  | (51,903                  | )         |        |       | (216,119   | )       |           |           | (42,107   | )       |              |  | (2,457  | )            |        |  |        |          |          |   | (644,324   | )      
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|                                                           |                                 | Net interest income                            |            |                                | 187,957   |  |                          |           | 29,972 |       |            |         | 88,777    |           |           |         | 11,889       |  |         |              | 1,197  |  |         |          |         |   |            |         | 319,792 | 
|Provision for losses on mortgage loans held for investment |                                 |                                                | (59,700    | )                              |           |  | (450                     | )         |        |       |           |         |           |           |          |         |              |  |        |              |        |  |        |          |          |   | (60,150    | )      
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|                                                           |                                 | Net interest income after provision for losses |            |                                | 128,257   |  |                          |           | 29,522 |       |            |         | 88,777    |           |           |         | 11,889       |  |         |              | 1,197  |  |         |          |         |   |            |         | 259,642 | 
|Other operating income:                                    |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |        |  |         |          |          |   |            |        
|                                                           | Gain on sale of mortgage loans  |                                                |            |                               |           |  |                          |          |        |       |            | 451,703 |           |           |           | 162,557 |              |  |         | 1,747        |        |  |         | (291,320 | )        |   |            | 324,687 |        
|                                                           | Servicing & other income (loss) |                                                |            | 22,999                         |           |  |                          |          |        |       |            | (144    | )         |           |           | (1,468  | )            |  |         | 47,859       |        |  |         |         |          |   |            | 69,246  |        
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|                                                           |                                 | Total other operating income                   |            |                                | 22,999    |  |                          |           |       |       |            |         | 451,559   |           |           |         | 161,089      |  |         |              | 49,606 |  |         |          | (291,320 | ) |            |         | 393,933 | 
|Operating expenses                                         |                                 |                                                | 15,996     |                                |           |  |                         |           |        |       | 236,692    |         |           |           | 162,132   |         |              |  | (11,742 | )            |        |  |        |          |          |   | 403,078    |        
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|                                                           |                                 | Earnings before income taxes                   |            | $                              | 135,260   |  |                          |           | 29,522 |       |            |         | 303,644   |           |           |         | 10,846       |  |         |              | 62,545 |  |         |          | (291,320 | ) |            |         | 250,497 | 
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|Funding volume                                             |                                 | $                                              |           |                                |           |  |                         |           |        |       | 25,201,565 |         |           |           | 4,409,192 |         |              |  |        |              |        |  |        |          |          |   | 29,610,757 |        
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|Securitizations structured as financings                   |                                 | $                                              | 3,393,531  |                                |           |  |                         |           |        |       |           |         |           |           |          |         |              |  |        |              |        |  |        |          |          |   | 3,393,531  |        
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       
|Total assets at June 30, 2006                              |                                 | $                                              | 13,293,312 |                                |           |  | 1,916,406                |           |        |       | 10,339,548 |         |           |           | 1,808,977 |         |              |  |        |              |        |  | (32,844 | )        |          |   | 27,325,399 |        
|                                                           |                                 |                                                |            |                                |           |  |                          |           |        |       |            |         |           |           |           |         |              |  |         |              |       

33



---



##### 



|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |        |  |         |          |          |   |            |         |         | 
|---------------------------------------------------------- | ------------------------------- | ---------------------------------------------- | ---------- | -------------------------------- | --------- | - | ------------------------ | --------- | ------ | ----- | ---------- | ------- | --------- | --------- | --------- | ------ | ------------ |  | ----- | ------------ | ------ |  | ------- | -------- | -------- | - | ---------- | ------- | ------- | 
|                                                           |                                 |                                                |            | Three Months Ended June 30, 2005 |           |   |                         
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |       
|                                                           |                                 |                                                |            | Taxable REIT Subsidiary          |           |   |                         
|                                                           |                                 |                                                |            |                                  |           |   |                         
|                                                           |                                 | REIT &                                         |            |                                  |           |   |                          |           |        |       |           
|                                                           |                                 | Qualified                                      |            |                                  |           |   | Mortgage Loan Operations |           |        |       |            |        
|                                                           |                                 | REIT                                           |            |                                  |           |   |                          |           |        |       |            |        
|                                                           |                                 | Subsidiaries                                   |            |                                  |           |   | Total                    |           |        | Total |            |         | Servicing |           |           |       
|                                                           |                                 | Portfolio                                      |            |                                  | Portfolio |   |                          | Wholesale |        |       | Retail     |         |           | and Other |           |        | Eliminations |  |       | Consolidated |       
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|Interest income                                            |                                 | $                                              | 250,766    |                                  |           |   | 60,705                   |           |        |       | 98,707     |         |           |           | 10,683    |        |              |  |      |              |        |  |        |          |          |   | 420,861    |        
|Interest expense                                           |                                 |                                                | (114,081   | )                                |           |   | (46,565                  | )         |        |       | (52,254    | )       |           |           | (5,655    | )      |              |  |      |              |        |  |        |          |          |   | (218,555   | )      
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|                                                           |                                 | Net interest income                            |            |                                  | 136,685   |   |                          |           | 14,140 |       |            |         | 46,453    |           |           |        | 5,028        |  |       |              |       |  |         |          |         |   |            |         | 202,306 | 
|Provision for losses on mortgage loans held for investment |                                 |                                                | (36,550    | )                                |           |   | (325                     | )         |        |       |           |         |           |           |          |        |              |  |      |              |        |  |        |          |          |   | (36,875    | )      
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|                                                           |                                 | Net interest income after provision for losses |            |                                  | 100,135   |   |                          |           | 13,815 |       |            |         | 46,453    |           |           |        | 5,028        |  |       |              |       |  |         |          |         |   |            |         | 165,431 | 
|Other operating income (loss):                             |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |        |  |         |          |          |   |            |        
|                                                           | Gain on sale of mortgage loans  |                                                |            |                                 |           |   |                          |          |        |       |            | 202,058 |           |           |           | 62,307 |              |  |       |             |        |  |         | (153,761 | )        |   |            | 110,604 |        
|                                                           | Servicing & other income (loss) |                                                |            | (12,942                          | )         |   |                          |          |        |       |            | 5       |           |           |           |       |              |  |       | 22,966       |        |  |         |         |          |   |            | 10,029  |        
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|                                                           |                                 | Total other operating income (loss)            |            |                                  | (12,942   | ) |                          |           |       |       |            |         | 202,063   |           |           |        | 62,307       |  |       |              | 22,966 |  |         |          | (153,761 | ) |            |         | 120,633 | 
|Operating expenses                                         |                                 |                                                | 7,958      |                                  |           |   |                         |           |        |       | 125,163    |         |           |           | 57,973    |        |              |  | 1,579 |              |        |  |        |          |          |   | 192,673    |        
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|                                                           |                                 | Earnings before income taxes                   |            | $                                | 79,235    |   |                          |           | 13,815 |       |            |         | 123,353   |           |           |        | 9,362        |  |       |              | 21,387 |  |         |          | (153,761 | ) |            |         | 93,391  | 
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|Funding volume                                             |                                 | $                                              |           |                                  |           |   |                         |           |        |       | 12,131,216 |         |           |           | 1,312,954 |        |              |  |      |              |        |  |        |          |          |   | 13,444,170 |        
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|Securitizations structured as financings                   |                                 | $                                              | 5,890,404  |                                  |           |   |                         |           |        |       |           |         |           |           |          |        |              |  |      |              |        |  |        |          |          |   | 5,890,404  |        
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       
|Total assets at June 30, 2005                              |                                 | $                                              | 14,482,306 |                                  |           |   | 3,071,569                |           |        |       | 7,976,870  |         |           |           | 937,086   |        |              |  |      |              |        |  | (35,851 | )        |          |   | 26,431,980 |        
|                                                           |                                 |                                                |            |                                  |           |   |                          |           |        |       |            |         |           |           |           |        |              |  |       |              |       

34



---



##### 



|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |        |  |         |          |          |   |            |         |         | 
|---------------------------------------------------------- | ------------------------------- | ---------------------------------------------- | ---------- | ------------------------------ | --------- | - | ------------------------ | --------- | ------ | ----- | ---------- | ------- | --------- | --------- | --------- | ------- | ------------ |  | ----- | ------------ | ------ |  | ------- | -------- | -------- | - | ---------- | ------- | ------- | 
|                                                           |                                 |                                                |            | Six Months Ended June 30, 2005 |           |   |                         
|                                                           |                                 |                                                |            |                                |           |   |                          |           |       
|                                                           |                                 |                                                |            | Taxable REIT Subsidiary        |           |   |                         
|                                                           |                                 |                                                |            |                                |           |   |                         
|                                                           |                                 | REIT &                                         |            |                                |           |   |                          |           |        |       |           
|                                                           |                                 | Qualified                                      |            |                                |           |   | Mortgage Loan Operations |           |        |       |            |        
|                                                           |                                 | REIT                                           |            |                                |           |   |                          |           |        |       |            |        
|                                                           |                                 | Subsidiaries                                   |            |                                |           |   | Total                    |           |        | Total |            |         | Servicing |           |           |        
|                                                           |                                 | Portfolio                                      |            |                                | Portfolio |   |                          | Wholesale |        |       | Retail     |         |           | and Other |           |         | Eliminations |  |       | Consolidated |       
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|Interest income                                            |                                 | $                                              | 432,210    |                                |           |   | 125,717                  |           |        |       | 173,610    |         |           |           | 20,395    |         |              |  |      |              |        |  |        |          |          |   | 751,932    |        
|Interest expense                                           |                                 |                                                | (187,993   | )                              |           |   | (90,373                  | )         |        |       | (91,519    | )       |           |           | (10,751   | )       |              |  |      |              |        |  |        |          |          |   | (380,636   | )      
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|                                                           |                                 | Net interest income                            |            |                                | 244,217   |   |                          |           | 35,344 |       |            |         | 82,091    |           |           |         | 9,644        |  |       |              |       |  |         |          |         |   |            |         | 371,296 | 
|Provision for losses on mortgage loans held for investment |                                 |                                                | (65,701    | )                              |           |   | (1,412                   | )         |        |       |           |         |           |           |          |         |              |  |      |              |        |  |        |          |          |   | (67,113    | )      
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|                                                           |                                 | Net interest income after provision for losses |            |                                | 178,516   |   |                          |           | 33,932 |       |            |         | 82,091    |           |           |         | 9,644        |  |       |              |       |  |         |          |         |   |            |         | 304,183 | 
|Other operating income (loss):                             |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |        |  |         |          |          |   |            |        
|                                                           | Gain on sale of mortgage loans  |                                                |            |                               |           |   |                          |          |        |       |            | 375,033 |           |           |           | 118,105 |              |  |       |             |        |  |         | (259,582 | )        |   |            | 233,556 |        
|                                                           | Servicing & other income (loss) |                                                |            | (22,285                        | )         |   |                          |          |        |       |            | 1       |           |           |           |        |              |  |       | 42,908       |        |  |         |         |          |   |            | 20,624  |        
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|                                                           |                                 | Total other operating income (loss)            |            |                                | (22,285   | ) |                          |           |       |       |            |         | 375,034   |           |           |         | 118,105      |  |       |              | 42,908 |  |         |          | (259,582 | ) |            |         | 254,180 | 
|Operating expenses                                         |                                 |                                                | 12,924     |                                |           |   |                         |           |        |       | 242,500    |         |           |           | 111,032   |         |              |  | 7,352 |              |        |  |        |          |          |   | 373,808    |        
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|                                                           |                                 | Earnings before income taxes                   |            | $                              | 143,307   |   |                          |           | 33,932 |       |            |         | 214,625   |           |           |         | 16,717       |  |       |              | 35,556 |  |         |          | (259,582 | ) |            |         | 184,555 | 
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|Funding volume                                             |                                 | $                                              |           |                                |           |   |                         |           |        |       | 21,204,705 |         |           |           | 2,491,032 |         |              |  |      |              |        |  |        |          |          |   | 23,695,737 |        
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|Securitizations structured as financings                   |                                 | $                                              | 8,881,728  |                                |           |   |                         |           |        |       |           |         |           |           |          |         |              |  |      |              |        |  |        |          |          |   | 8,881,728  |        
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       
|Total assets at June 30, 2005                              |                                 | $                                              | 14,482,306 |                                |           |   | 3,071,569                |           |        |       | 7,976,870  |         |           |           | 937,086   |         |              |  |      |              |        |  | (35,851 | )        |          |   | 26,431,980 |        
|                                                           |                                 |                                                |            |                                |           |   |                          |           |        |       |            |         |           |           |           |         |              |  |       |              |       

35



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##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

10-Q 10-K 10-K


The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and
related notes contained elsewhere herein. As used herein, except
where the context suggests otherwise, for time periods on and
after October 1, 2004, the terms the company,
our, its, we, the
group, and us refer to New Century Financial
Corporation and its consolidated subsidiaries and, for the time
periods before October 1, 2004, the terms the
company, our, its, we,
the group, and us mean New Century TRS
Holdings, Inc. and its consolidated subsidiaries.


