----

----

| x                                                      |       | QUARTERLY REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE SECURITIES  |
|--------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------|
|                                                        |                                | EXCHANGE ACT OF      1934                                                |
|                                                        |                                |                                                                     |
| For the Quarterly Period      Ended June 30, 2010 |
|                                                        |                                |                                                                     |
| o                                                      |                                | TRANSITION REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE SECURITIES |
|                                                        |                                | EXCHANGE ACT OF      1934                                                |

| Maryland                                              | 74-2830661                                |
|-------------------------------------------------------|-------------------------------------------|
| (State or Other Jurisdiction      of Incorporation or | (I.R.S. Employer      Identification No.) |
| Organization)                                         |                                           |

| 2114 Central Street, Suite      600, Kansas City, MO | 64108     |
|------------------------------------------------------|-----------|
| (Address of Principal      Executive Office)         | (ZipCode) |

| Large accelerated      filero | Accelerated      filero | Non-accelerated      filero | Smaller reporting      companyx |
|-------------------------------|-------------------------|-----------------------------|---------------------------------|

----

----

----

----

----

|   |
|--------|

| Part I   |       | Financial      Information                                                                       |        |
|----------|--------------------------------|--------------------------------------------------------------------------------------------------|--------|
|     |                           |                                                                                             |   |
| Item 1.  |                           | Financial Statements      (Unaudited)                                                            | 1      |
|          |                           | Condensed Consolidated Balance      Sheets                                                       | 1      |
|          |                           | Condensed Consolidated      Statements of Operations                                             | 2      |
|          |                           | Condensed Consolidated      Statement of Shareholders’ Deficit                             | 3      |
|          |                           | Condensed Consolidated      Statements of Cash Flows                                             | 4      |
|          |                           | Notes to Condensed      Consolidated Financial Statements                                        | 6      |
|     |                           |                                                                                             |   |
| Item 2.  |                           | Management’s Discussion and      Analysis of Financial Condition and Results of Operations | 28     |
|     |                           |                                                                                             |   |
| Item 3.  |                           | Quantitative and Qualitative      Disclosures About Market Risk                                  | 37     |
|     |                           |                                                                                             |   |
| Item 4.  |                           | Controls and    Procedures                                                                       | 37     |
|     |                           |                                                                                             |   |
| Part II  |                           | Other    Information                                                                             | 38     |
|     |                           |                                                                                             |   |
| Item 1.  |                           | Legal Proceedings                                                                                | 38     |
|     |                           |                                                                                             |   |
| Item 1A. |                           | Risk Factors                                                                                     | 38     |
|     |                           |                                                                                             |   |
| Item 2.  |                           | Unregistered Sales of Equity      Securities and Use of Proceeds                                 | 39     |
|     |                           |                                                                                             |   |
| Item 3.  |                           | Defaults Upon Senior      Securities                                                             | 39     |
|     |                           |                                                                                             |   |
| Item 4.  |                           | Removed and Reserved                                                                             | 39     |
|     |                           |                                                                                             |   |
| Item 5.  |                           | Other Information                                                                                | 39     |
|     |                           |                                                                                             |   |
| Item 6.  |                      | Exhibits                                                                                         | 39     |
|     |                           |                                                                                             |   |
|          |                           | Signatures                                                                                       | 40     |

----

|                                                                                                                                                                                                                           |                                | June 30,                                    |                                | December  31, |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|---------------------------------------------|--------------------------------|---------------|
|                                                                                                                                                                                                                           |       | 2010                                        |       | 2009          |
| Assets                                                                                                                                                                                                                    |                                |                                             |                                |               |  |  |  |  |
|        Current Assets                                                                                                                                                                       |                                |                                             |                                |               |  |  |  |  |
|        Unrestricted      cash and cash equivalents                                                                                                                                     |                                | $        | 14,468                         |               |  | $        | 7,104 |  |
|        Mortgage      securities (includes CDO securities of $1,079 and $959,      respectively)                                                                                        |                                |                                             | 6,932                          |               |  |  | 7,990 |  |
|        Notes      receivable, net                                                                                                                                                      |                                |                                             | 4,318                          |               |  |  | 4,920 |  |
|        Other current      assets (includes CDO other assets of $350 and $428,respectively)                                                                                             |                                |                                             | 3,401                          |               |  |  | 7,501 |  |
|        Total current assets                                                                                                                                                                 |                                |                                             | 29,119                         |               |  |  | 27,515 |  |
|        Securitization Trust      Assets                                                                                                                                                     |                                |                                             |                                |               |  |  |  |  |
|        Mortgage loans      – held-in-portfolio, net of allowance of $0 and $712,614,      respectively                                                                           |                                |                                             | -                              |               |  |  | 1,289,474 |  |
|        Accrued      interest receivable                                                                                                                                                |                                |                                             | -                              |               |  |  | 74,025 |  |
|        Real estate      owned                                                                                                                                                          |                                |                                             | -                              |               |  |  | 64,179 |  |
|        Total securitization trust      assets                                                                                                                                               |                                |                                             | -                              |               |  |  | 1,427,678 |  |
|        Non-Current Assets                                                                                                                                                                   |                                |                                             |                                |               |  |  |  |  |
|        Fixed assets,      net of depreciation                                                                                                                                          |                                |                                             | 1,436                          |               |  |  | 1,803 |  |
|        Goodwill                                                                                                                                                                        |                                |                                             | 975                            |               |  |  | - |  |
|        Other      assets                                                                                                                                                               |                                |                                             | 2,352                          |               |  |  | 2,495 |  |
|        Total non-current    assets                                                                                                                                                          |                                |                                             | 4,763                          |               |  |  | 4,298 |  |
|                                  Total assets                                      |                                | $                                           | 33,882                         |               |  | $ | 1,459,491 |  |
|                                                                                                                                                                                                                      |
| Liabilities and Shareholders’      Deficit                                                                                                                                                                          |                           |                                        |                           |          |   |   |   |   |
|        Liabilities:                                                                                                                                                                         |                                |                                             |                                |               |  |  |  |  |
|        Current      Liabilities                                                                                                                                                        |                                |                                             |                                |               |  |  |  |  |
|           Accounts      payable                                                                                                                                         |                           | $                                           | 4,563                          |          |   | $ | 1,949 |   |
|           Accrued      expenses                                                                                                                                         |                                |                                             | 6,015                          |               |  |  | 6,801 |  |
|           Dividends      payable                                                                                                                                        |                                |                                             | 42,454                         |               |  |  | 34,402 |  |
|           Other current      liabilities (includes CDO debt and other liabilities of $1,437 and $1,396,      respectively)                                              |                                |                                             | 4,135                          |               |  |  | 2,962 |  |
|                    Total current liabilities                                                                                                             |                                |                                             | 57,167                         |               |  |  | 46,114 |  |
|                    Securitization Trust Liabilities                                                                                                      |                                |                                             |                                |               |  |  |  |  |
|           Due to      servicer                                                                                                                                          |                                |                                             | -                              |               |  |  | 136,855 |  |
|           Other      securitization trust liabilities                                                                                                                   |                                |                                             | -                              |               |  |  | 3,729 |  |
|           Asset-backed      bonds secured by mortgage loans                                                                                                             |                                |                                             | -                              |               |  |  | 2,270,602 |  |
|                    Total securitization trust liabilities                                                                                                |                                |                                             | -                              |               |  |  | 2,411,186 |  |
|                    Non-Current Liabilities                                                                                                               |                                |                                             |                                |               |  |  |  |  |
|           Junior      subordinated debentures                                                                                                                           |                                |                                             | 77,983                         |               |  |  | 77,815 |  |
|           Other      liabilities                                                                                                                                        |                                |                                             | 920                            |               |  |  | 928 |  |
|                    Total non-current liabilities                                                                                                         |                                |                                             | 78,903                         |               |  |  | 78,743 |  |
|                                  Total liabilities                                 |                                |                                             | 136,070                        |               |  |  | 2,536,043 |  |
|        Commitments and contingencies      (Note 7)                                                                                                                                          |                                |                                             |                                |               |  |  |  |  |
|        Shareholders’    deficit:                                                                                                                                                      |                                |                                             |                                |               |  |  |  |  |
|                    Capital stock, $0.01 par value, 50,000,000 shares authorized:                                                                         |                                |                                             |                                |               |  |  |  |  |
|                    Redeemable preferred stock, $25 liquidating preference per share;      2,990,000 shares,                                              |                                |                                             |                                |               |  |  |  |  |
|           issued and      outstanding                                                                                                                                   |                                |                                             | 30                             |               |  |  | 30 |  |
|                    Convertible participating preferred stock, $25 liquidating preference per      share; 2,100,000                                       |                                |                                             |                                |               |  |  |  |  |
|           shares, issued      and outstanding                                                                                                                           |                                |                                             | 21                             |               |  |  | 21 |  |
|                    Common stock, 9,368,053, issued and outstanding                                                                                       |                                |                                             | 94                             |               |  |  | 94 |  |
|                    Additional paid-in capital                                                                                                            |                                |                                             | 787,200                        |               |  |  | 786,989 |  |
|                    Accumulated deficit                                                                                                                   |                                |                                             | (893,768                       | )             |  |  | (1,868,398 | ) |
|                    Accumulated other comprehensive income                                                                                                |                           |                                             | 5,386                          |               |  |  | 5,111 |  |
|                    Other                                                                                                                                 |                                |                                             | (35                            | )             |  |  | (70 | ) |
|           Total NFI      shareholders’ deficit                                                                                                                    |                                |                                             | (101,072                       | )             |  |  | (1,076,223 | ) |
|                    Noncontrolling interests                                                                                                              |                                |                                             | (1,116                         | )             |  |  | (329 | ) |
|           Total      shareholders’ deficit                                                                                                                        |                                |                                        | (102,188                       | )             |  |   | (1,076,552 | ) |
|                                  Total liabilities and shareholders’ deficit |                                | $                                           | 33,882                         |          |  | $ | 1,459,491 |  |
|                                                                                                                                                                                                                      |                                |                                             |                                |               |  |  |  |  |

----

|                                                                                                   |                                | For the Six      Months                     |                                | For the Three      Months |
|---------------------------------------------------------------------------------------------------|--------------------------------|---------------------------------------------|--------------------------------|---------------------------|
|                                                                                                   |                                | Ended June30,                               |                                | Ended June  30,           |
|                                                                                                   |       | 2010                                        |       | 2009                      |       | 2010 |       | 2009 |
| Income and Revenues:                                                                              |                                |                                             |                                |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|        Service fee income                                           |                                | $        | 27,453                         |                           |  | $        | 12,073 |  |  | $        | 17,806 |  |  | $        | 10,388 |  |
|        Interest income – mortgage      loans                  |                                |                                             | 10,848                         |                           |  |  | 59,140 |  |  |  | - |  |  |  | 29,867 |  |
|        Interest income – mortgage      securities             |                                |                                             | 4,498                          |                           |  |  | 15,438 |  |  |  | 2,390 |  |  |  | 4,031 |  |
| Total                                                                                             |                                |                                             | 42,799                         |                           |  |  | 86,651 |  |  |  | 20,196 |  |  |  | 44,286 |  |
|                                                                                              |
| Costs and Expenses:                                                                               |                                |                                             |                                |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|        Cost of services                                             |                                |                                             | 24,679                         |                           |  |  | 12,978 |  |  |  | 15,610 |  |  |  | 10,510 |  |
|        Interest expense –      asset-backed bonds             |                                |                                             | 1,416                          |                           |  |  | 11,202 |  |  |  | - |  |  |  | 5,999 |  |
|        Provision for credit      losses                             |                                |                                             | 17,433                         |                           |  |  | 168,988 |  |  |  | - |  |  |  | 67,514 |  |
|        Servicing fees                                               |                                |                                             | 731                            |                           |  |  | 5,861 |  |  |  | - |  |  |  | 2,870 |  |
|        Premiums for mortgage loan      insurance                    |                                |                                             | 308                            |                           |  |  | 5,852 |  |  |  | - |  |  |  | 2,511 |  |
|        Selling, general and      administrative expense             |                                |                                             | 9,495                          |                           |  |  | 10,783 |  |  |  | 3,951 |  |  |  | 5,328 |  |
|        Gain on derecognition of      securitization trusts          |                                |                                             | (993,131                       | )                         |  |  | - |  |  |  | - |  |  |  | - |  |
|        Other (income)    expense                                    |                                |                                             | (303                           | )                         |  |  | 11,810 |  |  |  | 270 |  |  |  | (263 | ) |
| Total                                                                                             |                                |                                             | (939,372                       | )                         |  |  | 227,474 |  |  |  | 19,831 |  |  |  | 94,469 |  |
|                                                                                              |
|        Other income                                                 |                                |                                             | 1,011                          |                           |  |  | 1,410 |  |  |  | 217 |  |  |  | 1,224 |  |
|        Interest (expense) income on      trust preferred securities |                                |                                             | (572                           | )                         |  |  | (665 | ) |  |  | (248 | ) |  |  | 527 |  |
|                                                                                              |
|        Income (loss) before income      tax expense                 |                                |                                             | 982,610                        |                           |  |  | (140,078 | ) |  |  | 334 |  |  |  | (48,432 | ) |
|        Income tax expense                                           |                                |                                             | 628                            |                           |  |  | 129 |  |  |  | 216 |  |  |  | 77 |  |
|        Net income (loss)                                            |                                |                                             | 981,982                        |                           |  |  | (140,207 | ) |  |  | 118 |  |  |  | (48,509 | ) |
|        Less: Net loss attributable to      noncontrolling interests |                                |                                             | (699                           | )                         |   |  | (779 | ) |  |  | (138 | ) |  |  | (445 | ) |
|        Net income (loss) attributable      to NFI                   |                                | $                                           | 982,681                        |                           |  | $ | (139,428 | ) |  | $ | 256 |  |  | $ | (48,064 | ) |
| Earnings (Loss) Per Share      attributable to NFI:                                               |                                |                                             |                                |                      |  |  |  |  |  |  |  |  |  |  |  |  |
|        Basic                                                        |                                | $                                           | 86.93                          |                           |  | $ | (15.69 | ) |  | $ | (0.41 | ) |  | $ | (5.53 | ) |
|        Diluted                                                      |                           | $                                           | 86.93                          |                           |  | $ | (15.69 | ) |  | $ | (0.41 | ) |  | $ | (5.53 | ) |
| Weighted average basic shares      outstanding                                                    |                                |                                             | 9,337,207                      |                           |  |  | 9,368,053 |   |  |  | 9,337,207 |  |   |   | 9,368,053 |  |
| Weighted average diluted      shares outstanding                                                  |                                |                                             | 9,337,207                      |                           |  |  | 9,368,053 |  |   |  | 9,337,207 |  |  |  | 9,368,053 |   |
|                                                                                              |                                |                                             |                                |                           |  |  |  |  |  |  |   |   |  |  |  |  |

