UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

NEW YORK MORTGAGE TRUST, INC.

Maryland		47-0934168
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

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

Yes R No £

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes £ No R

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

Yes £ No R

The number of shares of the registrant’s common stock, par value $.01 per share, outstanding on November 1, 2005 was 18,219,302.

 

 

Part I Financial Information
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Overview of Performance
Summary of Operations and Key Performance Measurements
Known Material Trends and Commentary
Description of Business
Significance of Estimates and Critical Accounting Policies
Forward Looking Financial Statement Effects
New Accounting Policies
Risk Management
Financial Highlights for the Third Quarter of 2005
Results of Operations and Financial Condition
Off-Balance Sheet Arrangements
Liquidity and Capital Resources
Inflation
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Credit Spread Exposure
Fair Values
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-31.3: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I: FINANCIAL INFORMATION

		September 30,
		2005				December 31,
		(unaudited)				2004
ASSETS
Cash and cash equivalents		$	11,302,458			$	7,613,106
Restricted cash			445,635				2,341,712
Investment securities — available for sale			797,079,293				1,204,744,714
Due from loan purchasers			143,620,835				79,904,315
Escrow deposits — pending loan closings			11,932,354				16,235,638
Accounts and accrued interest receivable			16,027,466				15,554,201
Mortgage loans held for sale			116,533,155				85,384,927
Mortgage loans held in securitization trusts			589,354,405				—
Mortgage loans held for investment			140,411,907				190,153,103
Deferred tax and other assets			12,537,424				4,351,869
Derivative assets			9,298,248				3,677,572
Property and equipment, net			6,456,230				4,801,302
TOTAL ASSETS		$	1,854,999,410			$	1,614,762,459
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Financing arrangements, portfolio investments		$	1,282,723,167			$	1,115,809,285
Financing arrangements, loans held for sale/for investment			398,907,025				359,202,980
Due to loan purchasers			1,607,750				350,884
Accounts payable and accrued expenses			18,380,787				19,485,241
Subordinated debentures			45,000,000				—
Derivative liabilities			1,076,310				164,816
Other liabilities			250,726				267,034
Total liabilities			1,747,945,765				1,495,280,240
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY :
Common stock, $0.01 par value, 400,000,000 shares authorized 18,219,302 shares issued and outstanding at September 30, 2005 and 18,114,445 shares issued and 17,797,375 outstanding at December 31, 2004			182,193				180,621
Additional paid-in capital			111,359,871				119,045,450
Accumulated other comprehensive (loss) income			(4,488,419	)			256,148
Total stockholders’ equity			107,053,645				119,482,219
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,854,999,410			$	1,614,762,459

See notes to consolidated financial statements.

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

		For the Nine Months Ended								For the Three Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
						As restated (1)
REVENUE:
Gain on sales of mortgage loans		$	21,633,961			$	14,933,433			$	8,985,293			$	4,482,262
Interest income:
Loans held for sale			10,573,325				5,777,240				4,473,157				2,633,442
Investment securities and mortgage loans held for investment			34,035,558				7,659,748				9,208,733				7,656,699
Loans held in the securitization trusts			11,875,521				—				6,016,479				—
Brokered loan fees			7,180,484				4,398,137				2,646,683				1,437,664
Gain on sale of securities and related hedges			2,207,433				732,812				1,286,031				125,837
Miscellaneous income			194,683				95,597				91,043				49,620
Total revenue			87,700,965				33,596,967				32,707,419				16,385,524
EXPENSES:
Salaries, commissions and benefits			23,874,659				11,394,409				7,302,398				4,503,571
Interest expense:
Loans held for sale/for investment			11,194,956				2,960,294				4,807,623				1,227,997
Portfolio investments			30,089,833				4,237,195				10,749,583				4,237,195
Subordinated debentures			1,095,300				—				601,722				—
Brokered loan expenses			5,688,931				3,136,452				1,483,323				1,016,930
Occupancy and equipment			4,981,098				2,426,188				1,264,643				888,671
Marketing and promotion			3,900,043				1,973,922				1,310,316				677,531
Data processing and communications			1,807,406				1,136,470				617,824				515,234
Office supplies and expenses			1,908,839				1,017,243				651,279				370,003
Professional fees			2,812,478				1,087,735				965,945				433,981
Travel and entertainment			706,904				393,872				261,293				88,597
Depreciation and amortization			1,068,906				308,859				301,705				102,953
Other			1,083,537				795,716				530,214				102,645
Total expenses			90,212,890				30,868,355				30,847,868				14,165,308
(LOSS) INCOME BEFORE INCOME TAXES			(2,511,925	)			2,728,612				1,859,551				2,220,216
Income tax benefit			5,880,000				221,653				1,000,000				231,653
NET INCOME		$	3,368,075			$	2,950,265			$	2,859,551			$	2,451,869
Basic income per share		$	0.19			$	0.17			$	0.16			$	0.14
Diluted income per share		$	0.19			$	0.17			$	0.16			$	0.14
Weighted average shares outstanding—basic			17,854,850				17,797,375				17,958,175				17,797,375
Weighted average shares outstanding—diluted			18,121,074				17,800,024				18,242,373				17,800,547

(1) See note 18 for details regarding the restatement.

See notes to consolidated financial statements.

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

		For the Nine Months Ended
		September 30,
		2005				2004
						As restated (1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	3,368,075			$	2,950,265
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			1,068,906				308,859
Amortization of premium on investment securities and mortgage loans			4,880,406				358,835
Gain on sale of securities and related hedges			(2,207,433	)			(732,812	)
Origination of mortgage loans held for sale			(2,179,945,226	)			(954,882,602	)
Proceeds from sales of mortgage loans			1,689,574,271				949,391,144
Restricted stock compensation expense			1,823,199				1,326,375
Stock option grants – compensation expense			33,758				—
Deferred tax benefit			(5,880,000	)			(221,653	)
Change in value of derivatives			(1,348,991	)			(692,019	)
(Increase) decrease in operating assets:
Due from loan purchasers			(63,716,520	)			7,960,875
Escrow deposits — pending loan closings			4,303,284				(28,569,060	)
Accounts and accrued interest receivable			(473,265	)			(8,401,518	)
Deferred tax and other assets			(792,829	)			(1,336,174	)
Increase (decrease) in operating liabilities:
Due to loan purchasers			1,256,866				(519,548	)
Accounts payable and accrued expenses			(583,040	)			6,546,317
Other liabilities			(16,308	)			139,966
Net cash used in operating activities			(548,654,847	)			(26,372,750	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash			1,896,077				(2,761,205	)
Sale of investment securities			223,812,777				21,398,981
Purchase of investment securities			(148,150,185	)			(1,216,359,998	)
Purchase of mortgage loans held in the securitization trusts			(167,873,446	)			—
Principal repayments received on loans held in the securitization trust			77,720,402				—
Proceeds from sale of marketable securities			—				2,320,414
Principal paydown on investment securities			320,539,626				30,563,700
Payments received on loans held for investment			8,935,308				(25,715,056	)
Purchases of property and equipment			(2,723,834	)			(1,189,528	)
Net cash provided by (used in) investing activities			314,156,725				(1,191,742,692	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock			—				123,116,740
Cash distributions to members			—				(3,295,448	)
Payments on subordinated notes due to members			—				(13,706,902	)
Increase in financing arrangements, net			206,617,927				1,120,776,691
Dividends paid			(13,430,453	)			—
Issuance of subordinated debentures			45,000,000				—
Net cash provided by financing activities			238,187,474				1,226,891,081
NET INCREASE IN CASH AND CASH EQUIVALENTS			3,689,352				8,775,639
CASH AND CASH EQUIVALENTS — Beginning of period			7,613,106				4,357,069
CASH AND CASH EQUIVALENTS — End of period		$	11,302,458			$	13,132,708
SUPPLEMENTAL DISCLOSURE
Cash paid for interest		$	25,282,759			$	932,830
NON CASH ACTIVITIES
Reduction of subordinated notes due members		$	—			$	1,000,000
Grant of common stock			31,035				3,709,125
Dividends declared to be paid in subsequent period		$	3,826,053			$	2,905,939

(1) See note 18 for details regarding the restatement.

See notes to consolidated financial statements.

NEW YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES

1. Summary of Significant Accounting Policies

     Organization — New York Mortgage Trust, Inc. (“NYMT” or the “Company”) is a fully-integrated, self-advised, residential mortgage finance company formed as a Maryland corporation in September 2003. The Company earns net interest income from residential mortgage-backed securities and fixed-rate and adjustable-rate mortgage loans and securities originated through its wholly-owned subsidiary, The New York Mortgage Company, LLC (“NYMC”). The Company also earns net interest income from its investment in and the securitization of certain self-originated adjustable rate mortgage loans that meet the Company’s investment criteria. Licensed, or exempt from licensing, in 42 states and the District of Columbia and through a network of 27 full-service loan origination locations and 39 satellite loan origination locations, NYMC originates a wide range of mortgage loans, with a primary focus on prime, residential mortgage loans.

     The Company is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. As such, the Company will generally not be subject to federal income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by the due date of its federal income tax return and complies with various other requirements.

     On January 9, 2004, the Company capitalized New York Mortgage Funding, LLC (“NYMF”) as a wholly-owned subsidiary of the Company. NYMF is a qualified REIT subsidiary, or QRS, in which the Company accumulates mortgage loans that the Company intends to securitize. In June 2004, the Company sold 15 million shares of its common stock in an initial public offering (“IPO”) at a price to the public of $9.00 per share, for net proceeds of $122.0 million after deducting the underwriters’ discount and other offering expenses. Concurrent with the Company’s IPO, the Company issued 2,750,000 shares of common stock in exchange for the contribution to the Company of 100% of the equity interests of NYMC. Subsequent to the IPO and the contribution of NYMC, the Company had 18,114,445 shares of common stock issued and 17,797,375 shares outstanding. Prior to the IPO, NYMT did not have recurring business operations.