General












36



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##### 







| |                    
| | -------------------
| | Recent Acquisitions







Executive Summary








Overview






| |                                      
| | -------------------------------------
| | REIT and TRS Mortgage Loan Portfolios





37



---



##### 













| |                       
| | ----------------------
| | Originations and Sales





38



---



##### 





Net interest income on mortgage loans held for
sale


Gain on sale of mortgage loans


Loan origination or acquisition cost






| |                                
| | -------------------------------
| | Loan Originations and Purchases



39



---



##### 



Alt-A




cash-out


40-year




40



---



##### 







|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |            |            |            |      |      |      |       |            |            |            |            |      |      |      |       | 
|-------------------------- | -------------------- | ----------------------------------- | -------------------------------- | --------- | --------------------------------- | ---------- | --------- | --------- | --------- | --------- | ---------- | --------- | ---------- | ---------- | ---- | ---- | ---- | ----- | ---------- | --------- | ---------- | ---------- | ----- | ---- | ---- | ----- | ---------- | ---------- | ---------- | ---------- | --------- | --------- | --------- | --------- | ---------- | ---------- | ---------- | ---------- | ---- | ---- | ---- | ----- | ---------- | ---------- | ---------- | ---------- | ---- | ---- | ---- | ----- | 
|                           |                      | For the Three Months Ended June 30, |                                  |           | For the Six Months Ended June 30, |           
|                           |                      |                                     |                                  |           |                                   |           
|                           |                      | 2006                                |                                  |           | 2005                              |            |           | 2006      |           |           | 2005       |          
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |          
|                           |                      |                                     |                                  | Prime &   |                                   |            |           |           |           |           |            |           | Prime &    |            |      |      |      |      
|                           |                      | Non-Prime                           |                                  |           | Alt-A                             |            |           | Total     |           |           | %          |           |            | Non-Prime  |      |      | %    |       |            | Non-Prime |            |            | Alt-A |      |      | Total |            |            | %          |            |           | Non-Prime |           |           | %          |           
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|Wholesale                  |                      | $                                   | 13,006,175                       |           |                                   |            | 834,767   |           |           |           | 13,840,942 |           |            |            | 85.5 |      |      |       | 12,131,216 |           |            |            | 90.2  |      |      |       | 23,619,807 |            |            |            | 1,581,758 |           |           |           | 25,201,565 |            |            |            | 85.1 |      |      |       | 21,204,705 |            |            |            | 89.5 |     
|Retail                     |                      |                                     | 1,063,105                        |           |                                   |            | 1,287,618 |           |           |           | 2,350,723  |           |            |            | 14.5 |      |      |       | 1,312,954  |           |            |            | 9.8   |      |      |       | 1,990,529  |            |            |            | 2,418,663 |           |           |           | 4,409,192  |            |            |            | 14.9 |      |      |       | 2,491,032  |            |            |            | 10.5 |     
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|                           |                      |                                     | Total originations and purchases |           |                                   | 14,069,280 |           |           |           | 2,122,385 |            |           |            | 16,191,665 |      |      |      | 100.0 |            |           |            | 13,444,170 |       |      |      | 100.0 |            |            |            | 25,610,336 |           |           |           | 4,000,421 |            |            |            | 29,610,757 |      |      |      | 100.0 |            |            |            | 23,695,737 |      |      |      | 100.0 | 
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|Fixed-rate mortgages:      |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |            |            |            |      |      |      |       |            |            |            |            |      |     
|                           | 15-30 year           |                                     |                                  | 2,367,738 |                                   |            |           | 1,402,886 |           |           |            | 3,770,624 |            |            |      | 23.3 |      |       |            | 3,032,998 |            |            |       | 22.6 |      |       |            | 4,149,196  |            |            |           | 2,565,732 |           |           |            | 6,714,928  |            |            |      | 22.7 |      |       |            | 5,359,577  |            |            |      | 22.6 |     
|                           | Interest-Only        |                                     |                                  | 92,735    |                                   |            |           | 294,768   |           |           |            | 387,503   |            |            |      | 2.4  |      |       |            |          |            |            |       |     |      |       |            | 154,403    |            |            |           | 627,652   |           |           |            | 782,055    |            |            |      | 2.6  |      |       |            |           |            |            |      |     |     
|                           | 40-Year              |                                     |                                  | 845,267   |                                   |            |           | 84,998    |           |           |            | 930,265   |            |            |      | 5.7  |      |       |            |          |            |            |       |     |      |       |            | 1,339,034  |            |            |           | 136,240   |           |           |            | 1,475,274  |            |            |      | 5.0  |      |       |            |           |            |            |      |     |     
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|                           |                      | Sub-total Fixed                     |                                  |           | 3,305,740                         |            |           |           | 1,782,652 |           |            |           | 5,088,392  |            |      |      | 31.4 |       |            |           | 3,032,998  |            |       |      | 22.6 |       |            |            | 5,642,633  |            |           |           | 3,329,624 |           |            |            | 8,972,257  |            |      |      | 30.3 |       |            |            | 5,359,577  |            |      |      | 22.6 |      
|Adjustable-rate mortgages: |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |            |            |            |      |      |      |       |            |            |            |            |      |     
|                           | Hybrid  30 year(1)  |                                     |                                  | 2,959,109 |                                   |            |           | 163,747   |           |           |            | 3,122,856 |            |            |      | 19.3 |      |       |            | 5,331,874 |            |            |       | 39.6 |      |       |            | 5,923,005  |            |            |           | 358,712   |           |           |            | 6,281,717  |            |            |      | 21.2 |      |       |            | 10,515,293 |            |            |      | 44.4 |     
|                           | Interest-Only        |                                     |                                  | 2,384,712 |                                   |            |           | 157,113   |           |           |            | 2,541,825 |            |            |      | 15.7 |      |       |            | 5,079,298 |            |            |       | 37.8 |      |       |            | 3,890,353  |            |            |           | 278,197   |           |           |            | 4,168,550  |            |            |      | 14.1 |      |       |            | 7,820,867  |            |            |      | 33.0 |     
|                           | Hybrid  40 year(1)  |                                     |                                  | 5,419,719 |                                   |            |           |          |           |           |            | 5,419,719 |            |            |      | 33.5 |      |       |            |          |            |            |       |     |      |       |            | 10,154,345 |            |            |           |          |           |           |            | 10,154,345 |            |            |      | 34.3 |      |       |            |           |            |            |      |     |     
|                           | HELOC                |                                     |                                  |          |                                   |            |           | 18,873    |           |           |            | 18,873    |            |            |      | 0.1  |      |       |            |          |            |            |       |     |      |       |            |           |            |            |           | 33,888    |           |           |            | 33,888     |            |            |      | 0.1  |      |       |            |           |            |            |      |     |     
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|                           |                      | Sub-total ARM                       |                                  |           | 10,763,540                        |            |           |           | 339,733   |           |            |           | 11,103,273 |            |      |      | 68.6 |       |            |           | 10,411,172 |            |       |      | 77.4 |       |            |            | 19,967,703 |            |           |           | 670,797   |           |            |            | 20,638,500 |            |      |      | 69.7 |       |            |            | 18,336,160 |            |      |      | 77.4 |      
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|                           |                      |                                     | Total originations and purchases |           |                                   | 14,069,280 |           |           |           | 2,122,385 |            |           |            | 16,191,665 |      |      |      | 100.0 |            |           |            | 13,444,170 |       |      |      | 100.0 |            |            |            | 25,610,336 |           |           |           | 4,000,421 |            |            |            | 29,610,757 |      |      |      | 100.0 |            |            |            | 23,695,737 |      |      |      | 100.0 | 
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|Purchases                  |                      |                                     | 5,986,237                        |           |                                   |            | 1,366,360 |           |           |           | 7,352,597  |           |            |            | 45.4 |      |      |       | 5,602,698  |           |            |            | 41.7  |      |      |       | 10,751,093 |            |            |            | 2,505,775 |           |           |           | 13,256,868 |            |            |            | 44.8 |      |      |       | 9,226,655  |            |            |            | 38.9 |     
|Refinances:                |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |            |            |            |      |      |      |       |            |            |            |            |      |     
|                           | Cash-out refinances  |                                     |                                  | 6,846,819 |                                   |            |           | 208,497   |           |           |            | 7,055,316 |            |            |      | 43.6 |      |       |            | 6,695,743 |            |            |       | 49.8 |      |       |            | 12,645,446 |            |            |           | 412,295   |           |           |            | 13,057,741 |            |            |      | 44.1 |      |       |            | 12,441,653 |            |            |      | 52.5 |     
|                           | Rate/term refinances |                                     |                                  | 1,236,224 |                                   |            |           | 547,528   |           |           |            | 1,783,752 |            |            |      | 11.0 |      |       |            | 1,145,729 |            |            |       | 8.5  |      |       |            | 2,213,797  |            |            |           | 1,082,351 |           |           |            | 3,296,148  |            |            |      | 11.1 |      |       |            | 2,027,429  |            |            |      | 8.6  |     
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|                           |                      |                                     | Total originations and purchases |           |                                   | 14,069,280 |           |           |           | 2,122,385 |            |           |            | 16,191,665 |      |      |      | 100.0 |            |           |            | 13,444,170 |       |      |      | 100.0 |            |            |            | 25,610,336 |           |           |           | 4,000,421 |            |            |            | 29,610,757 |      |      |      | 100.0 |            |            |            | 23,695,737 |      |      |      | 100.0 | 
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|Full documentation         |                      |                                     | 7,801,220                        |           |                                   |            | 1,413,429 |           |           |           | 9,214,649  |           |            |            | 56.9 |      |      |       | 7,150,722  |           |            |            | 53.2  |      |      |       | 13,877,374 |            |            |            | 2,568,937 |           |           |           | 16,446,311 |            |            |            | 55.5 |      |      |       | 12,349,786 |            |            |            | 52.1 |     
|Limited documentation      |                      |                                     | 326,602                          |           |                                   |            |          |           |           |           | 326,602    |           |            |            | 2.0  |      |      |       | 353,661    |           |            |            | 2.6   |      |      |       | 627,725    |            |            |            |          |           |           |           | 627,725    |            |            |            | 2.1  |      |      |       | 922,591    |            |            |            | 3.9  |     
|Stated documentation       |                      |                                     | 5,941,458                        |           |                                   |            | 708,956   |           |           |           | 6,650,414  |           |            |            | 41.1 |      |      |       | 5,939,787  |           |            |            | 44.2  |      |      |       | 11,105,237 |            |            |            | 1,431,484 |           |           |           | 12,536,721 |            |            |            | 42.4 |      |      |       | 10,423,360 |            |            |            | 44.0 |     
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           
|                           |                      |                                     | Total originations and purchases |           | $                                 | 14,069,280 |           |           |           | 2,122,385 |            |           |            | 16,191,665 |      |      |      | 100.0 |            |           |            | 13,444,170 |       |      |      | 100.0 |            |            |            | 25,610,336 |           |           |           | 4,000,421 |            |            |            | 29,610,757 |      |      |      | 100.0 |            |            |            | 23,695,737 |      |      |      | 100.0 | 
|                           |                      |                                     |                                  |           |                                   |            |           |           |           |           |            |           |            |            |      |      |      |       |            |           |            |            |       |      |      |       |            |            |            |            |           |           |           |           |            |           

41



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##### 



|                                                                         |                                               |                                     |      |         |                                   |   |      |       |     |   |      |     |         |           |  |  |   |  |      |           |     |   |       |  |  |       |      |     |     |   |      |           |     |   |      |     |     |   |  |  |  |  |      |     |     |   |  |  |  | 
|------------------------------------------------------------------------ | --------------------------------------------- | ----------------------------------- | ---- | ------- | --------------------------------- | - | ---- | ----- | --- | - | ---- | --- | ------- | --------- |  |  | - |  | ---- | --------- | --- | - | ----- |  |  | ----- | ---- | --- | --- | - | ---- | --------- | --- | - | ---- | --- | --- | - |  |  |  |  | ---- | --- | --- | - |  |  |  | 
|                                                                         |                                               | For the Three Months Ended June 30, |      |         | For the Six Months Ended June 30, |  
|                                                                         |                                               |                                     |      |         |                                   |  
|                                                                         |                                               | 2006                                |      |         | 2005                              |   |      | 2006  |     |   | 2005 |    
|                                                                         |                                               |                                     |      |         |                                   |   |      |       |     |   |      |    
|                                                                         |                                               |                                     |      | Prime & |                                   |   |      |       |     |   |      |     | Prime & |           |  |  |   | 
|                                                                         |                                               | Non-Prime                           |      |         | Alt-A                             |   |      | Total |     |   | %    |     |         | Non-Prime |  |  | % |  |      | Non-Prime |     |   | Alt-A |  |  | Total |      |     | %   |   |      | Non-Prime |     |   | %    |    
|                                                                         |                                               |                                     |      |         |                                   |   |      |       |     |   |      |     |         |           |  |  |   |  |      |           |     |   |       |  |  |       |      |     |     |   |      |           |     |   |      |    
|Average principal balance of loans originated and purchased              |                                               | $                                   | 185  |         |                                   |   | 176  |       |     |   | 183  |     |         |           |  |  |   |  | 180  |           |     |   |       |  |  |       | 184  |     |     |   | 175  |           |     |   | 183  |     |     |   |  |  |  |  | 180  |     |     |   |  | 
|Weighted average FICO score of loans originated and purchased            |                                               |                                     | 623  |         |                                   |   | 707  |       |     |   | 634  |     |         |           |  |  |   |  | 632  |           |     |   |       |  |  |       | 622  |     |     |   | 708  |           |     |   | 634  |     |     |   |  |  |  |  | 630  |     |     |   |  | 
|Percent of loans secured by first mortgages                              |                                               |                                     | 93.3 | %       |                                   |   | 92.7 | %     |     |   | 93.3 | %   |         |           |  |  |   |  | 93.8 | %         |     |   |       |  |  |       | 93.5 | %   |     |   | 92.6 | %         |     |   | 93.4 | %   |     |   |  |  |  |  | 94.5 | %   |     |   |  | 
|Weighted average loan-to-value ratio(2)                                  |                                               |                                     | 81.5 | %       |                                   |   | 78.3 | %     |     |   | 81.1 | %   |         |           |  |  |   |  | 81.5 | %         |     |   |       |  |  |       | 81.5 | %   |     |   | 78.1 | %         |     |   | 81.0 | %   |     |   |  |  |  |  | 81.3 | %   |     |   |  | 
|Weighted average interest rates:                                         |                                               |                                     |      |         |                                   |   |      |       |     |   |      |     |         |           |  |  |   |  |      |           |     |   |       |  |  |       |      |     |     |   |      |           |     |   |      |     |     |   |  |  |  |  |      |     |     |   |  | 
|                                                                         | Fixed-rate mortgages                          |                                     |      | 8.8     | %                                 |   |      | 6.9   | %   |   |      | 8.2 | %       |           |  |  |   |  |      | 7.8       | %   |   |       |  |  |       |      | 8.9 | %   |   |      | 6.8       | %   |   |      | 8.1 | %   |   |  |  |  |  |      | 7.7 | %   |   |  |  | 
|                                                                         | Adjustable-rate mortgages  initial rate      |                                     |      | 8.3     | %                                 |   |      | 5.7   | %   |   |      | 8.3 | %       |           |  |  |   |  |      | 7.1       | %   |   |       |  |  |       |      | 8.3 | %   |   |      | 5.5       | %   |   |      | 8.2 | %   |   |  |  |  |  |      | 7.1 | %   |   |  |  | 
|                                                                         | Adjustable-rate mortgages  margin over index |                                     |      | 6.2     | %                                 |   |      | 2.0   | %   |   |      | 6.1 | %       |           |  |  |   |  |      | 5.7       | %   |   |       |  |  |       |      | 6.2 | %   |   |      | 2.1       | %   |   |      | 4.2 | %   |   |  |  |  |  |      | 5.7 | %   |   |  |  | 
|                                                                         |                                               | Total originations and purchases    |      |         | 8.5                               | % |      |       | 6.7 | % |      |     | 8.2     | %         |  |  |   |  |      |           | 7.2 | % |       |  |  |       |      |     | 8.5 | % |      |           | 6.6 | % |      |     | 8.2 | % |  |  |  |  |      |     | 7.2 | % |  |  |  | 
|Percentage of loans originated in AAA,
    AA and A+ credit grades |                                               |                                     | 87.8 | %       |                                   |   | N/A  |       |     |   | N/A  |     |         |           |  |  |   |  | 90.3 | %         |     |   |       |  |  |       | 87.7 | %   |     |   | N/A  |           |     |   | N/A  |     |     |   |  |  |  |  | 89.0 | %   |     |   |  | 
|Percentage of loans originated in bottom two credit grades               |                                               |                                     | 2.9  | %       |                                   |   | N/A  |       |     |   | N/A  |     |         |           |  |  |   |  | 2.1  | %         |     |   |       |  |  |       | 3.0  | %   |     |   | N/A  |           |     |   | N/A  |     |     |   |  |  |  |  | 2.5  | %   |     |   |  | 