----

|                                                         |         | Total      NFI Shareholders’ Deficit |         |               |                                       |        |         |                                       |              |             |
|---------------------------------------------------------|--------------|--------------------------------------------|--------------|---------------|---------------------------------------|--------|--------------|---------------------------------------|--------------|-------------|
|                                                         |              |                                            |              |               | Convertible                           |        |              |                                       |              |             |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |   |  |  |  |   |  |
|                                                         |              | Redeemable                                 |              | Participating |                                       |        |              |                                       | Additional   |             |  |  |  |  | Other |  |  |  |  |  |  |   |  |  | Total |
|                                                         |              | Preferred                                  |              | Preferred     |                                       | Common |              | Paid-in                               |              | Accumulated |  | Comprehensive |  |  |  |  |  | Noncontrolling |  | Shareholders’ |
|                                                         |    | Stock                                      |    | Stock         |                             | Stock  |    | Capital                               |    | Deficit     |    | Income |    | Other |    | Interests |    | Deficit |
| Balance, January 1,                                     |              |                                            |              |               |                                       |        |              |                                       |              |             |  |   |  |  |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   |  |
| 2010                                                    |              | $            | 30           |               | $       | 21     |              | $       | 94           |             | $       | 786,989 |  | $       | (1,868,398 | ) |  | $       | 5,111 |  | $       | (70 | ) |  | $       | (329 | ) |  | $       | (1,076,552 | ) |
| Forgiveness of                                          |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| founder’s notes                                   |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| receivable                                              |              |                                            | -            |               |                                       | -      |              |                                       | -            |             |  | - |  |  | - |  |  |  | - |  |  | 35 |  |  |  | - |  |  |  | 35 |  |
| Compensation                                            |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| recognized      under                                   |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| stock      compensation                                 |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| plans                                                   |              |                                            | -            |               |                                       | -      |              |                                       | -            |             |  | 211 |  |  | - |  |  |  | - |  |  | - |  |  |  | - |  |  |  | 211 |  |
| Accumulating                                            |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| dividends on                                            |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   |  |
| preferred stock                                         |              |                                            | -            |               |                                       | -      |              |                                       | -            |             |  | - |  |  | (8,051 | ) |  |  | - |  |  | - |  |  |  | - |  |  |  | (8,051 | ) |
| Distributions to                                        |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| noncontrolling                                          |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| interests                                               |              |                                            | -            |               |                                       | -      |              |                                       | -            |             |  | - |  |  | - |  |  |  | - |  |  | - |  |  |  | (88 | ) |  |  | (88 | ) |
| Comprehensive                                           |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| income:                                                 |              |                                            |         |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Net income (loss)  |              |                                            | -            |          |                                       | -      |              |                                       | -            |             |  | - |  |  | 982,681 |  |  |  | - |  |  | - |  |  |  | (699 | ) |  |  | 981,982 |  |
|        Other              |              |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        comprehensive      |         |                                            |              |               |                                       |        |              |                                       |              |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   |  |
|        income             |              |                                            | -            |               |                                       | -      |              |                                       | -            |             |  | - |   |  | - |  |  |  | 275 |  |  | - |  |  |  | - |  |  |  | 275 |  |
|        Total         |              |                                            |              |               |                                       |   |              |                                       |              |             |   |  |  |  |  |  |  |  |  |  |  |   |  |  |  |  |  |  |  |   |  |
|        comprehensive |              |                                       |              |               |                                       |        |         |                                       |         |        |  |  |  |  |  |  |  |   |  |  |  |  |  |  |  |  |  |  |  |   |  |
|        income        |              |                                            | -            |               |                                       | -      |              |                                       | -            |             |  | - |  |  | - |  |  |  | - |  |  | - |  |  |  | - |  |  |  | 982,257 |  |
| Balance, June 30,                                       |         |                                       |         |          |                                  |   |         |                                  |         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                                                    |              | $                                          | 30           |               | $                                     | 21     |              | $                                     | 94           |             | $ | 787,200 |  | $ | (893,768 | ) |  | $ | 5,386 |   | $ | (35 | ) |   | $ | (1,116 | ) |   | $ | (102,188 | ) |
|                                                    |

----

|                                                                                                                                                                         |                                | For the Six Months Ended              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|---------------------------------------|
|                                                                                                                                                                         |                                | June 30,                              |
|                                                                                                                                                                         |       | 2010                                  |       | 2009 |
| Cash flows from operating      activities:                                                                                                                              |                                |                                       |  |  |  |  |  |  |
| Net income (loss)                                                                                                                                                       |                                | $       | 981,982 |  |  | $       | (140,207 | ) |
| Adjustments to reconcile net      income (loss) to net cash used in operating activities:                                                                               |                                |                                       |  |  |  |  |  |  |
|        Accretion of      available-for-sale and trading securities                                                                        |                                |                                       | (1,903 | ) |  |  | (16,677 | ) |
|        Impairments on notes      receivable                                                                                               |                                |                                       | 452 |  |  |  | - |  |
|        Interest capitalized on loans      held-in-portfolio                                                                               |                                |                                       | - |  |  |  | (1,550 | ) |
|        Amortization of premiums on      mortgage loans                                                                                    |                                |                                       | 430 |  |  |  | 1,369 |  |
|        Amortization of deferred debt      issuance costs                                                                                  |                                |                                       | 494 |  |  |  | 233 |  |
|        Provision for credit      losses                                                                                                   |                                |                                       | 17,433 |  |  |  | 168,988 |  |
|        Impairments on mortgage      securities – available-for-sale                                                                 |                                |                                       | - |  |  |  | 452 |  |
|        Fair value    adjustments                                                                                                          |                                |                                       | (475 | ) |  |  | 6,200 |  |
|        Gain on derecognition of      securitization trusts                                                                                |                                |                                       | (993,131 | ) |  |  | - |  |
|        (Gains) losses on derivative      instruments                                                                                      |                                |                                       | (26 | ) |  |  | 4,626 |  |
|        Other                                                                                                                              |                                |                                       | 5 |  |  |  | - |  |
|        Forgiveness of founders’ notes      receivable                                                                               |                                |                                       | 35 |  |  |  | 35 |  |
|        Compensation recognized under      stock compensation plans                                                                        |                                |                                       | 211 |  |  |  | 428 |  |
|        Depreciation expense                                                                                                               |                                |                                       | 369 |  |  |  | 466 |  |
|        Changes in:                                                                                                                        |                                |                                       |  |  |  |  |  |  |
|                    Accrued interest receivable                                                         |                                |                                       | 1,300 |  |  |  | 4,413 |  |
|                    Other assets and other liabilities                                                  |                                |                                       | 862 |  |  |  | (399 | ) |
|                    Due to servicer                                                                     |                                |                                       | (5,080 | ) |  |  | 28,156 |  |
|                    Accounts payable and other liabilities                                              |                                |                                       | 2,180 |  |  |  | (13,447 | ) |
|                           Net cash provided by operating activities |                                |                                       | 5,138 |  |  |  | 43,086 |  |
|                                                                                                                                                                    |
| Cash flows from investing      activities:                                                                                                                              |                                |                                       |  |  |  |  |  |  |
| Proceeds from paydowns of      mortgage securities - available-for-sale                                                                                                 |                                |                                       | 2,724 |  |  |  | 8,981 |  |
| Proceeds from paydowns of      mortgage securities - trading                                                                                                            |                                |                                  | 423 |  |  |  | 3,635 |  |
| Proceeds from repayments of      mortgage loans held-in-portfolio                                                                                                       |                                |                                       | 15,040 |  |  |  | 50,285 |  |
| Proceeds from sales of assets      acquired through foreclosure                                                                                                         |                                |                                       | 15,154 |  |  |  | 53,382 |  |
| Restricted cash, net                                                                                                                                                    |                                |                                       | 5,192 |  |  |  | (305 | ) |
| Proceeds from notes      receivable                                                                                                                                     |                                |                                       | 441 |  |  |   | - |  |
| Issuance of notes      receivable                                                                                                                                       |                                |                                       | (657 | ) |  |  | - |  |
| Purchases of property and      equipment                                                                                                                                |                           |                                       | (8 | ) |   |  | (975 | ) |
| Acquisition of business, net      of cash acquired                                                                                                                      |                                |                                  | (609 | ) |  |  | 2 |  |
|                           Net cash provided by investing activities |                                |                                       | 37,700 |  |   |   | 115,005 |  |
|                                                                                                                                                                         |                                |                                       |  |  |  |  | Continued |  |

----

|                                                                     | For the Six Months      Ended                                             |
|---------------------------------------------------------------------|---------------------------------------------------------------------------|
|                                                                     | June 30,                                                                  |
| Cash flows from financing      activities:                          | 2010                                                                      |       | 2009 |
| Payments on asset-backed      bonds                                 |                                                                           | (35,341 | ) |  |  | (162,387 | ) |
| (Distributions to)      contributions from noncontrolling interests |                                                                           | (88 | ) |  |  | 150 |  |
| Other                                                               |                                                                           | (45 | ) |   |  | - |  |
|     Net cash used      in financing activities  |                                                                      | (35,474 | ) |  |  | (162,237 | ) |
| Net increase (decrease) in      cash and cash equivalents           |                                                                           | 7,364 |   |  |  | (4,146 | ) |
| Cash and cash equivalents,      beginning of period                 |                                                                           | 7,104 |  |  |   | 24,790 |   |
| Cash and      cash equivalents, end of period                       | $                  | 14,468 |   |  | $       | 20,644 |  |
|                                                                |
|                                                           |

| Supplemental Disclosure of      Cash Flow Information                                                                         |                                                         |           |       |                           |           |
|-------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|-----------|--------------------------------|---------------------------|-----------|
| (unaudited; dollars in      thousands)                                                                                        |                                                         |           |                                |                           |           |
|                                                                                                                               | For the Six Months      Ended                           |
|                                                                                                                               | June 30,                                                |
|                                                                                                                               | 2010                                                    |           | 2009                           |
| Cash paid for    interest                                                                                                     | $          | 3,381     |                                | $     | 20,511    |
| Cash paid for income      taxes                                                                                               |                                                         | 257       |                                |                           | 355       |
| Cash received on mortgage      securities – available-for-sale with no cost basis                                       |                                                         | 2,594     |                                |                           | 1,207     |
| Non-cash investing and      financing activities:                                                                             |                                                         |           |                                |                           |           |
|     Assets acquired      through foreclosure                                                              |                                                         | 6,283     |                                |                           | 48,159    |
|     Exchange of      noncontrolling interests’ notes receivable for contingent earnings      payout |                                                         | 366       |                                |                           | -         |
|     Preferred stock      dividends accrued, not yet paid                                                  |                                                         | 8,051     |                                |                           | 7,481     |
|     Transfer of      assets and liabilities upon derecognition of securitization    trusts:               |                                                         |           |                                |                           |           |
|        Mortgage loans      – held-in-portfolio, net of allowance                     |                                                         | 1,250,287 |                                |                           | -         |
|        Accrued      interest receivable                                                    |                                                         | 72,725    |                                |                           | -         |
|        Real estate      owned                                                              |                                                         | 55,309    |                                |                           | -         |
|        Asset-backed      bonds secured by mortgage loans                                   |                                                         | 2,235,633 |                                |                           | -         |
|        Due to      servicer                                                                |                                                         | 131,772   |                                |                           | -         |
|        Other      liabilities                                                              |                                                         | 4,047     |                                |                           | -         |
|                                                                                                                          |
| See notes to condensed      consolidated financial statements.                                                                |                                                         |           |                                |                           | Concluded |

----

| NOVASTAR FINANCIAL,      INC.                                 |
|---------------------------------------------------------------|
| NOTES TO CONDENSED      CONSOLIDATED FINANCIAL STATEMENTS     |
| As of and for the period ended      June 30, 2010 (Unaudited) |

----

----

|                                                                             | Total                                 |
|-----------------------------------------------------------------------------|---------------------------------------|
| Assets:                                                                     |                                  |  |  |
|     Mortgage loans      – held-in-portfolio       | $       | 1,953,188 |   |
|     Allowance for      loan losses                      |                                       | (702,901 | ) |
|     Accrued      interest receivable                    |                                       | 72,725 |  |
|     Real estate      owned                              |                                       | 55,309 |  |
|                                                                        |
| Total assets                                                                |                                       | 1,378,321 |  |
|                                                                        |                                       |  |  |
| Liabilities:                                                                |                                       |  |  |
|     Asset-backed      bonds secured by mortgage loans   |                                       | 2,235,633 |  |
|     Due to      servicer                                |                                       | 131,772 |  |
|     Other      liabilities                              |                                       | 4,047 |  |
|                                                                        |                                       |
| Total liabilities                                                           |                                       | 2,371,452 |  |
|                                                                        |                                       |
|     Gain on      derecognition of securitization trusts | $                                     | 993,131 |  |
|                                                                        |                                       |  |  |

