To qualify for this exemption, we must maintain at least 55% of our assets directly in mortgages, qualifying pass-through certificates and certain other qualifying interests in real estate. As of December 31, 2004, the percentage of our total assets in mortgages, pass-through certificates and other qualifying interests in real estate was 96%. Our ownership of certain mortgage assets may be limited by the provisions of the Investment Company Act. If the Securities and Exchange Commission, or SEC, adopts a contrary interpretation with respect to these securities or otherwise believes we do not satisfy the above exception, we could be required to restructure our activities or sell certain of our assets. To ensure that we continue to qualify for the exemption, we may be required at times to adopt less efficient methods of financing certain of our mortgage assets and we may be precluded from acquiring certain types of higher-yielding mortgage assets. The net effect of these factors will be to lower our net interest income. If we fail to qualify for the exemption from registration as an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described. Our business will be materially and adversely affected if we fail to qualify for this exemption.

New regulatory laws affecting the mortgage industry may increase our costs and decrease our mortgage origination and acquisition.

In recent years, federal and several state and local laws, rules and regulations have been adopted, or are under consideration, that are intended to eliminate certain lending practices, often referred to as "predatory" lending practices, that are considered to be abusive. Many of these laws, rules and regulations restrict commonly accepted lending activities and would impose additional costly and burdensome compliance requirements on us. These laws, rules and regulations impose certain restrictions on loans on which certain points and fees or the annual percentage rate, or APR, meet or exceed specified thresholds. Some of these restrictions expose a lender to risks of litigation and regulatory sanction regardless of how carefully a loan is underwritten. In addition, an increasing number of these laws, rules and regulations seek to impose liability for violations on the purchasers of mortgage loans, regardless of whether a purchaser knew of or participated in the violation. Accordingly, the third parties that buy our loans or provide financing for our loan originations may not want, and are not contractually required, to buy or finance loans that do not comply with these laws, rules and regulations.

These laws, rules and regulations have required us to develop systems and procedures to ensure that we do not violate these new requirements and may prevent us from making certain loans and cause us to reduce the APR or the points and fees we charge on the mortgage loans that we originate. The difficulty of managing the compliance risks presented by these laws, rules and regulations may decrease the availability of warehouse financing and the overall demand for the purchase of our originated loans. Our competitors that are banks or federal thrifts may not be subject to these state laws, as federal bank regulators have preempted state laws for these competitors. Although these predatory lending laws currently are state or local laws, Congress has recently begun discussing possible federal predatory lending legislation, which, if adopted, would preempt inconsistent state laws.

We intend to avoid originating loans that meet or exceed the applicable APR or "points and fees" thresholds of these laws, rules and regulations in jurisdictions where we operate, except in the relatively small number of states in which the laws, rules and regulations relating to APR and "points and fees" thresholds allow, in our judgment, these loans to be made. Under such circumstances, we will only originate such loans within our strict legal compliance standards and without undue risk relative to litigation or to the enforcement of the loan according to its terms. If we elect to relax our self-imposed restrictions on originating loans subject to these laws, rules and regulations, we will be subject to greater risks for actual or perceived non-compliance with the laws, rules and regulations, including demands for indemnification or loan repurchases from the parties to whom we broker or sell loans, class action lawsuits, increased defenses to foreclosure of individual loans in default, individual claims for significant monetary damages, and administrative enforcement actions. Any of the foregoing could significantly harm our business, cash flow, financial condition, liquidity and results of operations, and could limit our ability to make distributions to our stockholders.

45

Tax Risks Related to Our Status as a REIT

Failure to qualify as a REIT would adversely affect our operations and ability to make distributions to our stockholders.

We conduct our operations so as to qualify as a REIT for federal income tax purposes. Our qualification as a REIT depends on our ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income, and the amount of our distributions to our stockholders.

If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us nor will they be required to be made under the Code. In such event, to the extent of current and accumulated earnings and profits, all distributions to stockholders will be taxable as ordinary income, and, subject to certain limitations of the Code, corporate distributees may be eligible for the dividends received deduction and individuals may be eligible for the maximum 15% tax rate on qualified dividend income. Unless we are entitled to relief under specific statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our REIT status. Failing to obtain, or losing, our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability, and we would no longer be required to make distributions to stockholders. We might be required to borrow funds or liquidate some investments to pay the applicable tax.

In certain circumstances, we may be able to pay a penalty tax and retain our REIT status, notwithstanding our failure to satisfy one or more REIT requirements. We cannot predict, however, whether we would qualify for the relief provisions.

Moreover, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational and stockholder ownership requirements on a continuing basis.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes and to maintain such qualification, we must continually satisfy tests concerning, among other things, our sources of income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to our stockholders at unfavorable times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may hinder our ability to operate solely with the goal of maximizing profits.

In addition, the REIT provisions of the Code impose a 100% tax on income from "prohibited transactions." Prohibited transactions generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of a business, other than foreclosure property. This 100% tax could impact our desire to sell mortgage-backed securities at otherwise opportune times if we believe such sales could result in us being treated as engaging in prohibited transactions. However, we would not be subject to this tax if we were to sell assets through MortgageIT or another taxable REIT subsidiary.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Code may substantially limit our ability to hedge mortgage-backed securities and related borrowings if we do not enter into and properly identify "tax hedges." Income from hedges that are good tax hedges and that hedge only indebtedness incurred or to be incurred to acquire or carry real estate assets are not included when calculating the REIT gross income tests. In addition, we must limit our aggregate gross income from non-qualified hedges, fees, and certain

46

---

other non-qualifying sources, to less than 5% of our annual gross income. As a result, we may in the future have to limit our use of non-qualified hedging techniques or implement these hedges through a taxable REIT subsidiary. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur. If we fail to satisfy the 5% limitations we could lose our REIT status for federal income tax purposes, unless our failure was due to reasonable cause and not due to willful neglect and we meet certain other technical requirements. Even if our failure was due to reasonable cause, we may have to pay a penalty tax equal to the amount of income in excess of certain thresholds, multiplied by a fraction intended to reflect our profitability.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

In order to qualify as a REIT, we must ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, such as mortgage loans and interests in mortgage loans. The remainder of our investment in securities generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, generally, no more than 5% of the value of our assets can consist of the securities of any one issuer. If we fail to comply with these requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in which we acquire such securities in order to avoid losing our REIT status and suffering adverse tax consequences.

Misplaced reliance on legal opinions or statements by issuers of mortgage-backed securities could result in a failure to comply with REIT gross income or asset tests.

In the event that we repurchase mortgage-backed securities, we may rely on opinions of counsel for the issuer or sponsor of such securities, or statements made in related offering documents, for purposes of determining whether and to what extent those securities constitute REIT real estate assets for purposes of the REIT asset tests and produce income which qualifies under the REIT gross income tests. The inaccuracy of any such opinions or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

Limitations on taxable REIT subsidiaries could limit the growth of our taxable REIT subsidiary.

We cannot qualify as a REIT if more than 20% of the value of our REIT's assets is represented by securities of one or more taxable REIT subsidiaries as of the end of a calendar quarter. We have elected to treat MortgageIT as a taxable REIT subsidiary, and as of December 31, 2004, our investment in MortgageIT represented approximately 3% of our REIT's assets, which is within the required 20% of the value of our REIT's assets.

The 20% limit may also constrain the growth of MortgageIT. We will need to monitor the growth of MortgageIT to make sure that its value does not exceed 20% of our assets as of the end of any calendar quarter. We expect to have sufficient leverage and acquire sufficient qualified assets such that MortgageIT will be able to grow, but we cannot provide any assurance the growth of MortgageIT and, accordingly, our profit will not be constrained.

We could exceed the 20% limit inadvertently either because of changing values of assets or because the IRS believes that we undervalued MortgageIT (other than in good faith) or overvalued other assets. If we exceed the 20% limit inadvertently at the close of a calendar quarter, we could lose our REIT status.

REIT distribution requirements could adversely affect our liquidity, profitability and future growth.

In order to qualify as a REIT, we generally are required each year to distribute to our stockholders at least 90% of our REIT taxable income, excluding any net capital gain. To the extent that we distribute at least 90%, but less than 100% of our REIT taxable income, we will be subject to corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions

47

---

paid by us with respect to any calendar year are less than the sum of (1) 85% of our ordinary REIT income for that year, (2) 95% of our REIT capital gain net income for that year and (3) 100% of our undistributed REIT taxable income from prior years.

We intend to continue to make distributions to our stockholders in order to comply with the 90% distribution requirement and to avoid corporate income tax and the nondeductible excise tax. However, differences in timing between the recognition of REIT taxable income and the actual receipt of cash could require us to sell assets or to borrow funds on a short-term basis to meet the 90% distribution requirement and to avoid corporate income tax and the nondeductible excise tax.

Certain of our assets may generate substantial mismatches between REIT taxable income and available cash. Among other things, examples of possible timing differences and mismatches include the following:

•	Because we may deduct capital losses only to the extent of our capital gains, we may have taxable income that exceeds our economic income.

•	We will recognize taxable income in advance of the related cash flow if any of our mortgage loans or mortgage-backed securities are deemed to have original issue discount. We generally must accrue original issue discount based on a constant yield method that takes into account projected prepayments but that defers taking into account credit losses until they are actually incurred.

•	We may recognize taxable market discount income when we receive the proceeds from the disposition of, or principal payments on, loans that have a stated redemption price at maturity that is greater than our tax basis in those loans, although such proceeds often will be used to make non-deductible principal payments on related borrowings.

•	We may recognize taxable income without receiving a corresponding cash distribution if we foreclose on or make a significant modification to a loan, to the extent that the fair market value of the underlying property or the principal amount of the modified loan, as applicable, exceeds our basis in the original loan.

The requirement to distribute at least 90% of our net taxable income could cause us to:

•	sell assets in adverse market conditions;

•	borrow on unfavorable terms; or

•	distribute amounts that would otherwise be invested in earning assets, future acquisitions, capital expenditures or repayment of debt.

Our distributions may, from time to time, include a return of capital. Amounts distributed will not be available to fund our operating activities and growth. We expect to fund our mortgage loan originations and other operating activities by raising capital in this offering and through borrowings from financial institutions, securitization financings and future issuances of our common stock. If we fail to obtain debt or equity capital in the future, then our growth may be limited, which likely would have a negative effect on the value of our common stock.