|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(1) | Majority of hybrid adjustable-rate mortgages have a fixed rate
    for 2 or 3 years.                                          
|   
|(2) | Weighted average loan-to-value (LTV) is the LTV of the first
    lien mortgages and combined LTV of the second lien mortgages.



| |                              
| | -----------------------------
| | Secondary Market Transactions





42



---



##### 





|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |            |  |        |      |       |            |  |            |            |  |  |            |       |   |  |            |            |  |  |      |       |  
|---------------------------------------- | ----------------------------------- | --------------------------- | --------- | ---------- | ------------------------- |  | ---- | ------ | - |  | ---------- | ---------- |  | ------ | ---- | ----- | ---------- |  | ---------- | ---------- |  |  | ---------- | ----- | - |  | ---------- | ---------- |  |  | ---- | ----- | -
|                                         |                                     | Three Months Ended June 30, |           |            | Six Months Ended June 30, | 
|                                         |                                     |                             |           |            |                           | 
|                                         |                                     | 2006                        |           |            | 2005                      |  |      | 2006   |   |  | 2005       |           
|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |           
|                                         |                                     | Amount                      |           |            | % of Sales                |  |      | Amount |   |  | % of Sales |            |  | Amount |      |       | % of Sales |  |            | Amount     |  |  | % of Sales |      
|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |            |  |        |      |       |            |  |            |            |  |  |            |      
|Non-prime whole loan sales               |                                     | $                           | 9,856,143 |            |                           |  | 74.6 | %      |   |  | 5,933,841  |            |  |        | 46.0 | %     |            |  | 20,976,871 |            |  |  | 74.4       | %     |   |  | 12,385,139 |            |  |  | 55.3 | %    
|Prime and Alt-A whole loan sales         |                                     |                             | 1,220,260 |            |                           |  | 9.3  | %      |   |  |           |            |  |        | 0.0  | %     |            |  | 3,340,060  |            |  |  | 11.8       | %     |   |  |           |            |  |  | 0.0  | %    
|Securitizations structured as sales      |                                     |                             |          |            |                           |  | 0.0  | %      |   |  | 989,221    |            |  |        | 7.7  | %     |            |  |           |            |  |  | 0.0        | %     |   |  | 989,221    |            |  |  | 4.4  | %    
|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |            |  |        |      |       |            |  |            |            |  |  |            |      
|                                         | Total premium sales                 |                             |           | 11,076,403 |                           |  |      | 83.9   | % |  |            | 6,923,062  |  |        |      | 53.7  | %          |  |            | 24,316,931 |  |  |            | 86.2  | % |  |            | 13,374,360 |  |  |      | 59.7  | %
|Discounted whole loan sales              |                                     |                             | 415,077   |            |                           |  | 3.1  | %      |   |  | 80,878     |            |  |        | 0.6  | %     |            |  | 506,444    |            |  |  | 1.8        | %     |   |  | 146,444    |            |  |  | 0.7  | %    
|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |            |  |        |      |       |            |  |            |            |  |  |            |      
|                                         | Total sales                         |                             |           | 11,491,480 |                           |  |      | 87.0   | % |  |            | 7,003,940  |  |        |      | 54.3  | %          |  |            | 24,823,375 |  |  |            | 88.0  | % |  |            | 13,520,804 |  |  |      | 60.4  | %
|Securitizations structured as financings |                                     |                             | 1,714,853 |            |                           |  | 13.0 | %      |   |  | 5,890,404  |            |  |        | 45.7 | %     |            |  | 3,393,531  |            |  |  | 12.0       | %     |   |  | 8,881,728  |            |  |  | 39.6 | %    
|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |            |  |        |      |       |            |  |            |            |  |  |            |      
|                                         | Total secondary market transactions |                             | $         | 13,206,333 |                           |  |      | 100.0  | % |  |            | 12,894,344 |  |        |      | 100.0 | %          |  |            | 28,216,906 |  |  |            | 100.0 | % |  |            | 22,402,532 |  |  |      | 100.0 | %
|                                         |                                     |                             |           |            |                           |  |      |        |   |  |            |            |  |        |      |       |            |  |            |            |  |  |            |      



| |                 
| | ----------------
| | Whole Loan Sales





43



---



##### 







| |                      
| | ---------------------
| | Discounted Loan Sales





|                                      |                        |                             |        |         |                           |  |       |           |      |    |          |        |        |           |      |     |          |    |        |           |         |  |          |      |      |    |        |        |         |  |       |     |      |   
|------------------------------------- | ---------------------- | --------------------------- | ------ | ------- | ------------------------- |  | ----- | --------- | ---- | -- | -------- | ------ | ------ | --------- | ---- | --- | -------- | -- | ------ | --------- | ------- |  | -------- | ---- | ---- | -- | ------ | ------ | ------- |  | ----- | --- | ---- | --
|                                      |                        | Three Months Ended June 30, |        |         | Six Months Ended June 30, | 
|                                      |                        |                             |        |         |                           | 
|                                      |                        | 2006                        |        |         | 2005                      |  |       | 2006      |      |    | 2005     |       
|                                      |                        |                             |        |         |                           |  |       |           |      |    |          |       
|                                      |                        | Principal                   |        |         | Discount                  |  |       | Principal |      |    | Discount |        |        | Principal |      |     | Discount |    |        | Principal |         |  | Discount |     
|                                      |                        |                             |        |         |                           |  |       |           |      |    |          |        |        |           |      |     |          |    |        |           |         |  |          |     
|Repurchases from whole loan investors |                        | $                           | 45,911 |         |                           |  | (27.6 | )%        |      |    | 48,038   |        |        |           | (9.4 | )%  |          |    | 60,377 |           |         |  | (26.1    | )%   |      |    | 58,372 |        |         |  | (10.6 | )% 
|                                      | Other discounted sales |                             |        | 369,166 |                           |  |       | (2.2      | )%   |    |          | 32,840 |        |           |      | 0.1 | %        |    |        | 446,067   |         |  |          | (2.5 | )%   |    |        | 88,072 |         |  |       | 0.5 | %   
|                                      |                        |                             |        |         |                           |  |       |           |      |    |          |        |        |           |      |     |          |    |        |           |         |  |          |     
|                                      |                        | Total discounted sales      |        | $       | 415,077                   |  |       |           | (5.0 | )% |          |        | 80,878 |           |      |     | (5.5     | )% |        |           | 506,444 |  |          |      | (5.3 | )% |        |        | 146,444 |  |       |     | (3.9 | )%
|                                      |                        |                             |        |         |                           |  |       |           |      |    |          |        |        |           |      |     |          |    |        |           |         |  |          |     



| |                                         
| | ----------------------------------------
| | Securitizations Structured as Financings



44



---



##### 





| |                                    
| | -----------------------------------
| | Securitizations Structured as Sales









45



---



##### 



Non-Performing Assets


non-accrual


|                                                            |                |                                                 |         |            |                   |            |      |           |      |        |           |            |         |            |      |       |      |        |  
|----------------------------------------------------------- | -------------- | ----------------------------------------------- | ------- | ---------- | ----------------- | ---------- | ---- | --------- | ---- | ------ | --------- | ---------- | ------- | ---------- | ---- | ----- | ---- | ------ | -
|                                                            |                | June 30, 2006                                   |         |            | December 31, 2005 |           
|                                                            |                |                                                 |         |            |                   |           
|                                                            |                |                                                 |         | % of       |                   |            |      |           | % of |       
|                                                            |                | Principal                                       |         |            | Principal         |            |      | Principal |      |        | Principal |           
|                                                            |                |                                                 |         |            |                   |            |      |           |      |        |           |           
|Mortgage loans held for investment:                         |                |                                                 |         |            |                   |            |      |           |      |        |           |            |         |            |      |      
|                                                            | Current        |                                                 | $       | 15,021,237 |                   |            |      | 93.85     | %    |        | $         | 15,231,245 |         |            |      | 93.95 | %   
|                                                            |                | Delinquent  30-60 days (excluding non-accrual) |         |            | 273,919           |            |      |           | 1.71 | %      |           |            | 314,416 |            |      |       | 1.94 | %     
|                                                            |                | Non-Accrual                                     |         |            | 710,301           |            |      |           | 4.44 | %      |           |            | 666,563 |            |      |       | 4.11 | %     
|                                                            |                |                                                 |         |            |                   |            |      |           |      |        |           |           
|                                                            |                |                                                 | Total   |            | $                 | 16,005,457 |      |           |      | 100.00 | %         |            | $       | 16,212,224 |      |       |      | 100.00 | %
|Allowance for losses on mortgage loans held for investment: |                | $                                               | 209,889 |            |                   |            | 1.31 | %         |      | $      | 198,131   |            |         |            | 1.22 | %    
|                                                            | Charge-offs(1) |                                                 |         | 48,392     |                   |            |      | 0.30      | %    |        |           | 32,329     |         |            |      | 0.20  | %   
|Mortgage Loans held for sale:                               |                |                                                 |         |            |                   |            |      |           |      |        |           |            |         |            |      |      
|                                                            | Current        |                                                 | $       | 9,044,054  |                   |            |      | 97.58     | %    |        | $         | 7,699,132  |         |            |      | 98.51 | %   
|                                                            |                | Delinquent  30-60 days (excluding non-accrual) |         |            | 50,514            |            |      |           | 0.55 | %      |           |            | 35,891  |            |      |       | 0.46 | %     
|                                                            |                | Non-Accrual                                     |         |            | 173,322           |            |      |           | 1.87 | %      |           |            | 80,179  |            |      |       | 1.03 | %     
|                                                            |                |                                                 |         |            |                   |            |      |           |      |        |           |           
|                                                            |                |                                                 | Total   |            | $                 | 9,267,890  |      |           |      | 100.00 | %         |            | $       | 7,815,202  |      |       |      | 100.00 | %






|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents charge-offs for the six-month period ending
    June 30, 2006 and the twelve-month period ending
    December 31, 2005, respectively.

Critical Accounting Policies






46



---



##### 





| |                                                           
| | ----------------------------------------------------------
| | Allowance for Losses on Mortgage Loans Held for Investment







| |                                      
| | -------------------------------------
| | Residual Interests in Securitizations







interests-in


47



---



##### 











(6-month, 1-year, 2-year, 3-year, 5-year


48



---



##### 













| |                                
| | -------------------------------
| | Allowance for Repurchase Losses



|                             |                                  |                        |       |        |        | 
|---------------------------- | -------------------------------- | ---------------------- | ----- | ------ | ------ | 
|Balance, beginning of period |                                  | $                      | 6,955 |       
|                             | Provision for repurchases losses |                        |       | 10,062 |       
|                             | Charge-offs, net                 |                        |       | (2,594 | )     
|                             |                                  |                        |      
|                             |                                  | Balance, end of period |       | $      | 14,423 | 
|                             |                                  |                        |      



| |                      
| | ---------------------
| | Gain on Sale of Loans



49



---



##### 







| |             
| | ------------
| | Income Taxes







| |                              
| | -----------------------------
| | Estimated REIT Taxable Income



|                                                     |                                      |                    |         |         |                  |  |         |           |   |  |           |          |   |  |         |         |  
|---------------------------------------------------- | ------------------------------------ | ------------------ | ------- | ------- | ---------------- |  | ------- | --------- | - |  | --------- | -------- | - |  | ------- | ------- | -
|                                                     |                                      | Three Months Ended |         |         | Six Months Ended | 
|                                                     |                                      | June 30,           |         |         | June 30,         | 
|                                                     |                                      |                    |         |         |                  | 
|                                                     |                                      | Estimated          |         |         | Estimated        |  |         | Estimated |   |  | Estimated |         
|                                                     |                                      | 2006               |         |         | 2005             |  |         | 2006      |   |  | 2005      |         
|                                                     |                                      |                    |         |         |                  |  |         |           |   |  |           |         
|GAAP consolidated earnings before income taxes       |                                      | $                  | 134,822 |         |                  |  | 93,391  |           |   |  | 250,497   |          |   |  | 184,555 |        
|GAAP/ Tax differences in accounting for:             |                                      |                    |         |         |                  |  |         |           |   |  |           |          |   |  |         |        
|                                                     | TRS earnings before income taxes     |                    |         | (82,869 | )                |  |         | (14,157   | ) |  |           | (115,238 | ) |  |         | (40,735 | )
|                                                     | Provision for loan losses            |                    |         | 30,675  |                  |  |         | 36,550    |   |  |           | 59,700   |   |  |         | 65,701  |  
|                                                     | Realized loan losses                 |                    |         | (17,643 | )                |  |         | (3,491    | ) |  |           | (27,296  | ) |  |         | (4,163  | )
|                                                     | All other GAAP/ Tax differences, net |                    |         | 16,036  |                  |  |         | 8,704     |   |  |           | 16,419   |   |  |         | 3,870   |  
|                                                     |                                      |                    |         |         |                  |  |         |           |   |  |           |         
|REIT taxable income before preferred dividends       |                                      |                    | 81,021  |         |                  |  | 120,997 |           |   |  | 184,082   |          |   |  | 209,228 |        
|Preferred dividends                                  |                                      |                    | (2,567  | )       |                  |  | (285    | )         |   |  | (5,133    | )        |   |  | (285    | )      
|                                                     |                                      |                    |         |         |                  |  |         |           |   |  |           |         
|REIT taxable income available to common shareholders |                                      | $                  | 78,454  |         |                  |  | 120,712 |           |   |  | 178,949   |          |   |  | 208,943 |        
|                                                     |                                      |                    |         |         |                  |  |         |           |   |  |           |         