----

|                                                                         | December  31,                         |
|-------------------------------------------------------------------------|---------------------------------------|
|                                                                         | 2009                                  |
| Mortgage loans –      held-in-portfolio (A):                      |                                       |  |  |
|     Outstanding      principal                      | $       | 1,985,483 |  |
|     Net unamortized      deferred origination costs |                                  | 16,605 |  |
|     Amortized      cost                             |                                       | 2,002,088 |  |
|     Allowance for      credit losses                |                                       | (712,614 | ) |
|     Mortgage loans      – held-in-portfolio   | $                                     | 1,289,474 |  |
|     Weighted      average coupon                    |                                       | 6.94% |   |
|                                                               |                                       |  |  |

| (A) |       | The Company did not hold any mortgage loans-held-in-portfolio as of      June 30, 2010 due to the derecognition of the securitization trusts, see      Note 3 to the condensed consolidated financial statements for further      details. |
|-----|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 | For the Six Months      Ended               |                                | For the Three Months      Ended |
|-------------------------------------------------|---------------------------------------------|--------------------------------|---------------------------------|
|                                                 | June 30,                                    |                                | June 30,                        |
|                                                 | 2010                                        |       | 2009                            |       | 2010 |       | 2009 |
| Balance, beginning of      period               | $             | 712,614                        |                            |  | $             | 776,001 |  |  | $                                | - |  | $       | 793,679 |  |
| Provision for credit      losses                |                                        | 17,433                         |                                 |  |  | 168,988 |  |  |  | - |  |   | 67,514 |  |
| Charge-offs, net of      recoveries             |                                             | (27,146                        | )                               |  |   | (134,715 | ) |   |   | - |   |  | (50,919 | ) |
| Derecognition of the      securitization trusts |                                             | (702,901                       | )                               |   |  | - |   |  |  | - |  |  | - |   |
| Balance, end of    period                       | $                                           | -                              |                                 |  | $ | 810,274 |  |  | $ | - |  | $ | 810,274 |  |
|                                            |                                             |                                |                                 |  |  |  |  |  |  |  |  |  |  |  |

----

----

|                 |                           |                                  |                           |         | Assets After      Intercompany        |   |                           |                                  |                           |       |                                  |
|----------------------|--------------------------------|---------------------------------------|--------------------------------|--------------|---------------------------------------|--------|--------------------------------|---------------------------------------|--------------------------------|------------|---------------------------------------|
|                      |       |                                       |                                |              | Eliminations                          |        | Liabilities    After           |                                       |                                |            |
|                      |                                | Total                                 |                                |              |                                       |        | Restricted                     |                                       | Intercompany                   |            | Recourse to    the                    |
| Consolidated    VIEs |                                | Assets                                |       | Unrestricted |              | (A)    |       | Eliminations                          |       | Company(B) |
| June 30, 2010        |                                |                                       |                                |              |                                       |        |                           |                                       |                                |            |                                       |  |  |  |  |
| CDO(C)               |                                | $       | 1,430                          |              | $       | -      |                                | $       | 1,429                          |            | $       | 1,430 |  | $       | - |
| December 31,    2009 |                                |                                  |                           |         |                                  |   |                                |                                  |                           |       |                                       |  |   |   |  |
| Mortgage LoanVIEs(D) |                                | $                                     | 1,435,671                      |              | $                                     | -      |                                | $                                     | 1,427,501                      |            | $                                     | 2,453,181 |  | $ | - |
| CDO(C)               |                           |                                       | 1,389                          |              |                                       | -      |                                |                                       | 1,387                          |            |                                       | 1,387 |  |  | - |
|                 |                                |                                       |                                |              |                                       |        |                                |                                       |                                |            |                                       |  |  |  |  |

| (A) |       | Assets are considered restricted when they cannot be freely pledged      or sold by the Company.                                                                                                 |
|-----|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) |                                | This column reflects the extent, if any, to which investors have      recourse to the Company beyond the assets held by the VIE and assumes a      total loss of the assets held by the VIE.     |
| (C) |                                | For the CDO, assets are primarily recorded in Mortgage securities      and liabilities are recorded in Other current liabilities.                                                                |
| (D) |                                | For Mortgage Loan VIEs, assets are primarily recorded in Mortgage      loans – held-in-portfolio. Liabilities are primarily recorded in      Asset-backed bonds secured by mortgageassets. |

|                                  |       | Size/Principal                        |      |    Assets      on    |        | Liabilities                           |        | Maximum                        |                                       | Year to                        |         | Year to                               |        |
|----------------------------------|--------------------------------|---------------------------------------|-----------|--------------------------------|--------|---------------------------------------|--------|--------------------------------|---------------------------------------|--------------------------------|---------|---------------------------------------|--------|
|                                  |                                | Outstanding                           |      |         Balance      |        | on Balance                            |        | Exposure to                    |                                       | Date Loss                      |         | Date Cash                             |        |
|                                  |                                | (A)                                   |           |       | Sheet  |              | Sheet  |       | Loss(B)                               |       | on Sale |              | Flows  |  |
| June 30, 2010                    |                                |                                       |           |                                |        |                                       |        |                                |                                       |                                |         |                                       |        |  |  |  |  |  |  |  |
| Residential mortgage             |                                |                                       |           |                                |        |                                       |        |                                |                                       |                                |         |                                       |        |  |  |  |  |  |  |  |
|     loans(C) |                                | $       | 7,729,619 | (D)                            |        | $       | 5,853  |                                | $       | -                              |         | $       | 5,853  |  | $       | - |  | $       | 5,193 |  |
| December 31,    2009             |                           |                                  |      |                                |   |                                       |        |                           |                                       |                                |    |                                  |   |  |  |  |   |   |  |  |
| Residential mortgage             |                                |                                       |           |                           |        |                                  |   |                                |                                       |                           |         |                                       |        |   |   |   |  |  |   |  |
|     loans(C) |                                | $                                     | 6,570,308 |                           |        | $                                     | 7,031  |                                | $                                     | -                              |         | $                                     | 7,031  |  | $ | - |  | $ | 10,564 | (E) |
|                             |                                |                                       |           |                                |        |                                       |        |                                |                                       |                                |         |                                       |        |  |  |  |  |  |  |  |

| (A) |       | Size/Principal Outstanding reflects the estimated principal of the      underlying assets held by the VIE.                                                                                                                                     |
|-----|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) |                                | The maximum exposure to loss includes the following: the assets      held by the Company consist of retained interests in the VIEs/SPEs. The      maximum exposure to loss assumes a total loss on the referenced assets      held by the VIE. |
| (C) |                                | Assets on balance sheet are securities issued by the entity and are      recorded in Mortgage securities.                                                                                                                                      |
| (D) |                                | Due to derecognition of securitization trusts during the six months      ended June 30, 2010, size/principal outstanding includes NHEL 2006-1, NHEL      2006-MTA1 and NHEL 2007-1 as of June 30, 2010.                                        |
| (E) |                                | For the six months ended June 30,2009.                                                                                                                                                                                                         |

----

|                                                                                                    |      |                                       |       |
|---------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|-------|
| Carrying amount/fair value of      residual interests                                                   |                     | $       | 5,853 |
| Weighted average life (in years)                                                                        |                          |                                       | 3.26  |
| Weighted average prepayment      speed assumption (CPR) (percent)                                       |                     |                                  | 16.8  |
|        Fair value after a 10%      increase in prepayment speed           |                     | $                                     | 5,378 |
|        Fair value after a 25%      increase in prepayment speed           |                     | $                                     | 4,828 |
| Weighted average expected annual credit losses (percent of current      collateral balance)             |                          |                                  | 26.9  |
|        Fair value after a 10%      increase in annual credit losses       |                     | $                                     | 5,664 |
|        Fair value after a 25%      increase in annual credit losses       |                     | $                                     | 5,388 |
| Weighted average residual cash      flows discount rate (percent)                                       |                     |                                  | 25.0  |
|        Fair value after a 500 basis      point increase in discount rate  |                          | $                                     | 5,658 |
|        Fair value after a 1000 basis      point increase in discount rate |                     | $                                     | 5,474 |
| Market interest rates:                                                                                  |                          |                                       |       |
|        Fair value after a 100 basis      point increase in market rates   |                     | $                                     | 4,419 |
|        Fair value after a 200 basis      point increase in market rates   |                          | $                                     | 2,566 |
|                                                                                                    |                          |                                       |       |

|                                                     |                          | June 30,                              |                          | December  31, |
|-----------------------------------------------------|--------------------------|---------------------------------------|--------------------------|---------------|
|                                                     |      | 2010                                  |      | 2009          |
| Mortgage securities –      available-for-sale |                     | $       | 5,853                    |          | $       | 6,903 |
| Mortgage securities – trading                 |                          |                                       | 1,079                    |               |  | 1,087 |
| Total mortgage      securities                      |                          | $                                     | 6,932                    |               | $ | 7,990 |
|                                                |                          |                                       |                          |               |  |  |

----

|                         |                          |                                       |                          |        | Unrealized                            |            | Estimated                |                                       | Average |
|-------------------------|--------------------------|---------------------------------------|--------------------------|--------|---------------------------------------|------------|--------------------------|---------------------------------------|---------|
|                         |      | Cost Basis                            |      | Gain   |                   | Fair Value |      | Yield (A)                             |
| As of June 30, 2010     |                     | $       | 467                      |   | $       | 5,386      |                     | $       | 5,853   |   |        605.6% |
| As of December 31, 2009 |                          |                                       | 1,792                    |        |                                       | 5,111      |                          |                                       | 6,903   |  | 132.9 |
|                    |                          |                                       |                          |        |                                       |            |                          |                                       |         |  |  |

| (A) |         | The      average yield is calculated from the cost basis of the mortgage securities      and does not give effect to changes in fair value that are reflected as a      component of shareholders’ deficit. |
|-----|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                             |                          |                                       |                          |        | AmortizedCost                         |            |                          |                                       |       | Average |
|---------------------------------------------|--------------------------|---------------------------------------|--------------------------|--------|---------------------------------------|------------|--------------------------|---------------------------------------|-------|---------|
|                                             |      | Original Face                         |      | Basis  |                   | Fair Value |      | Yield (A)                             |
| As of June 30,      2010                    |                          |                                       |                          |        |                                       |            |                          |                                       |       |         |  |
| Subordinated securities      pledged to CDO |                     | $       | 369,507                  |   | $       | 80,677     |                     | $       | 1,079 |    |  |
| Other subordinated securities               |                          |                                       | 215,280                  |        |                                       | -          |                          |                                       | -     |         |  |
| Total                                       |                          | $                                     | 584,787                  |        | $                                     | 80,677     |                          | $                                     | 1,079 |         | 1.68% |
|                                        |
| As of December 31,      2009                |                          | $                                     | 435,114                  |        | $                                     | 104,012    |                          | $                                     | 1,087 |         | 4.79% |
|                                        |                          |                                       |                          |        |                                       |            |                          |                                       |       |         |  |

| (A) |         | Calculated from the ending fair value of the  securities. |
|-----|--------------------------------------------|-----------------------------------------------------------|

----

----

|                                                                           |                          | For the Six      Months               |                          | For the Three      Months |
|---------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|---------------------------|
|                                                                           |                          | Ended June30,                         |                          | Ended June  30,           |
|                                                                           |      | 2010                                  |      | 2009                      |      | 2010 |      | 2009 |
| Net income (loss)                                                         |                          | $       | 981,982                  |                           | $       | (140,207 | ) |  | $       | 118 |  |  | $       | (48,509 | ) |
| Other comprehensive (loss) income:                                        |                          |                                       |                          |                           |  |  |  |  |  |  |  |  |  |  |  |
| Change in      unrealized gain on mortgage securities – available-  |                          |                                       |                          |                           |  |  |  |  |  |  |  |  |  |  |  |
|        for-sale                             |                          |                                       | 275                      |                           |  | (2,065 | ) |  |  | (830 | ) |  |  | 257 |  |
| Change in unrealized gain on      derivative instruments used in          |                          |                                       |                          |                           |  |  |  |  |  |  |  |  |  |  |  |
|        cash flow hedges                     |                          |                                       | -                        |                           |  | 8 |  |  |  | - |  |  |  | - |  |
| Impairment on      mortgage securities - available-for-sale               |                          |                                       |                          |                           |  |  |  |  |  |  |  |  |  |  |  |
|        reclassified to    earnings          |                          |                                  | -                        |                           |  | 452 |  |   |  | - |   |   |   | 250 |  |
| Net settlements of derivative      instruments used in cash flow          |                          |                                       |                          |                           |  |  |  |  |  |  |  |  |  |  |  |
|        hedges reclassified to      earnings |                          |                                       | -                        |                           |  | 84 |  |  |  | - |  |  |  | - |  |
| Other comprehensive income      (loss)                                    |                          |                                       | 275                      |                      |   | (1,521 | ) |  |  | (830 | ) |  |  | 507 |  |
| Total comprehensive income (loss)                                         |                     |                                       | 982,257                  |                           |  | (141,728 | ) |  |  | (712 | ) |  |  | (48,002 | ) |
| Comprehensive loss      attributable to noncontrolling interests          |                          |                                       | 699                      |                           |  | 779 |  |  |  | 138 |  |  |  | 445 |  |
| Total comprehensive income (loss) attributable to NFI                     |                          | $                                     | 982,956                  |                           | $ | (140,949 | ) |  | $ | (574 | ) |  | $ | (47,557 | ) |
|                                                                      |                          |                                       |                          |                           |  |  |  |  |  |  |  |  |  |  |  |

| (A) |         | Due to      the valuation allowance the Company has recorded on deferred income taxes,      there is no net income tax expense recorded against other comprehensive      income (loss). |
|-----|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

- Level 1—Quoted prices  for identical instruments in active markets. 
- Level 2—Quoted prices  for similar instruments in active markets; quoted prices for identical or  similar instruments in markets that are not active; and model-derived  valuations whose inputs are observable or whose significant value drivers are  observable. 
- Level 3—Instruments  whose significant value drivers are unobservable. 

