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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2004.
-------------------

OR

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

For the transition period from ___________ to ___________.

Commission File Number: 001-31916
---------

AMERICAN HOME MORTGAGE INVESTMENT CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)


Maryland 20-0103914
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

520 Broadhollow Road, Melville, New York 11747
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

(516) 949-3900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)


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


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 [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of November 5, 2004, there were 40,195,686 shares of the registrant's
common stock, par value $0.01 per share, outstanding.




AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
TABLE OF CONTENTS


PART I-FINANCIAL INFORMATION

Page
----

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 2004 and
December 31, 2003 ................................................. 1

Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2004 and 2003 ................................. 2

Consolidated Statements of Stockholders' Equity for the Nine Months
Ended September 30, 2004 and
2003 .............................................................. 3

Consolidated Statements of Cash Flows for the Three and Nine Months
Ended September 30, 2004 and 2003 ................................. 4

Notes to Consolidated Financial Statements ........................ 5

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 24

Item 3. Quantitative and Qualitative Disclosures About Market Risk ........ 42

Item 4. Controls and Procedures ........................................... 44

PART II-OTHER INFORMATION

Item 1. Legal Proceedings ................................................. 45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ....... 45

Item 3. Defaults Upon Senior Securities ................................... 45

Item 4. Submission of Matters to a Vote of Security Holders ............... 45

Item 5. Other Information ................................................. 45

Item 6. Exhibits .......................................................... 45

SIGNATURES

INDEX TO EXHIBITS





PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)


September 30, December 31,
2004 2003
------------- -------------

Assets:
Cash and due from banks $ 118,441 $ 53,148
Money market investments 68,039 -
------------- -------------
Cash and cash equivalents 186,480 53,148
------------- -------------
Accounts receivable and servicing advances 101,105 84,311
Mortgage-backed securities (including securities pledged of $7,036,293 and
$1,426,477 as of September 30, 2004 and December 31, 2003, respectively) 7,331,888 1,763,628
Mortgage loans held for sale, net 1,131,661 1,216,353
Derivative assets 11,630 30,611
Mortgage servicing rights, net 160,435 117,784
Premises and equipment, net 47,955 41,738
Goodwill 89,196 83,445
Other assets 16,645 13,672
------------- -------------
Total assets $ 9,076,995 $ 3,404,690
============= =============

Liabilities and Stockholders' Equity:
Liabilities:
Warehouse lines of credit $ 547,584 $ 1,121,760
Drafts payable 45,526 25,625
Commercial paper 462,712 -
Reverse repurchase agreements 6,899,024 1,344,327
Payable for securities purchased - 259,701
Derivative liabilities 18,237 12,694
Accrued expenses and other liabilities 154,339 76,156
Notes payable 128,448 99,655
Income taxes payable 30,133 66,802
------------- -------------
Total liabilities 8,286,003 3,006,720
------------- -------------

Commitments and contingencies - -

Stockholders' Equity:
9.75% Series A Cumulative Redeemable Preferred Stock: par value $0.01 per share,
10,000,000 shares authorized, 2,150,000 and 0 shares issued and outstanding
as of September 30, 2004 and December 31, 2003, respectively 50,857 -
Common stock: par value $0.01 per share, 100,000,000 shares authorized,
40,184,333 and 25,270,100 shares issued and outstanding as of September 30, 2004
and December 31, 2003, respectively 402 252
Additional paid-in capital 629,807 281,432
Retained earnings 151,297 121,029
Accumulated other comprehensive loss (41,371) (4,743)
------------- -------------
Total stockholders' equity 790,992 397,970
------------- -------------
Total liabilities and stockholders' equity $ 9,076,995 $ 3,404,690
============= =============
See notes to consolidated financial statements.




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AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)



Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2004 2003 2004 2003
-------- --------- --------- ---------

Net interest income:
Interest income $ 94,298 $ 29,693 $ 198,347 $ 76,117
Interest expense (61,405) (16,009) (132,596) (38,790)
-------- --------- --------- ---------
Total net interest income 32,893 13,684 65,751 37,327
-------- --------- --------- ---------
Non-interest income:
Gain on sales of mortgage loans 28,373 105,577 98,095 323,070
Gain on sales of mortgage-backed securities and derivatives 22,341 - 37,310 -
Unrealized gain on mortgage-backed securities and derivatives 27,069 - 82,041 -

Loan servicing fees 9,822 8,306 28,870 29,255
Amortization of mortgage servicing rights (7,755) (14,903) (22,865) (44,958)
Impairment (provision) recovery of mortgage servicing rights (4,807) 7,825 (10,139) (4,360)
-------- --------- --------- ---------
Net loan servicing (loss) fees (2,740) 1,228 (4,134) (20,063)
-------- --------- --------- ---------

Other non-interest income 3,349 1,423 5,553 5,592
-------- --------- --------- ---------
Total non-interest income 78,392 108,228 218,865 308,599
-------- --------- --------- ---------
Non-interest expenses:
Salaries, commissions and benefits, net 46,482 62,698 128,805 161,551
Occupancy and equipment 9,984 7,340 26,086 19,642
Data processing and communications 3,745 3,682 10,296 9,509
Office supplies and expenses 3,012 3,557 9,345 10,427
Marketing and promotion 2,610 3,232 7,018 8,836
Travel and entertainment 3,620 3,122 9,084 8,000
Professional fees 2,524 2,319 6,781 5,832
Other 6,363 5,153 15,883 17,241
-------- --------- --------- ---------
Total non-interest expenses 78,340 91,103 213,298 241,038
-------- --------- --------- ---------

Net income before income tax (benefit) expense 32,945 30,809 71,318 104,888

Income tax (benefit) expense (9,998) 12,115 (26,330) 43,004
-------- --------- --------- ---------

Net income 42,943 18,694 97,648 61,884
-------- --------- --------- ---------

Dividends on preferred stock 1,648 - 1,648 -
-------- --------- --------- ---------
Net income available to common shareholders $ 41,295 $ 18,694 $ 96,000 $ 61,884
======== ========= ========= =========
Per share data:
Basic $ 1.03 $ 1.08 $ 2.61 $ 3.64
Diluted $ 1.02 $ 1.06 $ 2.58 $ 3.57

Weighted average number of shares - basic 40,145 17,272 36,737 17,003
Weighted average number of shares - diluted 40,605 17,705 37,198 17,358

See notes to consolidated financial statements.




- 2 -




AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003



Accumulated
Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
(Dollars in thousands) Stock Stock Capital Earnings Loss Equity
- ----------------------------------------------------------------------------------------------------------------------------

Balance at January 1, 2003 $ - $ 167 $ 95,785 $ 68,144 $ - $ 164,096
========= ====== ========== ======== ============= =============
Comprehensive income:
Net income - - - 61,884 - 61,884
-------------
Comprehensive income 61,884
Issuance of common stock - earnouts - 3 3,302 - - 3,305
Issuance of common stock - 1999 Omnibus
Stock Incentive Plan - 3 1,933 - - 1,936
Issuance of common stock - warrants - - 78 - - 78
Dividends declared on common stock - - - (4,752) - (4,752)
--------- ------ ---------- -------- ------------- -------------
Balance at September 30, 2003 $ - $ 173 $ 101,098 $125,276 $ - $ 226,547
========= ====== ========== ======== ============= =============
Balance at December 31, 2003 $ - $ 252 $ 281,432 $121,029 $ (4,743) $ 397,970
========= ====== ========== ======== ============= =============
Comprehensive income:
Net income - - - 97,648 - 97,648
Unrealized gain on mortgage-backed
securities available for sale - - - - 1,780 1,780
Unrealized loss on cash flow hedges, net
of amortization - - - - (38,408) (38,408)
-------------
Comprehensive income 61,020
Issuance of preferred stock - offering 50,857 - - - - 50,857
Issuance of common stock - offering - 144 339,647 - - 339,791
Issuance of common stock - earnouts - 2 4,843 - - 4,845
Issuance of common stock - 1999 Omnibus
Stock Incentive Plan - 4 2,286 - - 2,290
Tax benefit from stock options exercised - - 1,599 - - 1,599
Dividends declared on preferred stock - - - (1,648) - (1,648)
Dividends declared on common stock - - - (65,732) - (65,732)
--------- ------ ---------- -------- ------------- -------------
Balance at September 30, 2004 $ 50,857 $ 402 $ 629,807 $151,297 $ ($41,371) $ 790,992
========= ====== ========== ======== ============= =============
See notes to consolidated financial statements.




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AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)


Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
-----------------------------------------------------------

Cash flows from operating activities:
Net income $ 42,943 $ 18,694 $ 97,648 $ 61,884
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,151 1,589 6,116 4,202
Amortization and impairment of mortgage servicing rights 12,562 7,078 33,004 49,318
Amortization of mortgage-backed securities premiums, net 9,477 - 19,759 -
Amortization of cash flow hedges (7,019) - (5,148) -
Gain on sales of mortgage-backed securities and derivatives (22,341) - (37,310) -
Unrealized gain on securities held in trading (23,916) - (40,402) -
Unrealized loss (gain) on free standing derivatives 20,128 - (21,323) -
Additions to mortgage servicing rights on securitized loans (27,203) - (59,580) -
Additions to mortgage servicing rights on sold loans (3,976) (27,711) (16,075) (43,316)
Decrease (increase) in interest rate lock commitments 7,358 9,605 18,981 (5,198)
(Increase) decrease in deferred origination costs (808) 8,885 3,334 (4,372)
(Increase) decrease in SFAS No. 133 basis adjustments (1,009) 6,064 15,173 (5,899)
Other (2,662) 130 (3,898) 469
Increase in operating assets:
Accounts receivable and servicing advances (616) (13,773) (16,794) (6,335)
Other assets (2,857) (2,793) (2,729) (4,468)
Increase (decrease) in operating liabilities:
Accrued expenses and other liabilities 32,761 (14,940) 65,921 1,539
Income taxes payable (10,995) 4,249 (36,669) 23,692
Forward delivery contracts (9,004) 11,904 (5,564) 4,700
Origination of mortgage loans held for sale (2,688,820) (7,052,401) (10,387,703) (17,536,117)
Proceeds from sales of mortgage loans 2,806,070 7,070,846 10,741,622 16,690,090
----------- ------------ ------------ ------------
Net cash provided by (used in) operating activities 132,224 27,426 368,363 (769,811)
----------- ------------ ------------ ------------
Cash flows from investing activities:
Purchases of premises and equipment, net (5,565) (2,983) (12,333) (8,132)
Origination of mortgage loans held for securitization (2,603,371) - (5,937,304) -
Proceeds from securitizations of mortgage loans 2,779,409 - 5,649,568 -
Purchases and additions to mortgage-backed securities (3,317,250) - (11,019,093) -
Proceeds from sales of mortgage-backed securities and derivatives 3,008,523 - 4,758,637 -
Principal repayments on mortgage-backed securities 397,727 - 753,933 -
Other - 414 (244) 12
----------- ------------ ------------ ------------
Net cash provided by (used in) investing activities 259,473 (2,569) (5,806,836) (8,120)
----------- ------------ ------------ ------------
Cash flows from financing activities:
(Decrease) increase in warehouse lines of credit (124,872) (4,667) (574,176) 801,644
Increase in reverse repurchase agreements 485,518 - 5,554,697 -
Decrease in payable for securities purchased (423,909) - (259,701) -
(Decrease) increase in commercial paper (584,324) - 462,712 -
(Decrease) increase in drafts payable (40,774) (18,762) 19,901 6,407
Proceeds from issuance of preferred stock 52,057 - 52,057 -
Proceeds from issuance of capital stock 426 564 342,637 1,629
Dividends paid (24,468) (2,237) (55,115) (4,751)
Increase (decrease) in notes payable 21,211 10,994 28,793 (1,831)
----------- ------------ ------------ ------------
Net cash (used in) provided by financing activities (639,135) (14,108) 5,571,805 803,098
----------- ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (247,438) 10,749 133,332 25,167
Cash and cash equivalents, beginning of period 433,918 38,834 53,148 24,416
----------- ------------ ------------ ------------
Cash and cash equivalents, end of period $ 186,480 $ 49,583 $ 186,480 $ 49,583
=========== ============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 28,887 $ 10,812 $ 65,485 $ 29,797
Income taxes paid 996 7,974 7,357 20,697

See notes to consolidated financial statements.



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AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - On December 3, 2003, American Home Mortgage Investment Corp.
("AHM Investment") completed its merger with Apex Mortgage Capital, Inc.
("Apex"), a Maryland corporation that operated and elected to be treated as a
real estate investment trust, or REIT. Under the terms of the transaction,
American Home Mortgage Holdings, Inc. ("AHM Holdings") reorganized through a
reverse triangular merger that caused AHM Investment, a newly formed Maryland
corporation that operates and has elected to be treated as a REIT for federal
income tax purposes, to become AHM Holdings' parent. AHM Investment was formed
to combine the net assets of Apex, consisting primarily of mortgage-backed
securities, with the mortgage origination and servicing businesses of AHM
Holdings. As used herein, references to the "Company," "American Home," "we,"
"our" and "us" refer to AHM Investment collectively with its subsidiaries.

AHM Investment is a mortgage REIT focused on earning net interest income from
purchased and self-originated mortgage-backed securities, and through its
taxable subsidiaries, on earning income from originating and selling mortgage
loans and servicing mortgage loans for institutional investors. Mortgages are
originated through a network of loan origination offices as well as through
mortgage brokers and are serviced at the Company's Columbia, Maryland servicing
center.

Basis of Presentation - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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 trends and conditions may occur which could cause actual
results to differ materially. When necessary, certain reclassifications of prior
year financial statement amounts have been made to conform to the current year
presentation.

Due to the Company's exercising significant influence on the operations of its
joint ventures, their balances and operations have been fully consolidated in
the accompanying consolidated financial statements and all intercompany accounts
and transactions have been eliminated.

Cash and Due From Banks - Cash and due from banks include cash on hand, amounts
due from banks and overnight deposits. The carrying amount of cash and due from
banks approximates its fair value.

Money Market Investments - Money market investments include short-term purchases
of securities under agreements to resell ("repurchase agreements"). The amount
advanced under repurchase agreements approximates its fair value and is reported
as an asset on the balance sheet.

Mortgage-backed Securities - Mortgage-backed securities are classified as either
trading or available for sale. Trading securities are reported at fair value,
and changes in fair value are reported in unrealized gain on mortgage-backed
securities and derivatives in the statements of operations. Available for sale
securities are reported at fair value, with unrealized gains and losses excluded
from earnings and reported in accumulated other comprehensive income (loss).
Realized gains and losses on sales of available for sale securities are
determined on an average cost basis and included in gain on sales of
mortgage-backed securities and derivatives.