50



---



##### 







| |                                            
| | -------------------------------------------
| | Derivative Instruments Designated as Hedges







| |                                         
| | ----------------------------------------
| | Securitizations Structured as Financings





Corporate Governance






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Board of Directors is composed of a majority of independent
    directors, who are coordinated by our Lead Independent Director.
    The Audit, Governance and Nominating and Compensation Committees
    of the Board of Directors are composed exclusively of
    independent directors. The Board of Directors (i) reviews
    our financial results, policy compliance and strategic direction
    on a quarterly basis and (ii) reviews our budget and
    strategic plan annually.
| 
| | We have a Code of Business Conduct and Ethics that covers a wide
    range of business practices and procedures that apply to all of
    our Associates, officers and directors in order to foster the
    highest standards of ethics and conduct in all of our business
    relationships. In addition, we have a Code of Conduct, with                                                                                                                                                   

51



---



##### 



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | standards applicable to our Associates and officers, and a Code
    of Ethics for Senior Financial Officers applicable to our senior
    officers who have financial responsibility or oversight.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| | We have instituted and distributed policies and procedures
    designed to encourage any of our Associates or officers to raise
    concerns, including through anonymous means, regarding possible
    violations of federal fraud or securities laws, which may
    involve financial matters, such as accounting, auditing or
    financial reporting, with our Corporate Ethics Officer or the
    appropriate supervisors, officers or committees of the Board of
    Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| | We have approved and implemented an Insider Trading Policy that
    prohibits any of our directors, officers or Associates from
    buying or selling our stock on the basis of material nonpublic
    information or communicating material nonpublic information to
    others.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| | We have a formal internal audit function to further the
    effective functioning of our internal controls and procedures.
    Our internal audit plan is approved annually by the Audit
    Committee of the Board of Directors and is based on a formal
    risk assessment and is intended to provide management and the
    Audit Committee with an effective tool to identify and address
    areas of financial or operational concerns and ensure that
    appropriate oversight, controls and procedures are in place.
    Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
    we have completed and will complete annually an evaluation of
    our internal control over financial reporting, as described
    under the heading Controls and Procedures 
    Managements Annual Report on Internal Control over
    Financial Reporting on page 90 of our Annual Report
    on Form 10-K for
    the year ended December 31, 2005.

10-K, 10-Q, 8-K


Results of Operations




52



---



##### 





|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |       |        |   |            |         |         |  |       |        |        |  
|------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ---------- | ------- | ------- | ------------------------- | ----- | ----- | ------ | - | ---------- | ------- | ------- |  | ----- | ------ | ------ | - | ---------- | ------- | ------- |  | ----- | ----- | ------ | - | ---------- | ------- | ------- |  | ----- | ------ | ------ | -
|                                            |                                                            | 2006                                                 |            |         |         |                           |       |       |        |   |            |         |         |  |      
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |      
|                                            |                                                            |                                                      |            | 2005    |         |                           |       |       |        |   |            |         |        
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |        
|                                            |                                                            |                                                      |            |         |         | 2006                      |       |       |        |   |           
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |           
|                                            |                                                            |                                                      |            |         |         | Six Months Ended June 30, |      
|                                            |                                                            |                                                      |            |         |         |                           |      
|                                            |                                                            | Three Months Ended June 30,                          |            |         |         |                           | 2005  |      
|                                            |                                                            |                                                      |            |         |         |                           |       |      
|Interest income:                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |       |        |   |            |         |         |  |       |       
|                                            | Net interest income                                        |                                                      | $          | 140,003 |         |                           |       | 40.96 | %      |   |            | 202,306 |         |  |       | 70.72  | %      |   |            | 319,792 |         |  |       | 48.93 | %      |   |            | 371,296 |         |  |       | 66.50  | %     
|                                            | Provision for losses on mortgage loans held for investment |                                                      |            | (32,325 | )       |                           |       | (9.46 | )%     |   |            | (36,875 | )       |  |       | (12.89 | )%     |   |            | (60,150 | )       |  |       | (9.20 | )%     |   |            | (67,113 | )       |  |       | (12.02 | )%    
|Other operating income:                     |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |       |        |   |            |         |         |  |       |       
|                                            | Gain on sale of mortgage loans                             |                                                      |            | 195,160 |         |                           |       | 57.10 | %      |   |            | 110,604 |         |  |       | 38.66  | %      |   |            | 324,687 |         |  |       | 49.68 | %      |   |            | 233,556 |         |  |       | 41.83  | %     
|                                            | Servicing income                                           |                                                      |            | 14,012  |         |                           |       | 4.10  | %      |   |            | 6,631   |         |  |       | 2.32   | %      |   |            | 29,654  |         |  |       | 4.53  | %      |   |            | 13,353  |         |  |       | 2.39   | %     
|                                            | Other income                                               |                                                      |            | 24,961  |         |                           |       | 7.30  | %      |   |            | 3,398   |         |  |       | 1.19   | %      |   |            | 39,592  |         |  |       | 6.06  | %      |   |            | 7,271   |         |  |       | 1.30   | %     
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |      
|                                            |                                                            | Total net interest income and other operating income |            |         | 341,811 |                           |       |       | 100.00 | % |            |         | 286,064 |  |       |        | 100.00 | % |            |         | 653,575 |  |       |       | 100.00 | % |            |         | 558,363 |  |       |        | 100.00 | %
|Total operating expenses                    |                                                            |                                                      | 206,989    |         |         |                           | 60.56 | %     |        |   | 192,673    |         |         |  | 67.35 | %      |        |   | 403,078    |         |         |  | 61.67 | %     |        |   | 373,808    |         |         |  | 66.95 | %     
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |      
|                                            |                                                            | Earnings before income taxes                         |            |         | 134,822 |                           |       |       | 39.44  | % |            |         | 93,391  |  |       |        | 32.65  | % |            |         | 250,497 |  |       |       | 38.33  | % |            |         | 184,555 |  |       |        | 33.05  | %
|                                            | Income tax expense (benefit)                               |                                                      |            | 29,279  |         |                           |       | 8.57  | %      |   |            | (1,688  | )       |  |       | (0.59  | )%     |   |            | 41,219  |         |  |       | 6.31  | %      |   |            | 4,716   |         |  |       | 0.84   | %     
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |      
|                                            |                                                            | Net earnings                                         |            | $       | 105,543 |                           |       |       | 30.87  | % |            |         | 95,079  |  |       |        | 33.24  | % |            |         | 209,278 |  |       |       | 32.02  | % |            |         | 179,839 |  |       |        | 32.21  | %
|                                            |                                                            |                                                      |            |         |         |                           |       |       |        |   |            |         |         |  |       |        |        |   |            |         |         |  |       |      
|Basic earnings per share                    |                                                            | $                                                    | 1.85       |         |         |                           |       |       |        |   | 1.71       |         |         |  |       |        |        |   | 3.67       |         |         |  |       |       |        |   | 3.26       |         |         |  |       |       
|Diluted earnings per share                  |                                                            | $                                                    | 1.81       |         |         |                           |       |       |        |   | 1.65       |         |         |  |       |        |        |   | 3.59       |         |         |  |       |       |        |   | 3.13       |         |         |  |       |       
|Basic weighted average shares outstanding   |                                                            |                                                      | 55,784,919 |         |         |                           |       |       |        |   | 55,376,001 |         |         |  |       |        |        |   | 55,652,977 |         |         |  |       |       |        |   | 55,079,377 |         |         |  |       |       
|Diluted weighted average shares outstanding |                                                            |                                                      | 56,935,553 |         |         |                           |       |       |        |   | 57,396,098 |         |         |  |       |        |        |   | 56,816,074 |         |         |  |       |       |        |   | 57,331,721 |         |         |  |       |       

53



---



##### 



Six Months Ended June 30, 2006 Compared to Six Months
Ended June 30, 2005




| |                           
| | --------------------------
| | Originations and Purchases



|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |      |       |       | 
|------------------------------------------------------------- | -------------------- | -------------------------------------- | -------------------------------- | ---------- | -------------------------------------- | ---------- | --------- | --------- | --------- | --------- | ---------- | ---------- | ---------- | ---------- | ---- | ---- | ------ | ----- | ---------- | ---------- | ---------- | ---------- | --------- | --------- | --------- | --------- | ---------- | ---------- | ---------- | ---------- | ----- | ---- | ----- | ----- | 
|                                                              |                      | For the Six Months Ended June 30, 2006 |                                  |            | For the Six Months Ended June 30, 2005 |           
|                                                              |                      |                                        |                                  |            |                                        |           
|                                                              |                      | Wholesale                              |                                  |            | Retail                                 |            |           | Total     |           |           | %          |            |            | Wholesale  |      |      | Retail |       |            | Total      |            |            | %         |          
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|Non-Prime                                                     |                      | $                                      | 23,619,807                       |            |                                        |            | 1,990,529 |           |           |           | 25,610,336 |            |            |            | 86.5 |      |        |       | 21,204,705 |            |            |            | 2,491,032 |           |           |           | 23,695,737 |            |            |            | 100.0 |     
|Prime & Alt-A                                                 |                      |                                        | 1,581,758                        |            |                                        |            | 2,418,663 |           |           |           | 4,000,421  |            |            |            | 13.5 |      |        |       |           |            |            |            |          |           |           |           |           |            |            |            |      |     
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|                                                              |                      | Total originations and purchases       |                                  |            | 25,201,565                             |            |           |           | 4,409,192 |           |            |            | 29,610,757 |            |      |      | 100.0  |       |            |            | 21,204,705 |            |           |           | 2,491,032 |           |            |            | 23,695,737 |            |       |      | 100.0 |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |     
|Fixed-rate mortgages:                                         |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |     
|                                                              | 15-30 year           |                                        |                                  | 4,636,482  |                                        |            |           | 2,078,446 |           |           |            | 6,714,928  |            |            |      | 22.7 |        |       |            | 4,278,722  |            |            |           | 1,080,855 |           |           |            | 5,359,577  |            |            |       | 22.6 |      
|                                                              | Interest-Only        |                                        |                                  | 413,808    |                                        |            |           | 368,247   |           |           |            | 782,055    |            |            |      | 2.6  |        |       |            |           |            |            |           |          |           |           |            |           |            |            |       |     |      
|                                                              | 40-Year              |                                        |                                  | 1,097,918  |                                        |            |           | 377,356   |           |           |            | 1,475,274  |            |            |      | 5.0  |        |       |            |           |            |            |           |          |           |           |            |           |            |            |       |     |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|                                                              |                      | Sub-total Fixed                        |                                  |            | 6,148,208                              |            |           |           | 2,824,049 |           |            |            | 8,972,257  |            |      |      | 30.3   |       |            |            | 4,278,722  |            |           |           | 1,080,855 |           |            |            | 5,359,577  |            |       |      | 22.6  |      
|Adjustable-rate mortgages:                                    |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |     
|                                                              | Hybrid-30 year(1)    |                                        |                                  | 5,749,257  |                                        |            |           | 532,460   |           |           |            | 6,281,717  |            |            |      | 21.2 |        |       |            | 9,485,690  |            |            |           | 1,029,603 |           |           |            | 10,515,293 |            |            |       | 44.4 |      
|                                                              | Interest-Only        |                                        |                                  | 3,881,838  |                                        |            |           | 286,712   |           |           |            | 4,168,550  |            |            |      | 14.1 |        |       |            | 7,440,293  |            |            |           | 380,574   |           |           |            | 7,820,867  |            |            |       | 33.0 |      
|                                                              | Hybrid-40 year(1)    |                                        |                                  | 9,413,133  |                                        |            |           | 741,212   |           |           |            | 10,154,345 |            |            |      | 34.3 |        |       |            |           |            |            |           |          |           |           |            |           |            |            |       |     |      
|                                                              | HELOC                |                                        |                                  | 9,129      |                                        |            |           | 24,759    |           |           |            | 33,888     |            |            |      | 0.1  |        |       |            |           |            |            |           |          |           |           |            |           |            |            |       |     |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|                                                              |                      | Sub-total ARM                          |                                  |            | 19,053,357                             |            |           |           | 1,585,143 |           |            |            | 20,638,500 |            |      |      | 69.7   |       |            |            | 16,925,983 |            |           |           | 1,410,177 |           |            |            | 18,336,160 |            |       |      | 77.4  |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|                                                              |                      |                                        | Total originations and purchases |            |                                        | 25,201,565 |           |           |           | 4,409,192 |            |            |            | 29,610,757 |      |      |        | 100.0 |            |            |            | 21,204,705 |           |           |           | 2,491,032 |            |            |            | 23,695,737 |       |      |       | 100.0 | 
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |     
|Purchases                                                     |                      |                                        | 11,215,190                       |            |                                        |            | 2,041,678 |           |           |           | 13,256,868 |            |            |            | 44.8 |      |        |       | 9,097,790  |            |            |            | 128,865   |           |           |           | 9,226,655  |            |            |            | 38.9  |     
|Refinances:                                                   |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |     
|                                                              | Cash-out refinances  |                                        |                                  | 11,539,855 |                                        |            |           | 1,517,886 |           |           |            | 13,057,741 |            |            |      | 44.1 |        |       |            | 10,465,572 |            |            |           | 1,976,081 |           |           |            | 12,441,653 |            |            |       | 52.5 |      
|                                                              | Rate/term refinances |                                        |                                  | 2,446,520  |                                        |            |           | 849,628   |           |           |            | 3,296,148  |            |            |      | 11.1 |        |       |            | 1,641,343  |            |            |           | 386,086   |           |           |            | 2,027,429  |            |            |       | 8.6  |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|                                                              |                      | Total originations and purchases       |                                  |            | 25,201,565                             |            |           |           | 4,409,192 |           |            |            | 29,610,757 |            |      |      | 100.0  |       |            |            | 21,204,705 |            |           |           | 2,491,032 |           |            |            | 23,695,737 |            |       |      | 100.0 |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|Full documentation                                            |                      |                                        | 13,309,386                       |            |                                        |            | 3,136,925 |           |           |           | 16,446,311 |            |            |            | 55.5 |      |        |       | 10,556,976 |            |            |            | 1,792,810 |           |           |           | 12,349,786 |            |            |            | 52.1  |     
|Limited documentation                                         |                      |                                        | 572,335                          |            |                                        |            | 55,390    |           |           |           | 627,725    |            |            |            | 2.1  |      |        |       | 834,233    |            |            |            | 88,358    |           |           |           | 922,591    |            |            |            | 3.9   |     
|Stated documentation                                          |                      |                                        | 11,319,844                       |            |                                        |            | 1,216,877 |           |           |           | 12,536,721 |            |            |            | 42.4 |      |        |       | 9,813,496  |            |            |            | 609,864   |           |           |           | 10,423,360 |            |            |            | 44.0  |     
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |          
|                                                              |                      | Total originations and purchases       |                                  | $          | 25,201,565                             |            |           |           | 4,409,192 |           |            |            | 29,610,757 |            |      |      | 100.0  |       |            |            | 21,204,705 |            |           |           | 2,491,032 |           |            |            | 23,695,737 |            |       |      | 100.0 |      
|                                                              |                      |                                        |                                  |            |                                        |            |           |           |           |           |            |            |            |            |      |      |        |       |            |            |            |            |           |           |           |           |            |            |            |            |       |     
|Average principal balance of loans originated and purchased   |                      | $                                      | 188                              |            |                                        |            | 158       |           |           |           | 183        |            |            |            |      |      |        |       | 185        |            |            |            | 149       |           |           |           | 180        |            |            |            |       |     
|Weighted average FICO score of loans originated and purchased |                      |                                        | 629                              |            |                                        |            | 664       |           |           |           | 634        |            |            |            |      |      |        |       | 632        |            |            |            | 613       |           |           |           | 630        |            |            |            |       |     
|Weighted average loan-to-value ratio(2)                       |                      |                                        | 81.3                             | %          |                                        |            | 79.6      | %         |           |           | 81.0       | %          |            |            |      |      |        |       | 81.6       | %          |            |            | 78.7      | %         |           |           | 81.3       | %          |            |            |       |     