----

|                                                        |                          |                                       |                          |           | Fair Value Measurements at      Reporting Date Using |
|--------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|-----------|------------------------------------------------------|
|                                                        |                          |                                       |                          |           | Quoted Prices                                        |  |  |  |  |  |  |
|                                                        |                          |                                       |                          |           | in Active                                            |  | Significant |  |  |  |
|                                                        |                          |                                       |                          |           | Markets for                                          |  | Other |  | Significant |
|                                                        |                          |                                       |                          |           | Identical                                            |  | Observable |  | Unobservable |
|                                                        |                          | Fair Value at                         |                          | Assets    |                                                      | Inputs |  | Inputs |
| Description                                            |      | June 30, 2010                         |      | (Level 1) |                                  | (Level 2) |      | (Level 3) |
| Assets:                                                |                          |                                       |                          |           |                                                      |   |  |  |  |  |  |  |
| Mortgage securities      -trading                      |                     | $       | 1,079                    |           | $                      | - |   | $       | - |   | $       | 1,079 |
| Mortgage securities – available-for-sale         |                          |                                       | 5,853                    |      |                                                 | - |  |  | - |  |   | 5,853 |
| Total assets                                           |                          | $                                     | 6,932                    |           | $                                                    | - |  | $ | - |  | $ | 6,932 |
|                                                   |
| Liabilities:                                           |                          |                                       |                          |           |                                                      |  |  |  |  |  |  |  |
| Asset-backed bonds      secured by mortgage securities |                          | $                                     | 1,087                    |           | $                                                    | - |  | $ | - |  | $ | 1,087 |
| Total liabilities                                      |                          | $                                     | 1,087                    |           | $                                                    | - |  | $ | - |  | $ | 1,087 |
|                                                   |
|                                                   |
|                                                        |                          |                                       |                          |           | Fair Value Measurements at      Reporting Date Using |
|                                                        |                          |                                       |                          |           | Quoted Prices                                        |  |  |  |  |  |  |
|                                                        |                          |                                       |                          |           | in Active                                            |  | Significant |  |  |  |
|                                                        |                          |                                       |                          |           | Markets for                                          |  | Other |  | Significant |
|                                                        |                          | Fair Value at                         |                          | Identical |                                                      | Observable |  | Unobservable |
|                                                        |                          | December 31,                          |                          | Assets    |                                                      | Inputs |  | Inputs |
| Description                                            |                          | 2009                                  |                          | (Level 1) |                                                      | (Level 2) |  | (Level 3) |
| Assets:                                                |                          |                                       |                          |           |                                                      |  |  |  |  |  |  |  |
| Mortgage securities      -trading                      |                          | $                                     | 1,087                    |           | $                                                    | - |  | $ | - |  | $ | 1,087 |
| Mortgage securities – available-for-sale         |                          |                                       | 6,903                    |           |                                                      | - |  |  | - |  |  | 6,903 |
| Total assets                                           |                          | $                                     | 7,990                    |           | $                                                    | - |  | $ | - |  | $ | 7,990 |
|                                                   |
| Liabilities:                                           |                          |                                       |                          |           |                                                      |  |  |  |  |  |  |  |
| Asset-backed bonds secured by      mortgage securities |                          | $                                     | 968                      |           | $                                                    | - |  | $ | - |  | $ | 968 |
| Derivative instruments, net                            |                          |                                       | 157                      |           |                                                      | - |  |  | 157 |  |  | - |
| Total liabilities                                      |                          | $                                     | 1,125                    |           | $                                                    | - |  | $ | 157 |  | $ | 968 |
|                                                   |                          |                                       |                          |           |                                                      |  |  |  |  |  |  |  |

|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |   |        | Estimated  Fair                       |
|----------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|--------------------|--------------------------|---------------------------------------|----------|---|--------|---------------------------------------|
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |   |        | Value of                              |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |   |        | Mortgage                              |
|                                                                                                    |      | Cost Basis                            |      | Unrealized    Loss |      | Securities                            |
| As of December 31,    2009                                                                         |                          | $       | 104,013                  |                    |                          | $       | (102,926 | ) |        | $       | 1,087 |  |
|        Increases (decreases) to      mortgage securities - trading   |                          |                                       |                          |                    |                          |                                       |          |   |        |                                       |  |  |
|        Accretion of income                                           |                          |                                       | 504                      |                    |                          |                                  | -        |   |        |                                       | 504 |   |
|        Proceeds from paydowns of      securities                     |                          |                                       | (423                     | )                  |                          |                                       | -        |   |        |                                  | (423 | ) |
|        Other than temporary      impairments                         |                     |                                  | (23,417                  | )                  |                     |                                       | 23,417   |   |   |                                       | - |  |
|        Mark-to-market value      adjustment                          |                          |                                       | -                        |                    |                          |                                       | (89      | ) |        |                                       | (89 | ) |
|        Net (decrease) increase to      mortgage securities - trading |                          |                                       | (23,336                  | )                  |                          |                                       | 23,328   |   |        |                                       | (8 | ) |
| As of June 30, 2010                                                                                |                          | $                                     | 80,677                   |                    |                          | $                                     | (79,598  | ) |        | $                                     | 1,079 |  |
|                                                                                               |                          |                                       |                          |                    |                          |                                       |          |   |        |                                       |  |  |

----

|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Estimated  Fair                       |
|----------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|--------------------|--------------------------|---------------------------------------|----------|--------|--------|---------------------------------------|
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Value of                              |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Mortgage                              |
|                                                                                                    |      | Cost Basis                            |      | Unrealized    Loss |      | Securities                            |
| As of December 31,    2008                                                                         |                          | $       | 433,968                  |                    |                          | $       | (426,883 | )      |        | $       | 7,085 |  |
|        Increases (decreases) to      mortgage securities - trading   |                          |                                       |                          |                    |                          |                                       |          |        |        |                                       |  |  |
|        Accretion of income                                           |                          |                                       | 8,700                    |                    |                          |                                       | -        |        |        |                                       | 8,700 |  |
|        Proceeds from paydowns of      securities                     |                          |                                       | (3,635                   | )                  |                          |                                       | -        |   |        |                                  | (3,635 | ) |
|        Other than temporary      impairments                         |                          |                                       | (36,841                  | )                  |                          |                                  | 36,841   |   |   |                                       | - |  |
|        Mark-to-market value      adjustment                          |                     |                                       | -                        |               |                     |                                       | (9,705   | )      |        |                                       | (9,705 | ) |
|        Net (decrease) increase to      mortgage securities - trading |                          |                                       | (31,776                  | )                  |                          |                                       | 27,136   |        |        |                                       | (4,640 | ) |
| As of June 30, 2009                                                                                |                          | $                                     | 402,192                  |                    |                          | $                                     | (399,747 | )      |        | $                                     | 2,445 |   |
|                                                                                               |
|                                                                                               |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Estimated  Fair                       |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Value of                              |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Mortgage                              |
|                                                                                                    |                          | Cost Basis                            |                          | Unrealized    Loss |                          | Securities                            |
| As of March 31, 2010                                                                               |                          | $                                     | 88,188                   |                    |                          | $                                     | (87,404  | )      |        | $                                     | 784 |  |
|        Increases (decreases) to      mortgage securities - trading   |                          |                                       |                          |                    |                          |                                       |          |        |        |                                       |  |  |
|        Accretion of income                                           |                          |                                       | 228                      |                    |                          |                                       | -        |        |        |                                       | 228 |  |
|        Proceeds from paydowns of      securities                     |                          |                                       | (196                     | )                  |                          |                                       | -        |        |        |                                       | (196 | ) |
|        Other than temporary      impairments                         |                          |                                       | (7,543                   | )                  |                          |                                       | 7,543    |   |        |                                       | - |  |
|        Mark-to-market value      adjustment                          |                          |                                       | -                        |                    |                          |                                       | 263      |        |        |                                       | 263 |  |
|        Net (decrease) increase to      mortgage securities - trading |                          |                                       | (7,511                   | )                  |                          |                                       | 7,806    |   |        |                                       | 295 |  |
| As of June 30, 2010                                                                                |                          | $                                     | 80,677                   |                    |                          | $                                     | (79,598  | )      |        | $                                     | 1,079 |  |
|                                                                                               |
|                                                                                               |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Estimated  Fair                       |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Value of                              |
|                                                                                                    |                          |                                       |                          |                    |                          |                                       |          |        |        | Mortgage                              |
|                                                                                                    |                          | Cost Basis                            |                          | Unrealized    Loss |                          | Securities                            |
| As of March 31, 2009                                                                               |                          | $                                     | 438,400                  |                    |                          | $                                     | (434,633 | )      |        | $                                     | 3,767 |  |
|        Increases (decreases) to      mortgage securities - trading   |                          |                                       |                          |                    |                          |                                       |          |        |        |                                       |  |  |
|        Accretion of income                                           |                          |                                       | 1,783                    |                    |                          |                                       | -        |        |        |                                       | 1,783 |  |
|        Proceeds from paydowns of      securities                     |                          |                                       | (1,150                   | )                  |                          |                                       | -        |        |        |                                       | (1,150 | ) |
|        Other than temporary      impairments                         |                          |                                       | (36,841                  | )                  |                          |                                       | 36,841   |        |        |                                       | - |  |
|        Mark-to-market value      adjustment                          |                          |                                       | -                        |                    |                          |                                       | (1,955   | )      |        |                                       | (1,955 | ) |
|        Net (decrease) increase to      mortgage securities - trading |                          |                                       | (36,208                  | )                  |                          |                                       | 34,886   |        |        |                                       | (1,322 | ) |
| As of June 30, 2009                                                                                |                          | $                                     | 402,192                  |                    |                          | $                                     | (399,747 | )      |        | $                                     | 2,445 |  |
|                                                                                               |                          |                                       |                          |                    |                          |                                       |          |        |        |                                       |  |  |

----

|                                                                                                                     |                          |                                       |                          |                      |                          |                                       |       |        | Estimated      Fair                   |
|---------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|----------------------|--------------------------|---------------------------------------|-------|--------|---------------------------------------|
|                                                                                                                     |                          |                                       |                          |                      |                          |                                       |       |        | Value      of                         |
|                                                                                                                     |                          |                                       |                          |                      |                          |                                       |       |        | Mortgage                              |
|                                                                                                                     |      | Cost      Basis                       |      | Unrealized      Gain |      | Securities                            |
| As of December 31,      2009                                                                                        |                          | $       | 1,794                    |                      |                          | $       | 5,109 |        | $       | 6,903 |  |
|        Increases (decreases) to      mortgage securities – available-for-sale   |                          |                                  |                          |                      |                          |                                       |       |        |                                       |  |  |
|        Accretion of income    (A)                                                     |                          |                                       | 1,399                    |                 |                          |                                       | -     |        |                                       | 1,399 |  |
|        Proceeds from paydowns of      securities (A) (B)                              |                          |                                       | (2,724                   | )                    |                          |                                       | -     |        |                                  | (2,724 | ) |
|        Mark-to-market value      adjustment                                           |                     |                                       | -                        |                      |                     |                                  | 275   |   |                                       | 275 |  |
|        Net (decrease) increase to      mortgage securities – available-for-sale |                          |                                       | (1,325                   | )                    |                          |                                       | 275   |        |                                       | (1,050 | ) |
| As of June 30, 2010                                                                                                 |                          | $                                     | 469                      |                      |                          | $                                     | 5,384 |        | $                                     | 5,853 |  |
|                                                                                                                |                          |                                       |                          |                      |                          |                                       |       |        |                                       |  |  |

| (A) |         | Cash      received on mortgage securities with no cost basis was $2.6 million for      the six months ended June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----|--------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) |                                            | For      mortgage securities with a remaining cost basis, the Company reduces the      cost basis by the amount of cash that is contractually due from the      securitization trusts. In contrast, for mortgage securities in which the      cost basis has previously reached zero, the Company records in interest      income the amount of cash that is contractually due from the      securitization trusts. In both cases, there are instances where the      Company may not receive a portion of this cash until after the balance      sheet reporting date. Therefore, these amounts are recorded as receivables      from the securitization trusts. As of June 30, 2010, the Company had no      receivables from securitization trusts related to mortgage securities      available-for-sale with a remaining costbasis. |