Dividends from MortgageIT to us are discretionary; therefore, MortgageIT's income may not be available for distribution to our stockholders.

In determining our REIT taxable income available for distribution to our stockholders, we will exclude any undistributed income from our taxable REIT subsidiary, MortgageIT. The revenues associated with the loan origination and sale activities of MortgageIT will not be included in the amount of REIT taxable income available for distribution to our stockholders unless and until such income has been distributed to us in the form of dividends from MortgageIT.

Classification as a taxable mortgage pool or investment in a residual interest in a real estate mortgage investment conduit, or REMIC, could subject us or certain of our stockholders to increased taxation.

If (1) we have borrowings with two or more maturities, (2) those borrowings are secured by mortgages or mortgage-backed securities and (3) the payments made on the borrowings are related to

48

---

the payments received on the underlying assets, then the borrowings and the pool of mortgages or mortgage-backed securities to which such borrowings relate may be classified as a taxable mortgage pool under the Code. If any part of our company were to be treated as a taxable mortgage pool or if we hold a residual interest in a REMIC, then our REIT status would not be impaired, but a portion of the taxable income we recognize may, under regulations to be issued by the Treasury Department, be characterized as excess inclusion income and allocated among our stockholders to the extent of and generally in proportion to the distributions we make to each stockholder. Any excess inclusion income would:

•	not be allowed to be offset by a stockholder's net operating losses;

•	be subject to a tax as unrelated business income if a stockholder were a tax-exempt stockholder;

•	be subject to the application of federal income tax withholding at the maximum rate (without reduction for any otherwise applicable income tax treaty) with respect to amounts allocable to foreign stockholders; and

•	be taxable (at the highest corporate tax rate) to us, rather than to our stockholders, to the extent the excess inclusion income relates to stock held by disqualified organizations (generally, tax-exempt companies not subject to tax on unrelated business income, including governmental organizations).

Recent changes in taxation of corporate dividends may adversely affect the value of our common stock.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced to 15% the maximum marginal rate of tax payable by domestic noncorporate taxpayers on dividends received from a regular domestic subchapter C corporation and certain qualified foreign corporations ("qualified dividend income"). This reduced tax rate, however, generally does not apply to dividends paid to domestic noncorporate taxpayers by a REIT, except for certain limited amounts. Although the earnings of a REIT that are distributed to its stockholders still generally will be subject to less total federal income taxation than earnings of a non-REIT subchapter C corporation that are distributed to its stockholders net of corporate-level income tax, this legislation could cause domestic noncorporate investors to view the stock of non-REIT subchapter C corporations as more attractive relative to the stock of a REIT than was the case before the enactment of the legislation, because dividends from non-REIT subchapter C corporations generally will be taxed at a lower rate to the investor while dividends from REITs generally will be taxed at the same rate as the investor's other ordinary income. We cannot predict what effect, if any, this legislation may have on the value of the stock of REITs in general or on our common stock in particular, either in terms of absolute price or relative to other investments.

Risks Related to Our Company and its Structure

The stock ownership limit imposed by our articles of incorporation may inhibit market activity in our stock and may restrict our business combination opportunities.

In order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year after our first REIT taxable year. Our articles of incorporation, with certain exceptions, authorize our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and provide that, unless exempted by our board of directors, no person may own more than 9.8% in value or number of outstanding shares of our common stock and of a combination of our common stock and any preferred stock which we may issue in the future. Our directors also have authority under our articles of incorporation to impose a similar ownership limitation as to any separate class or series of preferred stock we may issue in the future. Our board of directors may grant an exemption from that ownership limit in its sole discretion,

49

---

subject to such conditions, representations and undertakings as it may determine that are consistent with ensuring compliance with the REIT provisions of the Code. In December 2004, our board of directors exercised its discretionary authority and permitted an investment advisor to own up to 15% of our outstanding shares of common stock until June 30, 2005, provided that no individual client account owns in excess of 9.8% of our outstanding shares of common stock at any time during the relevant period. Our articles of incorporation also prohibit anyone from buying shares if the purchase would result in us losing our REIT status. If anyone acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs, we:

•	will consider the transfer to be null and void;

•	will not reflect the transaction on our books;

•	may institute legal action to enjoin the transaction;

•	will not pay dividends or other distributions with respect to those shares;

•	will not recognize any voting rights for those shares; and

•	will consider the shares held in trust for the benefit of a charitable beneficiary as designated by us.

The trustee shall sell the shares held in trust and the owner of the excess shares will be entitled to the lesser of:

•	price paid by the owner;

•	if the owner did not purchase the excess shares, the closing price for the shares on the national securities exchange on which our common stock is listed on the day of the event causing the shares to be held in trust; or

•	the price received by the trustee from the sale of the shares.

This ownership limit could delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

50

---

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to losses resulting from changes in interest rates, credit spreads, foreign currency exchange rates, commodity prices and equity prices. As we are invested solely in U.S. dollar-denominated instruments, primarily single-family residential mortgage instruments, and our borrowings are also domestic and U.S. dollar denominated, we are not subject to foreign currency exchange, or commodity and equity price risk. The primary market risk that we are exposed to is interest rate risk and its related ancillary risks. Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Our interest bearing assets, liabilities and related derivative instruments used for hedging purposes are market risk sensitive and may change in value if interest rates fluctuate. The following table presents information as to the notional amount, carrying amount and estimated fair value of certain of our market risk sensitive assets, liabilities and hedging instruments at December 31, 2004 and 2003:

				December 31, 2004
				Notional Amount				Carrying Amount				Estimated Fair Value
				(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	774,194			$	784,592			$	787,234
ARM loans held for securitization, net					1,157,188				1,166,961				1,167,824
ARM loans collateralizing debt obligations, net					1,418,323				1,432,692				1,434,534
Hedging instruments					6,428,399				19,526				19,526
Liabilities:
Warehouse lines payable				$	1,869,385			$	1,869,385			$	1,869,385
Collateralized debt obligations, net					1,331,986				1,328,096				1,331,986
Repurchase agreements					67,674				67,674				67,674
Hedging instruments					1,039,790				1,145				1,145

				As restated
				December 31, 2003
				Notional Amount				Carrying Amount				Estimated Fair Value
				(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	323,372			$	324,753			$	325,214
Hedging instruments					87,030				343				343
Liabilities:
Warehouse lines payable				$	300,699			$	300,699			$	300,699
Hedging instruments					781,280				3,202				3,202

INTEREST RATE RISK MANAGEMENT

We utilize a variety of derivative instruments in order to hedge our interest rate risk. Our hedging transactions using derivative instruments involve certain risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in the contract. The counterparties to our derivative arrangements are major financial institutions and securities dealers that are well capitalized with high credit ratings and with which we may also have other financial relationships. While we do not anticipate nonperformance by any counterparty, we are exposed to potential credit losses in the event the counterparty fails to perform. Our exposure to credit risk in the event of default by a counterparty can be measured as the difference between the value of the contract and the current market price. We

51

---

manage this risk by using multiple counterparties and limiting our counterparties to major financial institutions with good credit ratings, and in some cases, establishing rights to collateral posted by the derivative counterparty. In addition, we monitor the credit quality of our derivative counterparties. Accordingly, we do not expect any material losses as a result of default by such counterparties. However, there can be no assurance that we will be able to adequately manage the foregoing risks, or ultimately realize an economic benefit that exceeds the costs related to these hedging strategies.

Mortgage Investment Operations

Our investment risk exposure is largely due to interest rate risk. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in repricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows, especially Portfolio ARM Loan prepayments. Interest rate risk may affect our interest income, interest expense and the market value of our interest rate risk-sensitive assets and liabilities. Our policies to manage interest rate risk aim to produce earnings stability and preserve capital by minimizing the negative effects of changing market interest rates and the impact of prepayment risk.

We are subject to interest rate exposure with respect to our financing costs relating to our Portfolio ARM Loans. Changes in interest rates impact our earnings in various ways. While we invest primarily in ARM Loans, rising short-term interest rates may temporarily negatively affect our earnings, and, conversely, falling short-term interest rates may temporarily increase our earnings. This impact can occur for several reasons and is affected by portfolio prepayment activity as discussed below. First, our borrowings may react to changes in interest rates sooner than our ARM Loans because the weighted average next repricing dates of the borrowings are likely to be shorter time periods than those of the ARM Loans. Second, interest rates on ARM Loans may be capped per adjustment period (commonly referred to as the periodic cap), and our borrowings may not have similar limitations. Third, changes in interest rates on ARM Loans typically lag behind changes in applicable interest rate indices due to the required notice period provided to ARM Loan borrowers when the interest rates on their loans are scheduled to change.

Interest rates can also affect our net return on Hybrid ARM loans. During a declining interest rate environment, the prepayment of Hybrid ARM loans may accelerate, possibly resulting in a decline in our net return on Hybrid ARM loans, as replacement Hybrid ARM loans may have a lower yield than the older ones paying off. In contrast, during an increasing interest rate environment, Hybrid ARM loans may prepay slower than expected, requiring us to finance a greater amount of Hybrid ARM loans than originally anticipated at a time when interest rates may be higher, resulting in a decline in our net return on Hybrid ARM loans.

The rate of prepayment on mortgage loans may increase if interest rates decline or if the difference between long-term and short-term interest rates diminishes. Increased prepayments would cause us to amortize the deferred origination costs and fees for our mortgage loans over a shorter period, resulting in a reduced yield on our mortgage loans. Additionally, to the extent proceeds of prepayments cannot be reinvested at a rate of interest at least equal to the rate previously earned on such mortgage loans, our portfolio yield could be adversely affected.

Conversely, the rate of prepayment on mortgage loans may decrease if interest rates rise or if the difference between long-term and short-term interest rates increases. Decreased prepayments would cause us to amortize the deferred origination costs and fees for our mortgage loans over a longer period. Therefore, in rising interest rate environments where prepayments are declining, the interest rate on our ARM Loan portfolio could be expected to increase due to higher interest rates and decreased amortization expense attributable to slower prepayments.

The positions we take to hedge our net interest income recognize the effect of prepayments on the size and composition of the portfolio. We manage prepayment risk by regularly recalculating the notional amount of the required hedge positions through the application of a prepayment model and implement hedge adjustments, as required. While we have not experienced any significant credit losses, a rising interest rate environment or economic downturn could cause our mortgage loan default rate and credit losses to increase, which would adversely affect our liquidity and operating results.