54



---



##### 



|                                 |                                               |                                        |  |     |                                        |   |  |       |     |   |   |     |     |           |  |  |        |  |  |       |     |   |   |     |     |   |  |     |     |   |  |  |  | 
|-------------------------------- | --------------------------------------------- | -------------------------------------- |  | --- | -------------------------------------- | - |  | ----- | --- | - | - | --- | --- | --------- |  |  | ------ |  |  | ----- | --- | - | - | --- | --- | - |  | --- | --- | - |  |  |  | 
|                                 |                                               | For the Six Months Ended June 30, 2006 |  |     | For the Six Months Ended June 30, 2005 |  
|                                 |                                               |                                        |  |     |                                        |  
|                                 |                                               | Wholesale                              |  |     | Retail                                 |   |  | Total |     |   | % |     |     | Wholesale |  |  | Retail |  |  | Total |     |   | % |    
|                                 |                                               |                                        |  |     |                                        |   |  |       |     |   |   |     |     |           |  |  |        |  |  |       |     |   |   |    
|Weighted average interest rates: |                                               |                                        |  |     |                                        |   |  |       |     |   |   |     |     |           |  |  |        |  |  |       |     |   |   |     |     |   |  |     |     |   |  | 
|                                 | Fixed-rate mortgages                          |                                        |  | 8.6 | %                                      |   |  | 7.1   | %   |   |   | 8.1 | %   |           |  |  |        |  |  | 7.9   | %   |   |   | 6.9 | %   |   |  | 7.7 | %   |   |  |  | 
|                                 | Adjustable-rate mortgages  initial rate      |                                        |  | 8.3 | %                                      |   |  | 7.7   | %   |   |   | 8.3 | %   |           |  |  |        |  |  | 7.1   | %   |   |   | 7.2 | %   |   |  | 7.1 | %   |   |  |  | 
|                                 | Adjustable-rate mortgages  margin over index |                                        |  | 6.1 | %                                      |   |  | 5.3   | %   |   |   | 6.1 | %   |           |  |  |        |  |  | 5.7   | %   |   |   | 5.8 | %   |   |  | 5.7 | %   |   |  |  | 
|                                 |                                               | Total originations and purchases       |  |     | 8.4                                    | % |  |       | 7.3 | % |   |     | 8.2 | %         |  |  |        |  |  |       | 7.2 | % |   |     | 7.1 | % |  |     | 7.2 | % |  |  |  | 






|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | Majority of hybrid adjustable-rate mortgages have a fixed rate
    for 2 or 3 years.                          
|   
|(2) | Weighted average LTV is the LTV of the first lien mortgages and
    combined LTV of the second lien mortgages.







| |                              
| | -----------------------------
| | Secondary Market Transactions



55



---



##### 





| |                
| | ---------------
| | Interest Income





| |                 
| | ----------------
| | Interest Expense







|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
| | the average balance of our mortgage loans held for investment,
    held for sale, cash, and the liabilities financing our assets;
| 
| | the average interest rates earned or paid;                                                                                       
| 
| | the actual amount of interest income and expense; and                                                                            
| 
| | the overall interest margin earned on our balance sheet.                                                                         

56



---



##### 





|                         |                                       |                           |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            |  |  |       |      |   |   |         |         | 
|------------------------ | ------------------------------------- | ------------------------- | - | ---------- | ---------- |  |  | ------ | ---- | ------- | ------- | ------- | ------- | ----- | - | ---------- | ---------- |  |  | ----- | ---- | - | - | ------- | ------- | 
|                         |                                       | Six Months Ended June 30, |  
|                         |                                       |                           |  
|                         |                                       | 2006                      |   |            | 2005       | 
|                         |                                       |                           |   |            |            | 
|                         |                                       | Average                   |   |            | Avg.       |  |  |        |      | Average |         |         | Avg.    |       |   |           
|                         |                                       | Balance                   |   |            | Yield      |  |  | Income |      |         | Balance |         |         | Yield |   |            | Income     | 
|                         |                                       |                           |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            | 
|Interest-earning assets: |                                       |                           |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            |  |  |       |      |   |   |        
|                         | Mortgage loans held for investment(1) |                           | $ | 16,200,590 |            |  |  | 7.30   | %    |         | $       | 591,487 |         |       | $ | 15,859,594 |            |  |  | 7.11  | %    |   | $ | 563,547 |        
|                         | Mortgage loans held for sale          |                           |   | 8,833,368  |            |  |  | 8.05   |      |         |         | 355,510 |         |       |   | 5,088,122  |            |  |  | 6.88  |      |   |   | 175,029 |        
|                         | Residual interests in securitizations |                           |   | 220,691    |            |  |  | 12.45  |      |         |         | 13,737  |         |       |   | 144,990    |            |  |  | 10.93 |      |   |   | 7,927   |        
|                         | Cash and investments                  |                           |   | 833,178    |            |  |  | 0.81   |      |         |         | 3,382   |         |       |   | 916,903    |            |  |  | 1.18  |      |   |   | 5,429   |        
|                         |                                       |                           |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            | 
|                         |                                       | Total                     |   | $          | 26,087,827 |  |  |        | 7.39 | %       |         | $       | 964,116 |       |   | $          | 22,009,609 |  |  |       | 6.83 | % |   | $       | 751,932 | 

|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            |  |      |      |      |   |         |         |         | 
|----------------------------- | -------------------------------------------------- | ------- | - | ---------- | ---------- |  | ---- | ------- | ---- | ------- | ------- | ------- | ------- | ---- | - | ---------- | ---------- |  | ---- | ---- | ---- | - | ------- | ------- | ------- | 
|                              |                                                    | Average |   |            | Avg.       |  |      |         |      | Average |         |         | Avg.    |      |   |           
|                              |                                                    | Balance |   |            | Cost       |  |      | Expense |      |         | Balance |         |         | Cost |   |            | Expense    | 
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 
|Interest-bearing liabilities: |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            |  |      |      |      |   |         |        
|                              | Financing on mortgage loans held for investment(2) |         | $ | 15,665,230 |            |  |      | 4.93    | %    |         | $       | 386,098 |         |      | $ | 15,557,646 |            |  |      | 3.58 | %    |   | $       | 278,366 |        
|                              | Credit facilities                                  |         |   | 8,516,945  |            |  |      | 5.64    |      |         |         | 240,070 |         |      |   | 4,968,269  |            |  |      | 3.91 |      |   |         | 97,056  |        
|                              | Convertible senior notes                           |         |   | 833        |            |  |      | 14.17   |      |         |         | 59      |         |      |   | 5,498      |            |  |      | 4.47 |      |   |         | 123     |        
|                              | Notes payable                                      |         |   | 33,155     |            |  |      | 8.51    |      |         |         | 1,410   |         |      |   | 34,134     |            |  |      | 5.21 |      |   |         | 890     |        
|                              | Other interest(3)                                  |         |   |           |            |  |      |        |      |         |         | 16,687  |         |      |   |           |            |  |      |     |      |   |         | 4,201   |        
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 
|                              |                                                    | Total   |   | $          | 24,216,163 |  |      |         | 5.32 |         |         |         | 644,324 |      |   | $          | 20,565,547 |  |      |      | 3.70 |   |         |         | 380,636 | 
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 
|Net interest spread/income    |                                                    |         |   |            |            |  | 2.07 | %       |      | $       | 319,792 |         |         |      |   |            |            |  | 3.13 | %    |      | $ | 371,296 |        
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 






|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes impact of prepayment penalty income of
    $45.4 million and $37.2 million for the six months
    ended June 30, 2006 and 2005, respectively.                     
|   
|(2) | Includes impact of derivative instruments accounted for as
    hedges of $50.4 million and $22.8 million for the six
    months ended June 30, 2006 and 2005, respectively.
|   
|(3) | Other interest is comprised of interest related costs associated
    with our servicing operation.                                                                         



| |                                                           
| | ----------------------------------------------------------
| | Provision for losses on mortgage loans held for investment



57



---



##### 







|                             |                  |                        |         |         |         |  |        |         |         | 
|---------------------------- | ---------------- | ---------------------- | ------- | ------- | ------- |  | ------ | ------- | ------- | 
|                             |                  | Six Months Ended       |        
|                             |                  | June 30,               |        
|                             |                  |                        |        
|                             |                  | 2006                   |         |         | 2005    | 
|                             |                  |                        |         |         |         | 
|Balance, beginning of period |                  | $                      | 198,131 |         |         |  | 90,227 |        
|                             | Additions        |                        |         | 60,150  |         |  |        | 67,113  |        
|                             | Charge-offs, net |                        |         | (48,392 | )       |  |        | (11,775 | )      
|                             |                  |                        |         |         |         | 
|                             |                  | Balance, end of period |         | $       | 209,889 |  |        |         | 145,565 | 
|                             |                  |                        |         |         |         | 



| |                       
| | ----------------------
| | Other Operating Income

Gain on sale


|                                                                |  |                  |          |   |      |  |          |  
|--------------------------------------------------------------- |  | ---------------- | -------- | - | ---- |  | -------- | -
|                                                                |  | Six Months Ended |         
|                                                                |  | June 30,         |         
|                                                                |  |                  |         
|                                                                |  | 2006             |          |   | 2005 | 
|                                                                |  |                  |          |   |      | 
|Cash gain from whole loan sale transactions                     |  | $                | 404,626  |   |      |  | 302,478  |  
|Gain from securitization of loans                               |  |                  |         |   |      |  | 19,473   |  
|Non-cash gain from servicing assets related to securitizations  |  |                  |         |   |      |  | 8,705    |  
|Non-cash gain from servicing rights related to whole loan sales |  |                  | 7,502    |   |      |  | 26,714   |  
|Securitization expenses                                         |  |                  |         |   |      |  | (1,947   | )
|Accrued interest                                                |  |                  |         |   |      |  | (4,992   | )
|Fair value adjustment of residual securities                    |  |                  | (38,762  | ) |      |  | (4,419   | )
|Provision for repurchase losses                                 |  |                  | (5,701   | ) |      |  | (6,072   | )
|Non-refundable fees(1)                                          |  |                  | 169,493  |   |      |  | 130,037  |  
|Premiums paid(2)                                                |  |                  | (106,256 | ) |      |  | (126,835 | )
|Origination costs                                               |  |                  | (145,800 | ) |      |  | (114,300 | )
|Derivative gains                                                |  |                  | 39,585   |   |      |  | 4,714    |  
|                                                                |  |                  |          |   |      | 
|Gain on sale of mortgage loans                                  |  | $                | 324,687  |   |      |  | 233,556  |  
|                                                                |  |                  |          |   |      | 






|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Non-refundable loan fees represent points and fees collected
    from borrowers.               
|   
|(2) | Premiums paid represent fees paid to brokers for wholesale loan
    originations and purchases.