     On February 25, 2005, the Company completed its first loan securitization of high-credit quality, first-lien, adjustable rate mortgage (“ARM”) loans, by contributing loans into New York Mortgage Trust 2005-1 (“NYMT ‘05-1 Trust”). NYMT ‘05-1 Trust is a wholly-owned subsidiary of NYMT. The securitization was structured as a secured borrowing, with the line-of-credit financing used to purchase and originate the mortgage loans and refinanced through repurchase agreements upon securitization. On March 15, 2005, the Company closed a private placement of $25.0 million of trust preferred securities issued by NYM Preferred Trust I. NYM Preferred Trust I is a wholly-owned subsidiary of NYMC. On July 28, 2005 the Company completed its second loan securitization of $239.5 million of high-credit quality, first-lien, ARM loans, by contributing loans to New York Mortgage Trust 2005-2 (“NYMT ‘05-2 Trust”). NYMT ‘05-2 Trust is a wholly-owned subsidiary of NYMT. The securitization was structured as a secured borrowing, with the line-of-credit financing used to purchase and originate the mortgage loans and refinanced through repurchase agreements upon securitization. On September 1, 2005, the Company closed a private placement of $20.0 million of preferred securities issued by NYM Preferred Trust II. NYM Preferred Trust II is a wholly-owned subsidiary of NYMC.

     As used herein, references to the “Company,” “NYMT,” “we,” “our” and “us” refer to New York Mortgage Trust, Inc., collectively with its subsidiaries.

     Basis of Presentation — The consolidated financial statements include the accounts of the Company subsequent to the IPO and also include the accounts of NYMC and NYMF prior to the IPO. As a result, our historical financial results reflect the financial operations of this prior business strategy of selling virtually all of the loans originated by NYMC to third parties. All intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current period classifications.

     The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for the fair statement of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.

     The combination of the Company and NYMC was accounted for as a transfer of assets between entities under common control. Accordingly, the Company has recorded assets and liabilities transferred from NYMC at their carrying amounts in the accounts of NYMC at the date of transfer.

     Upon the closing of the Company’s IPO, of the 2,750,000 shares exchanged for the equity interests of NYMC, 100,000 shares were held in escrow through December 31, 2004 and were available to satisfy any indemnification claims the Company may have had against the contributors of NYMC for losses incurred as a result of defaults on any residential mortgage loans originated by NYMC and closed prior to the completion of the IPO. As of December 31, 2004, the amount of escrowed shares was reduced by 47,680 shares, representing $492,536 for estimated losses on loans closed prior to the Company’s IPO. Furthermore, the contributors of NYMC entered into a new escrow agreement which extended the escrow period to December 31, 2005 for the remaining 52,320 shares. There have been no additional losses with respect to the escrow agreement booked during the nine month period ended September 30, 2005.

     Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s estimates and assumptions primarily arise from risks and uncertainties associated with interest rate volatility, prepayment volatility, credit exposure and regulatory changes. Although management is not currently aware of any factors that would significantly change its estimates and assumptions in the near term, future changes in market conditions may occur which could cause actual results to differ materially.

     Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, amounts due from banks and overnight deposits. The Company maintains its cash and cash equivalents in highly rated financial institutions, and at times these balances exceed insurable amounts.

     Restricted Cash — Restricted cash is held by counterparties as collateral for hedging instruments and two letters of credit related to the Company's lease of the corporate headquarters.

     Investment Securities Available for Sale — The Company’s investment securities are residential mortgage-backed securities comprised of FannieMae (“FNMA”), Freddie Mac (“FHLMC”), Ginnie Mae (“GNMA”) and “AAA”— rated adjustable-rate loans, including adjustable-rate loans that have an initial fixed-rate period. Investment securities are classified as available for sale securities and are reported at fair value with unrealized gains and losses reported in other comprehensive income (“OCI”). Realized gains and losses recorded on the sale of investment securities available for sale are based on the specific identification method and included in gain on sale of securities. Purchase premiums or discounts on investment securities are accreted or amortized to interest income over the estimated life of the investment securities using the interest method. Investment securities may be subject to interest rate, credit and/or prepayment risk.

     When the fair value of an available for sale security is less than amortized cost, management considers whether there is an other-than-temporary impairment in the value of the security (e.g., whether the security will be sold prior to the recovery of fair value). Management considers at a minimum the following factors that, both individually or in combination, could indicate the decline is “other-than-temporary:” 1) the length of time and extent to which the market value has been less than book value; 2) the financial condition and near-term prospects of the issuer; or 3) the intent and ability of the Company to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If, in management’s judgment, an other-than-temporary impairment exists, the cost basis of the security is written down to the then-current fair value, and the unrealized loss is transferred from accumulated other comprehensive income as an immediate reduction of current earnings (i.e., as if the loss had been realized in the period of impairment). Even though no credit concerns exist with respect to an available for sale security, an other- than-temporary impairment may be evident if management determines that the Company does not have the intent and ability to hold an investment until a forecasted recovery of the value of the investment.

     Due from Loan Purchasers and Escrow Deposits – Pending Loan Closings — Amounts due from loan purchasers are a receivable for the principal and premium due to us for loans sold and shipped but for which payment has not yet been received at period end. Escrow deposits pending loan closing are advance cash fundings by us to escrow agents to be used to close loans within the next one to three business days.

     Mortgage Loans Held for Sale — Mortgage loans held for sale represent originated mortgage loans held for sale to third party investors. The loans are initially recorded at cost based on the principal amount outstanding net of deferred direct origination costs and fees. The loans are subsequently carried at the lower of cost or market value. Market value is determined by examining outstanding commitments from investors or current investor yield requirements, calculated on an aggregate loan basis, less an estimate of the costs to close the loan, and the deferral of fees and points received, plus the deferral of direct origination costs. Gains or losses on sales are recognized at the time title transfers to the investor which is typically concurrent with the transfer of the loan files and related documentation and are based upon the difference between the sales proceeds from the final investor and the adjusted book value of the loan sold.

     Mortgage Loans Held in the Securitization Trusts — Mortgage loans held in the securitization trusts are certain ARM mortgage loans transferred to the NYMT ‘05-1 Trust and to the NYMT ‘05-2 Trust which have been securitized into sequentially rated classes of beneficial interests. Currently the Company has retained 100% interest in the securitized loans and the transfer has been accounted for as a secured borrowing with a pledge of collateral. Mortgage loans held in the securitization trusts are recorded at amortized cost, using the same accounting principles as that used for mortgage loans held for investment, as described below.

     Mortgage Loans Held for Investment — The Company retains substantially all of the adjustable-rate mortgage loans originated that meet specific investment criteria and portfolio requirements. Loans originated and retained in the Company’s portfolio are serviced through a subservicer. Servicing is the function primarily consisting of collecting monthly payments from mortgage borrowers, and disbursing those funds to the appropriate loan investors.

     Mortgage loans held for investment are recorded net of deferred loan origination fees and associated direct costs and are stated at amortized cost. Net loan origination fees and associated direct mortgage loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield. This amortization includes the effect of projected prepayments.

     Interest income is accrued and recognized as revenue when earned according to the terms of the mortgage loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in no case when payment becomes greater than 90 days delinquent. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.

     Credit Risk and Allowance for Loan Losses — The Company limits its exposure to credit losses on its portfolio of residential adjustable-rate mortgage-backed securities by purchasing securities that are guaranteed by a government-sponsored or federally-chartered corporation (FNMA, FHLMC or GNMA) (collectively “Agency Securities”) or that have a “AAA” investment grade rating by at least one of two nationally recognized rating agencies, Standard & Poor’s, Inc. or Moody’s Investors Service, Inc. at the time of purchase.

     The Company seeks to limit its exposure to credit losses on its portfolio of residential adjustable-rate mortgage loans held for investment (including mortgage loans held in the securitization trusts) by originating and investing in loans primarily to borrowers with strong credit profiles, which are evaluated by analyzing the borrower’s credit score (“FICO” is a credit score, ranging from 300 to 850, with 850 being the best score, based upon the credit evaluation methodology developed by Fair, Isaac and Company, a consulting firm specializing in creating credit evaluation models), employment, income and assets and related documentation, the amount of equity in and the value of the property securing the borrower’s loan, debt to income ratio, credit history, funds available for closing and post-closing liquidity.

     The Company estimates an allowance for loan losses based on management’s assessment of probable credit losses in the Company’s investment portfolio of residential mortgage loans. Mortgage loans are collectively evaluated for impairment as the loans are homogeneous in nature. The allowance is based upon management’s assessment of various credit-related factors, including current economic conditions, the credit diversification of the portfolio, loan-to-value ratios, delinquency status, historical credit losses, purchased mortgage insurance and other factors deemed to warrant consideration. If the credit performance of mortgage loans held for investment deviates from expectations, the allowance for loan losses is adjusted to a level deemed appropriate by management to provide for estimated probable losses in the portfolio.

     The allowance will be maintained through ongoing provisions charged to operating income and will be reduced by loans that are charged off. Determining the allowance for loan losses is subjective in nature due to the estimation required.

     Property and Equipment, Net — Property and equipment have lives ranging from three to ten years, and are stated at cost less accumulated depreciation and amortization. Depreciation is determined in amounts sufficient to charge the cost of depreciable assets

to operations over their estimated service lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method.

     Derivative Financial Instruments — The Company has developed risk management programs and processes, which include investments in derivative financial instruments designed to manage market risk associated with its mortgage banking and its mortgage-backed securities investment activities.

     All derivative financial instruments are reported as either assets or liabilities in the consolidated balance sheet at fair value. The gains and losses associated with changes in the fair value of derivatives not designated as hedges are reported in current earnings. If the derivative is designated as a fair value hedge and is highly effective in achieving offsetting changes in the fair value of the asset or liability hedged, the recorded value of the hedged item is adjusted by its change in fair value attributable to the hedged risk. If the derivative is designated as a cash flow hedge, the effective portion of change in the fair value of the derivative is recorded in OCI and is recognized in the income statement when the hedged item affects earnings. The Company calculates the effectiveness of these hedges on an ongoing basis, and, to date, has calculated effectiveness of approximately 100%. Ineffective portions, if any, of changes in the fair value or cash flow hedges, are recognized in earnings. (See Note 13).

     In accordance with a Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (“SAB 105”) issued on March 9, 2004, beginning in the second quarter of 2004, the fair value of interest rate lock commitments (“IRLCs”) excludes future cash flows related to servicing rights, if such rights are retained upon the sale of originated mortgage loans. Since the Company sells all of its originated loans with servicing released, SAB 105 had no effect on the value of its IRLCs.