52

---

The following table summarizes the repricing characteristics of our Portfolio ARM Loans:

Repricing Characteristics of Portfolio ARM Loans

				December 31, 2004
				Unpaid Principal Balance				Portfolio Mix
				(Dollars in thousands)
Traditional ARM Assets:
Index:
Six-month LIBOR				$	41,850				1.6	%
One-year constant maturity treasury					424				0.0	%
					42,274				1.6	%
Hybrid ARM Assets:
Index:
3 years or less					1,003,751				39.0	%
Over 3 years to 5 years					1,529,486				59.4	%
					2,533,237				98.4	%
				$	2,575,511				100.0	%

As we build our investment portfolio of mortgage loans, our risk management is focused on protecting against possible "compression" in the net interest margin earned on our investment portfolio. The "yield curve" creates this risk because of different repricing durations for instruments with different maturities. In substance, the hedging objective is to protect the net interest margin by matching repricing durations for the ARM and Hybrid ARM loan portfolio and the corresponding funding sources. As discussed below, Hybrid ARM loans are the primary loans requiring hedging of the corresponding funding sources.

Traditional ARM loans have shorter repricing periods (one year or less) than do Hybrids. The interest rate on Traditional ARM loans will reset monthly, semi-annually or annually at a contractual margin over a U.S. Treasury index or a LIBOR index. The corresponding funding liabilities will similarly have shorter contractual repricing frequencies. Additionally, when Hybrid ARM loans reach the end of their fixed rate period and become "rolled Hybrids," they reprice based on semi-annual or annual LIBOR or U.S. Treasury indices and behave much like Traditional ARMs. While there exists some "basis risk" between the repricing of both the Traditional ARMs and rolled Hybrids versus the typical one month funding costs of the portfolio, management believes this basis risk is manageable. Hybrid ARM loans initially have longer repricing periods than Traditional ARMs. We may not be able to obtain matched repricing features for the corresponding funding sources since our borrowings generally have shorter repricing contractual terms than most of our Hybrid ARM loans where the initial rate is fixed for up to five years.

To mitigate the effect of interest rate fluctuations on our net interest income, including the effect of prepayment rates, we hedge the financing costs of our issued mortgage-backed securities with interest rate swap agreements, Eurodollar futures or options contracts and interest rate cap agreements (collectively "Hybrid Hedging Instruments") in order to better match the repricing durations of our Portfolio ARM Loans and our issued mortgage-backed securities.

We may also use other instruments that may be determined to be advantageous and are permitted under the hedging policy adopted by our Board of Directors.

We use Eurodollar futures to hedge for forecasted and recognized LIBOR-based borrowings. Eurodollar futures have the effect of fixing the interest rate on LIBOR-based liabilities in the event that LIBOR-based funding costs change.

We enter into interest rate cap agreements ("Cap Agreements") by incurring a one-time fee or premium. Pursuant to the terms of the Cap Agreements, we will receive cash payments if the LIBOR-based interest rate index specified in any such Cap Agreement increases above contractually

53

---

specified levels. Therefore, such Cap Agreements have the effect of capping the interest rate expense on a portion our borrowings above a level specified by the Cap Agreement. The purchase price of these Cap Agreements is amortized over the life of the Cap Agreements, and the amortization expense generally increases as the Cap Agreements approach maturity. Therefore, the cap premium amortization expense in future periods can be expected to increase from the current amortization rate.

We enter into interest rate swap agreements ("Swap Agreements") to fix the interest rate on a portion of our borrowings as specified in the Swap Agreement. When we enter into a Swap Agreement, we generally agree to pay a fixed interest rate, generally based on LIBOR. These Swap Agreements have the effect of converting our variable-rate debt into fixed-rate debt over the life of the Swap Agrements.

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

Management relies on a variety of tools to assess the interest rate risk exposure of the investment portfolio under various interest rate scenarios. Using financial modeling, the fair value and interest rate sensitivity of financial instruments, or groups of similar instruments, is estimated and then aggregated to form a comprehensive picture of the risk characteristics of the investment portfolio.

The table below presents the sensitivity of the market value of our portfolio using a discounted cash flow simulation model. Application of this method results in an estimation of the change in the market value of our assets and hedged liabilities per 50 basis point ("bp") incremental instantaneous parallel shifts in the LIBOR yield curve as of December 31, 2004 — a measure commonly referred to as sensitivity of equity. Positive sensitivity of equity indicates an increase in the market value of our assets relative to the market value of our hedged liabilities corresponding to the indicated shift in the yield curve.

As of December 31, 2004				Basis Point Increase (Decrease) in Interest Rate
				(100)				(50)				+50				+100
				(Dollars in thousands)
Change in market values of:
Assets				$	44,763			$	24,701			$	(26,942	)		$	(54,778	)
Hedged liabilities					(40,145	)			(21,617	)			22,615				46,379
Net change in market value of portfolio equity				$	4,618			$	3,084			$	(4,327	)		$	(8,399	)
Percentage change in market value of portfolio equity					2.52	%			1.68	%			(2.36	)%			(4.59	)%

The use of Hybrid Hedging Instruments is a critical part of our interest rate risk management strategies, and the effects of these Hybrid Hedging Instruments on the market value of the investment portfolio are reflected in the model's output. This analysis also takes into consideration the value of options embedded in our mortgage assets including constraints on the repricing of the interest rate of ARM assets resulting from periodic and lifetime cap features, as well as prepayment options. Assets and liabilities that are not interest rate-sensitive such as cash, payment receivables, prepaid expenses, payables and accrued expenses are excluded. The sensitivity of equity calculated from this model is a key measure of the effectiveness of our interest rate risk management strategies.

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

The table below presents the duration of our assets and liabilities as of December 31, 2004, under the then prevailing yield curve, as well as with instantaneous parallel 50bps shifts in the curve. Positive portfolio duration indicates that the market value of the total investment portfolio will decline if our interest rates rise and increase if interest rates decline. The closer duration is to zero, the less interest rate changes are expected to affect earnings.

54

---

				Basis Point Increase (Decrease) in Interest Rate
				(100)				(50)				Base				+50				+100
				(Years)
Duration of Assets					1.29				1.75				2.14				2.18				2.25
Duration of Borrowings and Hedges					1.28				1.69				1.88				1.99				2.03
Net Portfolio Duration					0.01				0.06				0.26				0.19				0.22

Although market value sensitivity analysis is widely accepted in identifying interest rate risk, it does not take into consideration changes that may occur such as, but not limited to, changes in investment and financing strategies, changes in market spreads, and changes in business volumes.

Mortgage Banking Operations

Movements in interest rates can pose a major risk to our mortgage banking operations in either a rising or declining interest rate environment. MortgageIT utilizes warehouse lines of credit to fund its origination activity. The cost of these borrowings is at variable interest rate terms that increase or decrease as short term interest rates increase or decrease. In addition we are exposed to price risk from the time an interest rate lock commitment ("IRLC") is made to a mortgage applicant (or financial intermediary) to the time the related mortgage loan is sold. During this period, we are exposed to losses if mortgage rates rise, because the value of the IRLC or mortgage declines.

The committed pipeline consists of loan applications in process where we have issued IRLCs to the applicants (or financial intermediaries). IRLCs guarantee the rate and points on the underlying mortgage for a specified period, generally from seven to sixty days. Managing the price risk related to the committed pipeline is complicated by the fact that the ultimate percentage of applications that close within the terms of the IRLC is variable. The primary factor that drives the variability of the closing percentage is change in mortgage rates. In general, the percentage of applications in the committed pipeline that ultimately close within the terms of the IRLC increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicants' committed rates. The closing percentage is also influenced by the source of the applications, age of the applications, purpose for the loans (purchase or refinance) and the application approval rate. We have developed closing ratio estimates for the committed pipeline using empirical data taking into account all of these variables. To mitigate the effect of the interest rate risk inherent in issuing an IRLC from the lock-in date to the funding date of a loan, MortgageIT uses various derivative instruments, including forward sale loan commitments and forward sales and purchases of mortgage-backed securities and options on such securities in the forward delivery TBA market to economically hedge the IRLCs.

If MortgageIT does not deliver into forward sale loan or TBA commitments, such 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 sale loan commitments and forward sales and purchases of TBA commitments are typically settled within 90 days of the contract date.

MortgageIT also hedges the economic value of funded loans that are held for sale but not yet allocated to an investor sale commitment. Once a loan has been funded, MortgageIT's risk management objective for its mortgage loans held for sale is to protect earnings from an unexpected decline in value of its mortgage loans. Similar to IRLCs, MortgageIT's strategy is to use forward sale loan commitments and TBAs to hedge its mortgage loans held for sale. The notional amount of the derivative contracts, along with the underlying rate and terms of such contracts, are equivalent to the unpaid principal amount of the mortgage inventory being hedged; hence, the derivative contracts effectively fix the forward sales price and thereby substantially mitigate interest rate and price risk to MortgageIT.

The following further describes the derivative instruments we may use in our risk management activities related to the committed pipeline and mortgage loan inventory. The value of these derivative instruments generally moves in the opposite direction to the value of the mortgage loan inventory. We review our committed pipeline and mortgage inventory risk profiles on a daily basis.

55

---

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

•	Forward purchases of mortgage-backed securities: represents an obligation to buy a mortgage-backed security at a specific price in the future; therefore, its value increases as mortgage rates fall.

•	Long call options on mortgage-backed securities: represents a right to buy a mortgage-backed security at a specific price in the future; therefore, its value increases as mortgage rates fall.

•	Long put options on mortgage-backed securities: represents a right to sell a mortgage-backed security at a specific price in the future; therefore, its value increases as mortgage rates rise.

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

•	Long put options on Treasury futures: represents a right to sell a Treasury futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury rate rises.

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

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

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements of the related notes and schedule to the financial statements, together with the Report of Independent Auditors thereon are set forth on pages F-3 through F-31 in this Form 10-K.

ITEM 9.				CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

We carried out an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that we are able to record, process, summarize and report the information we are required to disclose in the reports we file with the SEC within the time periods required.

(b) Internal control over financial reporting

As described in the Explanatory Note at the beginning of this report on Form 10-K, the Company determined, on March 25, 2005, to restate our financial statements for the first three quarters of fiscal years 2004 and 2003 and for the fiscal years ended December 31, 2003 and 2002. The restatement is limited to the reporting of our hedging activities pursuant to SFAS No. 133. In order to apply hedge accounting under SFAS No. 133, a corporation must meet certain requirements. The restatements were necessary because the Company concluded that we did not fully satisfy the testing and documentation requirements under SFAS No. 133 during the above-mentioned periods.