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 is likely to be sold
prior to the recovery of fair 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). Premiums and discounts on the Company's mortgage-backed
securities held in available for sale are amortized to interest income using the
level yield method over the estimated life of the security.

Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the
lower of cost or aggregate market value. The cost basis includes the capitalized
value of the interest rate lock commitments ("IRLCs") related to the mortgage
loans and any net deferred origination costs. For mortgage loans held for sale
that are hedged with forward sale commitments, if the Company meets hedge
accounting requirements, the carrying value is adjusted for the change in market
during the time the hedge was deemed to be highly effective. The


- 5 -


market value is determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate basis.

Mortgage Servicing Rights - Mortgage servicing rights ("MSRs") are carried at
the lower of cost or fair value, based on defined risk strata, and are amortized
in proportion to and over the period of estimated net servicing income. When the
Company sells certain loans and retains the servicing rights, it allocates the
cost basis of the loans between the assets sold and the MSRs based on their
relative fair values on the date of sale.

The Company estimates the fair value of its MSRs by obtaining market information
from one of the primary MSR brokers. When the book value of capitalized MSRs
exceeds its fair value, impairment is recognized through a valuation allowance.
In determining impairment, our mortgage servicing portfolio is stratified by the
predominant risk characteristic of the underlying mortgage loans. The Company
has determined that the predominant risk characteristic is the interest rate on
the underlying loans. The Company measures impairment for each stratum by
comparing the estimated fair value to the recorded book value. Temporary
impairment is recorded through a valuation allowance and amortization expense in
the period of occurrence. In addition, the Company periodically evaluates its
MSRs for other than temporary impairment to determine if the carrying value
before the application of the valuation allowance is recoverable. The Company
receives a sensitivity analysis of the estimated fair value of its MSRs assuming
a 200-basis-point instantaneous increase in interest rates from an independent
MSR broker. The fair value estimate includes changes in market assumptions that
would be expected given the increase in mortgage rates (e.g., prepayment speeds
would be lower). The Company believes this 200-basis-point increase in mortgage
rates to be an appropriate threshold for determining the recoverability of the
temporary impairment because that size rate increase is foreseeable and
consistent with historical mortgage rate fluctuations. When using this
instantaneous change in rates, if the fair value of the strata of MSRs is
estimated to increase to a point where all of the impairment would be recovered,
the impairment is considered to be temporary. When the Company determines that a
portion of the MSRs is not recoverable, the related MSRs and the previously
established valuation allowance are correspondingly reduced to reflect other
than temporary impairment.

Premises and Equipment - Premises and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line method over their estimated service lives. Leasehold improvements
are amortized over the lesser of the life of the lease or service lives of the
improvements using the straight-line method. Depreciation and amortization are
recorded within occupancy and equipment expense within the consolidated
financial statements.

Goodwill - Goodwill represents the excess purchase price over the fair value of
net assets acquired from business acquisitions. The Company tests for impairment
at least annually and will test for impairment more frequently if events or
circumstances indicate that an asset may be impaired. The Company tests for
impairment by comparing the fair value of goodwill, as determined by using a
discounted cash flow method, with its carrying value. Any excess of carrying
value over the fair value of the goodwill would be recognized as an impairment
loss in continuing operations. The discounted cash flow calculation related to
the Company's loan origination segment includes a forecast of the expected
future loan originations and the related revenues and expenses. The discounted
cash flow calculation related to the Company's mortgage-backed securities
holdings segment includes a forecast of the expected future net interest income,
gain on mortgage-backed securities and the related revenues and expenses. These
cash flows are discounted using a rate that is estimated to be a
weighted-average cost of capital for similar companies.

Reverse Repurchase Agreements - The Company has entered into reverse repurchase
agreements to finance certain of its investments. These agreements are secured
by a portion of the Company's investments and bear interest rates that have
historically moved in close relationship to the London Inter-Bank Offer Rate
("LIBOR"). Reverse repurchase agreements are accounted for as short-term
borrowings and recorded as a liability on the balance sheet.

Commercial Paper - The Company formed a wholly owned special purpose entity for
the purpose of issuing commercial paper in the form of short-term Secured
Liquidity Notes ("SLNs") to finance certain portions of the Company's mortgage
loans held for sale. The commercial paper is secured by the Company's loans held
for sale, mortgage-backed securities and cash and bears interest at prevailing
money market rates approximating LIBOR. Commercial paper is accounted for as a
short-term borrowing and recorded as a liability on the balance sheet.

Drafts Payable - Drafts payable represent outstanding mortgage loan
disbursements that the Company has provided to its customers for the purchase of
a home. The amounts outstanding do not bear interest and are transferred into
one of the warehouse facilities when they are presented to a bank.

Derivative Financial Instruments - The Company has developed risk management
programs and processes designed to manage market risk associated with normal
business activities.

Interest Rate Lock Commitments. The Company's mortgage committed pipeline
includes IRLCs that have been extended to borrowers who have applied for loan
funding and meet certain defined credit and underwriting criteria. The Company
classifies and accounts for the IRLCs associated with loans expected to be sold
or securitized as free-standing derivatives. Accordingly, IRLCs are recorded at
fair value with


- 6 -


changes in fair value recorded to current earnings. The fair value of the IRLCs
initiated on or before March 31, 2004 is determined by an estimate of the
ultimate gain on sale of the loans, including the value of MSRs, net of
estimated net costs to originate the loan. In March 2004, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 105 ("SAB No.
105"), which provided industry guidance that changed the timing of recognition
of MSRs for IRLCs initiated after March 31, 2004. In SAB No. 105, the SEC stated
that the value of expected future cash flows related to servicing rights should
be excluded when determining the fair value of derivative IRLCs. Under the new
policy, the value of the expected future cash flow related to servicing rights
is not recognized until the underlying loans are sold.

Forward Delivery Commitments Used to Hedge IRLCs. The Company uses mortgage
forward delivery contracts to economically hedge the IRLCs, which are also
classified and accounted for as free-standing derivatives and thus are recorded
at fair value with the changes in fair value recorded to current earnings.

Forward Delivery Commitments Used to Hedge Mortgage Loans Held for Sale. The
Company's risk management 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 use
of mortgage forward delivery contracts designated as fair value hedging
instruments to hedge 100% of its agency-eligible conforming loans and most of
its non-conforming loans held for sale. At the inception of the hedge, to
qualify for hedge accounting, the Company formally documents the relationship
between the forward delivery contracts and the mortgage inventory as well as its
objective and strategy for undertaking the hedge transaction. For conventional
conforming fixed-rate loans, the notional amount of the forward delivery
contracts, along with the underlying rate and terms of the contracts, are
equivalent to the unpaid principal amount of the mortgage inventory being
hedged; hence, the forward delivery contracts effectively fix the forward sales
price and thereby substantially eliminate interest rate and price risk to the
Company. The Company classifies and accounts for these forward delivery
contracts as fair value hedges. The derivatives are carried at fair value with
the changes in fair value recorded to current earnings. When the hedges are
deemed highly effective, the book value of the hedged loans held for sale is
adjusted for its change in fair value during the hedge period.

Interest Rate Swap Agreements. The Company enters into interest rate swap
agreements which require it to pay a fixed interest rate and receive a variable
interest rate based on LIBOR. The fair value of interest rate swap agreements
are based on the net present value of estimated future interest payments over
the remaining life of the interest rate swap agreement. All changes in the
unrealized gains and losses on swap agreements designated as cash flow hedges
have been recorded in "accumulated other comprehensive loss" and are
reclassified to earnings as interest expense is recognized on the Company's
hedged borrowings. For interest rate swap agreements accounted for as cash flow
hedges, the net amount accrued for the variable interest receivable and fixed
interest payable affects the amount recorded as "interest expense." If it
becomes probable that the forecasted transaction, which in this case refers to
interest payments to be made under the Company's short-term borrowing
agreements, will not occur by the end of the originally specified time period,
as documented at the inception of the hedging relationship, or within an
additional two-month time period thereafter, then the related gain or loss in
accumulated other comprehensive loss would be reclassified to income. Certain
swap agreements are designated as cash flow hedges against the benchmark
interest rate risk associated with the Company's borrowings. Although the terms
and characteristics of the Company's swap agreements and hedged borrowings are
nearly identical, due to the explicit requirements of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," the Company does not account for these hedges under a
method defined in SFAS No. 133 as the "shortcut" method, but rather the Company
calculates the effectiveness of these hedges on an ongoing basis, and, to date,
has calculated effectiveness of approximately 100%. The Company classifies and
accounts for interest rate swap agreements that are not designated as cash flow
hedges as free-standing derivatives. Accordingly, these swap agreements are
recorded at fair value with changes in fair value recorded to current earnings
as a component of "unrealized gain on mortgage-backed securities and
derivatives" as they are used to offset the price change exposure of
mortgage-backed securities classified as trading. For interest rate swap
agreements accounted for as free-standing derivatives, the net amount accrued
for the variable interest receivable and fixed interest payable is recorded in
current earnings as "unrealized gain on mortgage-backed securities and
derivatives."

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 de-designate 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 in their value recorded in earnings.

Gain on Sale of Loans - The Company recognizes gain on sale of loans for the
difference between the sales price and the adjusted book value of the loans at
the time of sale. The adjusted book value of the loans includes the original
principal amount plus adjustments related to previously recognized income plus
deferrals of fees and points received and direct loan origination costs.

Loan Origination Fees and Direct Origination Costs - The Company records loan
fees, discount points and certain direct origination costs as an adjustment of
the cost of the loan or security and such amounts are included in revenues when
the loan or security is sold. When loans


- 7 -


are securitized and held as securities available for sale, net deferred
origination costs are amortized over the life of the security using the
level-yield method and such amounts are included in interest income. When loans
are securitized and held as trading securities, net deferred origination costs
are an adjustment to the cost of the security and such amounts affect the amount
recorded as unrealized gain on mortgage-backed securities and derivatives. Gain
on sales of mortgage loans and salaries, commissions and benefits have been
reduced by $71.8 million and $70.4 million due to direct loan origination costs,
including commission costs, incurred for the nine months ended September 30,
2004 and 2003, respectively.

Interest Recognition - The Company accrues interest income as it is earned.
Loans are placed on a nonaccrual status when any portion of the principal or
interest is 90 days past due or earlier when concern exists as to the ultimate
collectibility of principal or interest. Loans return to accrual status when
principal and interest become current and are anticipated to be fully
collectible. Interest expense is recorded on outstanding lines of credit at a
rate based on a spread to the LIBOR.

The Company enters into interest rate swap agreements which require it to pay a
fixed interest rate and receive a variable interest rate based on the LIBOR. For
interest rate swap agreements accounted for as cash flow hedges, the net amount
accrued for the variable interest receivable and fixed interest payable affects
the amount recorded as "interest expense." For interest rate swap agreements
accounted for as free-standing derivatives, the net amount accrued for the
variable interest receivable and fixed interest payable is recorded in current
earnings as "unrealized gain on mortgage-backed securities and derivatives."

Servicing Fees - The Company recognizes servicing fees when the fees are
collected.

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

Income Taxes - The Company accounts for income taxes in conformity with SFAS No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach for accounting and reporting of income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences ("temporary
differences") attributable to the differences between the carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. A valuation allowance is provided for deferred tax assets where
realization is not considered "more likely than not." The Company recognizes the
effect of changes in tax laws or rates on deferred tax assets and liabilities in
the period that includes the enactment date.

Stock Option Plans - In 1999, the Company established the 1999 Omnibus Stock
Incentive Plan, as amended (the "Plan"). The Company has elected to account for
the Plan using Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and to provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants as if the
fair-value based method, as required by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123," had been applied. Had compensation cost been determined
based on the fair value at the grant dates for awards under the Plan, the
Company's net income available to common stockholders would have been $95.4
million and $61.4 million for the nine months ended September 30, 2004 and 2003,
respectively. Basic earnings per share would have been $2.60 and $3.61 for the
nine months ended September 30, 2004 and 2003, respectively. Diluted earnings
per share would have been $2.56 and $3.54 for the nine months ended September
30, 2004 and 2003, respectively.


- 8 -




Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(In thousands, except per share data) 2004 2003 2004 2003
-------------- ------------ ------------ -----------

Net income available to common
shareholders - as reported $ 41,295 $18,694 $ 96,000 $ 61,884
Less: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (272) (224) (638) (518)
-------------- ------------ ------------ -----------
Net income available to common
shareholders - pro forma $ 41,023 $18,470 $ 95,362 $ 61,366
============== ============ ============ ===========
Earnings per share:
Basic - as reported $ 1.03 $ 1.08 $ 2.61 $ 3.64
Basic - pro forma $ 1.02 $ 1.07 $ 2.60 $ 3.61

Diluted - as reported $ 1.02 $ 1.06 $ 2.58 $ 3.57
Diluted - pro forma $ 1.01 $ 1.04 $ 2.56 $ 3.54




Earnings Per Share - Basic earnings per share excludes dilution and is computed
by dividing net income available to common shareholders 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.

Cash Flows - Cash and cash equivalents are demand deposits and short-term
investments with a maturity of 90 days or less.

Recently Issued Accounting Standards - In March of 2004, the Emerging Issues
Task Force ("EITF") reached consensus on the guidance provided in EITF Issue No.
03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments." Among other investments, this guidance is applicable to
debt and equity securities that are within the scope of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." EITF 03-1
specifies that an impairment would be considered other-than-temporary unless (a)
the investor has the ability and intent to hold an investment for a reasonable
period of time sufficient for the recovery of the fair value up to (or beyond)
the cost of the investment and (b) evidence indicating that the cost of the
investment is recoverable within a reasonable period of time outweighs evidence
to the contrary. A company's liquidity and capital requirements should be
considered when assessing its intent and ability to hold an investment for a
reasonable period of time that would allow the fair value of the investment to
recover up to or beyond its cost. Although not presumptive, a pattern of selling
investments prior to the forecasted fair value recovery may call into question a
company's intent. In addition, the severity and duration of the impairment
should also be considered when determining whether the impairment is
other-than-temporary. This new guidance was to be effective for reporting
periods beginning after June 15, 2004, but was subsequently deferred to periods
ending after December 15, 2004 pending issuance of a Financial Accounting
Standards Board Staff Position. The Company is currently evaluating the impact
this guidance will have on its process for determining whether
other-than-temporary declines exist within its available for sale securities
portfolio. Adoption of this guidance may accelerate the recognition of losses
from declines in value on available for sale securities due to interest rates;
however, it is not anticipated to have a significant impact on stockholders'
equity as changes in market value of available for sale securities are already
included in "accumulated other comprehensive loss."