|                                                                                                                     |                          |                                       |                          |                    |                          |                                       |        |        |  | Estimated  Fair                       |
|---------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|--------------------|--------------------------|---------------------------------------|--------|--------|--|---------------------------------------|
|                                                                                                                     |                          |                                       |                          |                    |                          |                                       |        |        |  | Value of                              |
|                                                                                                                     |                          |                                       |                          |                    |                          |                                       |        |        |  | Mortgage                              |
|                                                                                                                     |      | Cost Basis                            |      | Unrealized    Gain |      | Securities                            |
| As of December 31,    2008                                                                                          |                          | $       | 3,771                    |                    |                          | $       | 9,017  |        |  | $       | 12,788 |  |
|        Increases (decreases) to      mortgage securities – available-for-sale   |                          |                                       |                          |                    |                          |                                       |        |        |  |                                       |  |  |
|        Accretion of income    (A)                                                     |                          |                                  | 7,976                    |                    |                          |                                  | -      |        |  |                                       | 7,976 |   |
|        Proceeds from paydowns of      securities (A) (B)                              |                          |                                       | (8,981                   | )                  |                     |                                       | -      |   |  |                                  | (8,981 | ) |
|        Impairment on mortgage      securities – available-for-sale              |                          |                                       | (452                     | )                  |                          |                                       | -      |        |  |                                       | (452 | ) |
|        Mark-to-market value      adjustment                                           |                          |                                       | -                        |                    |                          |                                       | (1,612 | )      |  |                                       | (1,612 | ) |
|        Net (decrease) increase to      mortgage securities – available-for-sale |                          |                                       | (1,457                   | )                  |                          |                                       | (1,612 | )      |  |                                       | (3,069 | ) |
| As of June 30, 2009                                                                                                 |                          | $                                     | 2,314                    |                    |                          | $                                     | 7,405  |        |  | $                                     | 9,719 |  |
|                                                                                                                |                          |                                       |                          |                    |                          |                                       |        |        |  |                                       |  |  |

| (A) |         | Cash      received on mortgage securities with no cost basis was $1.2 million for      the six months ended June 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) |                                            | For      mortgage securities with a remaining cost basis, the Company reduces the      cost basis by the amount of cash that is contractually due from the      securitization trusts. In contrast, for mortgage securities in which the      cost basis has previously reached zero, the Company records in interest      income the amount of cash that is contractually due from the      securitization trusts. In both cases, there are instances where the      Company may not receive a portion of this cash until after the balance      sheet reporting date. Therefore, these amounts are recorded as receivables      from the securitization trusts. As of June 30, 2009, the Company had no      receivable due from securitizationtrusts. |

|                                                                                                                     |                          |                                       |                          |                    |                          |                                       |       |   |        | Estimated  Fair                       |
|---------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|--------------------|--------------------------|---------------------------------------|-------|---|--------|---------------------------------------|
|                                                                                                                     |                          |                                       |                          |                    |                          |                                       |       |   |        | Value of                              |
|                                                                                                                     |                          |                                       |                          |                    |                          |                                       |       |   |        | Mortgage                              |
|                                                                                                                     |      | Cost Basis                            |      | Unrealized    Gain |      | Securities                            |
| As of March 31, 2010                                                                                                |                          | $       | 652                      |                    |                          | $       | 6,214 |   |        | $       | 6,866 |  |
|        Increases (decreases) to      mortgage securities – available-for-sale   |                          |                                       |                          |                    |                          |                                       |       |   |        |                                       |  |  |
|        Accretion of income    (A)                                                     |                          |                                       | 971                      |                    |                          |                                  | -     |   |   |                                       | 971 |   |
|        Proceeds from paydowns of      securities (A) (B)                              |                          |                                  | (1,154                   | )                  |                          |                                       | -     |   |        |                                  | (1,154 | ) |
|        Mark-to-market value      adjustment                                           |                     |                                       | -                        |               |                     |                                       | (830  | ) |        |                                       | (830 | ) |
|        Net (decrease) increase to      mortgage securities – available-for-sale |                          |                                       | (183                     | )                  |                          |                                       | (830  | ) |        |                                       | (1,013 | ) |
| As of June 30, 2010                                                                                                 |                          | $                                     | 469                      |                    |                          | $                                     | 5,384 |   |        | $                                     | 5,853 |  |
|                                                                                                                |                          |                                       |                          |                    |                          |                                       |       |   |        |                                       |  |  |

| (A) |         | Cash      received on mortgage securities with no cost basis was $1.2 million for      the three months ended June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----|--------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B) |                                            | For      mortgage securities with a remaining cost basis, the Company reduces the      cost basis by the amount of cash that is contractually due from the      securitization trusts. In contrast, for mortgage securities in which the      cost basis has previously reached zero, the Company records in interest      income the amount of cash that is contractually due from the      securitization trusts. In both cases, there are instances where the      Company may not receive a portion of this cash until after the balance      sheet reporting date. Therefore, these amounts are recorded as receivables      from the securitization trusts. As of June 30, 2010, the Company had no      receivables from securitization trusts related to mortgage securities      available-for-sale with a remaining costbasis. |

----

|                                                                                                                          |                                             |                                |                    |                                |                                             |       |  | Estimated  Fair                             |
|--------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|--------------------------------|--------------------|--------------------------------|---------------------------------------------|-------|--|---------------------------------------------|
|                                                                                                                          |                                             |                                |                    |                                |                                             |       |  | Value of                                    |
|                                                                                                                          |                                             |                                |                    |                                |                                             |       |  | Mortgage                                    |
|                                                                                                                          | Cost Basis                                  |       | Unrealized    Gain |       | Securities                                  |
| As of March 31, 2009                                                                                                     | $        | 4,194                          |                    |                                | $        | 6,897 |  | $        | 11,091 |  |
|        Increases (decreases) to      mortgage securities – available-for-sale   |                                             |                                |                    |                                |                                             |       |  |                                             |  |  |
|        Accretion of income      (A)                                                   |                                             | 3,454                          |                    |                                |                                             | -     |  |                                             | 3,454 |  |
|        Proceeds from paydowns of      securities (A) (B)                              |                                             | (5,084                         | )                  |                                |                                             | -     |  |                                             | (5,084 | ) |
|        Impairment on mortgage      securities – available-for-sale              |                                             | (250                           | )                  |                                |                                             | -     |  |                                             | (250 | ) |
|        Mark-to-market value      adjustment                                           |                                             | -                              |                    |                           |                                        | 508   |  |                                             | 508 |  |
|        Net (decrease) increase      to mortgage securities – available-for-sale |                                             | (1,880                         | )                  |                                |                                             | 508   |  |                                             | (1,372 | ) |
| As of June 30, 2009                                                                                                      | $                                           | 2,314                          |                    |                                | $                                           | 7,405 |  | $                                           | 9,719 |  |
|                                                                                                                     |                                             |                                |                    |                                |                                             |       |  |                                             |  |  |

| (A)        | Cash      received on mortgage securities with no cost basis was $1.2 million for      the three months ended June 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (B)                                           | For      mortgage securities with a remaining cost basis, the Company reduces the      cost basis by the amount of cash that is contractually due from the      securitization trusts. In contrast, for mortgage securities in which the      cost basis has previously reached zero, the Company records in interest      income the amount of cash that is contractually due from the      securitization trusts. In both cases, there are instances where the      Company may not receive a portion of this cash until after the balance      sheet reporting date. Therefore, these amounts are recorded as receivables      from the securitization trusts. As of June 30, 2009, the Company had no      receivable due from securitizationtrusts. |

|                   |                                |             |                                |                     | Fair Value Measurements at      Reporting Date Using |
|-------------------|--------------------------------|-------------|--------------------------------|---------------------|------------------------------------------------------|
|                   |                                |             |                                |                     | Quoted Prices    in                                  |  | Significant |  |  |  |
|                   |                                |             |                                |                     | Active Markets      for                              |  | Other |  | Significant |
|                   |                                | Real Estate |                                | Identical    Assets |                                                      | Observable |  | Unobservable |
| Fair Value at     |       | Owned (A)   |       | (Level 1)           |                             | Inputs (Level    2) |       | Inputs (Level    3) |
| December 31, 2009 |                                | $           | 64,179                         |                | $                                                    | - |   | $ | - |   | $ | 64,179 |
|              |                                |             |                                |                     |                                                      |  |  |  |  |  |  |  |

| (A)        | The      Company did not hold any Real Estate Owned as of June 30,      2010. |
|-----------------------------------------------|-------------------------------------------------------------------------------|

|                                                                  |                                |              |                                | Fair Value                                  |                                | Fair Value          |                                |                                             |
|------------------------------------------------------------------|--------------------------------|--------------|--------------------------------|---------------------------------------------|--------------------------------|---------------------|--------------------------------|---------------------------------------------|
|                                                                  |                                |              |                                | Adjustments    For                          |                                | Adjustments    For  |                                |                                             |
|                                                                  |                                |              |                                | the SixMonths                               |                                | the Three    Months |                                |                                             |
|                                                                  |                                |              |                                | Ended June 30                               |                                | Ended June 30       |                                |                                             |
|                                                                  |                                | Fair Value   |                                |                                             |                                |                     |                                |                                             |  |  |  |  |  |  |  |  |  |  |  |  |
| Asset or      Liability                                          |                                | Measurement  |                                |                                             |                                |                     |                                |                                             |  |  |  |  |  |  |  |  |  |  |  | Statement of      Operations |
| Measured at Fair      Value                                      |       | Frequency    |       | 2010                                        |       | 2009                |       | 2010                                        |       | 2009 |       | Line Item      Impacted |
| Mortgage securities-                                             |                                |              |                                |                                             |                                |                     |                                |                                             |  |  |  |  |  |  |  |  |  |  |  |  |
|        trading                |                                | Recurring    |                                | $        | 91                             |                     |                                | $        | (9,705 | ) |  | $        | (264 | ) |  | $        | (1,955 | ) |  | Other income    (expense) |
| Mortgage securities–                                       |                           |         |                                |                                             |                                |                     |                           |                                             |  |   |  |   |  |   |  |   |   |  |  |  |
|        available-for-sale     |                                | Recurring    |                                |                                        | -                              |                     |                                |                                        | (452 | ) |   |  | - |  |  |  | (250 | ) |  | Other income    (expense) |
| Real estate owned                                                |                                | Nonrecurring |                           |                                             | (178                           | )                   |                                |                                        | (9,164 | ) |  |  | - |  |   |  | (4,984 | ) |   | Other income    (expense) |
| Derivative    instruments,                                       |                                |              |                                |                                             |                                |                     |                                |                                             |   |  |  |  |  |  |  |  |  |  |  |  |
|        net                    |                                | Recurring    |                                |                                             | 157                            |                     |                                |                                             | (4,626 | ) |  |  | - |  |  |  | (431 | ) |  | Other income    (expense) |
| Asset-backed bonds                                               |                                |              |                                |                                             |                                |                     |                                |                                             |  |  |  |  |  |  |  |  |  |  |  |  |
|        secured by    mortgage |                                |              |                                |                                             |                                |                     |                                |                                             |  |  |  |  |  |  |  |  |  |  |  |  |
|        securities             |                                | Recurring    |                                |                                             | 566                            |                     |                                |                                             | 3,505 |  |  |  | 32 |  |  |  | 1,465 |  |  | Other income    (expense) |
| Total fair value    losses                                       |                                |              |                                | $                                           | 636                            |                     |                                | $                                           | (20,442 | ) |  | $ | (232 | ) |  | $ | (6,155 | ) |  |  |
|                                                             |                                |              |                                |                                             |                                |                     |                                |                                             |  |  |  |  |  |  |  |  |  |  |  |  |

----

----

|                                     |                                | Unpaid    Principal                         |                                | Year to Date    Gain |                                             |                                |            |        |
|-------------------------------------|--------------------------------|---------------------------------------------|--------------------------------|----------------------|---------------------------------------------|--------------------------------|------------|--------|
| Unpaid Principal Balance as      of |       | Balance                                     |       | Recognized           |                                             |       | Fair Value |
| June 30, 2010                       |                           | $        | 324,299                        |                 | $        | 566                            |       |   | $        | 1,087 |
| December 31, 2009                   |                           |                                             | 323,999                        |                 |                                             | 2,040                          |  (A)  |   |   | 968 |
|                                |                                |                                             |                                |                      |                                             |                                |            |        |  |  |

| (A)        | For the      six months ended June 30, 2009. |
|-----------------------------------------------|----------------------------------------------|

|                                          |                                | For the Six Months      Ended               |                                |        | For the Three Months      Ended             |                                |
|------------------------------------------|--------------------------------|---------------------------------------------|--------------------------------|--------|---------------------------------------------|--------------------------------|
|                                          |                                | June 30,                                    |                                |        | June 30,                                    |                                |
|                                          |       | 2010                                        |       | 2009   |                                             |       | 2010 |       | 2009 |   |
| Balance, beginning of      period        |                                | $        | -                              |   | $        | -                              |  |  | $        | - |  | $        | - |  |
| Advent acquisition                       |                                |                                             | -                              |        |                                             | 1,190                          |  |   |  | - |   |  | 1,190 |  |
| StreetLinks earnings target      payment |                           |                                        | 975                            |        |                                        | -                              |   |  |  | 975 |  |  | - |  |
| Balance, end of    period                |                                | $                                           | 975                            |        | $                                           | 1,190                          |  (A) |  | $ | 975 |  | $ | 1,190 |  (A) |
|                                     |                                |                                             |                                |        |                                             |                                |  |  |  |  |  |  |  |  |

| (A)        | The      Advent acquisition goodwill was written off during the fourth quarter of      2009. |
|-----------------------------------------------|----------------------------------------------------------------------------------------------|