56

---

SFAS No. 133 hedge accounting standards serve to match the timing of changes in the value of assets versus derivatives and in the cash flows of liabilities versus derivatives. Therefore, we believe that application of SFAS No. 133 is the most appropriate way to report the economic results of our mortgage banking and portfolio investment activities in our financial statements.

During the third and fourth quarters of 2004, we evaluated the effectiveness of our financial reporting controls with respect to the documentation requirements for hedge accounting as prescribed in SFAS No. 133. During this period, we implemented changes to enhance our accounting policies and documentation processes.

Effective November 24, 2004, we believe our financial reporting controls are sufficient with respect to interest rate cap and swap agreements for cash flow hedge accounting, and for fair value hedge accounting for our unallocated loans held for sale. Accordingly, for the period from November 24, 2004 through December 31, 2004, we have elected to apply SFAS No. 133 cash flow hedge accounting to our caps and swaps, and fair value hedge accounting for our unallocated loans held for sale. However, we did not qualify for cash flow hedge accounting with respect to Eurodollar futures contracts relating to investment portfolio hedging activities for such period due to our inability to fully satisfy the documentation requirements of SFAS No. 133. In addition, we did not qualify for fair value hedge accounting with respect to forward sales commitments. Accordingly, both Eurodollar futures contracts and forward sales commitments have been accounted for as free standing derivatives under SFAS No. 133.

We expect that we will comply with the documentation requirements of SFAS No. 133 for all loans held for sale, and continue to be in compliance with the documentation requirements for interest rate caps and swaps, as of the end of the first quarter of 2005. We expect to be in compliance with SFAS No. 133 for our Eurodollar futures contracts relating to investment portfolio cash flow hedging activities in the second quarter of 2005.

ITEM 9B.    OTHER INFORMATION

None.

57

---

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2004 pursuant to General Instruction G(3).

Our Code of Conduct applies to all of our directors, officers and employees. The Code of Conduct is available on our website at www.mortgageitholdings.com under the "Investors" section. The Code of Conduct is also available in print to anyone who requests it by writing to us at the following address:

MortgageIT Holdings, Inc.
33 Maiden Lane
New York, NY 10038

or by phoning us at (212) 651-7700.

We will disclose on our website any amendments to, or waivers from, any provision of the Code of Conduct that applies to any of our directors or officers.

In addition, the information disclosed in the Proxy under "Proposal 1. Election of the Company's Directors—Certain Information Regarding the Board of Directors—Board Committees" is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2004 pursuant to General Instruction G(3).

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2004 pursuant to General Instruction G(3).

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2004 pursuant to General Instruction G(3).

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2004 pursuant to General Instruction G(3).

58

---

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	Documents filed as part of this report:

The following Financial Statements of the Company are included in Part II, Item 8 of this Annual Report on Form-10K:

Report of Independent Registered Public Accounting Firm;
Consolidated Balance Sheets as of December 31, 2004 and 2003;
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and
    2002;
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31,
    2004 and 2003;
Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31,
    2004, 2003 and 2002;
Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003 and
Notes to Consolidated Financial Statements.

(b)	Exhibits:

Exhibit Number				Description
2.1(1)				Agreement and Plan of Reorganization by and among MortgageIT, Inc., MortgageIT Holdings, Inc. and MIT Acquisition Corp., dated as of March 22, 2004
3.1				Articles of Amendment and Restatement of MortgageIT Holdings, Inc.
3.2(1)				Bylaws of MortgageIT Holdings, Inc.
4.1(1)				Form of Stock Certificate
4.2(1)				Registration Rights Agreement, dated as of May 16, 2000, by and among MortgageIT, Inc. and the Holders named therein
4.3(1)				Registration Rights Agreement, dated as of June 7, 2001, by and among MortgageIT, Inc. and the Holders named therein
10.1(1)				Warehousing Credit and Security Agreement between MortgageIT, Inc. and Residential Funding Corporation, dated as of August 1, 2003
10.2(3)				First Amendment to Warehousing Credit and Security Agreement, dated May 28, 2004, between MortgageIT, Inc. and Residential Funding Corporation
10.3(3)				Second Amendment to Warehousing Credit and Security Agreement, dated August 30, 2004, between MortgageIT, Inc. and Residential Funding Corporation
10.4(4)				Third Amendment to Warehousing Credit and Security Agreement, dated September 27, 2004, between MortgageIT, Inc. and Residential Funding Corporation
10.5(7)				Fourth Amendment to Warehousing Credit and Security Agreement, dated as of November 8, 2004, between MortgageIT, Inc. and Residential Funding Corporation
10.6(11)				Fifth Amendment to Warehousing Credit and Security Agreement, dated as of December 23, 2004, between MortgageIT, Inc. and Residential Funding Corporation
10.7(11)				Guaranty, dated August 1, 2003, made by MortgageIT Holdings, Inc. to Residential Funding Corporation
10.8(2)†				Amended and Restated Master Purchase Agreement, dated as of August 4, 2004, among MortgageIT, Inc., MortgageIT Holdings, Inc. and Merrill Lynch Mortgage Capital Inc.

59

---

Exhibit Number				Description
10.9(2)				Amended and Restated Custodial Agreement, dated as of August 4, 2004, among Merrill Lynch Mortgage Capital Inc., MortgageIT, Inc., MortgageIT Holdings, Inc. and Deutsche Bank National Trust Company.
10.10(4)†				Amendment No. 1 to Amended and Restated Master Repurchase Agreement, dated September 21, 2004, by and among MortgageIT Holdings, Inc., MortgageIT, Inc. and Merrill Lynch Mortgage Capital Inc.
10.11(7)				Amendment No. 2 to Amended and Restated Master Repurchase Agreement, dated November 11, 2004, by and between Merrill Lynch Mortgage Capital, Inc., MortgageIT, Inc. and MortgageIT Holdings, Inc.
10.12(7)				Amendment No. 3 to Amended and Restated Master Repurchase Agreement, dated November 17, 2004, by and between Merrill Lynch Mortgage Capital Inc., MortgageIT, Inc. and MortgageIT Holdings, Inc.
10.13(8)				Amendment No. 4 to Amended and Restated Master Repurchase Agreement, dated December 8, 2004, between MortgageIT Holdings, Inc., MortgageIT, Inc. and Merrill Lynch Mortgage Capital, Inc.
10.14(9)				Amendment No. 5 to Amended and Restated Master Repurchase Agreement, dated December 10, 2004, between MortgageIT Holdings, Inc., MortgageIT, Inc. and Merrill Lynch Mortgage Capital, Inc.
10.15(10)				Amendment No. 6 to Amended and Restated Master Repurchase Agreement, dated December 17, 2004, between MortgageIT Holdings, Inc., MortgageIT, Inc. and Merrill Lynch Mortgage Capital, Inc.
10.16(1)				Amended and Restated Mortgage Loan Purchase Agreement between UBS Warburg Real Estate Securities Inc. and MortgageIT, Inc., dated as of January 10, 2003
10.17(1)				Amended and Restated Mortgage Loan Repurchase Agreement between UBS Warburg Real Estate Securities, Inc. and MortgageIT, Inc., dated as of January 10, 2003
10.18(1)				Amended and Restated Mortgage Loan Custodial Agreement among UBS Warburg Real Estate Securities, Inc., MortgageIT, Inc. and JPMorgan Chase Bank, dated January 10, 2003
10.19(1)				Custodial Agreement among UBS Warburg Real Estate Securities, Inc., Federal National Mortgage Association and MortgageIT, Inc., dated December 1, 2003
10.20(1)				Mortgage Loan Participation Agreement between UBS Warburg Real Estate Securities, Inc. and MortgageIT, Inc., dated December 1, 2003
10.21(5)				MortgageIT Holdings, Inc. 2004 Long-Term Incentive Plan
10.22(1)				Note Purchase Agreement by and among MortgageIT, Inc. and Technology Investment Capital Corp., dated as of March 29, 2004
10.23(7)				First Amendment to Note Purchase Agreement, dated as of October 13, 2004, by and among MortgageIT, Inc. and the Purchasers named therein
10.24(1)				Loan Servicing Agreement between MortgageIT, Inc. and GMAC Mortgage Corporation, dated September 26, 2003
10.25(1)				First Amendment to Loan Servicing Agreement between MortgageIT, Inc. and GMAC Mortgage Corporation, dated April 14, 2004
10.26(1)				Employment Agreement between Doug W. Naidus and MortgageIT Holdings, Inc. and MortgageIT, Inc.
10.27(2)				Employment Agreement between John R. Cuti and MortgageIT Holdings, Inc. and MortgageIT, Inc.

60

---

Exhibit Number				Description
10.28(2)				Employment Agreement between Donald Epstein and MortgageIT Holdings, Inc. and MortgageIT, Inc.
10.29(6)				Employment Agreement between Glenn J. Mouridy and MortgageIT Holdings, Inc.
10.30(2)				TRS Servicing Agreement, dated as of August 4, 2004, among UBS Real Estate Securities Inc., MortgageIT SPV I and MortgageIT, Inc.
10.31(2)				Loan Sale Agreement, dated as of August 4, 2004, between MortgageIT, Inc., MortgageIT Holdings, Inc., and MortgageIT SPV I
10.32(2)				Custodial Agreement, dated as of August 4, 2004, among UBS Real Estate Securities Inc., JPMorgan Chase Bank, MortgageIT SPV I, MortgageIT, Inc. and MortgageIT Holdings, Inc.
10.33(2)				Administration Agreement, dated as of August 4, 2004, between MortgageIT SPV I and MortgageIT, Inc.
10.34(2)				Trust Agreement, dated as of August 4, 2004, by and among MortgageIT, Inc., MortgageIT Holdings, Inc. and Wilmington Trust Company
10.35(2)				Side Letter Servicing Agreement, dated August 4, 2004, by and among GMAC Mortgage Corporation, UBS Real Estate Securities Inc., MortgageIT SPV I and MortgageIT Holdings, Inc.
10.36(2)				REIT Servicing Agreement, dated as of August 4, 2004, among UBS Real Estate Securities Inc., MortgageIT SPV I and MortgageIT Holdings, Inc.
14.1				Corporate Code of Conduct and Ethics of MortgageIT Holdings, Inc.
21.1				List of Subsidiaries of MortgageIT Holdings, Inc.
23.1				Consent of BDO Seidman, LLP
31.1				Certification of Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2				Certification of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3				Certification of Chief Financial Officer of MortgageIT, Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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 (This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
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 (This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