- 9 -


NOTE 2 - MORTGAGE-BACKED SECURITIES

The following table presents the Company's mortgage-backed securities as of
September 30, 2004 and December 31, 2003:




September 30, 2004
-----------------------------------------------------------------------
(In thousands) Trading Securities Securities Available for Sale Total Securities
- ----------------------- ------------------ ----------------------------- ----------------

Adjusted cost $ 2,651,063 $ 4,667,454 $ 7,318,517

Gross unrealized gains 16,074 18,341 34,415
Gross unrealized losses (5,775) (15,269) (21,044)
------------------ ----------------------------- ----------------
Fair value $ 2,661,362 $ 4,670,526 $ 7,331,888
================== ============================= ================

December 31, 2003
-----------------------------------------------------------------------
(In thousands) Trading Securities Securities Available for Sale Total Securities
-----------------------------------------------------------------------
Adjusted cost $ 476,541 $ 1,282,523 $ 1,759,064

Gross unrealized gains 3,382 1,969 5,351
Gross unrealized losses (110) (677) (787)
------------------ ----------------------------- ----------------
Fair value $ 479,813 $ 1,283,815 $ 1,763,628
================== ============================= ================



During the quarter ended September 30, 2004, the Company sold $3.0 billion of
mortgage-backed securities and realized $38.6 million in gains and $16.3 million
in losses, net of associated interest rate swaps.

During the nine months ended September 30, 2004, the Company sold $4.7 billion
of mortgage-backed securities and realized $58.7 million in gains and $21.4
million in losses, net of associated interest rate swaps.

The Company's mortgage-backed securities with gross unrealized losses at
September 30, 2004 have been in an unrealized loss position for less than six
months.

The Company has credit exposure on loans it has securitized. The following table
summarizes the loan delinquency information as of September 30, 2004 and
December 31, 2003:




September 30, 2004
---------------------------------------------------------------------------------------
(Dollars in thousands)

Delinquency Status Loan Count Loan Balance Percent of Total Securitizations Percent of Total Assets
- ------------------- ---------- ------------ -------------------------------- -----------------------

60 to 89 days 24 $ 5,857 0.20% 0.06%
90 and greater days 6 1,580 0.05% 0.02%
Foreclosure 13 3,334 0.11% 0.04%
---------- ------------ -------------------------------- -----------------------
43 $ 10,771 0.36% 0.12%
========== ============ ================================ =======================




- 10 -




December 31, 2003
-----------------------------------------------------------------------------------
(Dollars in thousands)

Delinquency Status Loan Count Loan Balance Percent of Total Securitizations Percent of Total Assets
- ------------------ ---------- ------------ -------------------------------- -----------------------

60 to 89 days 1 $ 692 0.13% 0.02%
---------- ------------ -------------------------------- -----------------------
1 $ 692 0.13% 0.02%
========== ============= =============================== =======================



NOTE 3 - MORTGAGE LOANS HELD FOR SALE, NET

The following table presents the Company's mortgage loans held for sale, net, as
of September 30, 2004 and December 31, 2003:


September 30, December 31,
(In thousands) 2004 2003
------------- -------------
Mortgage loans held for sale $ 1,121,129 $ 1,187,314
SFAS No. 133 basis adjustments 1,316 16,489
Deferred origination costs, net 9,216 12,550
------------- -------------
Mortgage loans held for sale, net $ 1,131,661 $ 1,216,353
============= =============


NOTE 4 - DERIVATIVE ASSETS AND LIABILITIES

The following table presents the Company's derivative assets and liabilities as
of September 30, 2004 and December 31, 2003:


September 30, December 31,
(In thousands) 2004 2003
------------- -------------
Derivative Assets:
Interest rate lock commitments $ 11,630 $ 30,611
------------- -------------
Derivative assets $ 11,630 $ 30,611
============= =============

Derivative Liabilities:
Forward delivery contracts - loan commitments $ 980 $ 4,358
Forward delivery contracts - loans held for sale 114 2,300
Interest rate swaps 7,324 6,036
Interest rate swaps - free standing derivatives 9,819 -
------------- -------------
Derivative liabilities $ 18,237 $ 12,694
============= =============


The notional amount of the Company's interest rate swaps as of September 30,
2004 was $2.8 billion.

At September 30, 2004, the notional amount of forward delivery contracts
amounted to approximately $843.5 million. The forward delivery contracts have a
high correlation to the price movement of the loans being hedged. The
ineffectiveness recognized in hedging loans held for sale recorded on the
balance sheet was insignificant as of September 30, 2004.


- 11 -



NOTE 5 - MORTGAGE SERVICING RIGHTS, NET

The following table presents the activity in the Company's mortgage servicing
rights, net, for the three and nine months ended September 30, 2004 and 2003:





Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(In thousands) 2004 2003 2004 2003
--------- --------- --------- ---------

Mortgage Servicing Rights:
Balance at beginning of period $ 151,018 $ 104,775 $ 121,652 $ 119,225
Additions 31,179 27,711 75,655 43,316
Amortization (7,755) (14,903) (22,865) (44,958)
--------- --------- --------- ---------
Balance at end of period $ 174,442 $ 117,583 $ 174,442 $ 117,583
--------- --------- --------- ---------
Impairment Allowance:
Balance at beginning of period $ (9,200) $ (22,387) $ (3,868) $ (10,202)
Impairment recovery (provision) (4,807) 7,825 (10,139) (4,360)
--------- --------- --------- ---------
Balance at end of period $ (14,007) $ (14,562) $ (14,007) $ (14,562)
--------- --------- --------- ---------
Mortgage servicing rights, net $ 160,435 $ 103,021 $ 160,435 $ 103,021
========= ========= ========= =========



Aggregate Amortization Expense
- ------------------------------
Nine months ended September 30, 2004 $ 22,865

Estimated Amortization Expense
- ------------------------------
Year ended September 30, 2005 $ 39,835
Year ended September 30, 2006 33,436
Year ended September 30, 2007 22,369
Year ended September 30, 2008 15,355
Year ended September 30, 2009 11,479
Thereafter 51,968


On a quarterly basis, the Company reviews MSRs for impairment based on risk
strata. The MSRs are stratified based on the predominant risk characteristics of
the underlying loans. The Company's predominant risk characteristic is interest
rate. A valuation allowance is recognized for MSRs that have an amortized
balance in excess of the estimated fair value for the individual risk
stratification.

The estimated fair value of MSRs is determined by obtaining a market valuation
from an independent MSR broker. To determine the market value of MSRs, the MSR
broker uses a valuation model which incorporates assumptions relating to the
estimate of the cost of servicing the loan, a discount rate, a float value, an
inflation rate, ancillary income per loan, prepayment speeds and default rates
that market participants use for similar MSRs. Market assumptions are held
constant over the life of the portfolio.

The significant assumptions used in estimating the fair value of MSRs at
September 30, 2004 and December 31, 2003 were as follows:


- 12 -




September 30, 2004 December 31, 2003
------------------ -----------------

Weighted-average prepayment speed (PSA) 352 397
Weighted-average discount rate 10.42% 9.82%
Weighted-average default rate 2.64% 4.02%



The following table presents certain information regarding the Company's
servicing portfolio of loans serviced for others at September 30, 2004 and
December 31, 2003:




September 30, 2004 December 31, 2003
------------------ -----------------
(Dollars in thousands)

Loan servicing portfolio - loans sold or securitized $ 12,539,467 $ 8,272,294
Average loan size $ 160 $ 120
Weighted-average servicing fee 0.354% 0.347%
Weighted-average note rate 5.41% 5.72%
Weighted-average remaining term (in months) 327 298
Weighted-average age (in months) 18 27



NOTE 6 - GOODWILL

The following table presents the activity in the Company's goodwill for the nine
months ended September 30, 2004:





Mortgage-Backed
Loan Origination Securities Holdings
(In thousands) Segment Segment Total
----------------- -------------------- ----------

Balance at December 31, 2003 $ 58,605 $ 24,840 $ 83,445
Earnouts from previous acquisitions 5,751 - 5,751
----------------- -------------------- ----------
Balance at September 30, 2004 $ 64,356 $ 24,840 $ 89,196
================= ==================== ==========




NOTE 7 - WAREHOUSE LINES OF CREDIT, REVERSE REPURCHASE AGREEMENTS AND COMMERCIAL
PAPER

Warehouse Lines of Credit

As of September 30, 2004, the Company has a committed bank syndicated facility
led by Bank of America and a pre-purchase facility with UBS Real Estate
Securities Inc. ("UBS"). The Company also has committed facilities with CDC
Mortgage Capital Inc. ("CDC"), Morgan Stanley Bank ("Morgan Stanley") and Calyon
Americas. In addition, the Company has a gestation facility with Greenwich
Capital Financial Products, Inc. The Bank of America facility is for $600
million, the UBS facility is for $1.2 billion, the CDC facility is for $450
million, the Morgan Stanley facility is for $350 million and the Calyon Americas
facility is for $200 million. The interest rate on outstanding balances
fluctuates daily based on a spread to the LIBOR and interest is paid monthly.

The facilities are secured by mortgage loans and other assets of the Company.
The facilities contain various covenants pertaining to maintenance of net worth,
working capital and maximum leverage. At September 30, 2004, the Company was in
compliance with respect to the loan covenants.

Included within the Bank of America line of credit, the Company has a working
capital sub-limit that allows for borrowings up to $50 million at a rate based
on a spread to the LIBOR that may be adjusted for earnings on compensating
balances on deposit at creditors' banks. As of September 30, 2004, borrowings
under the working capital line of credit were $24 million.


- 13 -


The following table presents the Company's warehouse lines of credit as of
September 30, 2004 and December 31, 2003:




September 30, 2004 December 31, 2003
---------------------- ------------------------
Weighted Weighted
Outstanding Average Outstanding Average
(Dollars in thousands) Balance Rate Balance Rate
---------------------- ------------------------

Calyon Americas $ 199,540 2.44% $ 200,702 1.88%
Bank of America 187,096 2.92 - -
CDC 156,946 2.63 406,444 1.98
Morgan Stanley 4,002 2.57 92,925 1.92
RFC - - 293,344 2.06
UBS - - 128,345 3.21
----------- -------------
Warehouse lines of credit $ 547,584 2.66% $ 1,121,760 2.12%
=========== =============



Reverse Repurchase Agreements

The Company has arrangements to enter into reverse repurchase agreements, a form
of collateralized short-term borrowing, with thirteen different financial
institutions and on September 30, 2004 had borrowed funds from nine of these
firms. Because the Company borrows money under these agreements based on the
fair value of its mortgage-backed securities, and because changes in interest
rates can negatively impact the valuation of mortgage-backed securities, the
Company's borrowing ability under these agreements could be limited and lenders
could initiate margin calls in the event interest rates change or the value of
the Company's mortgage-backed securities declines for other reasons.

As of September 30, 2004, the Company had $6.9 billion of reverse repurchase
agreements outstanding with a weighted-average borrowing rate of 1.78% and a
weighted-average remaining maturity of four months. As of December 31, 2003, the
Company had $1.3 billion of reverse repurchase agreements outstanding with a
weighted-average borrowing rate of 1.26% and a weighted-average remaining
maturity of seven months.

At September 30, 2004 and December 31, 2003, the Company's reverse repurchase
agreements had the following remaining maturities:




September 30, December 31,
2004 2003
--------------- -------------
(In thousands)

Within 30 days $ 1,122,546 $ 184,302
31 to 89 days 1,782,846 -
90 to 365 days 3,993,632 1,160,025
--------------- -------------
Reverse repurchase agreements $ 6,899,024 $ 1,344,327
=============== =============



Commercial Paper

In May 2004, the Company formed a wholly owned special purpose entity for the
purpose of issuing commercial paper in the form of short-term Secured Liquidity
Notes ("SLNs") to finance certain portions of the Company's mortgage loans held
for sale. The special purpose entity allows for issuance of short-term notes
with maturities of up to 180 days, extendable up to 300 days. The SLNs bear
interest at prevailing money market rates approximating LIBOR. The SLN program
capacity, based on aggregate commitments of underlying credit enhancers, was
$2.0 billion at September 30, 2004.

As of September 30, 2004, the Company had $462.7 million of SLNs outstanding,
with an average interest cost of 1.83%. The SLNs were collateralized by loans
held for sale, mortgage-backed securities and cash with a balance of $467.8
million as of September 30, 2004.


- 14 -


At September 30, 2004, the Company's commercial paper had the following
remaining maturities:


September 30,
2004
-------------
(In thousands)

Within 30 days $ 409,731
31 to 89 days 52,981
-------------
Commercial paper $ 462,712
=============



NOTE 8 - COMMON STOCK AND PREFERRED STOCK

In March 2004, the Company issued 14,375,000 shares of its common stock ("Common
Stock") at a price of $25 per share, which included the exercise of the
underwriters' option to purchase 1,875,000 additional shares of Common Stock to
cover over-allotments. The total proceeds to the Company, including proceeds
from the exercise of the over-allotment option, were $359.3 million, before
underwriting discounts, commissions and other offering expenses.

In July 2004, the Company issued 2,150,000 shares of 9.75% Series A Cumulative
Redeemable Preferred Stock ("Preferred Stock") at a price of $25 per share. The
total number of shares of Preferred Stock outstanding includes: 1,400,000 shares
of Preferred Stock issued in an underwritten public offering (the "Initial
Offering"), which closed on July 7, 2004; 100,000 shares of Preferred Stock
issued in connection with the underwriters' election to purchase a portion of
the shares of Preferred Stock offered to them in connection with the Initial
Offering to cover over-allotments, which closed on July 12, 2004; and 650,000
shares of Preferred Stock issued and sold to the underwriters in connection with
a subsequent public offering of Preferred Stock, which closed on July 20, 2004.
The total proceeds from both offerings to the Company were $53.8 million before
underwriting discounts, commissions and other offering expenses.

On September 8, 2004, the Company declared a dividend of $0.61 per common share,
which was paid on October 21, 2004 to common shareholders of record as of
October 5, 2004.

On September 8, 2004, the Company declared a dividend of $0.76663 per preferred
share, which was paid on November 1, 2004 to preferred shareholders of record as
of October 5, 2004.