     Risk Management — Derivative transactions are entered into by the Company solely for risk management purposes. The decision of whether or not an economic risk within a given transaction (or portion thereof) should be hedged for risk management purposes is made on a case-by-case basis, based on the risks involved and other factors as determined by senior management, including the financial impact on income, asset valuation and restrictions imposed by the Internal Revenue Code among others. In determining whether to hedge a risk, the Company may consider whether other assets, liabilities, firm commitments and anticipated transactions already offset or reduce the risk. All transactions undertaken to hedge certain market risks are entered into with a view towards minimizing the potential for economic losses that could be incurred by the Company. Under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), the Company is required to formally document its hedging strategy before it may elect to implement hedge accounting for qualifying derivatives. Accordingly, all qualifying derivatives are intended to qualify as fair value, or cash flow hedges, or free standing derivatives. To this end, terms of the hedges are matched closely to the terms of hedged items with the intention of minimizing ineffectiveness.

     In the normal course of its mortgage loan origination business, the Company enters into contractual interest rate lock commitments to extend credit to finance residential mortgages. These commitments, which contain fixed expiration dates, become effective when eligible borrowers lock-in a specified interest rate within time frames established by the Company’s origination, credit and underwriting practices. Interest rate risk arises if interest rates change between the time of the lock-in of the rate by the borrower and the sale of the loan. Under SFAS No. 133, the IRLCs are considered undesignated or free-standing derivatives. Accordingly, such IRLCs are recorded at fair value with changes in fair value recorded to current earnings. Mark to market adjustments on IRLCs are recorded from the inception of the interest rate lock through the date the underlying loan is funded. The fair value of the IRLCs is determined by the interest rate differential between the contracted loan rate and the currently available market rates as of the reporting date.

     To mitigate the effect of the interest rate risk inherent in providing IRLCs from the lock-in date to the funding date of a loan, the Company generally enters into forward sale loan contracts (“FSLC”). The FSLCs in place prior to the funding of a loan are undesignated derivatives under SFAS No. 133 and are marked to market through current earnings.

     Derivative instruments contain an element of risk in the event that the counterparties may be unable to meet the terms of such agreements. The Company minimizes its risk exposure by limiting the counterparties with which it enters into contracts to banks, investment banks and certain private investors who meet established credit and capital guidelines. Management does not expect any counterparty to default on its obligations and, therefore, does not expect to incur any loss due to counterparty default. These commitments and option contracts are considered in conjunction with the Company’s lower of cost or market valuation of its mortgage loans held for sale.

     The Company uses other derivative instruments, including treasury, agency or mortgage-backed securities forward sale contracts which are also classified as free-standing, undesignated derivatives and thus are recorded at fair value with the changes in fair value recognized in current earnings.

     Once a loan has been funded, the Company’s primary risk objective for its mortgage loans held for sale is to protect earnings from an unexpected charge due to a decline in value. The Company’s strategy is to engage in a risk management program involving the designation of FSLCs (the same FSLCs entered into at the time of rate lock) to hedge most of its mortgage loans held for sale. The FSLCs have been designated as qualifying hedges for the funded loans and the notional amount of the forward delivery contracts, along with the underlying rate and critical terms of the contracts, are equivalent to the unpaid principal amount of the mortgage loan being hedged. The FSLCs effectively fix the forward sales price and thereby offset interest rate and price risk to the Company. Accordingly, the Company evaluates this relationship quarterly and, at the time the loan is funded, classifies and accounts for the FSLCs as cash flow hedges.

     Interest Rate Risk — The Company hedges the aggregate risk of interest rate fluctuations with respect to its borrowings, regardless of the form of such borrowings, which require payments based on a variable interest rate index. The Company generally intends to hedge only the risk related to changes in the benchmark interest rate (London Interbank Offered Rate (“LIBOR”) or a Treasury rate).

     In order to reduce such risks, the Company enters into swap agreements whereby the Company receives floating rate payments in exchange for fixed rate payments, effectively converting the borrowing to a fixed rate. The Company also enters into cap agreements whereby, in exchange for a fee, the Company is reimbursed for interest paid in excess of a certain capped rate.

     To qualify for cash flow hedge accounting, interest rate swaps and caps must meet certain criteria, including:

	•		the items to be hedged expose the Company to interest rate risk; and
	•		the interest rate swaps or caps are expected to be and continue to be highly effective in reducing the Company’s exposure to interest rate risk.

     The fair values of the Company’s interest rate swap agreements and interest rate cap agreements are based on market values provided by dealers who are familiar with the terms of these instruments. Correlation and effectiveness are periodically assessed at least quarterly based upon a comparison of the relative changes in the fair values or cash flows of the interest rate swaps and caps and the items being hedged.

     For derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instruments are reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instruments in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.

     With respect to interest rate swaps and caps that have not been designated as hedges, any net payments under, or fluctuations in the fair value of, such swaps and caps, will be recognized in current earnings.

     Termination of Hedging Relationships — The Company employs a number of risk management monitoring procedures to ensure that the designated hedging relationships are demonstrating, and are expected to continue to demonstrate, a high level of effectiveness. Hedge accounting is discontinued on a prospective basis if it is determined that the hedging relationship is no longer highly effective or expected to be highly effective in offsetting changes in fair value of the hedged item.

     Additionally, the Company may elect to undesignate a hedge relationship during an interim period and re-designate upon the rebalancing of a hedge profile and the corresponding hedge relationship. When hedge accounting is discontinued, the Company continues to carry the derivative instruments at fair value with changes recorded in current earnings.

     Other Comprehensive Income — Other comprehensive income is comprised primarily of net income (loss) from changes in value of the Company’s available for sale securities, and the impact of deferred gains or losses on changes in the fair value of derivative contracts hedging future cash flows.

     Gain on Sale of Mortgage Loans — The Company recognizes gain on sale of loans sold to third parties as the difference between the sales price and the adjusted cost basis of the loans when title transfers. The adjusted cost basis of the loans includes the original principal amount adjusted for deferrals of origination and commitment fees received, net of direct loan origination costs paid.

     Loan Origination Fees and Direct Origination Cost — The Company records loan fees, discount points and certain incremental direct origination costs as an adjustment of the cost of the loan and such amounts are included in gain on sales of loans when the loan is sold. Accordingly, salaries, compensation, benefits and commission costs have been reduced by $32.2 million and $13.6 million for the nine-month periods ended September 30, 2005 and 2004, respectively, because such amounts are considered incremental direct loan origination costs.

     Brokered Loan Fees and Expenses — The Company records commissions associated with brokered loans when such loans are closed with the borrower. Costs associated with brokered loans are expensed when incurred.

     Loan Commitment Fees — Mortgage loans held for sale: fees received for the funding of mortgage loans to borrowers at pre-set conditions are deferred and recognized at the date at which the loan is sold. Mortgage loans held for investment: such fees are deferred and recognized into interest income over the life of the loan based on the effective yield method.

     Employee Benefits Plans — The Company sponsors a defined contribution plan (the “Plan”) for all eligible domestic employees. The Plan qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan, participating employees may defer up to 25% of their pre-tax earnings, subject to the annual Internal Revenue Code contribution limit. The Company matches contributions up to a maximum of 25% of the first 5% of salary. Employees vest immediately in their contribution and vest in the Company’s contribution at a rate of 25% after two full years and then an incremental 25% per full year of service until fully vested at 100% after five full years of service. The Company’s total contributions to the Plan were $0.3 million and $0.1 million for the nine months ended September 30, 2005 and 2004, respectively.

     Stock Based Compensation. The Company follows the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS No. 148”). The provisions of SFAS No. 123 allow companies either to expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company, since it’s inception, has elected not to apply APB No. 25 in accounting for its stock option incentive plans and has expensed stock based compensation in accordance with SFAS No. 123.

     In December, 2004 the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based payment,” (“SFAS No. 123R”) which will require all companies to measure compensation costs for all share-based payments, including employee stock options, at fair value. This statement will be effective for the Company with the quarter beginning January 1, 2006. The adoption of SFAS No. 123R will not have a material impact on the Company’s financial statements.

     Marketing and Promotion — The Company charges the costs of marketing, promotion and advertising to expense in the period incurred.

     Income Taxes — The Company operates so as to qualify as a REIT under the requirements of the Internal Revenue Code. Requirements for qualification as a REIT include various restrictions on ownership of the Company’s stock, requirements concerning distribution of taxable income and certain restrictions on the nature of assets and sources of income. A REIT must distribute at least 90% of its taxable income to its stockholders of which 85% plus any undistributed amounts from the prior year must be distributed within the taxable year in order to avoid the imposition of an excise tax. The remaining balance may extend until timely filing of the Company’s tax return in the subsequent taxable year. Qualifying distributions of taxable income are deductible by a REIT in computing taxable income.

     NYMC changed its tax status upon completion of the IPO from a non-taxable limited liability company to a taxable REIT subsidiary and therefore subsequent to the IPO, is subject to corporate Federal income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base upon the change in tax status. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected

to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     Earnings Per Share — Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

2. Investment Securities Available For Sale

     Investment securities available for sale consist of the following as of September 30, 2005 and December 31, 2004:

		September 30, 2005				December 31, 2004
Amortized cost		$	808,154,513			$	1,207,715,175
Gross unrealized gains			—				150,682
Gross unrealized losses			(11,075,220	)			(3,121,143	)
Fair value		$	797,079,293			$	1,204,744,714

     None of the securities with unrealized losses have been in a loss position for more than one year. The Company has the intent and believes it has the ability to hold such investment securities until recovery of their amortized cost. Substantially all of the Company’s investment securities available for sale are pledged as collateral for borrowings under financing arrangements (Note 8).

3. Mortgage Loans Held For Sale

     Mortgage loans held for sale consist of the following as of September 30, 2005 and December 31, 2004:

		September 30 2005				December 31, 2004
Mortgage loans principal amount		$	116,424,009			$	85,105,027
Deferred origination costs — net			109,146				279,900
Mortgage loans held for sale		$	116,533,155			$	85,384,927

     Substantially all of the Company’s mortgage loans held for sale are pledged as collateral for borrowings under financing arrangements (Note 9).

4. Mortgage Loans Held in the Securitization Trusts

     Mortgage loans held in the securitization trusts consist of the following at September 30, 2005:

Mortgage loans principal amount		$	584,145,551
Deferred origination costs — net			5,208,854
Total mortgage loans held in the securitization trusts		$	589,354,405

     Substantially all of the Company’s mortgage loans held in the securitization trusts are pledged as collateral for borrowings under financing arrangements (Note 8).