----

| For the Six Months Ended June      30, 2010                                                                     |
|-----------------------------------------------------------------------------------------------------------------|
|                                                                                                                 | Securitization |  |  |  |  |  | Appraisal |  |  |  |  |  |  |  |  |  |
|                                                                                                                 | Trusts |       | Corporate |       | Management |  |       | Eliminations |       | Total |
| Income and Revenues:                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Service fee    income                                                 | $        | - |  |  | $        | - |  |  | $        | 27,453 |  |  | $        | - |  |  | $        | 27,453 |  |
|        Interest income –      mortgage                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               loans                       |  | 10,681 |  |  |  | - |  |  |  | - |  |  |  | 167 |  |  |  | 10,848 |  |
|        Interest income –      mortgage                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               securities                  |  | 450 |  |  |  | 4,048 |  |  |  | - |  |  |  | - |  |  |  | 4,498 |  |
| Total                                                                                                           |  | 11,131 |  |  |  | 4,048 |  |  |  | 27,453 |  |  |  | 167 |  |  |  | 42,799 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Costs and Expenses:                                                                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Cost ofservices                                                       |  | - |  |  |  | - |  |  |  | 24,679 |  |  |  | - |  |  |  | 24,679 |  |
|        Interest expense –      asset-                                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               backed      bonds           |  | 1,416 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,416 |  |
|        Provision for credit      losses                                      |  | 17,433 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 17,433 |  |
|        Servicing fees                                                        |  | 731 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 731 |  |
|        Premiums for mortgage      loan                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               insurance                   |  | 308 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 308 |  |
|        Selling, general      and                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   |  |  |
|               administrative      expense |  | 14 |  |  |  | 7,557 |  |  |  | 1,924 |  |  |  | - |  |  |  | 9,495 |  |
|        Gain on derecognition      of                                         |  |  |  |  |   |  |  |   |  |  |   |  |  |  |  |  |  |  |  |
|               securitization      trusts  |  | (993,131 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (993,131 | ) |
|        Other expenses      (income)                                          |  | 1,254 |  |  |  | (1,759 | ) |  |  | 40 |  |  |  | 162 |   |  |  | (303 | ) |
| Total                                                                                                           |   | (971,975 | ) |   |  | 5,798 |   |  |  | 26,643 |  |  |   | 162 |  |  |  | (939,372 | ) |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Other income                                                          |  | - |  |  |  | 1,011 |  |  |   | - |  |  |  | - |  |  |  | 1,011 |  |
|        Interest expense on      trust                                        |  |  |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               preferred      securities   |  | - |  |  |  | (572 | ) |  |  | - |  |  |  | - |  |  |  | (572 | ) |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Income (loss) before income      tax                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        expense                                                               |  | 983,106 |  |  |  | (1,311 | ) |  |  | 810 |  |  |  | 5 |  |  |  | 982,610 |  |
| Income tax expense                                                                                              |  | - |  |  |  | 628 |  |  |  | - |  |  |  | - |  |  |  | 628 |  |
| Net income (loss)                                                                                               |  | 983,106 |  |  |  | (1,939 | ) |  |  | 810 |  |  |  | 5 |  |  |  | 981,982 |  |
| Less: Net (loss)    income                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        attributable to      noncontrolling                                   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        interests                                                             |  | - |  |  |  | (798 | ) |  |  | 99 |  |  |  | - |  |  |  | (699 | ) |
| Net income (loss) attributable      to                                                                          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        NFI                                                                   | $ | 983,106 |  |  | $ | (1,141 | ) |  | $ | 711 |  |  | $ | 5 |  |  | $ | 982,681 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| June 30,2010:                                                                                                   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total assets                                                                                                    | $ | 1,428 |  |  | $ | 24,612 |  |  | $ | 8,125 |  (A) |  | $ | (283 | ) |  | $ | 33,882 |  |
|                                                                                                            |

| (A)        | Includes      goodwill of $1.0 million. |
|-----------------------------------------------|-----------------------------------------|

----

| For the Six Months Ended June      30, 2009                                                                     |
|-----------------------------------------------------------------------------------------------------------------|
|                                                                                                                 | Securitization |  |  |  |  |  | Appraisal |  |  |   |  |  |  |  |  |
|                                                                                                                 | Trusts |       | Corporate |       | Management |       | Eliminations |       | Total |
| Income and Revenues:                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Service fee    income                                                 | $        | - |  |  | $        | - |  |  | $        | 12,073 |  |  | $        | - |  |  | $        | 12,073 |  |
|        Interest income –      mortgage                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               loans                       |  | 58,782 |  |  |  | - |  |  |  | - |  |  |  | 358 |  |  |  | 59,140 |  |
|        Interest income –      mortgage                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               securities                  |  | 6,146 |  |  |  | 11,632 |  |  |  | - |  |  |  | (2,340 | ) |  |  | 15,438 |  |
| Total                                                                                                           |  | 64,928 |  |  |  | 11,632 |  |  |  | 12,073 |  |  |  | (1,982 | ) |  |  | 86,651 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Costs and Expenses:                                                                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Cost ofservices                                                       |  | - |  |  |  | - |  |  |  | 12,978 |  |  |  | - |  |  |  | 12,978 |  |
|        Interest expense –      asset-                                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               backed      bonds           |  | 11,202 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,202 |  |
|        Provision for credit      losses                                      |  | 168,988 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 168,988 |  |
|        Servicing fees                                                        |  | 5,861 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,861 |  |
|        Premiums for mortgage      loan                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               insurance                   |  | 5,833 |  |  |  | 19 |  |  |  | - |  |  |  | - |  |  |  | 5,852 |  |
|        Selling, general      and                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               administrative      expense |  | 160 |  |  |  | 9,316 |  |  |  | 1,382 |  |  |  | (75 | ) |  |  | 10,783 |  |
|        Other expenses                                                        |  | 5,520 |  |  |  | 6,248 |  |  |  | 42 |  |  |  | - |  |  |  | 11,810 |  |
| Total                                                                                                           |  | 197,564 |  |  |  | 15,583 |  |  |  | 14,402 |  |  |  | (75 | ) |  |  | 227,474 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Other income                                                          |  | 101 |  |  |  | 1,309 |  |  |  | - |  |  |  | - |  |  |  | 1,410 |  |
|        Interest expense on      trust                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               preferred      securities   |   | - |  |  |  | (665 | ) |  |  | - |  |  |  | - |  |  |  | (665 | ) |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Loss before income tax      expense                                                                             |  | (132,535 | ) |  |  | (3,307 | ) |  |  | (2,329 | ) |  |  | (1,907 | ) |  |  | (140,078 | ) |
| Income tax expense                                                                                              |  | - |  |  |  | 129 |  |  |  | - |  |  |  | - |  |  |  | 129 |  |
| Net loss                                                                                                        |  | (132,535 | ) |  |  | (3,436 | ) |  |  | (2,329 | ) |  |  | (1,907 | ) |  |  | (140,207 | ) |
| Less: Net loss attributable      to                                                                             |  |  |   |   |  |  |  |  |  |  |  |  |  |  |  |   |  |  |  |
|        noncontrolling      interests                                         |  | - |  |  |   | (81 | ) |  |   | (698 | ) |  |  | - |  |  |  | (779 | ) |
| Net loss attributable to      NFI                                                                               | $ | (132,535 | ) |  | $ | (3,355 | ) |   | $ | (1,631 | ) |   | $ | (1,907 | ) |  | $ | (139,428 | ) |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| December 31,      2009:                                                                                         |  |   |  |  |  |  |   |  |  |   |   |  |   |   |  |  |  |  |  |
| Total assets                                                                                                    | $ | 1,437,059 |  |  | $ | 26,706 |  |  | $ | 4,164 |  |  | $ | (8,438 | ) |  | $ | 1,459,491 |  |
|                                                                                                            |

----

| For the Three Months Ended      June 30, 2010                                                                   |
|-----------------------------------------------------------------------------------------------------------------|
|                                                                                                                 | Securitization |  |  |  |  |  | Appraisal |  |  |   |  |  |  |  |  |
|                                                                                                                 | Trusts |       | Corporate |       | Management |       | Eliminations |       | Total |
| Income and Revenues:                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Service fee    income                                                 | $        | - |  |  | $        | - |  |  | $        | 17,806 |  | $        | - |  |  | $        | 17,806 |  |
|        Interest income –      mortgage                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               loans                       |  | - |  |  |  | - |  |  |  | - |  |  | - |  |  |  | - |  |
|        Interest income –      mortgage                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               securities                  |  | 204 |  |  |  | 2,186 |  |  |  | - |  |  | - |  |  |  | 2,390 |  |
| Total                                                                                                           |  | 204 |  |  |  | 2,186 |  |  |  | 17,806 |  |  | - |  |  |  | 20,196 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Costs and Expenses:                                                                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Cost ofservices                                                       |  | - |  |  |  | - |  |  |  | 15,610 |  |  | - |  |  |  | 15,610 |  |
|        Selling, general      and                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               administrative      expense |  | - |  |  |  | 2,801 |  |  |  | 1,150 |  |  | - |  |  |  | 3,951 |  |
|        Other expenses      (income)                                          |  | 695 |  |  |  | (539 | ) |  |  | 22 |  |  | 92 |  |  |  | 270 |  |
| Total                                                                                                           |  | 695 |  |  |  | 2,262 |  |  |  | 16,782 |  |  | 92 |  |  |  | 19,831 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|        Other income                                                          |  | - |  |  |  | 216 |  |  |  | 1 |  |  | - |  |  |  | 217 |  |
|        Interest expense on      trust                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|               preferred      securities   |  | - |  |  |  | (248 | ) |  |  | - |  |  | - |  |  |  | (248 | ) |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (Loss) income before income      tax                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| expense                                                                                                         |  | (491 | ) |  |  | (108 | ) |  |  | 1,025 |  |  | (92 | ) |  |  | 334 |  |
| Income tax expense                                                                                              |   | - |  |  |  | 216 |   |  |  | - |  |  | - |  |  |  | 216 |  |
| Net (loss) income                                                                                               |  | (491 | ) |  |  | (324 | ) |  |  | 1,025 |  |  | (92 | ) |  |  | 118 |  |
| Less: Net (loss)    income                                                                                      |  |  |  |  |  |  |  |  |   |  |  |  |  |  |  |   |  |  |
|        attributable to      noncontrolling                                   |  |  |  |  |  |   |  |  |  |  |  |  |  |  |  |  |  |  |
|        interests                                                             |  | - |  |   |   | (263 | ) |  |  | 125 |  |  | - |  |  |  | (138 | ) |
| Net (loss) income attributable      to                                                                          |  |  |  |  |  |  |  |   |  |   |   |  |  |  |  |  |  |  |
|        NFI                                                                   | $ | (491 | ) |  | $ | (61 | ) |  | $ | 900 |  | $ | (92 | ) |  | $ | 256 |  |
|                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

| For the Three Months Ended      June 30, 2009 |
|-----------------------------------------------|

|                                                                                                            |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |   |        |                          |                                       |      |        |                          |                                       |         |        |
|------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|---------|-----------|--------------------------|---------------------------------------|--------|--------------|--------------------------|---------------------------------------|--------|--------|--------------------------|---------------------------------------|------|--------|--------------------------|---------------------------------------|---------|--------|
|                                                                                                            |                          | Securitization                        |         |           |                          |                                       |        | Appraisal    |                          |                                  |        |        |                          |                                       |
|                                                                                                            |                          | Trusts                                |         | Corporate |                          | Management                            |        | Eliminations |                          | Total                                 |
| Income and Revenues:                                                                                       |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|        Service fee income                                                    |      | $       | -       |           |      | $       | -      |              |      | $       | 10,388 |        |      | $       | -    |        |      | $       | 10,388  |        |
|        Interest income –      mortgage                                 |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|                    loans                  |                          |                                       | 29,655  |           |                          |                                       | -      |              |                          |                                       | -      |        |                          |                                       | 212  |        |                          |                                       | 29,867  |        |
|        Interest income –      mortgage                                 |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |   |                          |                                       |         |        |
|                    securities             |                          |                                  | 1,225   |           |                          |                                  | 3,305  |              |                          |                                       | -      |   |                          |                                       | (499 | )      |                          |                                       | 4,031   |        |
| Total                                                                                                      |                          |                                       | 30,880  |           |                          |                                       | 3,305  |              |                          |                                       | 10,388 |        |                          |                                       | (287 | )      |                          |                                       | 44,286  |        |
|                                                                                                       |
| Costs and Expenses:                                                                                        |                          |                                       |         |           |                          |                                       |        |         |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|        Cost of services                                                      |                          |                                       | -       |           |                          |                                       | -      |              |                          |                                  | 10,510 |        |                          |                                       | -    |        |                          |                                       | 10,510  |        |
|        Interest expense –      asset-                                  |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |   |        |                          |                                       |      |        |                          |                                       |         |        |
|                    backed bonds           |                          |                                       | 5,999   |           |                          |                                       | -      |              |                          |                                       | -      |        |                          |                                  | -    |        |                          |                                       | 5,999   |        |
|        Provision for credit      losses                                      |                          |                                       | 67,514  |      |                          |                                       | -      |              |                          |                                       | -      |        |                          |                                       | -    |        |                          |                                       | 67,514  |        |
|        Servicing fees                                                        |                          |                                       | 2,870   |           |                          |                                       | -      |              |                          |                                       | -      |        |                          |                                       | -    |        |                          |                                       | 2,870   |        |
|        Premiums for mortgage      loan                                       |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|                    insurance              |                          |                                       | 2,494   |           |                          |                                       | 17     |              |                          |                                       | -      |        |                          |                                       | -    |        |                          |                                       | 2,511   |        |
|        Selling, general and                                                  |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|                    administrative expense |                          |                                       | 66      |           |                          |                                       | 4,212  |              |                          |                                       | 1,068  |        |                          |                                       | (18  | )      |                          |                                       | 5,328   |        |
|        Other expenses    (income)                                            |                          |                                       | 3,874   |           |                          |                                       | (4,161 | )            |                          |                                       | 24     |        |                          |                                       | -    |        |                          |                                       | (263    | )      |
| Total                                                                                                      |                          |                                       | 82,817  |           |                          |                                       | 68     |              |                          |                                       | 11,602 |        |                          |                                       | (18  | )      |                          |                                  | 94,469  |   |
|                                                                                                       |
|        Other income                                                          |                          |                                       | 114     |           |                          |                                       | 1,110  |              |                          |                                       | -      |        |                          |                                       | -    |        |                          |                                       | 1,224   |        |
|        Interest income on    trust                                           |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|                    preferred securities   |                          |                                       | -       |           |                          |                                       | 527    |              |                          |                                       | -      |        |                          |                                       | -    |        |                          |                                       | 527     |        |
|                                                                                                  |
| (Loss) income before income      tax                                                                       |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
| expense                                                                                                    |                          |                                       | (51,823 | )         |                          |                                       | 4,874  |              |                          |                                       | (1,214 | )      |                          |                                       | (269 | )      |                          |                                       | (48,432 | )      |
| Income tax expense                                                                                         |                          |                                       | -       |           |                          |                                       | 77     |              |                          |                                       | -      |        |                          |                                       | -    |        |                          |                                       | 77      |        |
| Net (loss) income                                                                                          |                          |                                       | (51,823 | )         |                          |                                       | 4,797  |              |                          |                                       | (1,214 | )      |                          |                                       | (269 | )      |                          |                                       | (48,509 | )      |
| Less: Net loss attributable      to                                                                        |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|        noncontrolling    interests                                           |                          |                                       | -       |           |                          |                                       | (81    | )            |                          |                                       | (364   | )      |                          |                                       | -    |        |                          |                                       | (445    | )      |
| Net (loss) income attributable      to                                                                     |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |
|        NFI                                                                   |                          | $                                     | (51,823 | )         |                          | $                                     | 4,878  |              |                          | $                                     | (850   | )      |                          | $                                     | (269 | )      |                          | $                                     | (48,064 | )      |
|                                                                                                       |                          |                                       |         |           |                          |                                       |        |              |                          |                                       |        |        |                          |                                       |      |        |                          |                                       |         |        |