NOTE 9 - INCOME TAXES

The following table presents a reconciliation of the statutory income tax
provision to the effective income tax provision:





Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------------- -------------------------------------------
2004 2003 2004 2003
------------------- ------------------------ -------------------- ---------------------
(Dollars in thousands)

Tax provision at statutory rate $ 11,534 35.0% $ 10,850 35.0% $ 24,961 35.0% $ 36,710 35.0%
Non-taxable REIT income (20,313) (61.6) - - (47,807) (66.9) - -
State and local taxes, net of
federal income tax benefit (1,369) (4.2) 987 3.2 (4,004) (5.6) 6,148 5.9
Minority income adjustment - - (67) (0.2) - - (330) (0.3)
Other 150 0.5 345 1.1 520 0.7 476 0.4
-------- ------ -------- ----- -------- ------ -------- -----
Income tax (benefit) expense $ (9,998) (30.3%) $ 12,115 39.1% $(26,330) (36.8%) $ 43,004 41.0%
======== ====== ======== ===== ======== ====== ======== =====


- 15 -


The following table presents the major sources of temporary differences, and
their deferred tax effects, as of September 30, 2004 and December 31, 2003:




September 30, December 31,
2004 2003
------------- -------------
(In thousands)

Deferred tax liabilities:
Capitalized cost of mortgage servicing rights $ 69,784 $ 50,083
Loan origination costs 9,746 11,926
Depreciation 2,341 576
Mark-to-market adjustments 1,081 11,041
------------- -------------
Deferred tax liabilities 82,952 73,626
------------- -------------
Deferred tax assets:
Tax loss carryforwards 10,204 10,441
Allowance for bad debts and foreclosure reserve 2,967 3,133
Deferred state income taxes 3,389 2,855
Broker fees 1,972 -
Other 846 691
------------- -------------
Deferred tax assets 19,378 17,120
------------- -------------
Net deferred tax liabilities $ 63,574 $ 56,506
============= =============



- 16 -


NOTE 10 - EARNINGS PER SHARE

The following is a reconciliation of the denominators used in the computations
of basic and diluted earnings per share for the three and nine months ended
September 30, 2004 and 2003:



Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(Dollars in thousands, except per share amounts) 2004 2003 2004 2003
---------- ---------- ---------- ----------

Numerator for basic earnings per share - Net income
available to common shareholders $ 41,295 $ 18,694 $ 96,000 $ 61,884
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per share
Weighted average number of common shares
outstanding during the period 40,144,601 17,272,319 36,737,484 17,003,229

Net effect of dilutive stock options 460,453 432,205 460,568 354,694
---------- ---------- ---------- ----------
Denominator for diluted earnings per share 40,605,054 17,704,524 37,198,052 17,357,923
========== ========== ========== ==========
Net income per share available to common shareholders:

Basic $ 1.03 $ 1.08 $ 2.61 $ 3.64
========== ========== ========== ==========
Diluted $ 1.02 $ 1.06 $ 2.58 $ 3.57
========== ========== ========== ==========



NOTE 11 - STOCK OPTION PLANS

In 1999, the Company established the 1999 Omnibus Stock Incentive Plan, as
amended (the "Plan"). Pursuant to the Plan, eligible employees, officers and
directors are offered the opportunity to acquire the Company's common stock
through the grant of options and the award of restricted stock under the Plan.
The total number of shares that may be optioned or awarded under the Plan is
3,000,000 shares of common stock. The Plan provides for the granting of options
at the fair market value on the date of grant. The options issued primarily vest
50% on the two-year anniversary of the grant date and 50% on the three-year
anniversary of the grant date, and expire ten years from the grant date.

As of September 30, 2004, the Company has awarded 208,579 shares of restricted
stock under the Plan. During the nine months ended September 30, 2004 and 2003,
the Company recognized compensation expense of $603 thousand and $385 thousand,
respectively, relating to shares of restricted stock. At September 30, 2004,
134,401 shares are vested. In general, unvested restricted stock is forfeited
upon the recipient's termination of employment.

For options granted under the Plan, there was no intrinsic value of the options
when granted, as the exercise price was equal to the quoted market price at the
grant date. No compensation cost has been recognized for the nine months ended
September 30, 2004 and 2003.

Pursuant to the terms of the Company's merger with Apex, which was consummated
on December 3, 2003 (following the approval of the Company's stockholders at a
special meeting held on November 21, 2003), the Company assumed the Amended and
Restated 1997 Stock Option Plan of Apex (the "Apex Plan"). Upon the closing of
the merger with Apex, Apex caused all unvested options granted under the Apex
Plan to become vested, and each option granted under the Apex Plan that was not
exercised as of December 3, 2003 was terminated and not assumed by the Company.

An aggregate of 1 million shares of common stock were available for issuance
upon exercise of stock options granted under the Apex Plan. As of the effective
date of the merger, Apex had granted options to purchase 791,000 shares of
common stock, which options were either (i) previously caused to become vested
or (ii) terminated and not assumed by the Company. Accordingly, options to
purchase an aggregate of 209,000 shares of the Company's common stock remain
available for grant under the Apex Plan.


- 17 -


There were 110,000 and 422,413 options granted under the Plan in the three
months and nine months ended September 30, 2004. The weighted-average fair value
per share of options granted during the three months and nine months ended
September 30, 2004 was $4.58 and $5.00, respectively.

There were 40,000 and 214,376 options granted under the Plan in the three months
and nine months ended September 30, 2003. The weighted-average fair value per
share of options granted in the three months and nine months ended September 30,
2003 was $5.44 and $4.62, respectively.

The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
the grants:




Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
------- ------- ------- -------

Dividend yield 9.0 % 3.0 % 8.3 % 3.0 %
Expected volatility 38.3 % 50.9 % 44.5 % 50.9 %
Risk-free interest rate 5.0 % 5.0 % 5.0 % 5.0 %
Expected life 3 years 3 years 3 years 3 years



NOTE 12 - ACQUISITIONS

Apex Mortgage Capital, Inc.

On December 3, 2003, AHM Investment completed its merger with Apex, a Maryland
corporation that operated and elected to be treated as a REIT for federal income
tax purposes. Immediately prior to the merger, under the terms of the
reorganization agreement between AHM Holdings and AHM Investment, AHM Holdings
reorganized through a reverse triangular merger that caused AHM Investment to
become AHM Holdings' parent. The shares of AHM Investment issued to former Apex
stockholders in the merger were valued at $177.3 million.

The following table summarizes the required disclosures of the pro forma
combined entity, as if the acquisition occurred at the beginning of the nine
months ended September 30, 2003:


Nine Months Ended
(In thousands, except per share amounts) September 30, 2003
------------------
Revenue $ 291,553

Income before income taxes 46,445

------------------
Net income $ 3,441
==================
Earnings per share - basic $ 0.14
==================
Earnings per share - diluted $ 0.14
==================


Valley Bancorp, Inc.

In August 2001, AHM Holdings entered into an agreement to acquire Valley
Bancorp, Inc. ("Valley Bancorp") and its wholly-owned subsidiary, Valley Bank of
Maryland, a federal savings bank located in suburban Baltimore, Maryland, for a
combination of cash and stock, subject to certain adjustments. Under the terms
of the definitive agreement, the Company will pay $46 for each share of Valley
Bancorp common stock outstanding, or approximately $6.0 million. The acquisition
agreement between AHM Holdings and Valley Bancorp has been extended through July
31, 2005. This transaction is subject to regulatory approval and no assurance
can be given that such approval will be obtained or that the acquisition
agreement with Valley Bancorp will be further extended if necessary.


- 18 -


Acquisition of Certain Home Loan Centers of Washington Mutual, Inc.

On August 2, 2004, the Company acquired certain residential mortgage home loan
centers and associated satellite offices that Washington Mutual Inc. and its
subsidiaries ("Washington Mutual") previously slated for closure in 18 states.
The Company hired 498 employees who support these home loan centers and
associated satellite offices with the vast majority being sales professionals
focused on retail loan originations. The purchase price was insignificant to the
Company's consolidated financial statements.

Under the terms of the acquisition, the Company assumed Washington Mutual's
lease obligations and purchased certain fixed assets in the acquired offices.
The acquisition was funded from current cash reserves.


NOTE 13 - SEGMENTS AND RELATED INFORMATION

The Company has three segments, the Mortgage-Backed Securities Holdings segment,
the Loan Origination segment and the Loan Servicing segment. The Mortgage-Backed
Securities Holdings segment uses the Company's equity capital and borrowed funds
to invest in mortgage-backed securities, thereby producing net interest income.
The Loan Origination segment originates mortgage loans through the Company's
retail and internet branches and loans sourced through mortgage brokers
(wholesale channel). The Loan Servicing segment includes investments in MSRs as
well as servicing operations primarily for other financial institutions.

The Mortgage-Backed Securities Holdings segment includes realized gains or
losses on sales of mortgage-backed securities, unrealized mark-to-market gains
or losses subsequent to the securitization date on mortgage-backed securities
classified as trading securities and realized and unrealized gains or losses on
related interest rate swaps.

The Loan Origination segment includes realized gains or losses on sales of loans
and mortgage-backed securities, unrealized gains or losses that exist on the
date of securitization of self-originated loans that are classified as trading
securities and realized and unrealized gains or losses on related interest rate
swaps. The Loan Origination segment's pre-tax income consists of income from our
qualified REIT subsidiary ("QRS") and our taxable REIT subsidiaries ("TRSs").



- 19 -






Three Months Ended September 30, 2004
------------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
------------------------------------------------------

Net interest income:
Interest income $ 66,856 $ 27,442 $ - $ 94,298
Interest expense (42,124) (18,252) (1,029) (61,405)
------------------------------------------------------
Total net interest income 24,732 9,190 (1,029) 32,893
------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 28,373 - 28,373
(Loss) gain on sales of mortgage-backed securities and derivatives (4,610) 26,951 - 22,341
Unrealized (loss) gain on mortgage-backed securities and derivatives (1,784) 28,853 - 27,069

Loan servicing fees - - 9,822 9,822
Amortization of mortgage servicing rights - - (7,755) (7,755)
Impairment provision of mortgage servicing rights - - (4,807) (4,807)
------------------------------------------------------
Net loan servicing fees (loss) - - (2,740) (2,740)

Other non-interest income - 3,349 - 3,349
------------------------------------------------------
Total non-interest income (6,394) 87,526 (2,740) 78,392
------------------------------------------------------
Non-interest expenses:
Salaries, commissions and benefits, net 55 45,151 1,276 46,482
Occupancy and equipment 5 9,858 121 9,984
Data processing and communications 5 3,637 103 3,745
Office supplies and expenses - 2,831 181 3,012
Marketing and promotion - 2,608 2 2,610
Travel and entertainment - 3,609 11 3,620
Professional fees 44 2,389 91 2,524
Other 2,036 3,591 736 6,363
------------------------------------------------------
Total non-interest expenses 2,145 73,674 2,521 78,340
------------------------------------------------------
Net income before income tax benefit 16,193 23,042 (6,290) 32,945
------------------------------------------------------
Income tax benefit - (7,510) (2,488) (9,998)
------------------------------------------------------
Net income 16,193 30,552 (3,802) 42,943
------------------------------------------------------
Dividends on preferred stock 1,648 - - 1,648
------------------------------------------------------
Net income available to common shareholders $ 14,545 $ 30,552 $ (3,802) $ 41,295
======================================================
September 30, 2004
------------------------------------------------------
Segment assets $ 7,489,460 $ 1,378,704 $ 208,831 $ 9,076,995
======================================================




- 20 -






Three Months Ended September 30, 2003
------------------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
------------------------------------------------------------

Net interest income:
Interest income $ - $ 29,693 $ - $ 29,693
Interest expense - (15,755) (254) (16,009)
------------------------------------------------------------
Total net interest income - 13,938 (254) 13,684
------------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 105,577 - 105,577

Loan servicing fees - - 8,306 8,306
Amortization of mortgage servicing rights - - (14,903) (14,903)
Impairment recovery of mortgage servicing rights - - 7,825 7,825
------------------------------------------------------------
Net loan servicing fees - - 1,228 1,228

Other non-interest income - 1,423 - 1,423
------------------------------------------------------------
Total non-interest income - 107,000 1,228 108,228
------------------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net - 61,902 796 62,698
Occupancy and equipment - 7,220 120 7,340
Data processing and communications - 3,659 23 3,682
Office supplies and expenses - 3,362 195 3,557
Marketing and promotion - 3,229 3 3,232
Travel and entertainment - 3,103 19 3,122
Professional fees - 2,118 201 2,319
Other - 4,355 798 5,153
------------------------------------------------------------
Total non-interest expenses - 88,948 2,155 91,103
------------------------------------------------------------
Net income before income tax expense (benefit) - 31,990 (1,181) 30,809
------------------------------------------------------------
Income tax expense (benefit) - 12,873 (758) 12,115
------------------------------------------------------------
Net income - 19,117 (423) 18,694
------------------------------------------------------------
Dividends on preferred stock - - - -
------------------------------------------------------------
Net income available to common shareholders $ - $ 19,117 $ (423) $ 18,694
============================================================
December 31, 2003
------------------------------------------------------------
Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690
============================================================




- 21 -





Nine Months Ended September 30, 2004
----------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
----------------------------------------------------

Net interest income:
Interest income $ 123,194 $ 75,153 $ - $ 198,347
Interest expense (82,026) (47,736) (2,834) (132,596)
------------------------------------------------------
Total net interest income 41,168 27,417 (2,834) 65,751
------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 98,095 - 98,095
(Loss) gain on sales of mortgage-backed securities and derivatives (22,874) 60,184 - 37,310
Unrealized gain on mortgage-backed securities and derivatives 29,131 52,910 - 82,041

Loan servicing fees - - 28,870 28,870
Amortization of mortgage servicing rights - - (22,865) (22,865)
Impairment provision of mortgage servicing rights - - (10,139) (10,139)
------------------------------------------------------
Net loan servicing fees (loss) - - (4,134) (4,134)
Other non-interest income - 5,553 - 5,553
------------------------------------------------------
Total non-interest income 6,257 216,742 (4,134) 218,865
------------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net 159 125,053 3,593 128,805
Occupancy and equipment 5 25,691 390 26,086
Data processing and communications 11 10,068 217 10,296
Office supplies and expenses - 8,525 820 9,345
Marketing and promotion - 7,013 5 7,018
Travel and entertainment 2 8,947 135 9,084
Professional fees 251 6,060 470 6,781
Other 5,109 8,044 2,730 15,883
------------------------------------------------------
Total non-interest expenses 5,537 199,401 8,360 213,298
------------------------------------------------------
Net income before income tax benefit 41,888 44,758 (15,328) 71,318
------------------------------------------------------
Income tax benefit - (20,267) (6,063) (26,330)
------------------------------------------------------
Net income 41,888 65,025 (9,265) 97,648
------------------------------------------------------
Dividends on preferred stock 1,648 - - 1,648
------------------------------------------------------
Net income available to common shareholders $ 40,240 $ 65,025 $ (9,265) $ 96,000
======================================================
September 30, 2004
------------------------------------------------------
Segment assets $ 7,489,460 $ 1,378,704 $ 208,831 $ 9,076,995
======================================================




- 22 -




Nine Months Ended September 30, 2003
------------------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
------------------------------------------------------------