5. Mortgage Loans Held For Investment

     Mortgage loans held for investment consist of the following at September 30, 2005 and December 31, 2004:

		September 30, 2005				December 31, 2004
Mortgage loans principal amount		$	139,656,332			$	188,858,607
Deferred origination costs — net			755,575				1,294,496
Total mortgage loans held for investment		$	140,411,907			$	190,153,103

     Substantially all of the Company’s mortgage loans held for investment are pledged as collateral for borrowings under financing arrangements (Note 9).

6. Property and Equipment — Net

     Property and equipment consist of the following as of September 30, 2005 and December 31, 2004:

		September 30, 2005				December 31, 2004
Office and computer equipment		$	5,465,439			$	3,191,096
Furniture and fixtures			2,193,569				2,031,778
Leasehold improvements			1,329,772				1,138,467
Total premises and equipment			8,988,780				6,361,341
Less: accumulated depreciation and amortization			(2,532,550	)			(1,560,039	)
Property and equipment — net		$	6,456,230			$	4,801,302

7. Derivative Instruments and Hedging Activities

     The Company enters into derivatives to manage its interest rate and market risk exposure associated with its mortgage banking and its mortgage-backed securities investment activities. In the normal course of its mortgage loan origination business, the Company enters into contractual IRLCs to extend credit to finance residential mortgages. To mitigate the effect of the interest rate risk inherent in providing IRLCs from the lock-in date to the funding date of a loan, the Company generally enters into FSLCs. With regard to the Company’s mortgage-backed securities investment activities, the Company uses interest rate swaps and caps to mitigate the effects of major interest rate changes on net investment spread.

     The following table summarizes the estimated fair value of derivative assets and liabilities as of September 30, 2005 and December 31, 2004:

		September 30, 2005				December 31, 2004
Derivative Assets:
Interest rate caps		$	2,025,300			$	411,248
Interest rate swaps			6,466,183				3,228,457
Interest rate lock commitments — loan commitments			—				5,270
Interest rate lock commitments — mortgage loans held for sale			—				32,597
Forward loan sale contracts — loan commitments			225,480				—
Forward loan sale contracts — mortgage loans held for sale			207,264				—
Forward loan sale contracts — TBA securities			374,021				—
Total derivative assets		$	9,298,248			$	3,677,572
Derivative Liabilities:
Forward loan sale contracts — loan commitments			—				(23,557	)
Forward loan sale contracts — mortgage loans held for sale			—				(1,846	)
Forward loan sale contracts — TBA securities			—				(139,413	)
Interest rate lock commitments — loan commitments			(606,980	)			—
Interest rate lock commitments — mortgage loans held for sale			(469,330	)			—
Total derivative liabilities		$	(1,076,310	)		$	(164,816	)

     The notional amounts of the Company’s interest rate swaps, interest rate caps and forward loan sales contracts as of September 30, 2005 were $670.0 million, $1.5 billion and $77.2 million, respectively.

     The notional amounts of the Company’s interest rate swaps, interest rate caps and forward loan sales contracts as of December 31, 2004 were $670.0 million, $250.0 million and $97.1 million, respectively

     The Company estimates that over the next twelve months, approximately $5,314,444 of the net unrealized gains on the interest rate swaps will be reclassified from accumulated OCI into earnings.

8. Financing Arrangements, Portfolio Investments

     The Company has entered into repurchase agreements with third party financial institutions to finance its residential mortgage-backed securities and mortgage loans held in the securitization trusts. The repurchase agreements are short-term borrowings that bear interest rates based on a spread to LIBOR, and are secured by the residential mortgage-backed securities and mortgage loans held in

the securitization trusts which they finance. At September 30, 2005, the Company had repurchase agreements with an outstanding balance of $1.3 billion and a weighted average interest rate of 3.80%. As of December 31, 2004, the Company had repurchase agreements with an outstanding balance of $1.1 billion and a weighted average interest rate of 2.35%. At September 30, 2005 securities and mortgage loans pledged as collateral for repurchase agreements had estimated fair values of $1.3 billion. As of December 31, 2004 securities pledged as collateral for repurchase agreements had estimated fair values of $1.2 billion. As of September 30, 2005 all of the repurchase agreements will mature within 25 days, with a weighted average days to maturity equal to 20 days. The Company has available to it $5.6 billion in commitments to provide financings through such arrangements with 23 different counterparties. Counterparties providing repurchase commitments to the Company as of September 30, 2005 are: Banc of America Securities LLC, Barclays Capital, Inc., Bear, Stearns & Co. Inc., Cantor Fitzgerald Securities, Citigroup Global Markets Inc., Countrywide Securities Corporation, Credit Suisse First Boston LLC, Daiwa Securities America, Inc., Deutsche Bank Securities, Inc., Goldman, Sachs & Co., Greenwich Capital Markets, Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch Government Securities, Inc., Morgan Keegan & Company, Morgan Stanley & Co. Incorporated, Nomura Securities International, Inc., RBC Capital Markets Corporation, UBS Securities LLC, Wachovia Capital Markets LLC, WaMu Capital Corp., and WestLB AG.

9. Financing Arrangements, Mortgage Loans Held for Sale or Investment

     Financing arrangements consist of the following as of September 30, 2005, and December 31, 2004:

		September 30,				December 31,
		2005				2004
$250 million master repurchase agreement with Greenwich Capital expiring on December 5, 2005 bearing interest at one-month LIBOR plus 0.75% (4.544% at September 30, 2005 and 3.16% at December 31, 2004). Principal repayments are required 120 days from the funding date(a)		$	204,908,241			$	215,611,800
$200 million revolving line of credit agreement with CSFB expiring on March 31, 2006 bearing interest at daily LIBOR plus spreads from 1.125% to 2.000% depending on collateral (4.796% at September 30, 2005 and 3.599% at December 31, 2004). Principal repayments are required 90 days from the funding date			159,730,022				73,751,874
$150 million revolving line of credit agreement with HSBC expiring on September 30, 2005 bearing interest at one-month LIBOR plus 1.00% (4.702 at September 30, 2005 and 3.29% at December 31, 2004) (b)			34,268,762				69,839,306
		$	398,907,025			$	359,202,980

	(a)		This credit facility, with Greenwich Capital Financial Products, Inc., requires the Company to transfer specific collateral to the lender under repurchase agreements; however, due to the rate of turnover of the collateral by the Company, the counterparty has not taken title to or recorded their interest in any of the collateral transferred. Interest is paid to the counterparty based on the amount of outstanding borrowings and on the terms provided.
	(b)		The HSBC credit facility was terminated by mutual agreement effective September 30, 2005; therefore, effective October 1, 2005, no new loans can be funded under this warehouse facility. The agreement requires repayment in full no later than December 31, 2005. The Company expects to replace this facility with a new counterparty during the fourth quarter of 2005.

     The lines of credit are secured by all of the mortgage loans held by the Company, except for the loans held in the securitization trusts. The lines contain various covenants pertaining to, among other things, maintenance of certain amounts of net worth, periodic income thresholds and working capital. As of September 30, 2005, the Company was in compliance with all covenants. As these annual agreements are negotiated for renewal, these covenants may be further modified. The agreements are each renewable annually, but are not committed, meaning that the counterparties to the agreements may withdraw access to the credit facilities at any time.

10. Commitments and Contingencies

     Loans Sold to Investors — Generally, the Company is not exposed to significant credit risk on its loans sold to investors. In the normal course of business, the Company is obligated to repurchase loans which do not meet certain terms set by investors. Such loans are then generally repackaged and sold to other investors.

     Loans Funding and Delivery Commitments — At September 30, 2005 and December 31, 2004 the Company had commitments to fund loans with agreed-upon rates totaling $182.2 million and $156.1 million, respectively. The Company hedges the interest rate risk of such commitments and the recorded mortgage loans held for sale balances primarily with FSLCs, which totaled $77.2 million and

$97.1 million at September 30, 2005 and December 31, 2004, respectively. The remaining commitments to fund loans with agreed-upon rates are anticipated to be sold through optional delivery contract investor programs. The Company does not anticipate any material losses from such sales.

     Net Worth Requirements — NYMC is required to maintain certain specified levels of minimum net worth to maintain its approved status with FannieMae, Freddie Mac, HUD and other investors. As of September 30, 2005 NYMC is in compliance with all minimum net worth requirements.

     Outstanding Litigation — The Company is involved in litigation arising in the normal course of business. Although the amount of any ultimate liability arising from these matters cannot presently be determined, the Company does not anticipate that any such liability will have a material effect on its consolidated financial statements.

     Leases — The Company leases its corporate offices and certain retail facilities and equipment under short-term lease agreements expiring at various dates through 2010. All such leases are accounted for as operating leases. Total rental expense for property and equipment amounted to $3.9 million and $2.3 million for the nine months ended September 30, 2005 and 2004, respectively. On February 11, 2005, the Company signed a letter of intent to enter into a sub-lease for its former headquarters space at 304 Park Avenue in New York. The Company’s remaining contractual obligation to the landlord on this lease is $1.8 million. The sub-lease tenant will have a contractual rent obligation to the Company under the sub-lease of $1.0 million. This transaction was completed in late March 2005. Accordingly, during the first quarter of 2005, the Company recognized a charge of $0.8 million to earnings.

     Letters of Credit — NYMC maintains a letter of credit in the amount of $100,000 in lieu of a cash security deposit for an office lease dated June 1998 for the Company’s former headquarters located at 304 Park Avenue South in New York City. The sole beneficiary of this letter of credit is the owner of the building, 304 Park Avenue South LLC. This letter of credit is secured by cash deposited in a bank account maintained at Signature Bank.

     Subsequent to the move to a new headquarters location in New York City in July 2003, in lieu of a cash security deposit for the office lease, we entered into an irrevocable transferable letter of credit in the amount of $313,000 with PricewaterhouseCoopers, LLP (sublandlord), as beneficiary. This letter of credit is secured by cash deposited in a bank account maintained at HSBC bank.