61

---

Exhibit Number				Description
32.3				Certification of Chief Financial Officer of MortgageIT, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (This exhibit shall not be deemed filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amend, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

(1)	Incorporated by reference to the Registrant's registration statement on Form S-11, as amended (Registration No. 333-113825)

(2)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2004

(3)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 15, 2004

(4)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2004

(5)	Incorporated by reference to the Registrant's registration statement on Form S-8 (Registration No. 333-119575)

(6)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2004

(7)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2004

(8)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2004

(9)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2004

(10)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2004

(11)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 27, 2004

†	Confidential treatment has been granted by the Securities and Exchange Commission with respect to portions of this document

62

---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

				PAGE
Report of Independent Registered Public Accounting Firm					F-2
Financial Statements of MortgageIT Holdings, Inc. and its subsidiaries for the years ended December 31, 2004, 2003 and 2002:
Consolidated Balance Sheets					F-3
Consolidated Statements of Operations					F-4
Consolidated Statements of Comprehensive (Loss) Income					F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit)					F-6
Consolidated Statements of Cash Flows					F-7
Notes to Consolidated Financial Statements					F-8

F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
MortgageIT Holdings, Inc. and Subsidiaries
New York, New York

We have audited the accompanying consolidated balance sheets of MortgageIT Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MortgageIT Holdings, Inc. and Subsidiaries at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1A to the consolidated financial statements, the Company has restated its 2003 and 2002 consolidated financial statements.

BDO Seidman, LLP

New York, New York
March 28, 2005

F-2

---

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

				December 31, 2004				December 31, 2003
								(As restated)
ASSETS
Cash and cash equivalents				$	70,224			$	22,261
Restricted cash					1,679				1,517
Marketable securities held to maturity					7,546				1,419
Portfolio ARM Loans
ARM loans collateralizing debt obligations, net					1,432,692				—
ARM loans held for securitization, net					1,166,961				—
Total Portfolio ARM Loans					2,599,653				—
Mortgage loans held for sale					784,592				324,753
Hedging instruments					19,526				343
Accounts receivable, net of allowance					28,731				10,301
Prepaids and other assets					7,803				5,538
Goodwill					11,639				11,665
Property and equipment, net					5,567				5,324
Total assets				$	3,536,960			$	383,121
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Collateralized debt obligations, net				$	1,328,096			$	—
Warehouse lines payable					1,869,385				300,699
Repurchase agreements					67,674				—
Hedging instruments					1,145				3,202
Notes payable and other debt					15,000				1,125
Accounts payable, accrued expenses and other liabilities					63,993				30,996
Total liabilities					3,345,293				336,022
COMMITMENTS AND CONTINGENCIES
Convertible redeemable preferred stock: 22,000,000 shares authorized; 15,082,973 issued and outstanding					—				62,557
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value: 125,000,000 shares authorized; 19,405,473 issued and outstanding					194				—
Common stock Class A, $0.01 par value: 1,895,000 shares authorized; 517,835 issued and outstanding (1)					—				5
Additional paid-in capital (1)					238,405				3,955
Unearned compensation — restricted stock					(6,196	)			—
Accumulated other comprehensive loss					(387	)			—
Accumulated deficit					(40,349	)			(19,418	)
Total stockholders' equity (deficit)					191,667				(15,458	)
Total liabilities and stockholders' equity				$	3,536,960			$	383,121

(1)	Reflects, on a retroactive basis, for all periods presented, the exchange of approximately 12.80 shares of MortgageIT, Inc. common stock for each share of MortgageIT Holdings, Inc. common stock and the retention and retirement of common shares pursuant to the reorganization of MortgageIT, Inc.

The accompanying notes are an integral part of the consolidated financial statements.

F-3

---

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share data)

				Year ended December 31,
				2004				2003				2002
								(As restated)				(As restated)
Revenues:
Gain on sale of mortgage loans				$	70,397			$	87,215			$	35,145
Brokerage revenues					36,283				63,030				50,218
Interest income					60,346				24,324				18,215
Interest expense					(29,459	)			(13,604	)			(10,278	)
Net interest income					30,887				10,720				7,937
Realized loss on hedging instruments					(7,852	)			—				—
Other					566				980				216
Total revenues					130,281				161,945				93,516
Operating expenses:
Compensation and employee benefits					82,077				77,851				54,844
Processing expenses					24,603				27,828				16,235
General and administrative expenses					12,321				9,867				7,719
Rent					7,670				6,483				4,738
Marketing, loan acquisition and business development					4,203				6,504				5,062
Professional fees					3,510				2,930				1,918
Depreciation and amortization					2,726				2,408				1,890
Total operating expenses					137,110				133,871				92,406
(Loss) income before income taxes					(6,829	)			28,074				1,110
Income taxes					1,617				3,799				252
Net (loss) income					(8,446	)			24,275				858
Dividends on convertible redeemable preferred stock					3,947				6,299				5,757
Net (loss) income attributable to common stockholders				$	(12,393	)		$	17,976			$	(4,899	)
Per share data:
Basic				$	(1.46	)		$	34.71			$	(9.53	)
Diluted				$	(1.46	)		$	5.23			$	(9.53	)
Weighted average number of shares — basic (1)					8,517				518				514
Weighted average number of shares — diluted (1)					8,517				4,644				514

(1)	Reflects, on a retroactive basis, for all periods presented, the exchange of approximately 12.80 shares of MortgageIT, Inc. common stock for each share of MortgageIT Holdings, Inc. common stock and the retention and retirement of common shares pursuant to the reorganization of MortgageIT, Inc.

The accompanying notes are an integral part of the consolidated financial statements.

F-4

---

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)

				December 31, 2004				December 31, 2003				December 31, 2002
Net (loss) income				$	(8,446	)		$	24,275			$	858
Other comprehensive income:
Unrealized losses on hedging instruments					(387	)			—				—
Comprehensive (loss) income				$	(8,833	)		$	24,275			$	858

The accompanying notes are an integral part of the consolidated financial statements.

F-5

---

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2004, 2003 and 2002 (Dollars and shares in thousands)

				Capital Stock																Additional Paid-In Capital				Accumulated Deficit				Unamortized Cost of Restricted Stock				Accumulated Other Comprehensive Loss				Total Stockholders' Equity (Deficit)
				Common-Class A								Common
				Shares				Amount				Shares				Amount
Balance at January 01, 2002					528			$	5				—			$	—			$	4,361			$	(32,496	)		$	(354	)		$	—			$	(28,484	)
Restricted stock awards forfeited					(10	)			—				—				—				(392	)			—				392				—				—
Amortization of the cost of restricted stock, net of forfeitures					—								—				—				—				—				(53	)			—				(53	)
Preferred stock dividends, accrued and unpaid					—				—				—				—				—				(5,255	)			—				—				(5,255	)
Accretion of discount on preferred stock					—				—				—				—				—				(502	)			—				—				(502	)
Net income					—				—				—				—				—				858				—				—				858
Balance at December 31, 2002 (As restated)					518				5				—				—				3,969				(37,395	)			(15	)			—				(33,436	)
Sale of common stock					1				—				—				—				5				—				—				—				5
Restricted stock awards forfeited					(1	)			—				—				—				(19	)			—				19				—				—
Amortization of the cost of restricted stock, net of forfeitures					—				—				—				—				—				—				(4	)			—				(4	)
Preferred stock dividends, accrued and unpaid					—				—				—				—				—				(5,787	)			—				—				(5,787	)
Accretion of discount on preferred stock					—				—				—				—				—				(511	)			—				—				(511	)
Net income					—				—				—				—				—				24,275				—				—				24,275
Balance at December 31, 2003 (As restated)					518				5				—				—				3,955				(19,418	)			—				—				(15,458	)
Preferred stock dividends, accrued and unpaid					—				—				—				—				—				(3,645	)			—				—				(3,645	)
Accretion of discount on preferred stock					—				—				—				—				—				(302	)			—				—				(302	)
Exercise of stock options					45				—				—				—				224				—				—				—				224
Initial issuance of stock					—				—				1				—				—				—				—				—				—
Reorganization of MortgageIT, Inc., net					(563	)			(5	)			4,804				48				64,283				—				—				—				64,326
Issuance of common stock in connection with a public offering, net					—				—				14,600				146				163,246				—				—				—				163,392
Restricted stock grant					—				—				—				—				6,697				—				(6,697	)			—				—
Amortization of the cost of restricted stock					—				—				—				—				—				—				501				—				501
Other comprehensive (loss) income					—				—				—				—				—				—				—				(387	)			(387	)
Dividends declared on
common stock —
$0.44 per share					—				—				—				—				—				(8,538	)			—				—				(8,538	)
Net income					—				—				—				—				—				(8,446	)			—				—				(8,446	)
Balance at December 31, 2004					—			$	—				19,405			$	194			$	238,405			$	(40,349	)		$	(6,196	)		$	(387	)		$	191,667

The accompanying notes are an integral part of the consolidated financial statements.