Net interest income:
Interest income $ - $ 76,117 $ - $ 76,117
Interest expense - (37,036) (1,754) (38,790)
------------------------------------------------------------
Total net interest income - 39,081 (1,754) 37,327
------------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 323,070 - 323,070

Loan servicing fees - - 29,255 29,255
Amortization of mortgage servicing rights - - (44,958) (44,958)
Impairment provision of mortgage servicing rights - - (4,360) (4,360)
------------------------------------------------------------
Net loan servicing fees (loss) - - (20,063) (20,063)

Other non-interest income - 5,592 - 5,592
------------------------------------------------------------
Total non-interest income - 328,662 (20,063) 308,599
------------------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net - 159,027 2,524 161,551
Occupancy and equipment - 19,338 304 19,642
Data processing and communications - 9,436 73 9,509
Office supplies and expenses - 9,526 901 10,427
Marketing and promotion - 8,822 14 8,836
Travel and entertainment - 7,977 23 8,000
Professional fees - 5,318 514 5,832
Other - 14,796 2,445 17,241
------------------------------------------------------------
Total non-interest expenses - 234,240 6,798 241,038
------------------------------------------------------------
Net income before income tax expense (benefit) - 133,503 (28,615) 104,888
------------------------------------------------------------
Income tax expense (benefit) - 54,736 (11,732) 43,004
------------------------------------------------------------
Net income - 78,767 (16,883) 61,884
------------------------------------------------------------
Dividends on preferred stock - - - -
------------------------------------------------------------
Net income available to common shareholders $ - $ 78,767 $ (16,883) $ 61,884
============================================================
December 31, 2003
------------------------------------------------------------
Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690
============================================================




- 23 -


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Regarding Forward-Looking Statements

This report, including, but not limited to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements within the meaning of the federal securities laws.
Some of the forward-looking statements can be identified by the use of
forward-looking words. When used in this report, statements which are not
historical in nature, including the words "anticipate," "may," "estimate,"
"should," "seek," "expect," "plan," "believe," "intend," and similar words, or
the negatives of those words, are intended to identify forward-looking
statements. Statements which also contain a projection of revenues, earnings
(loss), capital expenditures, dividends, capital structure or other financial
terms are intended to be forward-looking statements. Certain statements
regarding the following particularly are forward-looking in nature:

o our business strategy;

o future performance, developments, market forecasts or projected
dividends;

o projected acquisitions or joint ventures; and

o projected capital expenditures.

It is important to note that the description of our business in general, and our
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.

The forward-looking statements in this report are based on our management's
beliefs, assumptions, and expectations of our future economic performance,
taking into account the information currently available to it. These statements
are not statements of historical fact. Forward-looking statements are subject to
a number of factors, risks and uncertainties, some of which are not currently
known to us, that may cause our actual results, performance or financial
condition to be materially different from our expectations of future results,
performance or financial position. These factors include, without limitation:

o our limited operating history with respect to our proposed portfolio
strategy;

o 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;

o our need for a significant amount of cash to operate our business;

o risks associated with the use of leverage;

o disruptions in the market for repurchase facilities;

o failure to match the interest rates on our borrowings with the
interest rates on the mortgage-backed securities we hold;

o failure to maintain our status as a real estate investment trust;

o changes in federal and state tax laws affecting real estate
investment trusts;

o general economic, political, market, financial or legal conditions;
and

o those risks and uncertainties discussed in our filings with the
Securities and Exchange Commission.

In light of these risks, uncertainties and assumptions, any forward-looking
events discussed in this report might not occur, and we qualify any and all of
our forward-looking statements entirely by these cautionary factors. You are
cautioned not to place undue reliance on forward-looking statements. Such
forward-looking statements are inherently uncertain, and actual results may
differ from expectations. We are not


- 24 -


under any obligation, and we expressly disclaim any obligation, to update or
alter any forward-looking statements, whether as a result of new information,
future events or otherwise.


Critical Accounting Policies and Estimates

Our accounting policies are described in Note 1 to the Consolidated Financial
Statements. We have identified the following accounting policies that are
critical to the presentation of our financial statements and that require
critical accounting estimates by management.

Mortgage-Backed Securities - We record our mortgage-backed securities at fair
value. The fair values of our mortgage-backed securities are generally based on
market prices provided by certain dealers who make markets on these financial
instruments or third-party pricing services. If the fair value of a
mortgage-backed security is not reasonably available, management estimates the
fair value, which requires management's judgment and may not be indicative of
the amounts we could realize in a current market exchange.

Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the
lower of cost or aggregate market value. For mortgage loans held for sale that
are hedged with forward sale commitments, the carrying value is adjusted for the
change in market during the time the hedge was deemed to be highly effective.
The market value is determined by outstanding commitments from investors or
current yield requirements calculated on an aggregate basis.

Mortgage Servicing Rights ("MSRs") - When we acquire servicing assets through
either purchase or origination of loans and sell or securitize those loans with
servicing assets retained, the total cost of the loans is allocated to the
servicing assets and the loans (without the servicing assets) based on their
relative fair values. The amount attributable to the servicing assets is
capitalized as MSRs on the consolidated balance sheets. The MSRs are amortized
to expense in proportion to and over the period of estimated net servicing
income.

The MSRs are assessed for impairment based on the fair value of those assets. We
estimate the fair value of the servicing assets by obtaining market information
from a primary MSR broker. When the book value of capitalized servicing assets
exceeds their fair value, impairment is recognized through a valuation
allowance. In determining impairment, the mortgage servicing portfolio is
stratified by the predominant risk characteristic of the underlying mortgage
loans. We have determined that the predominant risk characteristic is the
interest rate on the underlying loan. We measure impairment for each stratum by
comparing the estimated fair value to the recorded book value. Temporary
impairment is recorded through a valuation allowance and amortization expense in
the period of occurrence. In addition, we periodically evaluate our MSRs for
other than temporary impairment to determine if the carrying value before the
application of the valuation allowance is recoverable. We receive a sensitivity
analysis of the estimated fair value of our MSRs assuming a 200-basis-point
instantaneous increase in interest rates from an independent MSR broker. The
fair value estimate includes changes in market assumptions that would be
expected given the increase in mortgage rates (e.g., prepayment speeds would be
lower). We believe this 200-basis-point increase in mortgage rates to be an
appropriate threshold for determining the recoverability of the temporary
impairment because that size rate increase is foreseeable and consistent with
historical mortgage rate fluctuations. When using this instantaneous change in
rates, if the fair value of the strata of MSRs is estimated to increase to a
point where all of the impairment would be recovered, the impairment is
considered to be temporary. When we determine that a portion of the MSRs is not
recoverable, the related MSRs and the previously established valuation allowance
are correspondingly reduced to reflect other than temporary impairment.

Derivative Assets and Derivative Liabilities - Our mortgage-committed pipeline
includes interest rate lock commitments ("IRLCs") that have been extended to
borrowers who have applied for loan funding and meet certain defined credit and
underwriting criteria. IRLCs associated with loans expected to be sold are
recorded at fair value with changes in fair value recorded to current earnings.
The fair value of the IRLCs initiated on or before March 31, 2004 is determined
by an estimate of the ultimate gain on sale of the loans, including the value of
MSRs, net of estimated net costs remaining to originate the loan and any net
deferred origination costs. In March 2004, the SEC issued SAB No. 105, which
provides industry guidance which changed the timing of recognition of MSRs for
IRLCs initiated after March 31, 2004. In SAB No. 105, the SEC stated that the
value of expected future cash flows related to servicing rights should be
excluded when determining the fair value of derivative IRLCs. Under the new
policy, the value of the expected future cash flow related to servicing rights
is not recognized until the underlying loans are sold.

We use other derivative instruments, including mortgage forward delivery
contracts and treasury futures options, to economically hedge the IRLCs, which
are also classified and accounted for as free-standing derivatives and thus are
recorded at fair value with the changes in fair value recorded to current
earnings.

We use mortgage forward delivery contracts designated as fair value hedging
instruments to hedge 100% of our agency-eligible conforming fixed-rate loans and
most of our non-conforming fixed-rate loans held for sale. At the inception of
the hedge, we formally document the relationship between the forward delivery
contracts and the mortgage inventory, as well as our objective and strategy for
undertaking the hedge transactions. In the case of our conventional conforming
fixed-rate loan products, the notional amount of the forward delivery contracts,
along with the underlying rate and terms of the contracts, are equivalent to the
unpaid principal amount of the mortgage inventory


- 25 -


being hedged; hence, the forward delivery contracts effectively fix the forward
sales price and thereby substantially eliminate interest rate and price risk to
us. We classify and account for these forward delivery contracts as fair value
hedges. The derivatives are carried at fair value with the changes in fair value
recorded to current earnings. When the hedges are deemed to be highly effective,
the book value of the hedged loans held for sale is adjusted for its change in
fair value during the hedge period.

We enter into interest rate swap agreements to manage our interest rate exposure
when financing our adjustable-rate mortgage loans and mortgage-backed
securities. Certain swap agreements accounted for as cash flow hedges and
certain swap agreements not designated as cash flow hedges are both carried on
the balance sheet at fair value. The fair values of our swap agreements are
generally based on market prices provided by certain dealers who make markets in
these financial instruments or third-party pricing services. If the fair value
of an interest rate swap agreement is not reasonably available, management
estimates the fair value, which requires management's judgment and may not be
indicative of the amounts we could realize in a current market exchange.

Goodwill - Goodwill represents the excess purchase price over the fair value of
net assets stemming from business acquisitions, including identifiable
intangibles. We test for impairment by comparing the fair value of goodwill, as
determined by using a discounted cash flow method, with its carrying value. Any
excess of carrying value over the fair value of the goodwill would be recognized
as an impairment loss in continuing operations. The discounted cash flow
calculation related to our loan origination segment includes a forecast of the
expected future loan originations and the related revenues and expenses. The
discounted cash flow calculation related to our Mortgage-Backed Securities
Holdings segment includes a forecast of the expected future net interest income,
gain on mortgage-backed securities and the related revenues and expenses. These
cash flows are discounted using a rate that is estimated to be a
weighted-average cost of capital for similar companies. We further test to
ensure that the fair value of all our business units does not exceed our total
market capitalization.


- 26 -


Financial Condition

At September 30, 2004, 80.8% of our total assets were mortgage-backed securities
and 12.5% were mortgage loans held for sale, compared to 51.8% and 35.7%,
respectively, at December 31, 2003.

Total assets increased $5.7 billion to $9.1 billion at September 30, 2004 from
$3.4 billion at December 31, 2003. The increase primarily reflects an increase
in mortgage-backed securities of $5.6 billion. The growth in mortgage-backed
securities was primarily funded by an increase in reverse repurchase agreements
of $5.6 billion. We began issuing commercial paper in the quarter ended June 30,
2004, to fund our loans held for sale. As of September 30, 2004, we had $462.7
million of commercial paper outstanding, which allowed us to reduce the amount
of loans funded by warehouse lines of credit.

The following table summarizes our mortgage-backed securities owned at September
30, 2004 and December 31, 2003, classified by type of issuer and by ratings
categories:





September 30, 2004
--------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
---------------------- ----------------------------- ----------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)

Agency securities $ 760,957 28.6% $ 854,122 18.3% $1,615,079 22.0%
Privately issued:
AAA 1,714,299 64.4 3,750,873 80.3 5,465,172 74.5
AA - - 17,750 0.4 17,750 0.2
A 59,199 2.2 17,938 0.4 77,137 1.1
BBB 70,601 2.7 9,081 0.2 79,682 1.1
Unrated (1) 56,306 2.1 20,762 0.4 77,068 1.1
---------- --------- ---------- --------- ---------- ---------
Total $2,661,362 100.0% $4,670,526 100.0% $7,331,888 100.0%
========== ========= ========== ========= ========== =========

(1) Unrated subordinated certificates retained by the Company as credit
enhancements for its privately issued securities.

December 31, 2003
--------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
---------------------- ----------------------------- ----------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
Agency securities $287,577 60.0% $ 713,790 55.6% $1,001,367 56.8%
Privately issued:
AAA 167,974 35.0 570,025 44.4 737,999 41.8
AA 11,322 2.4 - - 11,322 0.6
A 6,470 1.3 - - 6,470 0.4
Unrated (1) 6,470 1.3 - - 6,470 0.4
---------- --------- ---------- --------- ---------- ---------
Total $479,813 100.0% $1,283,815 100.0% $1,763,628 100.0%
========== ========= ========== ========= ========== =========

(1) An unrated subordinated certificate retained by the Company as a credit
enhancement for its privately issued securities.




- 27 -


The following table classifies our mortgage-backed securities portfolio by type
of interest rate index at September 30, 2004 and December 31, 2003:





September 30, 2004
--------------------------------------------------------------------------
Securities
Trading Securities Available for Sale Total
---------------------- ----------------------- ----------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
---------- --------- ---------- ---------- ---------- ---------
(Dollars in thousands)

Index:
One-month LIBOR $ 124,265 4.7% $ 127,196 2.7% $ 251,461 3.4%
Six-month LIBOR 751,600 28.2 2,532,795 54.3 3,284,395 44.9
One-year LIBOR 1,777,154 66.8 1,466,573 31.4 3,243,727 44.2
One-year constant maturity treasury 8,343 0.3 543,962 11.6 552,305 7.5
---------- --------- ---------- --------- ---------- ---------
Total $2,661,362 100.0% $4,670,526 100.0% $7,331,888 100.0%
========== ========= ========== ========= ========== =========

December 31, 2003
--------------------------------------------------------------------------
Securities
Trading Securities Available for Sale Total
---------------------- ----------------------- ----------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
---------- --------- ---------- ---------- ---------- ---------
(Dollars in thousands)
Index:
One-month LIBOR $ 189,772 39.6% $ - -% $ 189,772 10.8%
Six-month LIBOR - - 517,248 40.3 517,248 29.3
One-year LIBOR 261,548 54.5 610,963 47.6 872,511 49.5
One-year constant maturity treasury 28,493 5.9 155,604 12.1 184,097 10.4
---------- --------- ---------- --------- ---------- ---------
Total $ 479,813 100.0% $1,283,815 100.0% $1,763,628 100.0%
========== ========= ========== ========= ========== =========




- 28 -


The following table classifies our mortgage-backed securities portfolio by
product type at September 30, 2004 and December 31, 2003:




September 30, 2004
--------------------------------------------------------------------------
Securities
Trading Securities Available for Sale Total
---------------------- ----------------------- ----------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)

Product:
ARMs less than 3 years $ 163,946 6.2% $1,049,350 22.5% $1,213,296 16.6%
3/1 Hybrid ARM 460,672 17.3 561,420 12.0 1,022,092 13.9
5/1 Hybrid ARM 2,036,744 76.5 3,059,756 65.5 5,096,500 69.5
---------- --------- ---------- --------- ---------- ---------
Total $2,661,362 100.0% $4,670,526 100.0% $7,331,888 100.0%
========== ========= ========== ========= ========== =========

December 31, 2003
--------------------------------------------------------------------------
Securities
Trading Securities Available for Sale Total
---------------------- ----------------------- ----------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
Product:
ARMs less than 3 years $ 189,771 39.6% $ 212,897 16.6% $ 402,668 22.9%
3/1 Hybrid ARM 133,019 27.7 415,674 32.4 548,693 31.1
5/1 Hybrid ARM 133,140 27.7 619,688 48.2 752,828 42.6
7/1 Hybrid ARM 23,883 5.0 35,556 2.8 59,439 3.4
---------- --------- ---------- --------- ---------- ---------
Total $ 479,813 100.0% $1,283,815 100.0% $1,763,628 100.0%
========== ========= ========== ========= ========== =========




During the three months ended September 30, 2004, we purchased $0.5 billion of
mortgage-backed securities and added $2.8 billion of self-originated
mortgage-backed securities to our portfolio.