     On February 15, 2005, the Company entered into an irrevocable standby letter of credit in an initial amount of $500,000 with the beneficiary being CCC Atlantic, L.L.C., the landlord of the Company’s leased facility at 500 Burton Avenue, Northfield, New Jersey. The letter of credit serves as security for leased office property, initially occupied by employees of our branches doing business as Ivy League Mortgage, L.L.C. The letter of credit is secured by the personal guarantee and a mortgage on the home of the Ivy League Mortgage, L.L.C. branch manager. The initial amount of the letter of credit will be reduced at each of the first four annual anniversary dates by $50,000, thereafter to remain at a value of $250,000 until termination on April 1, 2015.

11. Related Party Transactions

     Upon completion of the Company’s IPO and acquisition of NYMC, Steven B. Schnall and Joseph V. Fierro, the former owners of NYMC, were entitled to a distribution of NYMC’s retained earnings through the close of the Company’s IPO on June 29, 2004, not to exceed $4.5 million. As a result, a distribution of $2.4 million ($0.4 million of retained earnings as of March 31, 2004 plus an estimate of $2.0 million for NYMC’s earnings through June 29, 2004) was made to the former owners upon the close of the IPO. The subsequent earnings and elimination of distributions and unrealized gains and losses attributable to NYMC for the period prior to June 29, 2004 equated to a distribution overpayment of $1.3 million, for which Messrs. Schnall and Fierro reimbursed the Company immediately upon the finalization of the overpayment calculation in July 2004.

Steven B. Schnall owns a 48% membership interest and Joseph V. Fierro owns a 12% membership interest in Centurion Abstract, LLC (“Centurion”), which provides title insurance brokerage services for certain title insurance providers. From time to time, NYMC refers its mortgage loan borrowers to Centurion for assistance in obtaining title insurance in connection with their mortgage loans, although the borrowers have no obligation to utilize Centurion’s services. When NYMC’s borrowers elect to utilize Centurion’s services to obtain title insurance, Centurion collects various fees and a portion of the title insurance premium paid by the borrower for its title insurance. Centurion received $0.5 million in fees and other amounts from NYMC borrowers for the nine months ended September 30, 2005. NYMC does not economically benefit from such referrals.

12. Concentrations of Credit Risk

     The Company has originated loans predominantly in the eastern United States. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers with similar characteristics, which would cause their ability to meet contractual obligations to be similarly impacted by economic or other conditions. At September 30, 2005 and December 31, 2004, there were geographic concentrations of credit risk exceeding 5% of the total loan balances within mortgage loans held for sale as follows:

		September 30,				December 31,
		2005				2004
New York			32.7	%			70.2	%
Massachusetts			23.1	%			6.6	%
Connecticut			8.1	%			5.0	%
Maryland			7.0	%			1.6	%

     At September 30, 2005 and December 31, 2004, there were geographic concentrations of credit risk exceeding 5% of the total loan balances within mortgage loans held in the securitization trusts and mortgage loans held for investment as follows:

		September 30,				December 31,
		2005				2004
New York			25.5	%			30.7	%
California			16.9	%			51.3	%
Massachusetts			10.2	%			1.4	%
New Jersey			4.2	%			5.5	%

13. Fair Value of Financial Instruments

     Fair value estimates are made as of a specific point in time based on estimates using market quotes, present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience, and other factors.

     Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot be necessarily substantiated by comparison to independent markets and, in many cases, could not be necessarily realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the Company’s fair values should not be compared to those of other companies.

     Fair value estimates are based on existing financial instruments and do not attempt to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented below do not represent the underlying value of the Company.

     The fair value of certain assets and liabilities approximate cost due to their short-term nature, terms of repayment or interest rates associated with the asset or liability. Such assets or liabilities include cash and cash equivalents, escrow deposits, unsettled mortgage loan sales, and financing arrangements. All forward delivery commitments and option contracts to buy securities are to be contractually settled within six months of the balance sheet date.

     The following describes the methods and assumptions used by the Company in estimating fair values of other financial instruments:

     a. Investment Securities Available for Sale — Fair value is generally estimated based on market prices provided by five to seven dealers who make markets in these financial instruments. If the fair value of a security is not reasonably available from a dealer, management estimates the fair value based on characteristics of the security that the Company receives from the issuer and based on available market information.

     b. Mortgage Loans Held for Sale — Fair value is estimated using the quoted market prices for securities backed by similar types of loans and current investor or dealer commitments to purchase loans.

     c. Mortgage Loans Held for Investment — Mortgage loans held for investment are recorded at amortized cost. Fair value is estimated using pricing models and taking into consideration the aggregated characteristics of groups of loans such as, but not limited to, collateral type, index, interest rate, margin, length of fixed-rate period, life cap, periodic cap, underwriting standards, age and credit estimated using the quoted market prices for securities backed by similar types of loans.

     d. Mortgage Loans Held in the Securitization Trusts — Mortgage loans held in the securitization trusts are recorded at amortized cost. Fair value is estimated using pricing models and taking into consideration the aggregated characteristics of groups of loans such as, but not limited to, collateral type, index, interest rate, margin, length of fixed-rate period, life cap, periodic cap, underwriting standards, age and credit estimated using the quoted market prices for securities backed by similar types of loans.

     e. Interest Rate Lock Commitments — The fair value of IRLCs is estimated using the fees and rates currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of IRLCs is determined in accordance with SAB 105.

     f. Forward Sale Loan Contracts — The fair value of these instruments is estimated using current market prices for dealer or investor commitments relative to the Company’s existing positions.

     The following tables set forth information about financial instruments, except for those noted above for which the carrying amount approximates fair value:

		September 30, 2005
		Notional				Carrying				Estimated
		Amount				Amount				Fair Value
Investment securities available for sale		$	798,856,029			$	797,079,293			$	797,079,293
Mortgage loans held for investment			139,656,332				140,411,907				141,601,330
Mortgage loans held in the securitization trusts			584,145,552				589,354,405				585,864,852
Mortgage loans held for sale			116,424,009				116,533,155				117,305,323
Commitments and contingencies:
Interest rate lock commitments			182,207,949				(1,076,310	)			(1,076,310	)
Forward loan sales contracts			77,157,666				806,765				806,765
Interest rate swaps			670,000,000				6,466,183				6,466,183
Interest rate caps			1,464,425,100				2,025,300				2,025,300

		December 31, 2004
		Notional				Carrying				Estimated
		Amount				Amount				Fair Value
Investment securities available for sale		$	1,194,055,340			$	1,204,744,714			$	1,204,744,714
Mortgage loans held for investment			188,858,607				190,153,103				190,608,241
Mortgage loans held for sale			85,105,027				85,384,927				86,097,867
Commitments and contingencies:
Interest rate lock commitments			156,110,472				37,867				37,867
Forward loan sales contracts			97,080,482				(164,816	)			(164,816	)
Interest rate swaps			670,000,000				3,228,457				3,228,457
Interest rate caps			250,000,000				411,248				411,248

14. Segment Reporting

     The Company operates two segments:

	•		Mortgage Portfolio Management — long-term investment in high-quality, adjustable-rate mortgage loans and residential mortgage-backed securities; and
	•		Mortgage Lending — mortgage loan originations as conducted by NYMC.

     Our mortgage portfolio management segment primarily invests in adjustable-rate FNMA, FHLMC, GNMA and “AAA”— rated residential mortgage-backed securities and high-quality mortgages that are originated by our mortgage operations or that may be acquired from third parties. The Company’s equity capital and borrowed funds are used to invest in residential mortgage-backed securities, thereby producing net interest income. Certain mortgage loans originated by our mortgage lending operations or loans purchased from third parties are securitized from time to time to improve liquidity such loans are included in the mortgage portfolio management segment. The Company’s first securitization was completed on February 25, 2005 and a second securitization was completed on July 28, 2005.

     The mortgage lending segment originates residential mortgage loans through the Company’s taxable REIT subsidiary, NYMC. Loans are originated through NYMC’s retail and internet branches and generate gain on sale revenue when the loans are sold to third parties or revenue from brokered loans when the loans are brokered to third parties.

Nine Months Ended September 30, 2005

		Nine Months Ended September 30, 2005
		Mortgage Portfolio
		Management				Mortgage
		Segment				Lending Segment				Total
REVENUE:
Gain on sales of mortgage loans		$	—			$	21,633,961			$	21,633,961
Interest income:
Loans held for sale			—				10,573,325				10,573,325
Investment securities and mortgage loans held for investment			34,035,558				—				34,035,558
Loans held in the securitization trusts			11,875,521				—				11,875,521
Brokered loan fees			—				7,180,484				7,180,484
Gain on sale of securities and related hedges			2,207,433				—				2,207,433
Miscellaneous income			610				194,073				194,683
Total revenue			48,119,122				39,581,843				87,700,965
EXPENSES:
Salaries, commissions and benefits			1,649,285				22,225,374				23,874,659
Interest expense:
Loans held for sale/for investment			3,911,253				7,283,703				11,194,956
Portfolio investments			30,089,833				—				30,089,833
Subordinated debentures			—				1,095,300				1,095,300
Brokered loan expenses			—				5,688,931				5,688,931
Occupancy and equipment			18,271				4,962,827				4,981,098
Marketing and promotion			109,201				3,790,842				3,900,043
Data processing and communication			102,543				1,704,863				1,807,406
Office supplies and expenses			7,130				1,901,709				1,908,839
Professional fees			360,423				2,452,055				2,812,478
Travel and entertainment			5,803				701,101				706,904
Depreciation and amortization			5,280				1,063,626				1,068,906
Other			268,602				814,935				1,083,537
Total expenses			36,527,624				53,685,266				90,212,890
INCOME (LOSS) BEFORE INCOME TAX BENEFIT			11,591,498				(14,103,423	)			(2,511,925	)
Income tax benefit			—				5,880,000				5,880,000
NET INCOME (LOSS)		$	11,591,498			$	(8,223,423	)		$	3,368,075
Segment assets		$	1,553,311,169			$	301,688,241			$	1,854,999,410
Segment equity		$	101,622,220			$	5,431,425			$	107,053,645