F-6

---

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)

				Year ended December 31,
				2004				2003				2002
								(As restated)				(As restated)
Cash flows from operating activities:
Net (loss) income				$	(8,446	)		$	24,275			$	858
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization					2,726				2,408				1,890
Amortization of restricted stock costs					501				(4	)			(53	)
Realized and unrealized gain (loss) on hedging instruments					5,598				(2,239	)			6,720
Other—miscellaneous					—				—				(2	)
Changes in operating assets:
(Increase) decrease in restricted cash					(162	)			3,589				(2,866	)
(Increase) decrease in mortgage loans held for sale					(459,839	)			109,505				68,265
(Increase) decrease in accounts receivable					(18,430	)			4,836				(7,296	)
Increase in prepaids and other assets					(2,239	)			(1,285	)			(2,396	)
Changes in operating liabilities:
Increase in accounts payable, accrued expenses and other liabilities					24,458				1,072				10,276
Net cash (used in) provided by operating activities					(455,833	)			142,157				75,396
Cash flows from investing activities:
Increase in ARM loans					(2,599,653	)			—				—
Purchases of property and equipment					(2,968	)			(3,641	)			(3,476	)
Proceeds from maturities of marketable securities					8,530				5,550				9,565
Purchases of marketable securities					(14,657	)			(5,571	)			(9,314	)
Acquisition of IPI					—				—				(2	)
Net cash used in investing activities					(2,608,748	)			(3,662	)			(3,227	)
Cash flows from financing activities:
Proceeds from issuance of common stock					163,392				5				—
Proceeds from the exercise of stock options					224				—				—
Proceeds from issuance of convertible redeemable preferred stock					—				—				245
Net proceeds from collateralized debt obligations					1,328,096				—				—
Net borrowings from repurchase agreements					67,674				—				—
Purchase of interest rate cap agreements					(19,000	)			—				—
Payments made for Eurodollar contracts					(8,225	)			—				—
Payments to former MortgageIT shareholders					(2,179	)			—				—
Proceeds from notes payable and other debt					15,000				9,000				12,594
Repayment of notes payable and other debt					(1,125	)			(14,125	)			(9,526	)
Net proceeds (repayment) of warehouse lines payable					1,568,687				(113,218	)			(76,796	)
Net cash provided by (used in) financing activities					3,112,544				(118,338	)			(73,483	)
Net increase (decrease) in cash and cash equivalents					47,963				20,157				(1,314	)
Cash and cash equivalents at beginning of period					22,261				2,104				3,418
Cash and cash equivalents at end of period				$	70,224			$	22,261			$	2,104

The accompanying notes are an integral part of the consolidated financial statements.

F-7

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

As discussed further in Note 8, MortgageIT Holdings, Inc. ("Holdings" or the "Company") is a residential mortgage lender that was formed in March 2004 to continue and expand the business of MortgageIT, Inc. ("MortgageIT" or the "TRS"). Holdings is organized and conducts its operations to qualify as a REIT for federal income tax purposes and is focused on earning net interest income from mortgage loans originated by its subsidiary, MortgageIT. Holdings' taxable REIT subsidiary, MortgageIT, was incorporated in New York on February 1, 1999 and began marketing mortgage loan services on May 4, 1999. MortgageIT originates, sells and brokers residential mortgage loans in 50 states and the District of Columbia, and is an approved U.S. Department of Housing and Urban Development ("HUD") Title II Nonsupervised Delegated Mortgagee.

As discussed further in Note 13, the Company operates its business in two primary segments, mortgage investment operations and mortgage banking operations. Mortgage investment operations are driven by the net interest income generated on our investment loan portfolio. Mortgage banking operations includes loan origination, underwriting, funding, secondary marketing and loan brokerage activities.

All shares of common stock and common stock equivalents have been retroactively restated, for all periods presented, to reflect the exchange of approximately 12.80 shares of MortgageIT common stock for each share of Holdings common stock and the retention and retirement of common stock pursuant to the reorganization of MortgageIT. (See Note 8.)

The consolidated financial statements included herein contain results for Holdings and its wholly owned subsidiary, MortgageIT and its wholly owned subsidiaries, IPI ("IPI") Corporation and Home Closer LLC ("Home Closer"), for the period from August 4, 2004 (the date REIT operations commenced) to December 31, 2004, and exclusively for MortgageIT and its wholly owned subsidiaries, IPI Skyscraper Mortgage Corporation and Home Closer LLC, for the preceding periods. IPI, which provides residential mortgage banking and brokerage services in the New York, New Jersey and Connecticut Tri-state area, was a wholly owned subsidiary of MortgageIT until it was merged with and into MortgageIT effective December 31, 2004. Home Closer provides title, settlement and other mortgage related services to the Company and its customers. All material intercompany account balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Management bases its estimates on certain assumptions, which they believe are reasonable under the circumstances, and does not believe that any change in those assumptions would have a significant effect on the financial position or results of operations of the Company. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, cash equivalents are defined as highly liquid investments with maturities of three months or less when purchased. Due to the short-term nature of the cash equivalents, the carrying value approximates fair value.

Restricted Cash

The balances in restricted cash for all periods presented represent amounts pledged to secure one of the Company's warehouse credit facilities and amounts held in escrow accounts on behalf of borrowers and other third parties.

F-8

---

Marketable Securities Held to Maturity

Marketable securities held to maturity represent federal agency securities, maturing within six months, which the Company has the ability and intent to hold to maturity. These securities are carried at amortized cost. The carrying value of these securities is adjusted for the accretion of discounts, which are included in interest income.

Adjustable Rate Mortgage ("ARM") Loan Investment Portfolio

The Company's ARM loan investment portfolio is comprised of ARM loans collateralizing debt obligations and ARM loans held for securitization (collectively referred to as "Portfolio ARM Loans" or "ARM Loans"). All of the Company's Portfolio ARM Loans are either traditional ARM Loans, meaning they have interest rates that reprice in one year or less ("Traditional ARMs" or "Traditional ARM loans"), or hybrid ARM Loans that have a fixed interest rate for an initial period of not more than five years and then convert to Traditional ARMs for their remaining terms to maturity ("Hybrid ARMs" or "Hybrid ARM loans").

Portfolio ARM Loans are designated as held to maturity because the Company has the intent and ability to hold them for the foreseeable future, and until maturity or payoff. Portfolio ARM Loans are carried at cost which includes unpaid principal balances, net of unamortized loan origination costs, fees and the allowance for loan losses.

ARM loans collateralizing debt obligations are mortgage loans the Company has securitized into rated classes with the lower rated classes providing credit support for higher rated certificates issued to third party investors or retained by the Company in structured financing arrangements.

ARM loans held for securitization are mortgage loans the Company has originated and are intended to be securitized and retained by the Company.

The Company does not intend to sell any of the securities created from its securitizations to generate gain on sale income. The loan securitization process benefits the Company by creating highly liquid securitized assets that can be readily financed in the capital markets.

Mortgage Loans Held for Sale

Allocated Mortgage Loans Held For Sale

Allocated mortgage loans held for sale represent hedged loans that have been allocated to a forward sales commitment. Allocated mortgage loans held for sale are carried at the lower of adjusted cost or market value. Adjusted cost includes the loan principal amount outstanding, net of deferred direct origination costs and fees. Market value for allocated loans is determined based on the forward sales commitment price.

Unallocated Mortgage Loans Held For Sale

Unallocated mortgage loans held for sale represent hedged loans that have not yet been allocated to a forward sales contract. At December 31, 2004, unallocated mortgage loans held for sale are carried at market value. For all prior periods, unallocated mortgage loans held for sale are carried at the lower of adjusted cost or market value, as they did not qualify for hedge accounting. Adjusted cost includes the loan principal amount outstanding, net of deferred direct origination costs and fees. Determining market value requires management judgment in determining how the market would value a particular mortgage loan based on characteristics of the loan and available market information.

Loan Origination Fees

Loan origination fees, as well as discounts and certain direct origination costs, with respect to loans held for sale, are initially recorded as an adjustment of the cost of the loan and are reflected in earnings when the loan is sold or, with respect to loans held for investment, are deferred and amortized as an interest income yield adjustment over the life of the related loans using the effective yield method.

F-9

---

Loan Securitizations

The Company securitizes mortgage loans by transferring them to independent trusts that issue securities collateralized by the transferred mortgage loans. The Company generally retains interests in all or some of the securities issued by the trusts. Certain of the securitization agreements may require the Company to repurchase loans that are found to have legal deficiencies, after the date of transfer. The accounting treatment for transfers of assets upon securitization depends on whether or not the Company has retained control over the transferred assets. The Company's accounting policy for ARM loan securitizations complies with the provisions of Statement of Financial Accounting Standards No. 140, ("SFAS No. 140") "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Depending on the structure of the securitization, the accounting for securitizations is treated as either a sale or secured financing for financial statement purposes. The securitization transactions in the Company's mortgage investment operations segment are treated as secured financings under SFAS No. 140 as the Company has retained control over the transferred assets.

Derivative Instruments and Hedging Activities

The Company manages its interest rate risk exposure through the use of derivatives including, interest rate swaps, Eurodollar futures, forwards and interest rate caps. In accordance with SFAS No. 133, all derivative instruments are recorded on the balance sheet at fair value.

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

Certain derivatives used in conjunction with interest rate risk management activities qualify for hedge accounting under SFAS No. 133. For derivative hedging activities to qualify for hedge accounting, the Company formally documents, at the inception of each hedge, the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the item or, nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Company's fair value hedges are primarily for mortgage loans held for sale. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the change in fair value of the hedged asset, are recorded in earnings. Derivatives that are utilized as fair value hedges and that qualify for hedge accounting are carried at fair value with changes in value included in gain on sale of mortgage loans in the accompanying consolidated statements of operations.

The Company's cash flow hedges, which are used for LIBOR based borrowings, have the effect of fixing the interest rate on LIBOR based liabilities in the event that LIBOR based funding costs change. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income to the extent that the derivative is effective as a hedge, until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portion of the change in fair value of a derivative instrument that qualifies as either a fair-value hedge or a cash-flow hedge, and the change in value of a derivative instrument that does not qualify for hedge accounting, are reported in earnings.

The Company employs a number of risk management monitoring procedures that are designed to ensure that its hedging arrangements 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 or cash flows of the hedged item. Additionally, the

F-10

---

Company may elect, pursuant to SFAS No. 133, to re-designate a hedge relationship during an interim period and re-designate upon the rebalancing of a hedge relationship.

Interest Rate Lock Commitments

The Company's 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. The Company classifies and accounts for the IRLCs associated with loans expected to be sold as free-standing derivatives. Accordingly, such IRLCs are recorded at fair value with changes in fair value recorded to current earnings.

Repurchase Agreements

Repurchase agreements represent legal sales of the Company's mortgage assets and an agreement to repurchase the assets at a future date. Repurchase agreements are accounted for as collateralized financing transactions since the Company still has control of the transferred assets and is both entitled and obligated to repurchase the transferred assets prior to maturity. They are carried at the amount at which the assets will be repurchased, including accrued interest.

Accounts Receivable and Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on certain percentages of its aged receivables, which is determined based on historical collection experience and its assessment of the general financial conditions affecting its customer base. If the actual collection experience changes, revisions to the allowance may be required. Based on the information available to the Company, management believes that the allowance for doubtful accounts is adequate. The following table summarizes changes in the allowance:

				Year ended December 31,
				2004				2003				2002
Allowance for doubtful accounts, beginning of year				$	772			$	384			$	514
Bad debt expense					600				789				230
Write offs					(232	)			(401	)			(360	)
Allowance for doubtful accounts, end of year				$	1,140			$	772			$	384

Property and Equipment

Property and equipment is recorded at cost and is depreciated on a straight-line basis over estimated useful lives, which is generally three years for computer equipment and software, and five years for furniture, fixtures and office equipment. Leasehold improvements are recorded at cost and are amortized on a straight-line basis over the shorter of the respective lease term or estimated service lives of the improvements. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized.