During the nine months ended September 30, 2004, we purchased $5.2 billion of
mortgage-backed securities and added $5.8 billion of self-originated
mortgage-backed securities to our portfolio.

During the three months and nine months ended September 30, 2004, we sold $3.0
billion and $4.7 billion of mortgage-backed securities, respectively.

The average cost basis of our mortgage-backed securities, excluding unrealized
gains and losses, was 100.7% of par as of September 30, 2004 and 101.5% of par
as of December 31, 2003.

We had a payable for securities purchased of $259.7 million as of December 31,
2003.

- 29 -


Results of Operations - Comparison of the Three Months Ended September 30, 2004
and 2003



Three Months Ended September 30, 2004
-----------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
-----------------------------------------------------

Net interest income:
Interest income $ 66,856 $ 27,442 $ - $ 94,298
Interest expense (42,124) (18,252) (1,029) (61,405)
-----------------------------------------------------
Total net interest income 24,732 9,190 (1,029) 32,893
-----------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 28,373 - 28,373
(Loss) gain on sales of mortgage-backed securities and derivatives (4,610) 26,951 - 22,341
Unrealized (loss) gain on mortgage-backed securities and derivatives (1,784) 28,853 - 27,069

Loan servicing fees - - 9,822 9,822
Amortization of mortgage servicing rights - - (7,755) (7,755)
Impairment provision of mortgage servicing rights - - (4,807) (4,807)
-----------------------------------------------------
Net loan servicing fees (loss) - - (2,740) (2,740)

Other non-interest income - 3,349 - 3,349
-----------------------------------------------------
Total non-interest income (6,394) 87,526 (2,740) 78,392
-----------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net 55 45,151 1,276 46,482
Occupancy and equipment 5 9,858 121 9,984
Data processing and communications 5 3,637 103 3,745
Office supplies and expenses - 2,831 181 3,012
Marketing and promotion - 2,608 2 2,610
Travel and entertainment - 3,609 11 3,620
Professional fees 44 2,389 91 2,524
Other 2,036 3,591 736 6,363
-----------------------------------------------------
Total non-interest expenses 2,145 73,674 2,521 78,340
-----------------------------------------------------
Net income before income tax benefit 16,193 23,042 (6,290) 32,945
-----------------------------------------------------
Income tax benefit - (7,510) (2,488) (9,998)
-----------------------------------------------------
Net income 16,193 30,552 (3,802) 42,943
-----------------------------------------------------
Dividends on preferred stock 1,648 - - 1,648
-----------------------------------------------------
Net income available to common shareholders $ 14,545 $ 30,552 $ (3,802) $ 41,295
=====================================================
September 30, 2004
-----------------------------------------------------
Segment assets $ 7,489,460 $1,378,704 $ 208,831 $9,076,995
=====================================================




- 30 -





Three Months Ended September 30, 2003
-----------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
-----------------------------------------------------

Net interest income:
Interest income $ - $ 29,693 $ - $ 29,693
Interest expense - (15,755) (254) (16,009)
-----------------------------------------------------
Total net interest income - 13,938 (254) 13,684
-----------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 105,577 - 105,577

Loan servicing fees - - 8,306 8,306
Amortization of mortgage servicing rights - - (14,903) (14,903)
Impairment recovery of mortgage servicing rights - - 7,825 7,825
-----------------------------------------------------
Net loan servicing fees - - 1,228 1,228

Other non-interest income - 1,423 - 1,423
-----------------------------------------------------
Total non-interest income - 107,000 1,228 108,228
-----------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net - 61,902 796 62,698
Occupancy and equipment - 7,220 120 7,340
Data processing and communications - 3,659 23 3,682
Office supplies and expenses - 3,362 195 3,557
Marketing and promotion - 3,229 3 3,232
Travel and entertainment - 3,103 19 3,122
Professional fees - 2,118 201 2,319
Other - 4,355 798 5,153
-----------------------------------------------------
Total non-interest expenses - 88,948 2,155 91,103
-----------------------------------------------------
Net income before income tax expense (benefit) - 31,990 (1,181) 30,809
-----------------------------------------------------
Income tax expense (benefit) - 12,873 (758) 12,115
-----------------------------------------------------
Net income - 19,117 (423) 18,694
-----------------------------------------------------
Dividends on preferred stock - - - -
-----------------------------------------------------
Net income available to common shareholders $ - $ 19,117 $ (423) $ 18,694
=====================================================
December 31, 2003
-----------------------------------------------------
Segment assets $ 1,865,414 $1,375,276 $ 164,000 $3,404,690
=====================================================



- 31 -


Overview

Net income available to common shareholders for the three months ended September
30, 2004 was $41.3 million, compared to $18.7 million for the three months ended
September 30, 2003, an increase of $22.6 million, or 120.9%. This increase was
the result of a $22.1 million decrease in income tax expense, a $19.2 million
increase in net interest income and a $12.8 million decrease in non-interest
expense, partly offset by a $29.8 million decrease in non-interest income and a
$1.7 million increase in dividends on preferred stock. The $29.8 million
decrease in non-interest income consists of a $77.2 million decrease in gain on
sales of mortgage loans and a $4.0 million decrease in net loan servicing fees,
partly offset by a $49.4 million increase in realized and unrealized gain on
mortgage-backed securities and derivatives and a $2.0 million increase in
non-interest income in the third quarter of 2004 versus the third quarter of
2003.

Mortgage-Backed Securities Holdings Segment

Our Mortgage-Backed Securities Holdings segment began operations on December 3,
2003 as a result of the reorganization of the Company into a REIT and the merger
with Apex. The segment's business is the holding for net interest income of
adjustable-rate mortgage ("ARM")-backed securities.

The following table presents the average balances for the Mortgage-Backed
Securities Holdings segment's mortgage-backed securities and reverse repurchase
agreements, corresponding annualized effective rate of interest and the related
interest income or expense:



Three Months Ended September 30,
-----------------------------------------------
(Dollars in thousands) 2004
-----------------------------------------------
Average Balance Interest Average Yield/Cost
--------------- -------- ------------------

Mortgage-backed securities, net (1) $ 7,179,816 $ 66,856 3.72%
--------------- -------- ------------------
Reverse repurchase agreements (2) 6,776,787 42,124 2.46%
--------------- -------- ------------------
Net interest income $ 24,732
========
Interest rate spread 1.26%
==================
Net interest margin 1.40%
==================


(1) The average yield does not give effect to changes in the fair value that are
reflected as a component of stockholders' equity.

(2) Includes $13.2 million of net interest expense on interest rate swap
agreements.


Revenues. Total revenues for the Mortgage-Backed Securities Holdings segment for
the three months ended September 30, 2004 were $18.3 million, consisting of net
interest income of $24.7 million, loss on sales of mortgage-backed securities
and derivatives of $4.6 million and unrealized loss on mortgage-backed
securities and derivatives of $1.8 million.

Loan Origination Segment

Our Loan Origination segment's primary business is the origination and sale or
securitization of primarily one-to-four family residential mortgage loans. Total
loan originations for the three months ended September 30, 2004 were $5.3
billion compared to $7.1 billion for the third quarter of 2003, a 25.0%
decrease. Our retail originations, which are conducted through our community
loan production offices and Internet call center, were 51% of our loan
originations in the three months ended September 30, 2004 compared to 78% of our
originations in the three months ended September 30, 2003. Mortgage brokers
accounted for 49% of our loan originations in the three months ended September
30, 2004 compared to 22% of our originations in the three months ended September
30, 2003. Mortgage brokers accounted for an increased percentage of our
originations in the three months ended September 30, 2004 due to the opening of
wholesale branches in the western United States.

Gain on Sales of Mortgage Loans, Mortgage-Backed Securities and Derivatives.
Gain on sales of mortgage loans, mortgage-backed securities and derivatives for
the three months ended September 30, 2004 was $84.2 million compared to $105.6
million in the three months ended September 30, 2003.


- 32 -


Gain on sales of mortgage loans for the three months ended September 30, 2004
totaled $28.4 million on non-securitized loan sales of $2.9 billion, compared to
$105.6 million on loan sales of $7.0 billion for the three months ended
September 30, 2003. The average gain on sale margin decreased to 0.98% in the
third quarter of 2004 from 1.52% in the third quarter of 2003. The decline in
average margin reflects the rise in fees paid to brokers on wholesale
originations as a result of the increased percentage of wholesale originations
in the third quarter of 2004 versus the third quarter of 2003.

The Loan Origination segment recognized $27.0 million of gain on sales of
mortgage-backed securities and derivatives during the third quarter of 2004.
These gains reflect the gains that existed on the date of securitization of
self-originated loans and realized gains or losses on related interest rate
swaps.

The Loan Origination segment recognized $28.9 million of unrealized gain on
mortgage-backed securities and derivatives relating to market valuations of
mortgage-backed securities classified in the trading portfolio during the three
months ended September 30, 2004. These unrealized gains reflect the gains that
existed on the date of securitization of self-originated loans that are
classified as trading securities and unrealized gains or losses on related
interest rate swaps.

Net Interest Income. Total interest income for the three months ended September
30, 2004 on our Loan Origination segment's mortgage loans held for sale was
$27.4 million, compared to interest income for the three months ended September
30, 2003 of $29.7 million, a decrease of $2.3 million, or 7.6%. Our Loan
Origination segment funds its loan inventory primarily through a $2.0 billion
Secured Liquidity Note Program and borrowing facilities with several mortgage
warehouse lenders. Total interest expense for the three months ended September
30, 2004 was $18.3 million, compared to interest expense for the three months
ended September 30, 2003 of $15.8 million, a $2.5 million increase. Included in
interest expense in the third quarter of 2004 is $4.3 million of net interest
expense on interest rate swap agreements accounted for as cash flow hedges.

Other Non-Interest Income. Other non-interest income totaled $3.3 million for
the three months ended September 30, 2004 and $1.4 million for the three months
ended September 30, 2003. For the three months ended September 30, 2004, other
non-interest income primarily includes revenue from a legal settlement of $1.5
million, reinsurance premiums earned totaling approximately $0.6 million,
revenue from rental income of $0.5 million and revenue from title services of
$0.2 million. For the three months ended September 30, 2003, other non-interest
income primarily consists of volume incentive bonuses received from loan
purchasers totaling approximately $0.6 million and revenue from title services
of $0.4 million.

Non-Interest Expenses. Total non-interest expenses of our Loan Origination
segment for the three months ended September 30, 2004 were $73.7 million,
compared to $88.9 million for the three months ended September 30, 2003.

Our operating expenses represent costs that are not eligible to be added to the
book value of the loans because they are not considered direct origination costs
under the rules of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Costs of Leases."
Direct origination costs are added to the book value of loans and either reduce
the gain on sale of loans if the loans are sold or are amortized over the life
of the loan.

Salaries, commissions and benefits for the three months ended September 30, 2004
were $45.2 million, or 85 basis points of total loan originations, compared to
$61.9 million, or 87 basis points of total loan originations, for the three
months ended September 30, 2003. The decrease in basis points reflects the
higher percentage of wholesale originations in the third quarter of 2004 versus
the third quarter of 2003. The third quarter of 2004 salaries, commissions and
benefits expenses include salaries relating to our acquisition of certain home
loan centers of Washington Mutual, Inc. (the "Washington Mutual branches") in
August 2004.

Operating expenses, excluding salaries, commissions and benefits, were $28.5
million, or 54 basis points of total loan originations for the three months
ended September 30, 2004, compared to $27.0 million, or 38 basis points of total
loan originations for the three months ended September 30, 2003. The increase in
operating expenses in basis points includes an 8 basis point increase in
occupancy and equipment expense in the third quarter of 2004 versus the third
quarter of 2003. The third quarter of 2004 operating expenses include lease
obligations and certain fixed asset expenses relating to our acquisition of the
Washington Mutual branches in August 2004.

Income Tax Expense. Income tax expense decreased to a benefit of $7.5 million
for the three months ended September 30, 2004 from an expense of $12.9 million
for the three months ended September 30, 2003, a decrease of $20.4 million. The
decrease in income tax expense in the third quarter of 2004 versus the third
quarter of 2003 reflects a decrease in income before income taxes relating to
our taxable REIT subsidiary ("TRS").


- 33 -


Loan Servicing Segment

The Loan Servicing segment total revenues for the three months ended September
30, 2004 were a loss of $3.8 million compared to $0.9 million for the three
months ended September 30, 2003, a decrease of $4.7 million.

Net loan servicing fees were losses of $2.7 million for the three months ended
September 30, 2004, compared to revenues of $1.2 million for the three months
ended September 30, 2003.

Loan servicing fees increased to $9.8 million for the three months ended
September 30, 2004 from $8.3 million for the three months ended September 30,
2003, an increase of $1.5 million, or 18.3%. The increase in loan servicing fees
in the third quarter of 2004 versus the third quarter of 2003 is primarily the
result of an increase in loans serviced for others. Included in loan servicing
fees are gains on Ginnie Mae early buy-out sales of $0.7 million for the three
months ended September 30, 2004 compared to $2.8 million for the three months
ended September 30, 2003, a decrease of $2.1 million.

Amortization decreased to $7.8 million for the three months ended September 30,
2004 from $14.9 million for the three months ended September 30, 2003, a
decrease of $7.1 million. The decrease in amortization was due to a rise in
interest rates which resulted in slower prepayment speeds in the three months
ended September 30, 2004 versus the three months ended September 30, 2003.

We recognized a temporary impairment provision of $4.8 million for the three
months ended September 30, 2004 versus a temporary impairment recovery of $7.8
million for the three months ended September 30, 2003, resulting in a decrease
in net loan servicing fees of $12.6 million. The increase in impairment
provision in the three months ended September 30, 2004 was due to a decrease in
the fair value of MSRs attributable to an increase in estimated future
prepayment speeds.