Nine Months Ended September 30, 2004

		Nine Months Ended September 30, 2004
		Mortgage Portfolio
		Management				Mortgage
		Segment				Lending Segment				Total
REVENUE:
Gain on sales of mortgage loans		$	—			$	14,933,433			$	14,933,433
Interest income:
Loans held for sale			—				5,777,240				5,777,240
Investment securities and loans			7,659,748				—				7,659,748
Brokered loan fees			—				4,398,137				4,398,137
Gain on sale of securities and related hedges			125,837				606,975				732,812
Miscellaneous income			—				95,597				95,597
Total revenue			7,785,585				25,811,382				33,596,967
EXPENSES:
Salaries, commissions and benefits			294,706				11,099,703				11,394,409
Interest expense:
Loans held for sale			—				2,960,294				2,960,294
Investment securities and loans			4,237,195				—				4,237,195
Brokered loan expenses			—				3,136,452				3,136,452
Occupancy and equipment			9,040				2,417,148				2,426,188
Marketing and promotion			2,875				1,971,047				1,973,922
Data processing and communication			162,162				974,308				1,136,470
Office supplies and expenses			3,564				1,013,679				1,017,243
Professional fees			15,461				1,072,274				1,087,735
Travel and entertainment			589				393,283				393,872
Depreciation and amortization			1,845				307,014				308,859
Other			9,574				786,142				795,716
Total expenses			4,737,011				26,131,344				30,868,355
INCOME (LOSS) BEFORE INCOME TAX BENEFIT			3,048,574				(319,962	)			2,728,612
Income tax benefit			—				221,653				221,653
NET INCOME (LOSS)		$	3,048,574			$	(98,309	)		$	2,950,265
Segment assets		$	1,213,919,152			$	137,249,484			$	1,351,168,636
Segment equity		$	106,305,132			$	14,515,828			$	120,820,960

Three Months Ended September 30, 2005

		Three Months Ended September 30, 2005
		Mortgage Portfolio
		Management				Mortgage
		Segment				Lending Segment				Total
REVENUE:
Gain on sales of mortgage loans		$	—			$	8,985,293			$	8,985,293
Interest income:
Loans held for sale			—				4,473,157				4,473,157
Investment securities and mortgage loans held for investment			9,208,733				—				9,208,733
Loans held in the securitization trusts			6,016,479				—				6,016,479
Brokered loan fees			—				2,646,683				2,646,683
Gain on sale of securities and related hedges			1,286,031				—				1,286,031
Miscellaneous income			—				91,043				91,043
Total revenue			16,511,243				16,196,176				32,707,419
EXPENSES:
Salaries, commissions and benefits			170,428				7,131,970				7,302,398
Interest expense:
Loans held for sale/for investment			1,366,630				3,440,993				4,807,623
Portfolio investments			10,749,583				—				10,749,583
Subordinated debentures			—				601,722				601,722
Brokered loan expenses			—				1,483,323				1,483,323
Occupancy and equipment			9,501				1,255,142				1,264,643
Marketing and promotion			24,196				1,286,120				1,310,316
Data processing and communication			38,283				579,541				617,824
Office supplies and expenses			4,242				647,037				651,279
Professional fees			215,294				750,651				965,945
Travel and entertainment			2,260				259,033				261,293
Depreciation and amortization			1,836				299,869				301,705
Other			132,480				397,734				530,214
Total expenses			12,714,733				18,133,135				30,847,868
INCOME (LOSS) BEFORE INCOME TAX BENEFIT			3,796,510				(1,936,959	)			1,859,551
Income tax benefit			—				1,000,000				1,000,000
NET INCOME (LOSS)		$	3,796,510			$	(936,959	)		$	2,859,551
Segment assets		$	1,553,311,169			$	301,688,241			$	1,854,999,410
Segment equity		$	101,622,220			$	5,431,425			$	107,053,645

Three Months Ended September 30, 2004

		Three Months Ended September 30, 2004
		Mortgage Portfolio
		Management				Mortgage
		Segment				Lending Segment				Total
REVENUE:
Gain on sales of mortgage loans		$	—			$	4,482,262			$	4,482,262
Interest income:
Loans held for sale			—				2,633,442				2,633,442
Investment securities and loans			7,656,699				—				7,656,699
Brokered loan fees			—				1,437,664				1,437,664
Gain on sale of securities and related hedges			125,837				—				125,837
Miscellaneous income			—				49,620				49,620
Total revenue			7,782,536				8,602,988				16,385,524
EXPENSES:
Salaries, commissions and benefits			294,706				4,208,865				4,503,571
Interest expense:
Loans held for sale			—				1,227,997				1,227,997
Investment securities and loans			4,237,195				—				4,237,195
Brokered loan expenses			—				1,016,930				1,016,930
Occupancy and equipment			9,040				879,631				888,671
Marketing and promotion			2,875				674,656				677,531
Data processing and communication			162,162				353,072				515,234
Office supplies and expenses			3,564				366,439				370,003
Professional fees			15,461				418,520				433,981
Travel and entertainment			589				88,008				88,597
Depreciation and amortization			1,845				101,108				102,953
Other			9,573				93,072				102,645
Total expenses			4,737,010				9,428,298				14,165,308
INCOME (LOSS) BEFORE INCOME TAX BENEFIT			3,045,526				(825,310	)			2,220,216
Income tax benefit			—				231,653				231,653
NET INCOME (LOSS)		$	3,045,526			$	(593,657	)		$	2,451,869
Segment assets		$	1,213,919,152			$	137,249,484			$	1,351,168,636
Segment equity		$	106,305,132			$	14,515,828			$	120,820,960

15. Stock Incentive Plan

     Pursuant to the 2004 Stock Incentive Plan (the “2004 Plan”), eligible employees, officers and directors were offered the opportunity to acquire shares of the Company’s common stock through the grant of options and the award of restricted stock under the 2004 Plan. In connection with the Plan, the Company also awarded shares of stock to employees conditioned upon satisfaction of certain performance criteria related to the November 2004 acquisition of Guaranty Residential Lending. The maximum number of options that may be issued is 706,000 shares and the maximum number of restricted stock awards that may be granted under the 2004 Plan is 794,250.

2005 Stock Incentive Plan

At the Annual Meeting of Stockholders held on May 31, 2005, the Company’s stockholders approved the adoption of the Company’s 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan replaces the 2004 Plan, which was terminated on the same date. The 2005 Plan provides that up to 936,111 shares of the Company’s common stock may be issued thereunder. That number of shares represents 711,895 shares of common stock, or (4% of the 17,797,375 shares of common stock outstanding at March 10, 2005), plus 224,216 shares of common stock remaining from the 2004 Plan. The number of shares available for issuance under the 2005 Plan will be increased by (a) 6% of the number of additional shares of the Company’s common stock issued between March 10, 2005 and May 31, 2006 (other than shares issued under the 2004 Plan or 2005 Plan) and (b) the number of shares covered by 2004 Plan awards that are forfeited or terminated after March 10, 2005.

Options

     The 2004 Plan provides for the exercise price of options to be determined by the Compensation Committee of the Board of Directors (“Compensation Committee”) but not to be less than the fair market value on the date the option is granted. Options expire ten years after the grant date. As of September 30, 2005, 591,500 options have been granted pursuant to the 2004 Plan with a vesting period of two years.

     The Company accounts for the fair value of its grants in accordance with SFAS No. 123. The compensation cost charged against income during the nine months ended September 30, 2005 was approximately $34,000.

Restricted Stock

     As of September 30, 2005, the Company has awarded 530,178 shares of restricted stock under the 2004 Plan, of which 335,198 shares have fully vested. As of September 30, 2005 the remaining shares of restricted stock awarded under the 2004 Plan are subject to vesting periods between 8 and 27 months. During the nine months ended September 30, 2005, the Company recognized non-cash compensation expense of $1.4 million relating to the vested portion of restricted stock grants. Dividends are paid on all restricted stock issued, whether those shares are vested or not. In general, unvested restricted stock is forfeited upon the recipient’s termination of employment.

Performance Based Stock Awards

     In November 2004, the Company acquired 15 full-service and 26 satellite retail mortgage banking offices located in the Northeast and Mid-Atlantic states from General Residential Lending, Inc. (“GRL”). Pursuant to that transaction, the Company has committed to award 206,256 shares of the Company’s stock to certain employees of those branches upon attainment of predetermined production levels. As of September 30, 2005, the awards range in vesting periods from 2 to 21 months with a share price set at the December 2, 2004 grant date market value of $9.83 per share. During the nine months ended September 30, 2005, the Company recognized non-cash compensation expense of $1.3 million relating to performance based stock awards. Unvested issued performance share awards have no voting rights and do not earn dividends.

16. Subordinated Debentures

On September 1, 2005 the Company closed a private placement of $20.0 million of trust preferred securities to Taberna Preferred Funding II, Ltd., a pooled investment vehicle. The securities were issued by NYM Preferred Trust II and are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities have a fixed interest rate equal to 8.35% up to and including July 30, 2010, at which point the interest rate is converted to a floating rate equal to one-month LIBOR plus 3.95% until maturity. The securities mature on October 30, 2035 and may be called at par by the Company any time after October 30, 2010. In accordance with the guidelines of SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, the issued preferred stock of NYM Preferred Trust II has been classified as subordinated debentures in the liability section of the Company’s consolidated balance sheet.

On March 15, 2005 the Company closed a private placement of $25.0 million of trust preferred securities to Taberna Preferred Funding I, Ltd., a pooled investment vehicle. The securities were issued by NYM Preferred Trust I and are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities have a floating interest rate equal to three-month LIBOR plus 3.75%, resetting quarterly (7.24% at September 30, 2005). The securities mature on March 15, 2035 and may be called at par by the Company any time after March 15, 2010. NYMC entered into an interest rate cap agreement to limit the maximum interest rate cost of the trust preferred securities to 7.5%. The term of the interest rate cap agreement is five years and resets quarterly in conjunction with the reset periods of the trust preferred securities. The interest rate cap agreement is accounted for as a cash flow hedge transaction in accordance with SFAS No.133. In accordance with the guidelines of SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, the issued preferred stock of NYM Preferred Trust I has been classified as subordinated debentures in the liability section of the Company’s consolidated balance sheet.

17. Income Taxes

     NYMT and its taxable subsidiary, NYMC, were S corporations prior to June 29, 2004 pursuant to the Internal Revenue Code of 1986, as amended, and as such did not incur any federal income tax expense.

     On June 29, 2004, NYMC became a C corporation for federal and state income tax purposes and as such is subject to federal and state income tax on its taxable income for periods after June 29, 2004.

     A reconciliation of the statutory income tax provision (benefit) to the effective income tax provision for the nine months ended September 30, 2005 is as follows.