----

|                                                                                                                                              |                                      | For the Six Months      Ended         |           | For the Three      Months |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|---------------------------------------|-----------|---------------------------|
|                                                                                                                                              |                                      | June 30,                              |           | Ended June  30,           |
|                                                                                                                                              |                                      | 2010                                  |           | 2009                      |  | 2010 |  | 2009 |
| Numerator:                                                                                                                                   |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |      |  |  |  |
|        Net income (loss)                                                                                       |        | $       | 981,982   |                           |  | $ | (140,207 | ) |      | $       | 118 |  |  | $       | (48,509 | ) |
|        Less loss attributable to      noncontrolling interests                                                 |                                      |                                       | (699      | )                         |  |  | (779 | ) |  |   | (138 | ) |  |   | (445 | ) |
|        Dividends on preferred      shares                                                                      |                                      |                                       | (8,051    | )                         |  |  | (7,481 | ) |  |   | (4,077 | ) |  |   | (3,786 | ) |
|        Allocation of undistributed      income to convertible                                                  |                                      |                                       |           |                      |  |  |  |  |  |  |  |  |  |  |  |  |
|                    participating preferred stock                            |                                      |                                  | (162,986  | )                         |  |  | - |  |  |  | - |  |  |  | - |  |
|        Income (loss) available to      common shareholders                                                     |                                      | $                                     | 811,644   |                           |  | $ | (146,909 | ) |  |  $ | (3,821 | ) |  | $ | (51,850 | ) |
|                                                                                                                                         |
| Denominator:                                                                                                                                 |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|        Weighted average common shares      outstanding – basic                                           |                                      |                                       | 9,337,207 |                           |  |  | 9,368,053 |  |  |  | 9,337,207 |  |  |  | 9,368,053 |  |
|                                                                                                                                    |
|        Weighted average common shares      outstanding – dilutive:                                       |                                      |                                       | 9,337,207 |                           |  |  | 9,368,053 |  |  |  | 9,337,207 |  |  |  | 9,368,053 |  |
|                    Weighted average common shares outstanding – basic |                                      |                                       | -         |                           |  |  | - |  |  |  | - |  |  |  | - |  |
|                    Stock options                                            |                                      |                                       | -         |                           |  |  | - |  |  |  | - |  |  |   | - |  |
|        Weighted average common shares      outstanding – dilutive                                        |                                      |                                       | 9,337,207 |                           |  |  | 9,368,053 |  |  |  | 9,337,207 |  |  |  | 9,368,053 |  |
|                                                                                                                                    |
| Basic earnings per      share:                                                                                                               |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|        Net income (loss)                                                                                       |                                      | $                                     | 105.17    |                           |  | $ | (14.97 | ) |  | $ | 0.01 |  |  | $ | (5.18 | ) |
|        Less loss attributable to      noncontrolling interests                                                 |                                      |                                       | (0.08     | )                         |  |  | (0.08 | ) |  |   | (0.01 | ) |  |   | (0.05 | ) |
|        Dividends on preferred      shares                                                                      |                                      |                                       | (0.86     | )                         |  |  | (0.80 | ) |  |   | (0.43 | ) |  |   | (0.40 | ) |
|        Allocation of undistributed      income to convertible                                                  |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|                    participating preferred stock                            |                                      |                                       | (17.46    | )                         |  |  | - |  |  |  | - |  |  |  | - |  |
|        Net income (loss) available to      common shareholders                                                 |                                      | $                                     | 86.93     |                           |  | $ | (15.69 | ) |  | $ | (0.41 | ) |  | $ | (5.53 | ) |
|                                                                                                                                         |
| Diluted earnings per      share:                                                                                                             |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|        Net income (loss)                                                                                       |                                      | $                                     | 105.17    |                           |  | $ | (14.97 | ) |  | $ | 0.01 |  |  | $ | (5.18 | ) |
|        Less loss attributable to      noncontrolling interests                                                 |                                      |                                       | (0.08     | )                         |  |  | (0.08 | ) |  |   | (0.01 | ) |  |   | (0.05 | ) |
|        Dividends on preferred      shares                                                                      |                                      |                                       | (0.86     | )                         |  |  | (0.80 | ) |  |   | (0.43 | ) |  |   | (0.40 | ) |
|        Allocation of undistributed      income to convertible                                                  |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |  |  |  |  |
|                    participating preferred stock                            |                                      |                                       | (17.46    | )                         |  |   | - |  |  |  | - |  |  |  | - |  |
|        Net income (loss) available to      common shareholders                                                 |                                      | $                                     | 86.93     |                           |      | $       | (15.69 | ) |  | $ | (0.41 | ) |  | $ | (5.53 | ) |
|                                                                                                                                         |                                      |                                       |           |                           |  |  |  |  |  |  |  |  |  |  |  |  |

----

|                                                       |                          | For the Six Months      Ended         |       | For the Three      Months |
|-------------------------------------------------------|--------------------------|---------------------------------------|-------|---------------------------|
|                                                       |                          | June      30,                         |       | Ended June      30,       |
|                                                       |                          | 2010                                  |       | 2009                      |  | 2010 |  | 2009 |
| Number of stock options (in      thousands)           |                          |                                  | 278   |                           |   | 114 |  |  | 279 |  |  | 114 |
| Weighted average exercise      price of stock options |      | $       | 22.17 |       | $       | 52.98 |      | $       | 22.13 |      | $       | 52.98 |
|                                                  |                          |                                       |       |                           |  |  |  |  |  |  |  |  |

|                                                                                                                                       |                          | As of June 30,      2010              |        | As of December 31,      2009 |
|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------|------------------------------|
|                                                                                                                                       |                          | CarryingValue                         |        | Fair Value                   |  | CarryingValue |  | Fair Value |
| Financial    assets:                                                                                                                  |                          |                                       |        |                              |  |  |  |  |  |  |  |  |  |  |
|        Cash and cash      equivalents                                                                   |      | $       | 14,468 |          | $       | 14,468 |      | $       | 7,104 |  |      | $       | 7,104 |  |
|        Restricted cash                                                                                  |                          |                                       | 1,529  |                              |  | 1,456 |  |  | 5,342 |  |  |  | 5,206 |  |
|        Mortgage loans -      held-in-portfolio                                                          |                          |                                       | -      |                              |  | - |  |  | 1,289,474 |  |  |  | 1,160,527 |  |
|        Mortgage securities -      trading                                                               |                          |                                       | 1,079  |                              |  | 1,079 |  |  | 1,087 |   |  |  | 1,087 |  |
|        Mortgage securities -      available-for-sale                                                    |                          |                                       | 5,853  |                              |  | 5,853 |  |  | 6,903 |  |  |  | 6,903 |  |
|        Accrued interest      receivable                                                                 |                          |                                       | -      |                              |  | - |  |  | 74,025 |  |  |  | 74,025 |  |
|        Notes receivable                                                                                 |                          |                                       | 4,318  |                              |  | 4,318 |  |  | 4,920 |  |  |  | 4,920 |  |
| Financial      liabilities:                                                                                                           |                          |                                  |        |                              |  |  |  |  |  |  |  |  |  |  |
|        Borrowings:                                                                                      |                          |                                       |        |                              |  |  |  |  |  |  |  |  |  |  |
|                    Asset-backed bonds secured by mortgage loans      |                          |                                       | -      |                              |  | - |  |  | 2,270,602 |  |  |  | 1,297,980 |  |
|                    Asset-backed bonds secured by mortgage securities |                          |                                       | 1,087  |                              |  | 1,087 |  |  | 968 |  |  |  | 968 |  |
|                    Junior subordinated debentures                    |                          |                                       | 77,983 |                              |  | 5,591 |  |  | 77,815 |  |  |  | 6,225 |  |
|        Accrued interest    payable                                                                      |                          |                                       | 393    |                              |   | 393 |  |  | 751 |  |  |  | 751 |  |
| Derivative      instruments:                                                                                                          |                          |                                       | -      |                              |  | - |  |   | (157 | ) |  |   | (157 | ) |
|                                                                                                                                  |                          |                                       |        |                              |  |  |  |  |  |  |  |  |  |  |

----

- appraisers must be paid  “reasonable and customary fees,” 
- require regulatory  agencies to implement uniform appraisal standards for all federal  appraisals, 
- require appraisal  management companies to register with state agencies, and 
- govern automated  valuation models. 

----

- maintaining and/or  generating adequate liquidity to sustain us and allow us to take advantage of  investment opportunity, and 
- generating income for  our shareholders. 

|                                                                           |                          | June 30,                              |        | December                 |
|---------------------------------------------------------------------------|--------------------------|---------------------------------------|--------|--------------------------|
|                                                                           |                          | 2010                                  |        | 31, 2009                 |
| Unrestricted cash and cash      equivalents                               |                          | $                                     | 14,468 |                          | $ | 7,104 |  |
|                                                                      |
|                                                                 |
|                                                                           |                          | For the Six Months      Ended         |
|                                                                           |                          | June 30,                              |
|                                                                           |                          | 2010                                  |        | 2009                     |
| Net income (loss) available to      common shareholders per diluted share |      | $       | 86.93  |      | $       | (15.69 | ) |
|                                                                      |                          |                                  |        |                          |  |  |  |

----

|                                                                                                           |                          |                                       |     |             |                          |                                       |          |                     |                          |                                       |      |        |                          |                                  |         |        |                          |                                       |
|-----------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|----------|-------------|--------------------------|---------------------------------------|----------|---------------------|--------------------------|---------------------------------------|-----------|--------|--------------------------|---------------------------------------|---------|--------|--------------------------|---------------------------------------|
|                                                                                                           |                          | NHEL2006-MTA1                         |          | NHEL 2006-1 |                          | NHEL 2007-1                           |          | Eliminations    (A) |                          | Total                                 |
| Assets:                                                                                                   |                          |                                       |          |             |                          |                                       |          |                     |                          |                                       |           |        |                          |                                       |         |        |                          |                                       |  |  |
|        Mortgage loans –      held-in-                                 |                          |                                       |          |             |                          |                                       |          |                     |                          |                                       |           |        |                          |                                       |         |        |                          |                                       |  |  |
|                    portfolio             |      | $       | 528,388  |             |      | $       | 399,507  |                     |      | $       | 1,033,296 |        |      | $       | (8,003  | )      |      | $       | 1,953,188 |  |
|        Allowance for loan      losses                                       |                          |                                  | (147,147 | )           |                          |                                       | (115,191 | )                   |                          |                                       | (440,563  | )      |                          |                                       | -       |   |                          |                                       | (702,901 | ) |
|        Accrued interest      receivable                                     |                          |                                       | 6,176    |             |                          |                                       | 20,521   |                     |                          |                                       | 46,028    |        |                          |                                       | -       |        |                          |                                       | 72,725 |   |
|        Real estate owned                                                    |                          |                                       | 11,842   |        |                          |                                       | 17,919   |                     |                          |                                       | 25,548    |        |                          |                                       | -       |        |                          |                                       | 55,309 |  |
|                                                                                                      |
| Total assets                                                                                              |                          |                                       | 399,259  |             |                          |                                       | 322,756  |                     |                          |                                       | 664,309   |        |                          |                                       | (8,003  | )      |                          |                                       | 1,378,321 |  |
|                                                                                                      |
| Liabilities:                                                                                              |                          |                                       |          |             |                          |                                       |          |                     |                          |                                       |           |        |                          |                                       |         |        |                          |                                       |  |  |
|        Asset-backed bonds                                                   |                          |                                       | 588,434  |             |                          |                                       | 465,164  |                |                          |                                       | 1,175,608 |        |                          |                                       | 6,427   |        |                          |                                       | 2,235,633 |  |
|        Due to servicer                                                      |                          |                                       | 17,298   |             |                          |                                       | 32,835   |                     |                          |                                       | 81,639    |        |                          |                                       | -       |        |                          |                                       | 131,772 |  |
|        Other liabilities                                                    |                          |                                       | 9,432    |             |                          |                                       | 12,368   |                     |                          |                                       | 24,017    |        |                          |                                       | (41,770 | )      |                          |                                       | 4,047 |  |
|                                                                                                 |
| Total liabilities                                                                                         |                          |                                       | 615,164  |             |                          |                                       | 510,367  |                     |                          |                                       | 1,281,264 |        |                          |                                       | (35,343 | )      |                          |                                       | 2,371,452 |  |
|                                                                                                 |
|        Gain on derecognition    of                                          |                          |                                       |          |             |                          |                                       |          |                     |                          |                                  |           |   |                          |                                  |         |        |                          |                                       |  |  |
|                    securitization trusts |                          | $                                     | 215,905  |             |                          | $                                     | 187,611  |                     |                          | $                                     | 616,955   |        |                          | $                                     | (27,340 | )      |                          | $                                     | 993,131 |  |
|                                                                                                      |                          |                                       |          |             |                          |                                       |          |                     |                          |                                       |           |        |                          |                                       |         |        |                          |                                       |  |  |

| (A) |         | Eliminations relate to intercompany accounts at the consolidated      financial statement level, there are no intercompany balances between the      securitization trusts. |
|-----|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