The Company evaluates impairment losses on long-lived assets used in operations, primarily property and equipment, when events and circumstances indicate that the carrying value of those assets might not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets are compared to their carrying amounts. If the carrying value of the asset exceeds the undiscounted cash flows, the related asset is written down to fair value. No impairment losses have been incurred to date.

Goodwill

Goodwill represents the excess purchase price over the fair value of net assets attributable to business acquisitions. In accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible

F-11

---

Assets," the Company tests for impairment at least annually. The Company will test for impairment more frequently if events or circumstances indicate that an asset may be impaired. In accordance with SFAS No. 142, the Company identifies potential impairments by comparing the fair value of the reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, including goodwill, the asset is not impaired. Any excess of carrying value over the implied fair value of the goodwill would be recognized as an impairment loss in continuing operations. The discounted cash flow calculation includes a forecast of the expected future loan originations and the related revenues and expense associated with business acquisitions. These cash flows are discounted using an appropriate interest rate that is consistent with management's required return on invested capital.

Other Comprehensive Income

The Financial Accounting Standard Board's, or FASB, SFAS No. 130, "Reporting Comprehensive Income," divides comprehensive income into net income and other comprehensive income (loss), which includes unrealized gains and losses on derivative financial instruments that qualify for cash flow hedge accounting under SFAS No. 133.

Revenue Recognition

Mortgage Investment Operations

Interest income is accrued based on the outstanding principal amount and contractual terms of the loans. Direct loan origination costs and fees associated with the loans are amortized into interest income over the lives of the loans using the effective yield method, adjusted for the effects of estimated prepayments. Estimating prepayments and estimating the remaining lives of the loans requires management judgment, which involves consideration of possible future interest rate environments. The actual lives could be more or less than the amount estimated by management.

Mortgage Banking Operations

Gain on sale of loans represents the difference between the net sales proceeds and the carrying values of the mortgage loans sold, and are recognized at the time of sale. Direct loan origination costs and fees associated with the loans are initially recorded as an adjustment of the cost of the loans held for sale and are recognized in earnings when the loans are sold.

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

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

Generally, the Company is not exposed to significant credit risk on its loans sold to investors. In the normal course of business, the Company is obligated to repurchase loans from investors consistent with the terms of its investor contracts. At the time of loan sale, the Company records a repurchase reserve for potential future losses applicable to loans sold. The repurchase reserve is included in accrued expenses on our balance sheet.

Loan Loss Reserves

The Company maintains an allowance for loan losses based on management's estimate of credit losses inherent in the Company's Portfolio ARM Loans. The estimation of the allowance is based on a variety of factors including, but not limited to, industry statistics, current economic conditions, loan portfolio composition, delinquency trends, credit losses to date on underlying loans and remaining

F-12

---

credit protection. If the credit performance of the Company's Portfolio ARM Loans is different than expected, the Company adjusts the allowance for loan losses to a level deemed appropriate by management to provide for estimated losses inherent in the Company's ARM loan portfolio. Two critical assumptions used in estimating the loan loss reserves are an assumed rate of default, which is the expected rate at which loans go into foreclosure over the life of the loans, and an assumed rate of loss severity, which represents the expected rate of realized loss upon disposition of the properties that have gone into foreclosure. In addition, once a loan is 90 days or more delinquent or a borrower declares bankruptcy, the Company adjusts the value of its accrued interest receivable to what it believes to be collectible and stops accruing interest on that loan.

Advertising

Advertising costs, which include the costs of production and communication, are expensed as incurred.

Stock Compensation

As of December 31, 2004, the Company had one stock-based employee compensation plan in effect, the 2004 Long-Term Incentive Plan (the "2004 Plan"), which is described more fully in Note 8. MortgageIT had previously adopted the 2001 Stock Option Plan, which was terminated on August 4, 2004, pursuant to the reorganization of MortgageIT (See Note 8). The Company accounts for all transactions under which employees receive shares of stock or other equity instruments in the Company based on the price of its stock in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Pursuant to these accounting standards, the Company records deferred compensation for stock awards at the date of grant based on the estimated values of the shares on that date. There is no stock option-based employee compensation cost reflected in net income because all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation-Transition and Disclosure" (Dollars in thousands, except per share data):

				Year ended December 31,
				2004				2003				2002
								(As restated)				(As restated)
Net income (loss) attributable to common stockholders				$	(12,393	)		$	17,976			$	(4,899	)
Amortization of restricted stock, including forfeitures, net of tax effects					380				(4	)			(53	)
Stock-based employee compensation expense determined under the fair value method, net of related tax effects					(754	)			(335	)			(89	)
Pro forma net income (loss)				$	(12,767	)		$	17,637			$	(5,041	)
Net income (loss) per share attributable to common stock:
Basic—As reported				$	(1.46	)		$	22.15			$	(9.53	)
Basic—Pro forma				$	(1.50	)		$	34.05			$	(9.81	)
Net income (loss) per share for diluted earnings per share:
Diluted—As reported				$	(1.46	)		$	5.23			$	(9.53	)
Diluted—Pro forma				$	(1.50	)		$	5.15			$	(9.81	)

Under the 2001 Stock Option Plan, which was terminated pursuant to our reorganization, the fair value for each option granted was estimated at the date of grant using the minimum value, option-pricing model, an allowable valuation method under SFAS No. 123 "Accounting For Stock-Based Compensation," with the following assumptions: risk-free interest rate of 4.25%, expected option lives of eight years, and no dividends.

F-13

---

Under the 2004 Long-Term Incentive Plan, which replaced the 2001 Stock Option Plan, the fair value for each option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under SFAS No. 123 "Accounting For Stock-Based Compensation," with the following assumptions: risk-free interest rate of 3.75%, expected option lives of five years, 26% volatility and 9% dividend rate.

Restricted stock awards granted to employees under the 2004 Plan are subject to certain sale and transfer restrictions. Unvested awards are also subject to forfeiture if employment terminates prior to the end of the prescribed restriction period. The value of restricted stock awards is expensed over the vesting period, generally three years.

Income Taxes

Income taxes are determined using the liability method under SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for federal and state income tax purposes.

The Company will elect to be taxed as a REIT and believes it complies with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), with respect thereto. Accordingly, the Company will not be subject to federal income tax on that portion of its income that is distributed to stockholders, as long as certain asset, income and stock ownership tests are met. To maintain our REIT status, the Company is required to distribute a minimum of 90% of its annual taxable income to its stockholders.

MortgageIT made the election to be treated as a taxable REIT subsidiary and therefore is subject to both federal and state corporate income taxes. Accordingly, the Company records a tax provision based primarily on the taxable income of the TRS.

Geographic Concentration

MortgageIT originates loans in all 50 states. The majority of MortgageIT's loan origination volume, as measured by principal balance, was sourced from the states of California, New York and Texas. For the years ended December 31, 2004, 2003 and 2002, the total loan origination volume for these three states aggregated 66%, 59% and 51%, respectively.

Fair Value of Financial Instruments

Cash and cash equivalents, marketable securities and accounts receivable are carried at amounts approximating fair value. Allocated mortgage loans held for sale are carried at the lower of adjusted cost or market value. Unallocated mortgage loans held for sale are carried at market value at December 31, 2004 and at lower of adjusted cost or market for all prior periods.

Derivative instruments related to the hedging of our financing costs, including interest rate swap agreements, Eurodollar futures or options contracts and interest rate cap agreements (collectively "Hybrid Hedging Instruments") are carried at fair value and are classified as hedging instruments on the balance sheet.

Derivative instruments related to the hedging of our locked pipeline loans and mortgage loans held for sale, including TBAs, options, eurodollar futures, and forward sales contracts are carried at fair value and are classified as hedging instruments on the balance sheet.

Liabilities, including warehouse lines payable, collateralized debt obligations, notes payable and other debt, are carried at their contractual notional amounts which approximate fair value. Portfolio ARM Loans are carried at cost, as more fully described in Note 3.

The following table presents information as to the carrying amount and estimated fair value of certain of our market risk sensitive assets, liabilities and hedging instruments at December 31, 2004 and 2003:

F-14

---

				December 31, 2004
				Carrying Amount				Estimated Fair Value
				(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	784,592			$	787,234
ARM loans held for securitization, net					1,166,961				1,167,824
ARM loans collateralizing debt obligations, net					1,432,692				1,434,534
Hedging instruments					19,526				19,526
Liabilities:
Warehouse lines payable				$	1,869,385			$	1,869,385
Collateralized debt obligations, net					1,328,096				1,331,986
Repurchase agreements					67,674				67,674
Hedging instruments					1,145				1,145

				December 31, 2003
				Carrying Amount				Estimated Fair Value
				(Dollars in thousands)
				(As restated)
Assets:
Mortgage loans held for sale				$	324,753			$	325,214
Hedging instruments					343				343
Liabilities:
Warehouse lines payable				$	300,699			$	300,699
Hedging instruments					3,202				3,202

Recently Issued Accounting Standards

In 2004, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 105, which contains guidance for valuing loan commitments accounted for as derivatives under SFAS No. 133. Under SAB No. 105, any expected future cash flows related to the customer relationship or loan servicing must be excluded from the estimation of fair value. SAB No. 105 is effective for loan commitments accounted for as derivatives entered into subsequent to March 31, 2004. The adoption SAB No. 105 did not have any effect on the Company's consolidated financial condition or results of operations.