Non-Interest Expenses. Total non-interest expenses of our Loan Servicing segment
were $2.5 million for the three months ended September 30, 2004 and $2.2 million
for the three months ended September 30, 2003.

Income Tax Benefit. Income tax benefit increased to $2.5 million for the three
months ended September 30, 2004 from a $0.8 million benefit for the three months
ended September 30, 2003, an increase of $1.7 million.


- 34 -


Results of Operations - Comparison of the Nine Months Ended September 30, 2004
and 2003



Nine Months Ended September 30, 2004
------------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
------------------------------------------------------

Net interest income:
Interest income $ 123,194 $ 75,153 $ - $ 198,347
Interest expense (82,026) (47,736) (2,834) (132,596)
------------------------------------------------------
Total net interest income 41,168 27,417 (2,834) 65,751
------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 98,095 - 98,095
(Loss) gain on sales of mortgage-backed securities and derivatives (22,874) 60,184 - 37,310
Unrealized gain on mortgage-backed securities and derivatives 29,131 52,910 - 82,041

Loan servicing fees - - 28,870 28,870
Amortization of mortgage servicing rights - - (22,865) (22,865)
Impairment provision of mortgage servicing rights - - (10,139) (10,139)
------------------------------------------------------
Net loan servicing fees (loss) - - (4,134) (4,134)

Other non-interest income - 5,553 - 5,553
------------------------------------------------------
Total non-interest income 6,257 216,742 (4,134) 218,865
------------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net 159 125,053 3,593 128,805
Occupancy and equipment 5 25,691 390 26,086
Data processing and communications 11 10,068 217 10,296
Office supplies and expenses - 8,525 820 9,345
Marketing and promotion - 7,013 5 7,018
Travel and entertainment 2 8,947 135 9,084
Professional fees 251 6,060 470 6,781
Other 5,109 8,044 2,730 15,883
------------------------------------------------------
Total non-interest expenses 5,537 199,401 8,360 213,298
------------------------------------------------------
Net income before income tax benefit 41,888 44,758 (15,328) 71,318
------------------------------------------------------
Income tax benefit - (20,267) (6,063) (26,330)
------------------------------------------------------
Net income 41,888 65,025 (9,265) 97,648
------------------------------------------------------
Dividends on preferred stock 1,648 - - 1,648
------------------------------------------------------
Net income available to common shareholders $ 40,240 $ 65,025 $ (9,265) $ 96,000
======================================================
September 30, 2004
------------------------------------------------------
Segment assets $ 7,489,460 $ 1,378,704 $ 208,831 $ 9,076,995
======================================================




- 35 -





Nine Months Ended September 30, 2003
------------------------------------------------------
(In thousands)
Mortgage-Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
------------------------------------------------------

Net interest income:
Interest income $ - $ 76,117 $ - $ 76,117
Interest expense - (37,036) (1,754) (38,790)
------------------------------------------------------
Total net interest income - 39,081 (1,754) 37,327
------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans - 323,070 - 323,070

Loan servicing fees - - 29,255 29,255
Amortization of mortgage servicing rights - - (44,958) (44,958)
Impairment provision of mortgage servicing rights - - (4,360) (4,360)
------------------------------------------------------
Net loan servicing fees (loss) - - (20,063) (20,063)

Other non-interest income - 5,592 - 5,592
------------------------------------------------------
Total non-interest income - 328,662 (20,063) 308,599
------------------------------------------------------

Non-interest expenses:
Salaries, commissions and benefits, net - 159,027 2,524 161,551
Occupancy and equipment - 19,338 304 19,642
Data processing and communications - 9,436 73 9,509
Office supplies and expenses - 9,526 901 10,427
Marketing and promotion - 8,822 14 8,836
Travel and entertainment - 7,977 23 8,000
Professional fees - 5,318 514 5,832
Other - 14,796 2,445 17,241
------------------------------------------------------
Total non-interest expenses - 234,240 6,798 241,038
------------------------------------------------------
Net income before income tax expense (benefit) - 133,503 (28,615) 104,888
------------------------------------------------------
Income tax expense (benefit) - 54,736 (11,732) 43,004
------------------------------------------------------
Net income - 78,767 (16,883) 61,884
------------------------------------------------------
Dividends on preferred stock - - - -
------------------------------------------------------
Net income available to common shareholders $ - $ 78,767 $ (16,883) $ 61,884
======================================================
December 31, 2003
------------------------------------------------------
Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690
======================================================



- 36 -



Overview

Net income available to common shareholders for the nine months ended September
30, 2004 was $96.0 million, compared to $61.9 million for the nine months ended
September 30, 2003, an increase of $34.1 million, or 55.1%. This increase was
the result of a $69.4 million decrease in income tax expense, a $28.4 million
increase in net interest income and a $27.7 million decrease in non-interest
expense, partly offset by an $89.7 million decrease in non-interest income and a
$1.7 million increase in dividends on preferred stock. The $89.7 million
decrease in non-interest income consists of a $225.0 million decrease in gain on
sales of mortgage loans, partly offset by a $119.4 million increase in realized
and unrealized gain on mortgage-backed securities and derivatives and a $15.9
million increase in net loan servicing fees in the 2004 period versus the 2003
period.


Mortgage-Backed Securities Holdings Segment

The following table presents the average balances for the Mortgage-Backed
Securities Holdings segment's mortgage-backed securities and reverse repurchase
agreements, corresponding annualized effective rate of interest and the related
interest income or expense:




Nine Months Ended September 30,
-----------------------------------------------
(Dollars in thousands) 2004
-----------------------------------------------

Average Balance Interest Average Yield/Cost
--------------- -------- ------------------

Mortgage-backed securities, net (1) $ 4,659,398 $123,194 3.53%
--------------- -------- ------------------
Reverse repurchase agreements (2) 4,366,228 82,026 2.50%
--------------- -------- ------------------
Net interest income $ 41,168
========
Interest rate spread 1.03%
==================
Net interest margin 1.19%
==================

(1) The average yield does not give effect to changes in the fair value that
are reflected as a component of stockholders' equity.

(2) Includes $31.6 million of net interest expense on interest rate swap
agreements.




Revenues. Total revenues for the Mortgage-Backed Securities Holdings segment for
the nine months ended September 30, 2004 were $47.4 million, consisting of net
interest income of $41.2 million, unrealized gain on mortgage-backed securities
and derivatives of $29.1 million and loss on sales of mortgage-backed securities
and derivatives of $22.9 million.

Loan Origination Segment

Total loan originations for the nine months ended September 30, 2004 were $16.3
billion compared to $17.5 billion for the nine months ended September 30, 2003,
a 6.9% decrease. Our retail originations, which are conducted through our
community loan production offices and Internet call center, were 48% of our loan
originations in the nine months ended September 30, 2004 compared to 80% of our
originations in the nine months ended September 30, 2003. Mortgage brokers
accounted for 52% of our loan originations in the nine months ended September
30, 2004 compared to 20% of our originations in the nine months ended September
30, 2003. Mortgage brokers accounted for an increased percentage of our
originations in the nine months ended September 30, 2004 due to the opening of
wholesale branches in the western United States.

Gain on Sales of Mortgage Loans, Mortgage-Backed Securities and Derivatives.
Gain on sales of mortgage loans, mortgage-backed securities and derivatives for
the nine months ended September 30, 2004 was $211.2 million compared to $323.1
million in the nine months ended September 30, 2003. The change in fair value of
IRLCs included in gain on sale of loans in the 2004 period was reduced as a
result of the Company's adoption of Staff Accounting Bulletin No. 105 ("SAB No.
105").

Gain on sales of mortgage loans for the nine months ended September 30, 2004
totaled $98.1 million on non-securitized loans sales of $10.7 billion, compared
to $323.1 million on loan sales of $16.7 billion for the nine months ended
September 30, 2003. The average gain on sale


- 37 -


margin decreased to 0.91% in the 2004 period from 1.93% in the 2003 period. The
decline in average margin reflects higher broker fee expenses included as a
reduction to gain on sale of loans as a result of the increased percentage of
wholesale originations in the 2004 period versus the 2003 period.

The Loan Origination segment recognized $60.2 million of gain on sales of
mortgage-backed securities and derivatives during the nine months ended
September 30, 2004. These gains reflect the gains that existed on the date of
securitization of self-originated loans and realized gains or losses on related
interest rate swaps.

The Loan Origination segment recognized $52.9 million of unrealized gain on
mortgage-backed securities and derivatives relating to market valuations of
mortgage-backed securities classified in the trading portfolio during the nine
months ended September 30, 2004. These unrealized gains reflect the gains that
existed on the date of securitization of self-originated loans that are
classified as trading securities and unrealized gains or losses on related
interest rate swaps.

Net Interest Income. Total interest income for the nine months ended September
30, 2004 on our Loan Origination segment's mortgage loans held for sale was
$75.1 million, compared to interest income for the nine months ended September
30, 2003 of $76.1 million, a decrease of $1.0 million, or 1.3%. Our Loan
Origination segment funds its loan inventory primarily through a $2.0 billion
Secured Liquidity Note Program and borrowing facilities with several mortgage
warehouse lenders. Total interest expense for the nine months ended September
30, 2004 was $47.7 million, compared to interest expense for the nine months
ended September 30, 2003 of $37.0 million, a $10.7 million increase, which was
primarily due to increased borrowings to fund our increased loan inventory.

Other Non-Interest Income. Other non-interest income totaled $5.6 million for
the nine months ended September 30, 2004 and the nine months ended September 30,
2003. For the nine months ended September 30, 2004, other non-interest income
primarily includes rental income of $1.6 million, income from a legal settlement
of $1.5 million, reinsurance premiums earned totaling approximately $1.1 million
and revenue from title services of $0.7 million. For the nine months ended
September 30, 2003, other non-interest income primarily consists of Principal
fulfillment fees of $1.9 million, volume incentive bonuses received from loan
purchasers totaling approximately $1.4 million and revenue from title services
of $1.0 million. The Principal fulfillment fees represent non-recurring fees
received from Principal Residential Mortgage, Inc. ("PRM") for loans closed by
us on behalf of PRM. As part of the agreement to acquire the retail branches of
PRM, we agreed to assume the costs incurred to close out PRM's application
pipeline as of the date of the agreement on behalf of PRM for a per loan fee.

Non-Interest Expenses. Total non-interest expenses of our Loan Origination
segment for the nine months ended September 30, 2004 were $199.4 million,
compared to $234.2 million for the nine months ended September 30, 2003.

Our operating expenses represent costs that are not eligible to be added to the
book value of the loans because they are not considered direct origination costs
under the rules of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Costs of Leases."
Direct origination costs are added to the book value of loans and either reduce
the gain on sale of loans if the loans are sold or are amortized over the life
of the loan.

Salaries, commissions and benefits for the nine months ended September 30, 2004
were $125.1 million, or 77 basis points of total loan originations, compared to
$159.0 million, or 91 basis points of total loan originations, for the nine
months ended September 30, 2003. The decrease in expenses reflects the higher
percentage of wholesale originations in the 2004 period versus the 2003 period.

Operating expenses, excluding salaries, commissions and benefits, were $74.3
million, or 46 basis points of total loan originations for the nine months ended
September 30, 2004 compared to $75.2 million, or 43 basis points of total loan
originations for the nine months ended September 30, 2003. The increase in basis
points in operating expenses is primarily the result of a 5 basis point increase
in occupancy and equipment expense in the 2004 period versus the 2003 period.
The operating expenses in the 2004 period include lease obligations and certain
fixed asset expenses relating to our acquisition of the Washington Mutual
branches in August 2004.

Income Tax Expense. Income tax expense decreased to a benefit of $20.3 million
for the nine months ended September 30, 2004 from an expense of $54.7 million
for the nine months ended September 30, 2003, a decrease of $75.0 million. The
decrease in income tax expense in the 2004 period versus the 2003 period
reflects a decrease in income before income taxes relating to our TRS.

Loan Servicing Segment

The Loan Servicing segment total revenues for the nine months ended September
30, 2004 were a loss of $7.0 million compared to a loss of $21.8 million for the
nine months ended September 30, 2003, an increase of $14.8 million.

Net loan servicing fees were a loss of $4.1 million for the nine months ended
September 30, 2004, compared to a loss of $20.1 million for the nine months
ended September 30, 2003.


- 38 -


Loan servicing fees decreased to $28.9 million for the nine months ended
September 30, 2004 from $29.3 million for the nine months ended September 30,
2003, a decrease of $0.4 million, or 1.3%. Included in loan servicing fees are
gains on Ginnie Mae early buy-out sales of $3.7 million for the nine months
ended September 30, 2004 compared to $9.7 million for the nine months ended
September 30, 2003, a decrease of $6.0 million, or 61.1%. This decrease was
partly offset by an increase in loan servicing fees in the 2004 period versus
the 2003 period as a result of an increase in loans serviced for others.

Amortization decreased to $22.9 million for the nine months ended September 30,
2004 from $45.0 million for the nine months ended September 30, 2003, a decrease
of $22.1 million, or 49.1%. The decrease in amortization was due to a rise in
interest rates which resulted in slower prepayment speeds in the nine months
ended September 30, 2004 versus the nine months ended September 30, 2003.

We recognized a temporary impairment provision of $10.1 million for the nine
months ended September 30, 2004 versus a temporary impairment provision of $4.4
million for the nine months ended September 30, 2003, resulting in a decrease in
net loan servicing fees of $5.7 million. The increase in impairment provision in
the nine months ended September 30, 2004 is due to a decrease in the fair value
of servicing rights attributable to an increase in estimated future prepayment
speeds.

Non-Interest Expenses. Total non-interest expenses of our Loan Servicing segment
for the nine months ended September 30, 2004 were $8.4 million, compared to $6.8
million for the nine months ended September 30, 2003.

Income Tax Benefit. Income tax benefit decreased to $6.0 million for the nine
months ended September 30, 2004 from an $11.7 million benefit for the nine
months ended September 30, 2003, a decrease of $5.7 million, or 48.3%.


Liquidity and Capital Resources

We have arrangements to enter into reverse repurchase agreements, a form of
collateralized short-term borrowing, with thirteen different financial
institutions and on September 30, 2004 had borrowed funds from nine of these
firms. Because we borrow money under these agreements based on the fair value of
our mortgage-backed securities, and because changes in interest rates can
negatively impact the valuation of mortgage-backed securities, our borrowing
ability under these agreements could be limited and lenders could initiate
margin calls in the event interest rates change or the value of our
mortgage-backed securities declines for other reasons.

As of September 30, 2004, we had $6.9 billion of reverse repurchase agreements
outstanding with a weighted-average borrowing rate of 1.78% before the impact of
interest rate swaps and a weighted-average remaining maturity of four months.