		Tax provision
Tax at statutory rate (35%)		$	(879,174	)
Non-taxable REIT income			(3,993,861	)
Transfer pricing of loans sold to nontaxable parent			605,282
State and local taxes			(1,173,809	)
Change in tax status			(452,729	)
Miscellaneous			14,291
Total provision (benefit)		$	(5,880,000	)

     The income tax provision (benefit) for the nine months ended September 30, 2005 is comprised of the following components:

		Deferred				Total
Regular tax provision (benefit)
Federal		$	(4,706,191	)		$	(4,706,191	)
State			(1,173,809	)			(1,173,809	)
Total tax expense (benefit)		$	(5,880,000	)		$	(5,880,000	)

     The deferred tax asset at September 30, 2005 includes a deferred tax asset of $7.5 million and a deferred tax liability of $0.3 million which represents the tax effect of differences between tax basis and financial statement carrying amounts of assets and liabilities. The major sources of temporary differences and their deferred tax effect at September 30, 2005 are as follows:

Deferred tax assets:
Net operating loss carryover		$	6,379,394
Restricted stock, performance shares and stock option expense			214,968
Rent expense			755,455
Management compensation			175,322
Total deferred tax asset			7,525,139
Deferred tax liabilities:
Mark to market adjustments			126,701
Depreciation			208,904
Total deferred tax liability			335,605
Net deferred tax asset		$	7,189,534

     Although realization is not assured, management believes it is more likely than not that all the deferred tax assets will be realized. The net operating loss carryforward expires at various intervals between 2012 and 2026.

18. Restated Quarterly Financial Information

     On March 16, 2005, the Company’s management determined that the accounting for the disposition of marketable securities and certain cash flow hedges owned by NYMC was incorrect and should be restated to reflect the gain of $0.9 million in earnings instead of as a change in other comprehensive income. As a result, the net income reported for the nine months ended September 30, 2004 as filed in the Company’s Quarterly Report on Form 10-Q, was understated by $0.9 million.

     The marketable securities were disposed of in a transaction during the second quarter of 2004 prior to completion of the Company’s IPO so as to avoid owning a legacy portfolio of securities which (i) did not meet the Company’s new investment guidelines, (ii) are equity securities, (iii) cannot be appropriately hedged or (iv) do not generate qualifying REIT income. As a result, the impact on the sale of these assets did not impact the Company or its earnings generated during periods after completion of the IPO. However, because the Company’s acquisition of NYMC is accounted for as a reverse merger for accounting and financial reporting purposes, the historical financial presentation of net income is affected.

For financial presentation purposes, the restatement increases net income by $0.8 million for the marketable securities and $0.1 million for the cash flow hedges with a corresponding reduction in accumulated other comprehensive income for the periods indicated. For income statement presentation purposes, mortgage recording taxes of $0.3 million were reclassified from income tax benefit to other expenses and for the cash flow statement presentation purposes, the change in restricted cash of $2.8 million was reclassified from net cash used in operations to net cash used in investing activities. There was no impact on total assets, liabilities or equity on the Company’s balance sheet, or to net comprehensive income for the periods presented.

     A summary of the effects of the restatement is as follows (there was no impact on the three months ended September 30, 2004):

		For the nine months ended
		September 30, 2004
		As previously
		reported				As restated
Statement of Income
(Loss) Gain on sale of securities		$	(49,845	)		$	732,812
Total Revenue			32,814,310				33,596,967
Interest expense			3,042,637				2,960,294
Other expenses			520,668				795,716
Income before income taxes			2,138,660				2,728,612
Income tax (expense) benefit			(53,395	)			221,653
Net income		$	2,085,265			$	2,950,265
Basic income per share		$	0.12			$	0.17
Diluted income per share		$	0.12			$	0.17

		For the nine months ended
		September 30, 2004
		As previously
		reported				As restated
Statement of Cash Flows
Net income		$	2,085,265			$	2,950,265
(Loss) Gain on sale of investment securities			49,845				(732,812	)
Deferred tax benefit			—				(221,653	)
Accounts payable and accrued expenses			6,407,007				6,546,317
Net cash used in operating activities			(29,133,956	)			(26,372,750	)
Net cash used in investing activities		$	(1,188,981,487	)		$	(1,191,742,692	)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q contains certain forward-looking statements. Forward looking statements are those which are not historical in nature. They can often be identified by their inclusion of words such as “will,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions. Any projection of revenues, earnings or losses, capital expenditures, distributions, capital structure or other financial terms is a forward-looking statement. Certain statements regarding the following particularly are forward-looking in nature:

	•		our business strategy;
	•		future performance, developments, market forecasts or projected dividends;
	•		projected acquisitions or joint ventures; and
	•		projected capital expenditures.

     It is important to note that the description of our business in general and our investment in mortgage loans and mortgage-backed securities holdings in particular, is a statement about our operations as of a specific point in time. It is not meant to be construed as an

investment policy, and the types of assets we hold, the amount of leverage we use, the liabilities we incur and other characteristics of our assets and liabilities are subject to reevaluation and change without notice.

     Our forward-looking statements are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that might cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

	•		our limited operating history with respect to our portfolio strategy;
	•		our proposed portfolio strategy may be changed or modified by our management without advance notice to stockholders, and that we may suffer losses as a result of such modifications or changes;
	•		impacts of a change in demand for mortgage loans on our net income and cash available for distribution;
	•		our ability to originate prime and high-quality adjustable-rate and hybrid mortgage loans for our portfolio;
	•		risks associated with the use of leverage;
	•		interest rate mismatches between our mortgage-backed securities and our borrowings used to fund such purchases;
	•		changes in interest rates and mortgage prepayment rates;
	•		effects of interest rate caps on our adjustable-rate mortgage-backed securities;
	•		the degree to which our hedging strategies may or may not protect us from interest rate volatility;
	•		potential impacts of our leveraging policies on our net income and cash available for distribution;
	•		our board’s ability to change our operating policies and strategies without notice to you or stockholder approval;
	•		the other important factors identified, or incorporated by reference into this report, including, but not limited to those under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk”, and those described under the caption “Risk Factors” in our Annual Report on form 10-K filed March 31, 2005.

     We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the events described by our forward-looking events might not occur. We qualify any and all of our forward-looking statements by these cautionary factors. In addition, you should carefully review the risk factors described in other documents we file from time to time with the Securities and Exchange Commission.

     This Quarterly Report on Form 10-Q contains market data, industry statistics and other data that have been obtained from, or compiled from, information made available by third parties. We have not independently verified their data.

     The following information set forth below in this Item 2 gives effect to the restatement as discussed in Note 18 to the Consolidated Financial Statements.

General

     The following Management Discussion and Analysis gives effect to the restatement discussed in Note 18.

     New York Mortgage Trust, Inc. (“NYMT,” the “Company,” “we,” “our” and “us”) is a fully-integrated, self-advised residential mortgage finance company that originates, acquires, retains and securitizes mortgage loans and mortgage-backed securities. Our wholly-owned taxable REIT subsidiary (“TRS”), The New York Mortgage Company, LLC (“NYMC”), is a residential mortgage banking company that originates of a wide range of mortgage loans, with a particular focus on prime adjustable- and fixed-rate, first lien, residential purchase mortgage loans. Prior to the simultaneous completion of our acquisition of NYMC and our initial public offering (“IPO”), NYMC sold all of the loans it originated to third parties, and also brokered loans to other mortgage lenders prior to funding. NYMC, which originates residential mortgage loans through a network of 27 full-service loan origination locations and 39 satellite loan origination locations, is presently licensed or authorized to do business in 42 states and the District of Columbia.

     On June 29, 2004, we closed our IPO, selling 15 million shares of our common stock at a price to the public of $9.00 per share and raising net proceeds of $122.0 million after deducting the underwriters’ discount and other offering expenses. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes.

     Since the completion of our IPO and acquisition of NYMC, our primary business focus has been to build a leveraged portfolio of residential mortgage loans comprised largely of prime adjustable-rate mortgage loans that we originate and that meet our investment objectives and portfolio requirements, including adjustable-rate loans that have an initial fixed-rate period, which we refer to as hybrid mortgage loans. We used a substantial portion of the net proceeds from our IPO to purchase, on a leveraged basis, $1.2 billion of residential mortgage-backed securities. Over time, we expect that these securities will be replaced by adjustable-rate and hybrid mortgage loans that we originate, although we may continue to purchase securities from third parties. We believe that our ability to originate mortgage loans as the basis for our portfolio will enable us to build a portfolio that generates a higher return than the returns realized by mortgage investors that do not have their own origination capabilities, because the cost to originate and retain such mortgage loans for securitization is generally less than the premiums paid to purchase similar assets from third parties.

     Generally, we intend to continue to sell the fixed-rate loans that we originate to third parties, and to retain in our portfolio and finance selected adjustable-rate and hybrid mortgage loans that we originate. Our portfolio loans are held at the REIT level or by New York Mortgage Funding, LLC (“NYMF”), our qualified REIT subsidiary (“QRS”). We continue to sell to third parties any adjustable-rate and hybrid mortgage loans we originate that do not meet our investment criteria or portfolio requirements. We rely on our own underwriting criteria with respect to the mortgage loans we retain and rely on the underwriting criteria of the institutions to which we sell our loans with respect to the loans we sell.

     From time to time, we aggregate a portfolio comprised mainly of high credit quality, adjustable-rate retained mortgage loans originated by us until the portfolio reaches a size sufficient for us to securitize such loans. Our first securitization occurred on February 25, 2005 and on July 28, 2005, we completed our second loan securitization. These securitization transactions, through which we financed the adjustable-rate and hybrid mortgage loans that we retained, were structured as financings for both tax and financial accounting purposes. Therefore, we do not expect to generate a gain or loss on sales from these activities, and, following the securitizations, the loans are classified on our consolidated balance sheet as assets with the securitization debt recorded as a liability.

     We earn net interest income from purchased residential mortgage-backed securities and adjustable-rate mortgage loans and securities originated through NYMC. We have acquired and will seek to acquire additional assets that will produce competitive returns, taking into consideration the amount and nature of the anticipated returns from the investment, our ability to pledge the investment for secured, collateralized borrowings and the costs associated with originating, financing, managing, securitizing and reserving for these investments.