58



---



##### 



Servicing income




Other Income




| |                         
| | ------------------------
| | Other Operating Expenses



|                         |                            |                  |         |         |      |  |         |         | 
|------------------------ | -------------------------- | ---------------- | ------- | ------- | ---- |  | ------- | ------- | 
|                         |                            | Six Months Ended |        
|                         |                            | June 30,         |        
|                         |                            |                  |        
|                         |                            | 2006             |         |         | 2005 | 
|                         |                            |                  |         |         |      | 
|Operating expenses:      |                            |                  |         |         |      |  |         |        
|                         | Personnel                  |                  | $       | 243,643 |      |  |         | 231,683 | 
|                         | General and administrative |                  |         | 112,588 |      |  |         | 84,099  | 
|                         | Advertising and promotion  |                  |         | 26,554  |      |  |         | 40,543  | 
|                         | Professional services      |                  |         | 20,293  |      |  |         | 17,483  | 
|                         |                            |                  |         |         |      | 
|Total operating expenses |                            | $                | 403,078 |         |      |  | 373,808 |        
|                         |                            |                  |         |         |      | 





59



---



##### 





|                   |                          |            |       |       |      |  |       |       | 
|------------------ | ------------------------ | ---------- | ----- | ----- | ---- |  | ----- | ----- | 
|                   |                          | Six Months |      
|                   |                          | Ended      |      
|                   |                          | June 30,   |      
|                   |                          |            |      
|                   |                          | 2006       |       |       | 2005 | 
|                   |                          |            |       |       |      | 
|Average workforce: |                          |            |       |       |      |  |       |      
|                   | Non-prime lending        |            |       | 4,037 |      |  |       | 4,103 | 
|                   | Prime/Alt A lending      |            |       | 1,577 |      |  |       |      | 
|                   | Servicing division       |            |       | 486   |      |  |       | 323   | 
|                   | Corporate administration |            |       | 1,015 |      |  |       | 924   | 
|                   |                          |            |       |       |      | 
|Average workforce  |                          |            | 7,115 |       |      |  | 5,350 |      
|                   |                          |            |       |       |      | 



| |             
| | ------------
| | Income Taxes



60



---



##### 



Three Months Ended June 30, 2006 Compared to Three
Months Ended June 30, 2005




| |                           
| | --------------------------
| | Originations and Purchases



|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |           |         |           |            |           |            |            |       |      |      |       | 
|------------------------------------------------------------- | --------------------------------------------- | ---------------------------------------- | -------------------------------- | --------- | ---------------------------------------- | ---------- | --------- | --------- | --------- | --------- | ---------- | --------- | ---------- | ---------- | ---- | ---- | ------ | ----- | ---------- | --------- | --------- | ---------- | --------- | --------- | ------- | --------- | ---------- | --------- | ---------- | ---------- | ----- | ---- | ---- | ----- | 
|                                                              |                                               | For the Three Months Ended June 30, 2006 |                                  |           | For the Three Months Ended June 30, 2005 |           
|                                                              |                                               |                                          |                                  |           |                                          |           
|                                                              |                                               | Wholesale                                |                                  |           | Retail                                   |            |           | Total     |           |           | %          |           |            | Wholesale  |      |      | Retail |       |            | Total     |           |            | %         |          
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|Non-Prime                                                     |                                               | $                                        | 13,006,175                       |           |                                          |            | 1,063,105 |           |           |           | 14,069,280 |           |            |            | 86.9 |      |        |       | 12,131,216 |           |           |            | 1,312,954 |           |         |           | 13,444,170 |           |            |            | 100.0 |     
|Prime & Alt-A                                                 |                                               |                                          | 834,767                          |           |                                          |            | 1,287,618 |           |           |           | 2,122,385  |           |            |            | 13.1 |      |        |       |           |           |           |            |          |           |         |           |           |           |            |            |      |     
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|                                                              |                                               |                                          | Total originations and purchases |           |                                          | 13,840,942 |           |           |           | 2,350,723 |            |           |            | 16,191,665 |      |      |        | 100.0 |            |           |           | 12,131,216 |           |           |         | 1,312,954 |            |           |            | 13,444,170 |       |      |      | 100.0 | 
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|Fixed-rate mortgages:                                         |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |           |         |           |            |           |            |            |       |     
|                                                              | 15  30 year                                  |                                          |                                  | 2,648,514 |                                          |            |           | 1,122,110 |           |           |            | 3,770,624 |            |            |      | 23.3 |        |       |            | 2,470,731 |           |            |           | 562,267   |         |           |            | 3,032,998 |            |            |       | 22.6 |     
|                                                              | Interest-Only                                 |                                          |                                  | 219,142   |                                          |            |           | 168,361   |           |           |            | 387,503   |            |            |      | 2.4  |        |       |            |          |           |            |           |          |         |           |            |          |            |            |       |     |     
|                                                              | 40-Year                                       |                                          |                                  | 682,062   |                                          |            |           | 248,203   |           |           |            | 930,265   |            |            |      | 5.7  |        |       |            |          |           |            |           |          |         |           |            |          |            |            |       |     |     
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|                                                              |                                               | Sub-total Fixed                          |                                  |           | 3,549,718                                |            |           |           | 1,538,674 |           |            |           | 5,088,392  |            |      |      | 31.4   |       |            |           | 2,470,731 |            |           |           | 562,267 |           |            |           | 3,032,998  |            |       |      | 22.6 |      
|Adjustable-rate mortgages:                                    |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |           |         |           |            |           |            |            |       |     
|                                                              | Hybrid  30 year(1)                           |                                          |                                  | 2,872,177 |                                          |            |           | 250,679   |           |           |            | 3,122,856 |            |            |      | 19.3 |        |       |            | 4,821,767 |           |            |           | 510,107   |         |           |            | 5,331,874 |            |            |       | 39.6 |     
|                                                              | Interest-Only                                 |                                          |                                  | 2,366,085 |                                          |            |           | 175,740   |           |           |            | 2,541,825 |            |            |      | 15.7 |        |       |            | 4,838,718 |           |            |           | 240,580   |         |           |            | 5,079,298 |            |            |       | 37.8 |     
|                                                              | Hybrid  40 year(1)                           |                                          |                                  | 5,048,706 |                                          |            |           | 371,013   |           |           |            | 5,419,719 |            |            |      | 33.5 |        |       |            |          |           |            |           |          |         |           |            |          |            |            |       |     |     
|                                                              | HELOC                                         |                                          |                                  | 4,256     |                                          |            |           | 14,617    |           |           |            | 18,873    |            |            |      | 0.1  |        |       |            |          |           |            |           |          |         |           |            |          |            |            |       |     |     
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|                                                              |                                               | Sub-total ARM                            |                                  |           | 10,291,224                               |            |           |           | 812,049   |           |            |           | 11,103,273 |            |      |      | 68.6   |       |            |           | 9,660,485 |            |           |           | 750,687 |           |            |           | 10,411,172 |            |       |      | 77.4 |      
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|                                                              |                                               |                                          | Total originations and purchases |           |                                          | 13,840,942 |           |           |           | 2,350,723 |            |           |            | 16,191,665 |      |      |        | 100.0 |            |           |           | 12,131,216 |           |           |         | 1,312,954 |            |           |            | 13,444,170 |       |      |      | 100.0 | 
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|Purchases                                                     |                                               |                                          | 6,240,499                        |           |                                          |            | 1,112,098 |           |           |           | 7,352,597  |           |            |            | 45.4 |      |        |       | 5,520,294  |           |           |            | 82,404    |           |         |           | 5,602,698  |           |            |            | 41.7  |     
|Refinances:                                                   |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |           |         |           |            |           |            |            |       |     
|                                                              | Cash-out refinances                           |                                          |                                  | 6,253,023 |                                          |            |           | 802,293   |           |           |            | 7,055,316 |            |            |      | 43.6 |        |       |            | 5,662,168 |           |            |           | 1,033,575 |         |           |            | 6,695,743 |            |            |       | 49.8 |     
|                                                              | Rate/term refinances                          |                                          |                                  | 1,347,420 |                                          |            |           | 436,332   |           |           |            | 1,783,752 |            |            |      | 11.0 |        |       |            | 948,754   |           |            |           | 196,975   |         |           |            | 1,145,729 |            |            |       | 8.5  |     
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|                                                              |                                               |                                          | Total originations and purchases |           |                                          | 13,840,942 |           |           |           | 2,350,723 |            |           |            | 16,191,665 |      |      |        | 100.0 |            |           |           | 12,131,216 |           |           |         | 1,312,954 |            |           |            | 13,444,170 |       |      |      | 100.0 | 
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|Full documentation                                            |                                               |                                          | 7,492,167                        |           |                                          |            | 1,722,482 |           |           |           | 9,214,649  |           |            |            | 56.9 |      |        |       | 6,174,424  |           |           |            | 976,298   |           |         |           | 7,150,722  |           |            |            | 53.2  |     
|Limited documentation                                         |                                               |                                          | 296,598                          |           |                                          |            | 30,004    |           |           |           | 326,602    |           |            |            | 2.0  |      |        |       | 327,978    |           |           |            | 25,683    |           |         |           | 353,661    |           |            |            | 2.6   |     
|Stated documentation                                          |                                               |                                          | 6,052,177                        |           |                                          |            | 598,237   |           |           |           | 6,650,414  |           |            |            | 41.1 |      |        |       | 5,628,814  |           |           |            | 310,973   |           |         |           | 5,939,787  |           |            |            | 44.2  |     
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|                                                              |                                               |                                          | Total originations and purchases |           | $                                        | 13,840,942 |           |           |           | 2,350,723 |            |           |            | 16,191,665 |      |      |        | 100.0 |            |           |           | 12,131,216 |           |           |         | 1,312,954 |            |           |            | 13,444,170 |       |      |      | 100.0 | 
|                                                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |          
|Average principal balance of loans originated and purchased   |                                               | $                                        | 188                              |           |                                          |            | 159       |           |           |           | 183        |           |            |            |      |      |        |       | 184        |           |           |            | 152       |           |         |           | 180        |           |            |            |       |     
|Weighted average FICO score of loans originated and purchased |                                               |                                          | 629                              |           |                                          |            | 664       |           |           |           | 634        |           |            |            |      |      |        |       | 634        |           |           |            | 615       |           |         |           | 632        |           |            |            |       |     
|Weighted average loan-to-value ratio(2)                       |                                               |                                          | 81.3                             | %         |                                          |            | 79.7      | %         |           |           | 81.1       | %         |            |            |      |      |        |       | 81.8       | %         |           |            | 78.9      | %         |         |           | 81.5       | %         |            |            |       |     
|Weighted average interest rates:                              |                                               |                                          |                                  |           |                                          |            |           |           |           |           |            |           |            |            |      |      |        |       |            |           |           |            |           |           |         |           |            |           |            |            |       |     
|                                                              | Fixed-rate mortgages                          |                                          |                                  | 8.6       | %                                        |            |           | 7.2       | %         |           |            | 8.2       | %          |            |      |      |        |       |            | 8.0       | %         |            |           | 6.9       | %       |           |            | 7.8       | %          |            |       |      |     
|                                                              | Adjustable-rate mortgages  initial rate      |                                          |                                  | 8.3       | %                                        |            |           | 7.7       | %         |           |            | 8.3       | %          |            |      |      |        |       |            | 7.1       | %         |            |           | 7.2       | %       |           |            | 7.1       | %          |            |       |      |     
|                                                              | Adjustable-rate mortgages  margin over index |                                          |                                  | 6.1       | %                                        |            |           | 5.2       | %         |           |            | 6.1       | %          |            |      |      |        |       |            | 5.7       | %         |            |           | 5.8       | %       |           |            | 5.7       | %          |            |       |      |     
|                                                              |                                               |                                          | Total originations and purchases |           |                                          | 8.4        | %         |           |           | 7.3       | %          |           |            | 8.2        | %    |      |        |       |            |           |           | 7.3        | %         |           |         | 7.1       | %          |           |            | 7.2        | %     |      |      |       | 






|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | Majority of hybrid adjustable-rate mortgages have a fixed rate
    for 2 or 3 years.                          
|   
|(2) | Weighted average LTV is the LTV of the first lien mortgages and
    combined LTV of the second lien mortgages.