- Mortgage Loans -  Held-in-Portfolio 
- Allowance for Loan  Losses 
- Accrued Interest  Receivable 
- Real Estate Owned 

----

- Due to Servicer 
- Asset-backed Bonds  Secured by Mortgage Assets 
- Other securitization  trust liabilities 

| Table 3 — Values of Individual      Mortgage Securities – Available-for-Sale (dollars in      thousands) |                          |                                       |                          |               |                      |              |
|----------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------------|--------------------------|---------------|----------------------|-------------------|
|                                                                                                                      |                          | June 30, 2010                         |                     |               | December 31,    2009 |              |
|                                                                                                                      |                          |                                       |                          |               |                      |                   |  |  |  |  |  |  | Expected |  |  |  |  |  |  |  |  |  |  |  |  | Expected |
| Securitization                                                                                                       |                          | Estimated                             |                          |               |                      |                   |  | Constant Pre- |  | Credit |  | Estimated |  |  |  |  |  | Constant Pre- |  | Credit |
| Trust (A)                                                                                                            |                          | Fair Value                            |      | Discount Rate |                 | payment      Rate |  | Losses |  | Fair Value |      | Discount Rate |  | payment Rate |  | Losses |
| 2002-3                                                                                                               |      | $       | 1,865                    |               | 25                   | %                 |      |      | 17 | % |      |      | 1.0 | % |   |      | $       | 1,997 |   | 25 | % |      |      | 15 | % |      |      | 1.0 | % |   |
| 2003-1                                                                                                               |                          |                                       | 2,972                    |               | 25                   |                   |  |  | 17 |  |  |  | 2.2 |  |   |  |  | 3,469 |  | 25 |  |  |  | 13 |   |  |  | 2.1 |  |   |
| 2003-3                                                                                                               |                          |                                       | 662                      |               | 25                   |                   |  |  | 13 |   |  |  | 2.6 |  |   |  |  | 1,437 |  | 25 |  |  |  | 10 |  |  |  | 2.7 |  |   |
| 2003-4                                                                                                               |                          |                                  | 354                      |               | 25                   |              |  |  | 16 |  |  |  | 2.6 |  |   |  |   | - |  | 25 |   |  |  | 12 |  |  |  | 2.7 |   |   |
| Total                                                                                                                |                          | $                                     | 5,853                    |               |                      |                   |  |  |  |  |  |  |  |  |   |  | $ | 6,903 |  |  |  |  |  |  |  |  |  |  |  |   |
|                                                                                                                 |                          |                                       |                          |               |                      |                   |  |  |  |  |  |  |  |  |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   |

| (A)       We established the trust      upon securitization of the underlying loans, which generally were      originated by us. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Table 4 — Income (Expense) of      Consolidated Loan Securitization; Gain on |
|------------------------------------------------------------------------------------|
| Disposition of Mortgage Assets      (dollars in thousands)                         |
|                                                                                    |  | For the Six      Months |
|                                                                                    |  | Ended June  30, |
|                                                                                    |        | 2010 |        | 2009 |
| Gain on derecognition of      securitization trusts                                |   | $       | 993,131 |   |   | $       | – |   |
| Interest income – mortgage      loans                                        |  |  | 10,681 |   |  |  | 59,140 |  |
| Interest expense –      asset-backed bonds                                   |  |  | (1,416 | ) |  |  | (11,202 | ) |
| Provision for credit      losses                                                   |  |   | (17,433 | ) |  |  | (168,988 | ) |
| Servicing fees                                                                     |  |  | (731 | ) |  |   | (5,861 | ) |
| Premiums for mortgage loan      insurance                                          |   |  | (297 | ) |   |  | (5,833 | ) |
| Other expense                                                                      |  |  | (560 | ) |  |  | (4,709 | ) |
|                                                                               |  |  |  |  |  |  |  |  |

----

| Table 5 — Appraisal Management Segment Operations (dollars in      thousands, except unit amounts) |
|----------------------------------------------------------------------------------------------------------|
|                                                                                                          |  | For the Six Months Ended June      30, |  | For the Three Months Ended      June 30, |
|                                                                                                          |  | 2010 |   | 2009 |  | 2010 |   | 2009 |
|                                                                                                          |   | Total |   | Per    Unit |   | Total |      | Per      Unit |      | Total |   | Per Unit |   | Total |   | Per Unit |
| Completed appraisal orders      (units)                                                                  |  |  | 73,866 |  |  |   |  |  | 32,249 |   |   |  |  |  |  | 48,339 |   |  |  |   |  | 27,440 |   |  |  |  |   |
|                                                                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Service fee income                                                                                       |      | $  | 27,453 |      | $  | 372 |      | $  | 12,073 |     | $  | 374 |  |     | $  | 17,806 |      | $ | 368 |      | $  | 10,388 |  |      | $   | 379 |  |
| Cost of services                                                                                         |   |   | 24,679 |   |  | 334 |  |  | 12,978 |  |  | 402 |   |  |  | 15,610 |  |   | 323 |  |  | 10,510 |   |  |  | 383 |  |
| Selling, general and      administrative      expense                                                    |  |  | 1,924 |  |  | 26 |   |  | 1,382 |  |  | 43 |  |  |   | 1,150 |   |  | 24 |  |  | 1,068 |  |  |  | 39 |   |
| Other expense                                                                                            |  |  | 41 |  |   | 1 |  |   | 42 |  |  | 1 |  |  |  | 22 |  |  | - |  |  | 24 |  |  |  | 1 |  |
|                                                                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Other income    (expense)                                                                                |  |  | 1 |  |  | - |  |  | - |  |  | - |  |  |  | 1 |  |  | - |  |  | - |  |  |  | - |  |
|                                                                                                     |
| Net income (loss)                                                                                        |  |  | 810 |  |  | 11 |  |  | (2,329 | ) |   | (72 | ) |  |  | 1,025 |  |   | 21 |  |  | (1,214 | ) |  |  | (44 | ) |
| Less: Net income (loss)      attributable                                                                |  |  |  |  |   |  |   |  |  |  |  |  |  |  |  |  |   |  |  |  |   |   |  |  |  |  |  |
|        to noncontrolling      interests                                    |   |   | 99 |  |  | 1 |  |  | (698 | ) |   | (22 | ) |  |  | 125 |  |  | 2 |  |  | (364 | ) |  |   | (13 | ) |
| Net income (loss) attributable      to NFI                                                               |  | $ | 711 |  |  $ | 10 |  | $ | (1,631 | ) | $ | (50 | ) |  | $ | 900 |  | $ | 19 |  | $ | (850 | ) |  | $ | (31 | ) |
|                                                                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Table 6 — Contractual      Obligations (dollars in thousands) |
|---------------------------------------------------------------------|
| As of June 30,      2010                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                     |  |  |  |  | Less |  |  |  |  |  |  |  |  |  |
|                                                                     |  |  |  |  | than 1 |  |  |  |  |  |  |  | After 5 |
| Contractual      Obligations                                        |   |        | Total |        | Year |        | 1-3 Years |        | 3-5 Years |        | Years |
| Junior subordinated      debentures                                 |  | $       | 97,805 |   | $       | 781 |  |   | 1,563 |  | $       | 1,563 |   | $       | 93,898 |
| Operating leases                                                    |   |  | 3,644 |  |   | 1,466 |   |  | 1,812 |   |   | 366 |  |  | - |
| Total obligations                                                   |  | $ | 101,449 |  | $ | 2,247 |  | $       | 3,375 |  | $ | 1,929 |  | $ | 93,898 |
|                                                                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

|  Table 7      — Primary Sources of Cash Receipts and Disbursements (dollars in      thousands) |                                      |                                        |
|---------------------------------------------------------------------------------------------------------------------|--------------------------------------|---------------------------------------------|
|                                                                                                                     |                                      | For the Six Months    Ended                 |
|                                                                                                                |        | June 30,                                    |
|                                                                                                                |                                      | 2010                                        |        | 2009 |
| Primary    sources:                                                                                                 |                                      |                                        |  |   |  |  |  |   |
| Fees received for appraisal      management services                                                                |                                 | $        | 27,886 |  |   | $       | 12,616 |   |
| Cash flows received from      mortgage securities                                                                   |                                      |                                             | 5,193 |   |  |  | 9,769 |   |
|                                                                                                                |
| Primary uses:                                                                                                       |                                      |                                             |  |   |  |  |  |   |
| Payment of corporate, general      and administrative expenses                                                      |                                      |                                             | (3,697 | ) |  |  | (13,391 | ) |
| Payments for appraisals and      related administrative expenses                                                    |                                      |                                             | (22,417 | ) |  |  | (9,376 | ) |
|                                                                                                                |                                      |                                             |  |  |  |  |  |  |

----

| Table 8 — Summary of Operating, Investing and Financing Cash Flows      (dollars in thousands) |
|------------------------------------------------------------------------------------------------------|
|                                                                                                      |  | For the Six Months      Ended |
|                                                                                                      |  | June 30, |
|                                                                                                      |        | 2010 |        | 2009 |
| Consolidated Statements of      Cash Flows:                                                          |  |   |  |   |   |  |  |  |
| Cash provided by operating      activities                                                           |  | $       | 5,138 |  |  | $       | 43,086 |  |
| Cash flows provided by      investing activities                                                     |   |  | 37,700 |  |  |  | 115,005 |  |
| Cash flows used in financing      activities                                                         |  |  | (35,474 | ) |  |   | (162,237 | ) |
|                                                                                                 |  |  |  |  |  |  |  |  |

----

- As short-term interest  rates declined and continue to remain low, the net spread to us has increased  and remains high, 
- Higher credit losses  have decreased cash available to distribute with respect to our  securities, 
- We have lower average  balances of our mortgage securities—available-for-sale portfolio as the  securities have paid down and we have not acquired new bonds. 

----

----

| Item 2. Unregistered Sales of      Equity Securities and Use of Proceeds |                                      |              |                                      |
|--------------------------------------------------------------------------|--------------------------------------|--------------|--------------------------------------|
| (dollars in      thousands)                                              |
| Issuer Purchases of Equity      Securities                               |
|                                                                          |                                      |              |                                      |  |  | Total Number    of |  |  |  |
|                                                                          |                                      |              |                                      |  |  | Shares |  | Approximate      Dollar |
|                                                                          |                                      |              |                                      |  |  | Purchased as |  | Value of    Shares |
|                                                                          |                                      |              |                                      |  |  | Part of    Publicly |  | That May Yet    Be |
|                                                                          |                                      | Total Number |                                      | Average |  | Announced |  | Purchased    Under |
|                                                                          |                                      | of Shares    |                                      | Price Paid |  | Plans or |  | the Plans  or |
|                                                                          |        | Purchased    |        | per Share |        | Programs |          | Programs  (A) |
| April 1 – April 30,    2010                                        |                                 | -            |                                 | - |   | - |  | $       | 1,020 |
| May 1 – May 31, 2010                                               |                                      | -            |                                      | - |  | - |  | $ | 1,020 |
| June 1, 2010 – June 30,      2010                                  |                                      | -            |                                      | - |  | - |  | $ | 1,020 |
|                                                                     |                                      |              |                                      |  |  |  |  |  |  |

| (A) |        | A      current report on Form 8-K was filed on October 2, 2000 announcing that      the Board of Directors authorized the Company to repurchase its common      shares, bringing the total authorization to $9  million. |
|-----|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Exhibit No. |        | Description of      Document                                                                        |
|-------------|--------------------------------------|-----------------------------------------------------------------------------------------------------|
| 11.1(1)     |                                 | Statement Regarding      Computation of Per Share Earnings                                          |
|        |                                 |                                                                                                |
| 31.1        |                                      | Chief Executive Officer      Certification - Section 302 of the Sarbanes-Oxley Act of 2002          |
|        |                                 |                                                                                                |
| 31.2        |                                      | Principal Financial Officer      Certification - Section 302 of the Sarbanes-Oxley Act of 2002      |
|        |                                 |                                                                                                |
| 32.1        |                                      | Chief Executive Officer      Certification - Section 906 of the Sarbanes-Oxley Act of 2002          |
|        |                                 |                                                                                                |
| 32.2        |                                      | Principal      Financial Officer Certification - Section 906 of the Sarbanes-Oxley Act of      2002 |

| (1) |        | See      Note 14 to the condensed consolidated financial  statements. |
|-----|--------------------------------------|-----------------------------------------------------------------------|

----

| DATE: August 11,2010 | /s/ W. Lance      Anderson              |   |
|----------------------|-----------------------------------------|--------|
|                      | W. Lance Anderson, Chairman of      the |
|                      | Board of Directors and      Chief       |
|                      | Executive Officer                       |
|                      | (Principal Executive      Officer)      |
|                 |
| DATE: August 11,2010 | /s/ Rodney      E. Schwatken            |   |
|                      | Rodney E. Schwatken,      Chief         |
|                      | Financial Officer                       |
|                      | (Principal Financial      Officer)      |

----