To originate a mortgage loan, we draw against a $2.0 billion Secured Liquidity
Note Program, $1.2 billion pre-purchase facility with UBS Real Estate Securities
Inc. (formerly Paine Webber Real Estate Securities Inc.) ("UBS"), a $600 million
bank syndicated facility led by Bank of America, a $450 million facility with
CDC Mortgage Capital Inc. ("CDC"), a facility of $350 million with Morgan
Stanley Bank ("Morgan Stanley") and a facility of $200 million with Calyon
Americas. In addition, the Company has a gestation facility with Greenwich
Capital Financial Products, Inc. These facilities are secured by the mortgages
owned by us and by certain of our other assets. Advances drawn under the
facilities bear interest at rates that vary depending on the type of mortgages
securing the advances. These loans are subject to sublimits, advance rates and
terms that vary depending on the type of securing mortgages and the ratio of the
Company's liabilities to its tangible net worth. At November 4, 2004, the
aggregate outstanding balance under the warehouse facilities was $1.3 billion,
the aggregate outstanding balance in drafts payable was $39.1 million and the
aggregate maximum amount available for additional borrowings was $2.0 billion.

The documents governing our warehouse facilities contain a number of
compensating balance requirements and restrictive financial and other covenants
that, among other things, require us to adhere to a maximum ratio of total
liabilities to tangible net worth and maintain a minimum level of tangible net
worth and liquidity, as well as to comply with applicable regulatory and
investor requirements. The facility agreements also contain covenants limiting
the ability of our subsidiaries to transfer or sell assets other than in the
ordinary course of business and to create liens on the collateral without
obtaining the prior consent of the lenders, which consent may not be
unreasonably withheld.

In addition, under our warehouse facilities, we cannot continue to finance a
mortgage loan that we hold if:

o the loan is rejected as "unsatisfactory for purchase" by the
ultimate investor and has exceeded its permissible 120-day warehouse
period;

o we fail to deliver the applicable mortgage note or other documents
evidencing the loan within the requisite time period;


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o the underlying property that secures the loan has sustained a
casualty loss in excess of 5% of its appraised value; or

o the loan ceases to be an eligible loan (as determined pursuant to
the applicable warehousing agreement).

As of September 30, 2004, our aggregate warehouse facility borrowings were
$547.6 million (including $23.9 million of borrowings under a working capital
sub-limit) and our outstanding drafts payable were $45.5 million, compared to
$1.1 billion (including $29.0 million of borrowings under a working capital
sub-limit) and our outstanding drafts payable were $25.6 million as of December
31, 2003. At September 30, 2004, our loans held for sale were $1.1 billion
compared to $1.2 billion at December 31, 2003.

In addition to the UBS, CDC, Bank of America, Morgan Stanley, and Calyon
Americas warehouse facilities, we have a purchase and sale agreement with UBS
and Greenwich Capital. This agreement allows us to accelerate the sale of our
mortgage loan inventory, resulting in a more effective use of the warehouse
facility. Amounts sold and being held under this agreement at September 30, 2004
and December 31, 2003 were $464.4 thousand and $236.0 million, respectively.
There was no amount so held under this agreement at November 4, 2004. This
agreement is not a committed facility and may be terminated at the discretion of
the counterparty.

We make certain representations and warranties under the purchase and sale
agreements regarding, among other things, the loans' compliance with laws and
regulations, their conformity with the ultimate investors' underwriting
standards and the accuracy of information. In the event of a breach of these
representations or warranties or in the event of an early payment default, we
may be required to repurchase the loans and indemnify the investor for damages
caused by that breach. We have implemented strict procedures to ensure quality
control and conformity to underwriting standards and minimize the risk of being
required to repurchase loans. From time to time we have been required to
repurchase loans that we sold; however, the liability for the fair value of
those obligations has been immaterial.

We also have a $150.0 million term loan facility with a bank syndicate led by
Bank of America which we use to finance our MSRs. The term loan facility expires
on December 14, 2005. Interest is based on a spread to the LIBOR and may be
adjusted for earnings on escrow balances. At September 30, 2004 and December 31,
2003, borrowings under our term loan facility were $101.0 million and $71.5
million, respectively.

Cash and cash equivalents increased to $186.5 million at September 30, 2004 from
$53.1 million at December 31, 2003.

Our primary sources of cash and cash equivalents during the nine months ended
September 30, 2004, were as follows:

o $5.6 billion increase in reverse repurchase agreements;

o $462.7 million increase in commercial paper; and

o $357.0 million net decrease in mortgage loans held for sale.


Our primary uses of cash and cash equivalents during the nine months ended
September 30, 2004, were as follows:

o $5.5 billion net increase in mortgage-backed securities;

o $574.2 million net decrease in warehouse lines of credit; and

o $287.7 million net increase in mortgage loans held for
securitization.


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Commitments

The Company had the following commitments (excluding derivative financial
instruments) at September 30, 2004:




Less Than After
Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years
-------------------------------------------------------------
(in thousands)

Warehouse facilities $ 547,584 $ 547,584 $ - $ - $ -
Operating leases 62,931 19,523 29,024 13,167 1,217
Notes payable 128,448 102,505 718 804 24,421
Commercial paper 462,712 462,712 - - -
Reverse repurchase agreements 6,899,024 6,899,024 - - -




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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Movements in interest rates can pose a major risk to the Company in either a
rising or declining interest rate environment. The Company depends on
substantial borrowings to conduct its business. These borrowings are all done at
variable interest rate terms which will increase as short-term interest rates
rise. Additionally, when interest rates rise, loans held for sale and any
applications in process with locked-in rates decrease in value. To preserve the
value of such fixed-rate loans or applications in process with locked-in rates,
agreements are executed for mandatory loan sales to be settled at future dates
with fixed prices. These sales take the form of forward sales of mortgage-backed
securities.

When interest rates decline, fallout may occur as a result of customers
withdrawing their applications. In those instances, the Company may be required
to purchase loans at current market prices to fulfill existing mandatory loan
sale agreements, thereby incurring losses upon sale. The Company uses an
interest rate hedging program to manage these risks. Through this program,
mortgage-backed securities are purchased and sold forward and options are
acquired on treasury futures contracts.

In the event that the Company does not deliver into the forward delivery
commitments or exercise its option contracts, the instruments can be settled on
a net basis. Net settlement entails paying or receiving cash based upon the
change in market value of the existing instrument. All forward delivery
commitments and option contracts to buy securities are to be contractually
settled within nine months of the balance sheet date.

The Company's hedging program contains an element of risk because the
counterparties to its mortgage and treasury securities transactions may be
unable to meet their obligations. While the Company does not anticipate
nonperformance by any counterparty, it is exposed to potential credit losses in
the event the counterparty fails to perform. The Company's exposure to credit
risk in the event of default by a counterparty is the difference between the
contract and the current market price. The Company minimizes its credit risk
exposure by limiting the counterparties to well-capitalized banks and securities
dealers who meet established credit and capital guidelines.

Movements in interest rates also impact the value of MSRs. When interest rates
decline, the loans underlying the MSRs are generally expected to prepay faster,
which reduces the market value of the MSRs. The Company considers the expected
increase in loan origination volumes and the resulting additional origination
related income as a natural hedge against the expected change in the value of
MSRs. Lower mortgage rates generally reduce the fair value of the MSRs, as
increased prepayment speeds are highly correlated with lower levels of mortgage
interest rates.

The Company enters into interest rate swap agreements ("Swap Agreements") to
manage its interest rate exposure when financing its adjustable-rate loans and
its mortgage-backed securities. The Company generally borrows money based on
short-term interest rates, by entering into borrowings with maturity terms of
less than one year, and frequently nine to twelve months. The Company's
adjustable-rate loans and mortgage-backed securities financing vehicles
generally have an interest rate that reprices based on frequency terms of one to
twelve months. The Company's mortgage-backed securities have an initial fixed
interest rate period of three to five years. When the Company enters into a Swap
Agreement, it generally agrees to pay a fixed rate of interest and to receive a
variable interest rate, generally based on LIBOR. These Swap Agreements have the
effect of converting the Company's variable-rate debt into fixed-rate debt over
the life of the Swap Agreements. These instruments are used as a cost-effective
way to lengthen the average repricing period of the Company's variable-rate and
short-term borrowings such that the average repricing of the borrowings more
closely matches the average repricing of the Company's mortgage-backed
securities. The Company's duration gap was less than one month on September 30,
2004.


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The following table summarizes the Company's interest rate sensitive
instruments:


September 30, 2004
-----------------------
Carrying Estimated
Value Fair Value
---------- ----------
Assets:
Mortgage-backed securities $7,331,888 $7,331,888
Derivative assets (1) 11,630 37,159
Mortgage loans held for sale, net 1,131,661 1,148,827
Mortgage servicing rights, net 160,435 163,047

Liabilities:
Reverse repurchase agreements $6,899,024 $6,892,190
Derivative liabilities 18,237 18,237

December 31, 2003
-----------------------
Carrying Estimated
Value Fair Value
---------- ----------
Assets:
Mortgage-backed securities $1,763,628 $1,763,628
Derivative assets 30,611 30,611
Mortgage loans held for sale, net 1,216,353 1,218,667
Mortgage servicing rights, net 117,784 117,784

Liabilities:
Reverse repurchase agreements $1,344,327 $1,344,327
Derivative liabilities 12,694 12,694


(1) Derivative assets consist of interest rate lock commitments ("IRLCs") to
fund mortgage loans. The carrying value excludes the value of the mortgage
servicing rights ("MSRs") attached to the IRLCs in accordance with SEC Staff
Accounting Bulletin No. 105. The fair value includes the value of MSRs.

The Company had total commitments to lend at September 30, 2004 and December 31,
2003 of $6.5 billion and $4.0 billion, respectively.


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ITEM 4.

CONTROLS AND PROCEDURES

The Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of its disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end
of the fiscal quarter covered by this quarterly report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures were effective
as of the end of the fiscal quarter covered by this quarterly report. The
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, has evaluated the Company's internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
to determine whether any changes occurred during the third quarter of 2004 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Based on that evaluation,
there has been no such change during the third quarter of 2004.


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PART II-OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


The following is a description of the Company's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
which were sold during the quarter ended September 30, 2004.

The Company acquired First Home Mortgage Corp. ("First Home") on September 30,
2000. In addition to the shares paid to former First Home shareholders as
initial consideration, the Company may be required to issue unregistered shares
of common stock to the former shareholders as additional consideration under the
earnout provisions of the merger agreement. On July 1, 2004, pursuant to these
earnout provisions, the Company issued an aggregate of 2,051 shares of common
stock to the former First Home shareholders as additional consideration. In
addition, on August 16, 2004, the Company issued 3,783 shares of common stock to
such shareholders as additional consideration. These securities were exempt from
registration under Section 4(2) of the Securities Act because they were issued
pursuant to the terms of a private transaction rather than through a public
offering.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None.


ITEM 6.

EXHIBITS

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

Exhibit 10.1 Credit Agreement, dated August 30, 2004 (the "Credit
Agreement"), by and among American Home Mortgage Servicing, Inc.,
American Home Mortgage Corp., American Home Mortgage Acceptance,
Inc., collectively as Borrowers, the Lenders from time to time
party thereto, Bank of America, N.A., as Administrative Agent and
Swing Line Lender, Calyon Bank New York Branch and Deutsche Bank
Securities, as Co-Syndication Agents, ABN AMRO Bank N.V.,
Citibank, N.A. and U.S. Bank National Association, as
Co-Documentation Agents, and Banc of America Securities LLC, as
Sole Lead Arranger and Sole Book Manager (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed with the SEC on September 3, 2004).


- 45 -


Exhibit 10.2 Security and Collateral Agency Agreement, dated August 30,
2004, by and among American Home Mortgage Servicing, Inc.,
American Home Mortgage Corp., American Home Mortgage Acceptance,
Inc., collectively as Borrowers, Bank of America, N.A., as
Administrative Agent for the Lenders from time to time party to
the Credit Agreement, and Deutsche Bank National Trust Company,
as Custodian and Collateral Agent (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K filed
with the SEC on September 3, 2004).

Exhibit 10.3 Guaranty, dated August 30, 2004, by American Home Mortgage
Investment Corp. and American Home Mortgage Holdings, Inc.,
jointly and severally, in favor of the Lenders and Bank of
America, N.A., as Administrative Agent for the Lenders, for the
Borrowers' obligations under the Credit Agreement (incorporated
by reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K filed with the SEC on September 3, 2004).

Exhibit 10.4 Amendment No. 6, dated as of September 27, 2004, to the
Amended and Restated Master Loan and Security Agreement, dated as
of November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Investment Corp., American Home Mortgage
Holdings, Inc., American Home Mortgage Acceptance, Inc., and
American Home Mortgage Servicing, Inc., collectively as
Borrowers, the Lenders from time to time parties thereto (the "MS
Lenders"), and Morgan Stanley Bank, as agent for the MS Lenders.

Exhibit 10.5 Amendment No. 1, dated as of September 27, 2004, to the
Amended and Restated Custodial Agreement, dated as of November
26, 2003, by and among American Home Mortgage Corp., American
Home Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., American Home Mortgage Acceptance, Inc., and American Home
Mortgage Servicing, Inc., collectively as Borrowers, Deutsche
Bank National Trust Company, as Custodian, and Morgan Stanley
Bank, as Agent for the MS Lenders.

Exhibit 10.6 First Amendment, dated as of September 1, 2004, to the
Mortgage Loan Purchase and Sale Agreement (Whole Loan Purchase
and Sale Agreement), dated January 1, 2004, by and among
Greenwich Capital Financial Products, Inc., as Purchaser, and
American Home Mortgage Corp. and American Home Mortgage
Servicing, Inc., together as Sellers.

Exhibit 10.7 Second Amended and Restated Revolving Credit Agreement,
dated as of September 24, 2004, by and among American Home
Mortgage Corp. and American Home Mortgage Servicing, Inc.,
together as Borrowers, and U.S. Bank National Association, as
Lender.

Exhibit 10.8 Second Amended and Restated Pledge and Security Agreement,
dated as of September 24, 2004, by and among American Home
Mortgage Corp. and American Home Mortgage Servicing, Inc.,
together as Borrowers, and U.S. Bank National Association, as
Lender.

Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.


- 46 -



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


AMERICAN HOME MORTGAGE INVESTMENT CORP.
(Registrant)



Date: November 9, 2004 By: /s/ Michael Strauss
-----------------------------------------
Michael Strauss
Chairman of the Board, Chief Executive
Officer and President


Date: November 9, 2004 By: /s/ Stephen A. Hozie
-----------------------------------------
Stephen A. Hozie
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)


- 47 -