61



---



##### 









| |                              
| | -----------------------------
| | Secondary Market Transactions





| |                
| | ---------------
| | Interest Income





| |                 
| | ----------------
| | Interest Expense



62



---



##### 









|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
| | the average balance of our mortgage loans held for investment,
    held for sale, cash, and the liabilities financing our assets;
| 
| | the average interest rates earned or paid;                                                                                       
| 
| | the actual amount of interest income and expense; and                                                                            
| 
| | the overall interest margin earned on our balance sheet.                                                                         



|                         |                                       |                             |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            |  |  |       |      |   |   |         |         | 
|------------------------ | ------------------------------------- | --------------------------- | - | ---------- | ---------- |  |  | ------ | ---- | ------- | ------- | ------- | ------- | ----- | - | ---------- | ---------- |  |  | ----- | ---- | - | - | ------- | ------- | 
|                         |                                       | Three Months Ended June 30, |  
|                         |                                       |                             |  
|                         |                                       | 2006                        |   |            | 2005       | 
|                         |                                       |                             |   |            |            | 
|                         |                                       | Average                     |   |            | Avg.       |  |  |        |      | Average |         |         | Avg.    |       |   |           
|                         |                                       | Balance                     |   |            | Yield      |  |  | Income |      |         | Balance |         |         | Yield |   |            | Income     | 
|                         |                                       |                             |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            | 
|Interest-earning assets: |                                       |                             |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            |  |  |       |      |   |   |        
|                         | Mortgage loans held for investment(1) |                             | $ | 15,958,960 |            |  |  | 7.57   | %    |         | $       | 301,856 |         |       | $ | 17,596,155 |            |  |  | 7.18  | %    |   | $ | 315,887 |        
|                         | Mortgage loans held for sale          |                             |   | 9,332,293  |            |  |  | 8.20   |      |         |         | 191,297 |         |       |   | 5,574,100  |            |  |  | 7.09  |      |   |   | 98,830  |        
|                         | Residual interests in securitizations |                             |   | 211,900    |            |  |  | 12.14  |      |         |         | 6,430   |         |       |   | 143,692    |            |  |  | 10.86 |      |   |   | 3,903   |        
|                         | Cash and investments                  |                             |   | 791,544    |            |  |  | 0.77   |      |         |         | 1,531   |         |       |   | 946,668    |            |  |  | 0.95  |      |   |   | 2,241   |        
|                         |                                       |                             |   |            |            |  |  |        |      |         |         |         |         |       |   |            |            | 
|                         |                                       | Total                       |   | $          | 26,294,697 |  |  |        | 7.62 | %       |         | $       | 501,114 |       |   | $          | 24,260,615 |  |  |       | 6.94 | % |   | $       | 420,861 | 

|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            |  |      |      |      |   |         |         |         | 
|----------------------------- | -------------------------------------------------- | ------- | - | ---------- | ---------- |  | ---- | ------- | ---- | ------- | ------- | ------- | ------- | ---- | - | ---------- | ---------- |  | ---- | ---- | ---- | - | ------- | ------- | ------- | 
|                              |                                                    | Average |   |            | Avg.       |  |      |         |      | Average |         |         | Avg.    |      |   |           
|                              |                                                    | Balance |   |            | Cost       |  |      | Expense |      |         | Balance |         |         | Cost |   |            | Expense    | 
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 
|Interest-bearing liabilities: |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            |  |      |      |      |   |         |        
|                              | Financing on mortgage loans held for investment(2) |         | $ | 15,328,137 |            |  |      | 5.66    | %    |         | $       | 216,944 |         |      | $ | 17,103,624 |            |  |      | 3.76 | %    |   | $       | 160,646 |        
|                              | Credit facilities                                  |         |   | 9,009,795  |            |  |      | 5.89    |      |         |         | 132,696 |         |      |   | 5,373,567  |            |  |      | 4.08 |      |   |         | 54,851  |        
|                              | Convertible senior notes                           |         |   |           |            |  |      |        |      |         |         |        |         |      |   | 5,496      |            |  |      | 4.37 |      |   |         | 60      |        
|                              | Notes payable                                      |         |   | 30,169     |            |  |      | 10.08   |      |         |         | 760     |         |      |   | 32,196     |            |  |      | 5.99 |      |   |         | 482     |        
|                              | Other interest(3)                                  |         |   |           |            |  |      |        |      |         |         | 10,711  |         |      |   |           |            |  |      |     |      |   |         | 2,516   |        
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 
|                              |                                                    | Total   |   | $          | 24,368,101 |  |      |         | 5.93 |         |         |         | 361,111 |      |   | $          | 22,514,883 |  |      |      | 3.88 |   |         |         | 218,555 | 
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 
|Net interest spread/income    |                                                    |         |   |            |            |  | 1.69 | %       |      | $       | 140,003 |         |         |      |   |            |            |  | 3.06 | %    |      | $ | 202,306 |        
|                              |                                                    |         |   |            |            |  |      |         |      |         |         |         |         |      |   |            |            | 

63



---



##### 








|    |                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes impact of prepayment penalty income of
    $21.3 million and $21.4 million for the three months
    ended June 30, 2006 and 2005, respectively.                    
|   
|(2) | Includes impact of derivative instruments accounted for as
    hedges of $9.7 million and $16.2 million for the three
    months ended June 30, 2006 and 2005, respectively.
|   
|(3) | Other interest is comprised of interest related costs associated
    with our servicing operation.                                                                          



| |                                                           
| | ----------------------------------------------------------
| | Provision for losses on mortgage loans held for investment





|                             |                  |                        |         |         |         |  |         |        |         | 
|---------------------------- | ---------------- | ---------------------- | ------- | ------- | ------- |  | ------- | ------ | ------- | 
|                             |                  | Three Months Ended     |        
|                             |                  | June 30,               |        
|                             |                  |                        |        
|                             |                  | 2006                   |         |         | 2005    | 
|                             |                  |                        |         |         |         | 
|Balance, beginning of period |                  | $                      | 209,804 |         |         |  | 117,495 |       
|                             | Additions        |                        |         | 32,325  |         |  |         | 36,875 |        
|                             | Charge-offs, net |                        |         | (32,240 | )       |  |         | (8,805 | )      
|                             |                  |                        |         |         |         | 
|                             |                  | Balance, end of period |         | $       | 209,889 |  |         |        | 145,565 | 
|                             |                  |                        |         |         |         | 



| |                       
| | ----------------------
| | Other Operating Income

Gain on sale


64



---



##### 





|                                                                |  |                    |         |   |      |  |         |  
|--------------------------------------------------------------- |  | ------------------ | ------- | - | ---- |  | ------- | -
|                                                                |  | Three Months Ended |        
|                                                                |  | June 30,           |        
|                                                                |  |                    |        
|                                                                |  | 2006               |         |   | 2005 | 
|                                                                |  |                    |         |   |      | 
|Cash gain from whole loan sale transactions                     |  | $                  | 211,189 |   |      |  | 124,473 |  
|Gain from securitization of loans                               |  |                    |        |   |      |  | 19,473  |  
|Non-cash gain from servicing assets related to securitizations  |  |                    |        |   |      |  | 8,705   |  
|Non-cash gain from servicing rights related to whole loan sales |  |                    | 6,796   |   |      |  | 19,550  |  
|Securitization expenses                                         |  |                    |        |   |      |  | (1,947  | )
|Accrued interest                                                |  |                    |        |   |      |  | (4,992  | )
|Fair value adjustment of residual securities                    |  |                    | (6,684  | ) |      |  | (3,089  | )
|Provision for repurchase losses                                 |  |                    | (2,500  | ) |      |  | (5,525  | )
|Non-refundable fees(1)                                          |  |                    | 90,978  |   |      |  | 72,312  |  
|Premiums paid(2)                                                |  |                    | (52,852 | ) |      |  | (53,614 | )
|Origination costs                                               |  |                    | (70,100 | ) |      |  | (60,900 | )
|Derivative gains (losses)                                       |  |                    | 18,333  |   |      |  | (3,842  | )
|                                                                |  |                    |         |   |      | 
|Gain on sale of mortgage loans                                  |  | $                  | 195,160 |   |      |  | 110,604 |  
|                                                                |  |                    |         |   |      | 






|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Non-refundable loan fees represent points and fees collected
    from borrowers.               
|   
|(2) | Premiums paid represent fees paid to brokers for wholesale loan
    originations and purchases.

Servicing income




Other Income


65



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##### 



Other Operating Expenses




|                         |                            |                    |         |         |      |  |         |         | 
|------------------------ | -------------------------- | ------------------ | ------- | ------- | ---- |  | ------- | ------- | 
|                         |                            | Three Months Ended |        
|                         |                            | June 30,           |        
|                         |                            |                    |        
|                         |                            | 2006               |         |         | 2005 | 
|                         |                            |                    |         |         |      | 
|Operating expenses:      |                            |                    |         |         |      |  |         |        
|                         | Personnel                  |                    | $       | 126,922 |      |  |         | 119,961 | 
|                         | General and administrative |                    |         | 55,113  |      |  |         | 42,324  | 
|                         | Advertising and promotion  |                    |         | 13,851  |      |  |         | 20,711  | 
|                         | Professional services      |                    |         | 11,103  |      |  |         | 9,677   | 
|                         |                            |                    |         |         |      | 
|Total operating expenses |                            | $                  | 206,989 |         |      |  | 192,673 |        
|                         |                            |                    |         |         |      | 







|                   |                          |                |       |       |      |  |       |       | 
|------------------ | ------------------------ | -------------- | ----- | ----- | ---- |  | ----- | ----- | 
|                   |                          | Three Months   |      
|                   |                          | Ended June 30, |      
|                   |                          |                |      
|                   |                          | 2006           |       |       | 2005 | 
|                   |                          |                |       |       |      | 
|Average workforce: |                          |                |       |       |      |  |       |      
|                   | Non-prime lending        |                |       | 4,013 |      |  |       | 4,063 | 
|                   | Prime/Alt-A lending      |                |       | 1,512 |      |  |       |      | 
|                   | Servicing division       |                |       | 507   |      |  |       | 332   | 
|                   | Corporate administration |                |       | 1,091 |      |  |       | 921   | 
|                   |                          |                |       |       |      | 
|Average workforce  |                          |                | 7,123 |       |      |  | 5,316 |      
|                   |                          |                |       |       |      | 

Income Taxes




66



---



##### 



Liquidity and Capital Resources


Credit Facilities






debt-to debt-to




Asset-backed commercial paper facility.


Bank of America line of credit.


Bank of America line of credit.


Barclays line of credit.


67



---



##### 



Bear Stearns line of credit.


Citigroup warehouse line of credit. SB-1,


Citigroup aggregation line of credit.


Citigroup line of credit for delinquent and problem
loans.


Citigroup warehouse line of credit.


Credit Suisse First Boston line of credit.


Deutsche Bank line of credit.


Deutsche Bank line of credit for delinquent and problem
loans.


IXIS line of credit.


Morgan Stanley line of credit.


68



---



##### 





UBS Real Estate Securities line of credit.


Goldman Sachs Mortgage line of credit.


State Street Bank line of credit.


Guaranty Bank line of credit.


Convertible Senior Notes




Preferred Stock




69



---



##### 



Securitizations Structured as
Financings






Other Borrowings






Off-Balance Sheet
Arrangements






70



---



##### 



Contractual Obligations






|                                                |  |       |            |                       |        |  |           |       |  |        |           |  |           |         |           |  |  |  |           | 
|----------------------------------------------- |  | ----- | ---------- | --------------------- | ------ |  | --------- | ----- |  | ------ | --------- |  | --------- | ------- | --------- |  |  |  | --------- | 
|                                                |  |       |            | Payment Due By Period |       
|                                                |  |       |            |                       |       
|                                                |  |       |            | Less Than             |        |  | 1 to 3    |       |  | 3 to 5 |           |  | More Than |        
|                                                |  | Total |            |                       | 1 Year |  |           | Years |  |        | Years     |  |           | 5 Years |          
|                                                |  |       |            |                       |        |  |           |       |  |        |           |  |           |         |          
|Notes payable                                   |  | $     | 27,984     |                       |        |  | 17,829    |       |  |        | 10,155    |  |           |         |          |  |  |  |          | 
|Operating leases                                |  |       | 187,782    |                       |        |  | 35,944    |       |  |        | 67,065    |  |           |         | 38,787    |  |  |  | 45,986    | 
|Credit facilities                               |  |       | 8,786,300  |                       |        |  | 8,786,300 |       |  |        |          |  |           |         |          |  |  |  |          | 
|Financing on mortgage loans held for investment |  |       | 15,794,335 |                       |        |  | 5,549,244 |       |  |        | 5,538,734 |  |           |         | 2,210,520 |  |  |  | 2,495,837 | 

Stock Repurchases








Cash Flow








71



---



##### 







Liquidity Strategy


10-K








72



---



##### 



Quarterly Dividend








|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk

General






As of June 30, 2006:


|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |   |  |  |          |  
|---------------------------------------------------------------------------------------- |  | --- | ------- | - | ---- |  | -------- | --- |  |  | ------- | - |  |  | -------- | -
|Hypothetical Change in Interest Rate (basis points)                                      |  | +50 |         |   | +100 |  |          | -50 |  |  | -100    |  
|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |  
|Change in fair value of residual interests in securitizations                            |  | $   | (10,281 | ) |      |  | (21,112  | )   |  |  | 11,154  |   |  |  | 21,987   |  
|Change in fair value of derivatives related to residual
    interests in securitizations |  |     | 7,512   |   |      |  | 15,025   |     |  |  | (7,513  | ) |  |  | (15,025  | )
|Change in fair value of mortgage loans held for investment                               |  |     | (61,007 | ) |      |  | (113,012 | )   |  |  | 55,714  |   |  |  | 116,698  |  
|Change in fair value of derivatives related to mortgage loans
    held for investment    |  |     | 62,175  |   |      |  | 124,350  |     |  |  | (62,175 | ) |  |  | (124,350 | )
|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |  
|Net change                                                                               |  | $   | (1,601  | ) |      |  | 5,251    |     |  |  | (2,820  | ) |  |  | (690     | )
|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |  

73



---



##### 



As of December 31, 2005:


|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |   |  |  |          |  
|---------------------------------------------------------------------------------------- |  | --- | ------- | - | ---- |  | -------- | --- |  |  | ------- | - |  |  | -------- | -
|Hypothetical Change in Interest Rate (basis points)                                      |  | +50 |         |   | +100 |  |          | -50 |  |  | -100    |  
|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |  
|Change in fair value of residual interests in securitizations                            |  | $   | (15,440 | ) |      |  | (30,801  | )   |  |  | 14,457  |   |  |  | 28,716   |  
|Change in fair value of derivatives related to residual
    interests in securitizations |  |     | 12,913  |   |      |  | 25,825   |     |  |  | (12,913 | ) |  |  | (25,825  | )
|Change in fair value of mortgage loans held for investment                               |  |     | (86,166 | ) |      |  | (169,337 | )   |  |  | 89,367  |   |  |  | 176,368  |  
|Change in fair value of derivatives related to mortgage loans
    held for investment    |  |     | 82,038  |   |      |  | 164,075  |     |  |  | (82,038 | ) |  |  | (164,075 | )
|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |  
|Net change                                                                               |  | $   | (6,655  | ) |      |  | (10,238  | )   |  |  | 8,873   |   |  |  | 15,184   |  
|                                                                                         |  |     |         |   |      |  |          |     |  |  |         |  



|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

13a-15(e)


74



---



##### 



PART II  OTHER INFORMATION




|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

10-K, 10-Q


England.


DOL Investigation.


Rubio.


75



---



##### 



Bonner.


Phillips. Murray v. GMAC Mortgage Corporation


Jeppesen.


Forrest.