     On November 15, 2004, the Company acquired 15 full service and 26 satellite retail mortgage banking offices located in the Northeast and Mid-Atlantic states from Guaranty Residential Lending, Inc. (“GRL”). The Company acquired an existing pipeline of approximately $300.0 million in locked and unlocked mortgage applications in conjunction with the branch acquisition. The mortgage pipeline and other assets (primarily furniture, fixtures and computer hardware and software) had a purchase price of approximately $0.6 million and $0.8 million, respectively. In addition, the Company will pay a $0.3 million contingency premium to the seller provided that the former loan officers of the seller originate, close and fund $2.0 billion in mortgage loans during the twelve month period after the closing date of the transaction.

     Our business is affected by a variety of economic and industry factors. Management periodically reviews and assesses these factors and their potential impact on our business. The most significant risk factors management considers while managing the business and which could have a material adverse effect on our financial condition and results of operations are:

	•		a decline in the market value of our assets due to rising interest rates;
	•		an adverse impact on our earnings from a decrease in the demand for mortgage loans due to a period of rising interest rates;
	•		our ability to originate prime adjustable-rate and hybrid mortgage loans for our portfolio;
	•		increasing or decreasing levels of prepayments on the mortgages underlying our mortgage-backed securities;
	•		our ability to obtain financing to fund and hold mortgage loans prior to their sale or securitization;
	•		the overall leverage of our portfolio and the ability to obtain financing to leverage our equity;
	•		the potential for increased borrowing costs and its impact on net income;
	•		the concentration of our mortgage loans in specific geographic regions;
	•		our ability to use hedging instruments to mitigate our interest rate and prepayment risks;
	•		a prolonged economic slow down, a lengthy or severe recession or declining real estate values could harm our operations;
	•		if our assets are insufficient to meet the collateral requirements of our lenders, we might be compelled to liquidate particular assets at inopportune times and at disadvantageous prices;
	•		if we are disqualified as a REIT, we will be subject to tax as a regular corporation and face substantial tax liability; and
	•		compliance with REIT requirements might cause us to forgo otherwise attractive opportunities.

     As used herein, references to the “Company,” “NYMT,” “we,” “our” and “us” refer to New York Mortgage Trust, Inc., collectively with its subsidiaries.

Recent Developments

     On February 25, 2005, we completed our first loan securitization of $419.0 million of high-credit quality, first-lien, adjustable rate mortgages and hybrid adjustable rate mortgages (collectively “ARM” loans) through New York Mortgage Trust 2005-1 ( “Trust 1”). The securitization resulted in the creation of $417.0 million in mortgage-backed securities. This structured finance transaction will reduce borrowing costs and improve liquidity of the investment portfolio. This transaction has been accounted for as a secured borrowing.

     On March 15, 2005, we closed a private offering of $25.0 million of trust preferred securities to Taberna Preferred Funding I, Ltd., a pooled investment vehicle. The securities were issued by NYM Preferred Trust I, a wholly-owned subsidiary of NYMC, and are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities have a floating interest rate resetting quarterly equal to three-month LIBOR plus 3.75%. The securities mature on March 15, 2035 and may be called at par by us any time after March 15, 2010.

     On July 28, 2005, we completed our second loan securitization of $239.5 million of high-credit quality, first-lien ARM loans through New York Mortgage Trust 2005-2 ( “Trust 2”). The securitization resulted in the creation of $234.0 million in mortgage-backed securities. This structured finance transaction will reduce borrowing costs and improve liquidity of the investment portfolio. This transaction has been accounted for as a secured borrowing.

     On September 1, 2005, we closed a private offering of $20.0 million of trust preferred securities to Taberna Preferred Funding II, Ltd., a pooled investment vehicle. The securities were issued by NYM Preferred Trust II, a wholly-owned subsidiary of NYMC, and are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment. These

securities have a fixed interest rate equal to 8.35% up to and including July 30, 2010, at which point the interest rate is converted to a floating rate equal to one-month LIBOR plus 3.95% until maturity. The securities mature on October 30, 2035 and may be called at par by us any time after October 30, 2010.

Overview of Performance

     For the nine months ended September 30, 2005, we reported net income of $3.4 million, as compared to net income of $3.0 million for the same period of 2004. Our revenues were driven largely from interest income on investments in mortgage loans and mortgage securities and gain on sale income from loan originations sold to third parties during the period. The change in net income is attributed to an increase in gain on sale revenues and net interest income from our investment portfolio. These gains are partially offset by the execution of our core business strategy to retain selected originated loans in our portfolio (thus forgoing the gain on sale premiums we would have otherwise received when such loans are sold to third parties), one-time severance charges of $3.0 million, and increased expenses incurred for and subsequent to the acquisition of multiple retail loan origination locations during 2004. As upfront expenses related to the acquisition and/or infrastructure enhancements of our loan origination capacity begin to result in higher production volume and lowered stabilized costs, the mortgage lending segment is expected to become a more meaningful contributor to our financial performance in the future. For the nine months ended September 30, 2005, total residential originations, including brokered loans, were $2.6 billion as compared to $1.2 billion for the same period of 2004. The increase in our loan origination levels for the nine months ended September 30, 2005 as compared to the same period of 2004 is the result of the addition of sales personnel and branch offices primarily in new and underserved markets. Total employees increased to 857 at September 30, 2005 from 503 at September 30, 2004. Included in the total number of employees, the number of loan officers dedicated to originating loans increased to 365 at September 30, 2005 from 200 at September 30, 2004. Full-service loan origination locations increased to 27 offices and 39 satellite loan origination locations at September 30, 2005 from an aggregate of 28 locations at September 30, 2004.

Summary of Operations and Key Performance Measurements

     For the nine months ended September 30, 2005, our net income was dependent upon our mortgage lending operations and originations (our “mortgage lending segment”), which include the mortgage loan sales (“mortgage banking”) and mortgage brokering activities on residential mortgages sold or brokered to third parties. Subsequent to our IPO, our net income has also become dependent on self-originated and purchased investments in residential mortgage loans and securities (“portfolio management segment”). Our mortgage banking activities generate revenues in the form of gains on sales of mortgage loans to third parties and ancillary fee income and interest income from borrowers. Our mortgage brokering operations generate brokering fee revenues from third party buyers. Our portfolio management activities generate revenues from the return on our mortgage securities and spread income from our mortgage loan portfolio. When we retain a portion of our loan originations for our investment portfolio, we do not realize the gain on sale premiums we would have otherwise recognized had these loans been sold to third parties and such loans retained on our balance sheet at cost. As a result, revenue in our mortgage banking segment are lower and the book value of these assets on our balance sheet may differ from their fair market value.

     A breakdown of our loan originations for the nine months ended September 30, 2005 follows:

						Aggregate								Weighted
						Principal				Percentage				Average
		Number				Balance				of Total				Interest				Average
Description		of Loans				($000’s)				Principal				Rate				Loan Size
Purchase mortgages			7,188			$	1,552.4				59.4	%			6.22	%		$	215,980
Refinancings			4,392				1,062.0				40.6	%			5.88	%			241,800
Total			11,580			$	2,614.4				100.0	%			6.08	%			225,773
Adjustable rate or hybrid			4,972			$	1,421.5				54.4	%			5.89	%			285,911
Fixed rate			6,608				1,192.9				45.6	%			6.31	%			180,524
Total			11,580			$	2,614.4				100.0	%			6.08	%			225,773
Bankered			9,908			$	2,179.9				83.4	%			6.16	%			220,019
Brokered			1,672				434.5				16.6	%			5.72	%			259,873
Total			11,580			$	2,614.4				100.0	%			6.08	%			225,773

     The key performance measures for our origination activities are:

	•		dollar volume of mortgage loans originated;
	•		relative cost of the loans originated;

	•		characteristics of the loans, including but not limited to the coupon and credit quality of the loan, which will indicate their expected yield; and
	•		return on our mortgage asset investments and the related management of interest rate risk.

The key performance measures for our portfolio management activities are:

	•		net interest spread on the portfolio;
	•		characteristics of the investments and the underlying pool of mortgage loans including but not limited to credit quality, coupon and prepayment rates; and
	•		return on our mortgage asset investments and the related management of interest rate risk.

     Management’s discussion and analysis of financial condition and results of operations, along with other portions of this report, are designed to provide information regarding our performance and these key performance measures.

Known Material Trends and Commentary

     The U.S. residential mortgage market has experienced considerable growth during the past ten years, with total outstanding U.S. mortgage debt growing from $3.2 trillion at the end of 1993 to $7.3 trillion as of December 31, 2003, according to The Bond Market Association and the Federal Reserve. According to the October 12, 2005 Mortgage Finance Forecast of the Mortgage Bankers Association (“MBA”), the MBA estimated that lenders originated $2.6 trillion in 2004. In the October 12, 2005 forecast, the MBA projects that mortgage loan volumes will increase to $2.9 trillion in 2005 due to a less than expected increase in mortgage rates and fall to $2.6 trillion in 2006, primarily due to an expected continued decline in the volume of loan refinancings.

										Forecasted
						2005				Percentage
Total U.S. 1-to-4-Family Mortgage Originations		2004				Forecast				Change
		(Dollars in billions)
Purchase mortgages		$	1,439			$	1,673				16.3	%
Refinancings			1,150				1,214				5.6	%
Total		$	2,589			$	2,887				11.5	%

Source: October 12, 2005 Mortgage Finance Forecast of the MBA

     The following table summarizes the Company’s loan origination volume and characteristics for the three and nine months ended September 30, 2005 relative to our prior year historical origination production and expected industry trends for total U.S. 1-to-4-family mortgage originations as forecast in the October 12, 2005 Mortgage Finance Forecast of the MBA. For the three months ended September 30, 2005, our total loan originations, aided in part by our acquisition of GRL, increased 141.3% over the comparable period for 2004. This increase contrasts favorably with the increase forecasted in the October 12, 2005 Mortgage Finance Forecast of the MBA, which estimates an industry increase for the period of 36.0% for total originations:

Our Total Mortgage Originations

										Percentage Change
		Total Mortgage								From Prior Year
		Originations												MBA
										NYMC				Industry
		2004				2005				Actual				Forecast
					(Dollars in Millions)
1st Quarter		$	283.5			$	672.5				137.2	%			6.2	%
2nd Quarter			514.0				939.7				82.8	%			(2.9	)%
3rd Quarter			415.4				1,002.2				141.3	%			36.0	%
4th Quarter			632.6
Full Year		$	1,845.5