76



---



##### 









|         |             
|-------- | ------------
|Item 1A. | Risk Factors

10-K 10-K




|        |                                                                
|------- | ---------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds



10b-18(a)(3)


|               |       |              |         |         |                    |                  |                     |                |                   |                        |                     |         |  |  |           |           | 
|-------------- | ----- | ------------ | ------- | ------- | ------------------ | ---------------- | ------------------- | -------------- | ----------------- | ---------------------- | ------------------- | ------- |  |  | --------- | --------- | 
|               |       |              |         |         |                    | Total Number of  |                     |                |                  
|               |       |              |         |         |                    | Shares Purchased |                     |                | Maximum Number of |                       
|               |       | Total Number |         |         |                    |                  | as Part of Publicly |                |                   | Shares That May Yet Be |                    
|               |       | of Shares    |         |         | Average Price Paid |                  |                     | Announced Plan |                   |                        | Purchased Under the |        
|Calendar Month |       | Purchased(1) |         |         | per Share          |                  |                     | or Program(1)  |                   |                        | Plan or Program(1)  |        
|               |       |              |         |         |                    |                  |                     |                |                   |                        |                     |        
|April          |       |              |        |         |                    | $                |                    |                |                   |                        |                    |         |  |  | 4,120,800 |          
|May            |       |              |        |         |                    | $                |                    |                |                   |                        |                    |         |  |  | 4,120,800 |          
|June           |       |              | 551,800 |         |                    | $                | 45.56               |                |                   |                        | 551,800             |         |  |  | 3,569,000 |          
|               |       |              |         |         |                    |                  |                     |                |                   |                        |                     |        
|               | Total |              |         | 551,800 |                    |                  | $                   | 45.56          |                   |                        |                     | 551,800 |  |  |           | 3,569,000 | 
|               |       |              |         |         |                    |                  |                     |                |                   |                        |                     |        






|    |                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On November 3, 2005, we publicly announced that our board
    of directors had approved a stock repurchase program for up to
    5 million shares of our common stock over the following
    12 months. All purchased shares listed in this table were
    purchased through this publicly announced plan.



|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders





| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Re-election of four directors for three-year terms
    ending in 2009;                                                                                                                                                                  
|
| | 2. An amendment to the New Century Financial Corporation
    2004 Performance Incentive Plan that increased the number of
    shares issuable under the plan by 1,250,000 shares and
    amended certain other share limits under the plan;
|
| | 3. An amendment to our charter that increased the number of
    authorized shares of preferred stock from 10,000,000 shares
    to 25,000,000 shares; and                                                                                  
|
| | 4. An amendment to our charter that made certain changes to
    the restrictions on transfer and ownership of capital stock
    contained in our charter.                                                                                  



77



---



##### 





Election of Directors


|                   |  |     |            |  |          |  |           | 
|------------------ |  | --- | ---------- |  | -------- |  | --------- | 
|Name               |  | For |            |  | Withheld | 
|                   |  |     |            |  |          | 
|Robert K. Cole     |  |     | 50,824,241 |  |          |  | 931,497   | 
|David Einhorn      |  |     | 50,802,133 |  |          |  | 953,605   | 
|Donald E. Lange    |  |     | 50,565,386 |  |          |  | 1,190,352 | 
|William J. Popejoy |  |     | 50,605,721 |  |          |  | 1,150,017 | 

8-K


Approval of Amendment to 2004 Performance Incentive Plan


|           |  |           |  |        
|---------- |  | --------- |  | -------
|For        |  | Against   |  | Abstain
|           |  |           |  |        
|34,765,897 |  | 1,650,627 |  | 160,469

Approval of Amendment to Charter to Increase Authorized
Number of Shares of Preferred Stock


|           |  |           |  |        
|---------- |  | --------- |  | -------
|For        |  | Against   |  | Abstain
|           |  |           |  |        
|30,556,662 |  | 5,884,163 |  | 136,168

Approval of Amendment to Charter to Make Certain Changes to
the Restrictions on Transfer and Ownership of Capital Stock


|           |  |           |  |        
|---------- |  | --------- |  | -------
|For        |  | Against   |  | Abstain
|           |  |           |  |        
|34,372,762 |  | 2,041,857 |  | 162,369



|        |         
|------- | --------
|Item 6. | Exhibits



78



---



##### 



SIGNATURES






| |                                  
| | ---------------------------------
| | NEW CENTURY FINANCIAL CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ Robert K. Cole

| |                      
| | ---------------------
| |                      
| | Robert K. Cole       
| | Chairman of the Board





| |     |                   
| | --- | ------------------
| | By: | /s/ Patti M. Dodge

| |                                                     
| | ----------------------------------------------------
| |                                                     
| | Patti M. Dodge                                      
| | Executive Vice President and Chief Financial Officer





| |     |                    
| | --- | -------------------
| | By: | /s/ Brad A. Morrice

| |                                      
| | -------------------------------------
| |                                      
| | Brad A. Morrice                      
| | President and Chief Executive Officer



79



---



##### 



EXHIBIT INDEX


|        |    |                         |  |                                                                                                                                                                                                                                                                                     
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 2  | .1                      |  | Agreement and Plan of Merger, dated as of April 21, 2004,
    by and among New Century TRS Holdings, Inc. (f/k/a New Century
    Financial Corporation), New Century Financial Corporation (f/k/a
    New Century REIT, Inc.) and NC Merger Sub, Inc.(1)                            
|        | 3  | .1                      |  | Articles of Amendment and Restatement of New Century Financial
    Corporation.(2)                                                                                                                                                                                                  
|        | 3  | .2                      |  | Certificate of Correction to the Articles of Amendment and
    Restatement of New Century Financial Corporation, dated as of
    January 13, 2006 and filed with the State Department of
    Assessments and Taxation of the State of Maryland on
    January 20, 2006.(8)          
|        | 3  | .3                      |  | Articles Supplementary of New Century Financial
    Corporation.(3)                                                                                                                                                                                                                 
|        | 3  | .4                      |  | Articles Supplementary of New Century Financial Corporation
    relating to 9.125% Series A Cumulative Redeemable Preferred
    Stock, liquidation preference $25.00 per share.(4)                                                                                                  
|        | 3  | .5                      |  | Amended and Restated Bylaws of New Century Financial
    Corporation.(2)                                                                                                                                                                                                            
|        | 3  | .6                      |  | Second Amended and Restated Bylaws of New Century Financial
    Corporation.(5)                                                                                                                                                                                                     
|        | 3  | .7                      |  | Third Amended and Restated Bylaws of New Century Financial
    Corporation.(7)                                                                                                                                                                                                      
|        | 4  | .1                      |  | Specimen Certificate for New Century Financial
    Corporations Common Stock.(6)                                                                                                                                                                                                   
|        | 10 | .1                      |  | New Century Financial Corporation 2004 Performance Incentive
    Plan, as amended.(9)*                                                                                                                                                                                              
|        | 10 | .2                      |  | Form of Performance Award Agreement.(10)*                                                                                                                                                                                                                                           
|        | 10 | .3                      |  | Master Repurchase Agreement, dated as of June 23, 2006, by
    and among New Century Mortgage Corporation, New Century Credit
    Corporation, Home123 Corporation, NC Asset Holding, L.P., New
    Century Financial Corporation and UBS Real Estate Securities
    Inc.(11)       
|        | 10 | .4                      |  | Guaranty, dated as of June 23, 2006, by New Century
    Financial Corporation in favor of UBS Real Estate Securities
    Inc.(11)                                                                                                                                                   
|        | 10 | .5                      |  | Master Repurchase Agreement, dated as of August 1, 2006, by
    and among New Century Mortgage Corporation, NC Capital
    Corporation, New Century Credit Corporation, Home123
    Corporation, New Century Financial Corporation and Citigroup
    Global Realty Markets Corp.(12)
|        | 10 | .6                      |  | Guaranty, dated as of August 1, 2006, by New Century
    Financial Corporation in favor of Citigroup Global Realty
    Markets Corp.(12)                                                                                                                                            
|        | 10 | .7                      |  | Form of Performance-Accelerated Stock Option Award Agreement.*
                                                                                                                                                                                                                    
|        | 10 | .8                      |  | Form of Performance-Accelerated Restricted Stock Award
    Agreement.*                                                                                                                                                                                                             
|        | 10 | .9                      |  | Form of Dividend Equivalent Rights Award Agreement.*                                                                                                                                                                                                                               
|        | 10 | .10                     |  | Form of Director Restricted Stock Award Agreement (one year
    vesting).                                                                                                                                                                                                          
|        | 10 | .11                     |  | Form of Director Restricted Stock Award Agreement (three year
    vesting).                                                                                                                                                                                                        
|        | 10 | .12                     |  | Form of Amendment to Director Equity Award Grants.                                                                                                                                                                                                                                 
|        | 10 | .13                     |  | Form of Change in Control Severance Policy.*                                                                                                                                                                                                                                       
|        | 10 | .14                     |  | Amendment Number Twelve to the Amended and Restated Letter
    Agreement, dated as of June 15, 2006, by and among New
    Century Mortgage Corporation, NC Capital Corporation, New
    Century Credit Corporation and Citigroup Global Markets Realty
    Corp.                   
|        | 10 | .15                     |  | Amendment Number Sixteen to the Master Repurchase Agreement,
    dated as of June 15, 2006, by and between New Century
    Funding SB-1 and Citigroup Global Markets Realty Corp.                                                                                                  
|        | 10 | .16                     |  | Amendment Number Five to the Second Amended and Restated Master
    Loan and Security Agreement, dated as of June 15, 2006,
    among New Century Mortgage Corporation, NC Capital Corporation,
    New Century Financial Corporation and Citigroup Global Markets
    Realty Corp.
|        | 10 | .17                     |  | Amendment Number Six to the Second Amended and Restated Master
    Loan and Security Agreement, dated as of June 23, 2006,
    among New Century Mortgage Corporation, NC Capital Corporation,
    New Century Financial Corporation and Citigroup Global Markets
    Realty Corp. 

80



---



##### 



|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                               
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .18                     |  | Amendment No. 4 to Master Repurchase Agreement, dated as of
    July 6, 2006, by and among New Century Mortgage
    Corporation, NC Capital Corporation, New Century Credit
    Corporation, Home123 Corporation, NC Asset Holding, L.P. (as
    successor by conversion to NC Residual II Corporation),
    Morgan Stanley Bank and Morgan Stanley Mortgage Capital
    Inc.
|        | 10 | .19                     |  | Amendment Number Thirteen to the Amended and Restated Letter
    Agreement, dated as of July 7, 2006, by and among New
    Century Mortgage Corporation, NC Capital Corporation, New
    Century Credit Corporation and Citigroup Global Markets Realty
    Corp.                                                                                                            
|        | 10 | .20                     |  | Amendment Number Seventeen to the Master Repurchase Agreement,
    dated as of July 7, 2006, by and between New Century
    Funding SB-1 and Citigroup Global Markets Realty Corp.                                                                                                                                                                                           
|        | 10 | .21                     |  | Amendment Number Seven to the Second Amended and Restated Master
    Loan and Security Agreement, dated as of July 7, 2006,
    among New Century Mortgage Corporation, NC Capital Corporation,
    New Century Financial Corporation and Citigroup Global Markets
    Realty Corp.                                                                                          
|        | 10 | .22                     |  | Amendment No. 1 to Master Repurchase Agreement, dated as of
    July 17, 2006, by and among NC Capital Corporation, New
    Century Credit Corporation, Home123 Corporation, New Century
    Mortgage Corporation, DB Structured Products, Inc., Aspen
    Funding Corp., Newport Funding Corp. and Gemini Securitization
    Corp., LLC.                                    
|        | 10 | .23                     |  | Amendment Number Eighteen to the Master Repurchase Agreement,
    dated as of July 31, 2006, by and between New Century
    Funding SB-1 and Citigroup Global Markets Realty Corp.                                                                                                                                                                                           
|        | 10 | .24                     |  | Amendment Number Fourteen to the Amended and Restated Letter
    Agreement, dated as of July 31, 2006, by and among New
    Century Mortgage Corporation, NC Capital Corporation, New
    Century Credit Corporation and Citigroup Global Markets Realty
    Corp.                                                                                                           
|        | 10 | .25                     |  | Amendment Number Eight to the Second Amended and Restated Master
    Loan and Security Agreement, dated as of July 31, 2006,
    among New Century Mortgage Corporation, NC Capital Corporation,
    New Century Financial Corporation and Citigroup Global Markets
    Realty Corp.                                                                                         
|        | 31 | .1                      |  | Certification of Robert K. Cole pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                               
|        | 31 | .2                      |  | Certification of Patti M. Dodge pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                               
|        | 31 | .3                      |  | Certification of Brad A. Morrice pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                              
|        | 32 | .1                      |  | Certification of Robert K. Cole pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             
|        | 32 | .2                      |  | Certification of Patti M. Dodge pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             
|        | 32 | .3                      |  | Certification of Brad A. Morrice pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                            






| |   |                                                         
| | - | --------------------------------------------------------
| | * | Management contract or compensatory plan or arrangement.



| |   |                
| | - | ---------------
| |  | Filed herewith.



| |     |                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference from our Registration Statement on
    Form S-3, as filed
    with the Securities and Exchange Commission on April 22,
    2004.
|
| | (2) | Incorporated by reference from our Quarterly Report on
    Form 10-Q, as
    filed with the Securities and Exchange Commission on
    November 9, 2004.   
|
| | (3) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on October 1,
    2004.       
|
| | (4) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on June 21,
    2005.         
|
| | (5) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on August 8,
    2005.        

81



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##### 





| |     |                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Incorporated by reference to the joint filing of New Century
    Financial Corporations Registration Statement on
    Form S-3
    (333-119753) and New
    Century TRS Holdings, Inc.s Post-Effective Amendment
    No. 3 to the Registration Statement
    (No. 333-109727)
    on Form S-3, as
    filed with the Securities and Exchange Commission on
    October 14, 2004.
|
| | (7) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on October 31,
    2005.                                                                                                                                                                                                                              
|
| | (8) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on January 20,
    2006.                                                                                                                                                                                                                              
|
| | (9) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on May 11, 2006.                                                                                                                                                                                                                                      



|     |                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on May 24, 2006.      
|    
|(11) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on June 29,
    2006. 
|    
|(12) | Incorporated by reference from our Current Report on
    Form 8-K, as filed
    with the Securities and Exchange Commission on August 7,
    2006.

82