In June 2004, the Financial Accounting Standards Board ("FASB") issued Emerging Issues Task Force Abstract 03-01, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments" ("EITF 03-01"). EITF 03-01 requires an investor to determine when an investment is considered impaired, evaluate whether that impairment is other than temporary, and, if the impairment is other than temporary, recognize an impairment loss equal to the difference between the investment's cost and its fair value. The guidance also includes accounting considerations subsequent to the recognition of an other than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other than temporary impairments. The impairment loss recognition and measurement guidance was to be applicable to other than temporary impairment evaluations in reporting periods beginning after June 15, 2004. In September 2004, the FASB proposed additional guidance related to debt securities that are impaired because of interest rate and/or sector spread increases, and delayed the effective date of EITF 03-01. We do not expect the adoption of EITF 03-01 to have a material effect on our financial condition, results of operations, or liquidity.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." This interpretation clarifies the application of Accounting Research Bullentin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the

F-15

---

characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires an enterprise to consolidate a variable interest entity if that enterprise will absorb a majority of the entity's expected losses, is entitled to receive a majority of the entity's expected residual returns, or both. FIN 46 also requires disclosure about unconsolidated variable interest entities in which an enterprise holds a significant variable interest. Application of FIN 46, as revised, in December 2003 ("FIN 46R"), is required for periods ending after December 15, 2003. During 2004, the Company created various trusts which were utilized in connection with the securitization of mortgage loans and other financial activities. These trusts are deemed to be variable interest entities for which we have determined that the Company is the primary beneficiary. Accordingly, the assets, liabilities and operations are included in its consolidated financial statements.

Accounting for stock based compensation

Historically the Company has accounted for stock based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has not reflected stock option-based employee compensation cost in net income because all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant.

Under the provisions of SFAS No. 123R "Accounting for Stock-Based Compensation," effective in the period ending September 30, 2005, the Company will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost will be recognized over the vesting period during which an employee is required to provide service in exchange for the award.

The grant date fair value of employee stock options will be measured using the an appropriate option pricing model. See "Stock Compensation" of this Note 1 to the Consolidated Financial Statements for an illustration of the effects on net income (loss) had the Company applied the fair value recognition provisions of SFAS No. 123R as of January 1, 2002. The Company will adopt this statement when effective and is currently evaluating the impact.

1A—Restatement of Consolidated Financial Statements

The Company has determined that it could not support the use of hedge accounting for derivative contracts entered into prior to November 24, 2004. As a result, the following financial statements have been restated: (a) consolidated balance sheet as of December 31, 2003; (b) consolidated statements of operations for the years ended December 31, 2003 and 2002; (c) consolidated statements of changes in stockholders' equity (deficit) for the years ended December 31, 2003 and 2002; and (d) consolidated statements of cash flows for the years ended December 31, 2003 and 2002.

Fair Value Hedge Accounting Restatement

The Company has corrected its accounting for mortgage loans held for sale and interest rate risk management activities related to fair value hedging activities (a "fair value" hedge). The Company believes that the documentation of fair value hedge accounting relationships and the assessment of hedge effectiveness was inadequate as required by the applicable accounting standards contained in Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133.") As such, the Company made the determination that it was not appropriate to apply hedge accounting for purposes of the Company's financial statements and, for all restated periods, loans held for sale are now recorded at the lower of cost or market. For the quarter ended December 31, 2004, the Company qualified for and has elected to apply SFAS No. 133 fair value hedge accounting for loans held for sale, exclusive of loans allocated to forward sales commitments.

Additionally, the Company has corrected its accounting for forward sales commitments. The Company enters into forward sales commitments to hedge both its funded and pipeline mortgage loans held for

F-16

---

sale. Previously, certain forward sales commitments allocated to funded mortgage loans held for sale were not classified or accounted for as free-standing derivatives. In accordance with SFAS No. 133, the Company believes that such instruments met the definition of a free-standing derivative and as such, should have been carried at their fair value with changes in fair value recognized in earnings. For all restated periods, the Company has now classified and accounted for such commitments as free-standing derivatives, marked them to market and recorded any changes in fair value in earnings.

Cash Flow Hedge Accounting Restatement

The Company has corrected its accounting for interest rate risk management activities related to the variability in expected future cash flows associated with a financing obligation or future liabilities (a "cash flow" hedge). The Company believes that, prior to November 24, 2004, the documentation of its cash flow hedge accounting relationships and the assessment of hedge effectiveness was inadequate as required by the applicable accounting standards contained in SFAS No. 133. Any change in value associated with such cash flow hedge derivatives was previously recorded as an increase or decrease in OCI. The Company has made the determination that it was not appropriate to apply cash flow hedge accounting prior to November 24, 2004. As such, for all restated periods, the Company has now recorded in earnings all changes in the value of cash flow hedges. Effective November 24, 2004, the Company's documentation was deemed sufficient with respect to interest rate cap and swap agreements, and thus the Company has elected to apply cash flow hedge accounting for these derivatives.

A summary of the impact of the restatements on net earnings follows (Dollars in thousands):

				2003				2002
Net income, as previously reported				$	17,769			$	7,426
Restatement for derivative financial instruments and cessation of fair value and cash flow hedge accounting, net of tax effect					6,506				(6,568	)
Net income, as restated				$	24,275			$	858

The aforementioned restatement adjustments have been tax affected to the extent attributable to activities of the taxable REIT subsidiary. Note 1. "Stock Compensation," Note 4. "Mortgage Loans Held For Sale," Note 5. "Derivatives And Hedging Activities," Note 10. "Income Taxes," Note 11. "Earnings Per Share," Note 14. "Summarized Quarterly Results" and Note 15. "Minimum Net Worth Requirement" have been amended for the impact of the aforementioned restatements. The following tables present the accounts on the consolidated balance sheet as of December 31, 2003 and the consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2003 and 2002 that were affected by the restatement and the reclassification of hedging instruments that were previously included in mortgage loans held for sale to separate hedging asset and liability accounts. (Dollars in thousands, except per share data):

F-17

---

				As of December 31, 2003
				As restated				As reported
Consolidated Balance Sheet
Mortgages loans held for sale				$	324,753			$	322,012
Hedging instruments					343				—
Prepaids and other current assets					5,538				5,481
Total assets					383,121				379,980
Hedging instruments					3,202				—
Total liabilities					336,022				332,820
Accumulated deficit					(19,418	)			(19,357	)
Total stockholders' equity					(15,458	)			(15,397	)
Total liabilities and stockholders' equity					383,121				379,980

				2003								2002
				As restated				As reported				As restated				As reported
Consolidated Statements of Operations
Gain on sale of mortgage loans				$	87,215			$	80,764			$	35,145			$	41,713
Total revenues					161,945				155,494				93,516				100,084
Income before income taxes					28,074				21,623				1,110				7,678
Income taxes					3,799				3,854				252				252
Net income					24,275				17,769				858				7,426
Net income (loss) attributable to common stockholders					17,976				11,470				(4,899	)			1,669
Per share data:
Basic					34.71				22.15				(9.53	)			3.25
Diluted					5.23				3.83				(9.53	)			0.82

				2003								2002
				As restated				As reported				As restated				As reported
Consolidated Statements of Cash Flows
Net income				$	24,275			$	17,769			$	858			$	7,426
Realized and unrealized (loss) gain on hedging instruments					(2,239	)			—				6,720				—
(Increase) decrease in mortgage loans held for sale					109,505				113,717				68,265				68,417
(Increase) in prepaids and other assets					(1,285	)			(1,230	)			(2,396	)			(2,396	)

NOTE 2—GOODWILL

In connection with the purchase of IPI, MortgageIT was obligated to pay to the sellers, who are currently officers of the Company, additional consideration equal to 50% of the IPI earnings reported in fiscal 2003 and 2002. Accordingly, the Company has recorded as goodwill additional consideration of $3,414,817 and $2,401,945, based on IPI's earnings for 2003 and 2002, respectively.

The Company has identified IPI as a reporting unit. In connection with the impairment test, the fair value of this reporting unit was compared with its carrying amount including goodwill. The annual impairment test indicated that the fair value of the reporting unit exceeded the reporting unit's carrying amount; accordingly, there was no impairment identified. The Company has noted no subsequent indicators that would require testing of goodwill for impairment.

F-18

---

NOTE 3—PORTFOLIO ARM LOANS

The following table presents the Company's Portfolio ARM Loans as of December 31, 2004, which is the first reporting year that the Company has carried Portfolio ARM Loans held to maturity on its balance sheet (Dollars in thousands):

December 31, 2004				ARM loans collateralizing debt obligations				ARM loans held for securitization				Total
Principal balance outstanding				$	1,418,323			$	1,157,188			$	2,575,511
Net unamortized loan origination costs and fees					14,866				9,950				24,816
Loan loss reserves					(497	)			(177	)			(674	)
Amortized cost, net					1,432,692				1,166,961				2,599,653
Gross unrealized gains					1,842				863				2,705
Fair value				$	1,434,534			$	1,167,824			$	2,602,358
Carrying value				$	1,432,692			$	1,166,961			$	2,599,653

Since the completion of the Company's initial public offering, the primary focus of its business has been to build a leveraged portfolio of single-family residential mortgage loans comprised largely of prime Traditional and Hybrid ARM loans. The Company's portfolio of ARM loans is 100% self-originated through the loan production channels of its TRS. The loans that the Company retains in its portfolio are serviced through a subservicing arrangement. The TRS sells all of its fixed rate loan production to third parties, as well as any ARM loans that the Company does not retain in its portfolio.

The Company does not account for mortgage-backed securities placed with third party investors as sales and, therefore, does not record any gain or loss in connection with securitization transactions. Instead, the Company accounts for the mortgage-backed securities it sells as a long-term collateralized financing. As of December 31, 2004, the Company held approximately $1.4 billion of ARM loans that collateralize the securities resulting from its securitization activities, and are classified on its balance sheet as ARM loans collateralizing debt obligations.

The Company has credit exposure on its ARM loan investment portfolio. During the three months ended December 31, 2004, the Company recorded loan loss provisions totaling $674,000 to reserve for estimated future credit losses on Portfolio ARM Loans, and there were no credit losses charged against the allowance for losses during the period.

The following table summarizes Portfolio ARM Loan delinquency information as of December 31, 2004, which represents the first reporting date that the Company has carried ARM loans held to maturity on its balance sheet (Dollars in thousands):

December 31, 2004

Delinquency Status				Loan Count				Loan Balance				Percent of Portfolio ARM Loans				Percent of Total Assets
60 to 89 days					6			$	1,619				0.06	%			0.05	%
90 days or more					1				560				0.02				0.01
In bankruptcy and foreclosure					—				—				—				—
					7			$	2,179				0.08	%			0.06	%

As of December 31, 2004, the Company had aggregate IRLCs to fund ARM loans held for securitization of $454.1 million.

F-19

---

NOTE 4—MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale consist of the following components (Dollars in thousands):

				December 31, 2004				December 31, 2003
								(As restated)
Mortgage loans held for sale				$	774,656			$	323,316
Deferred origination costs and fees					9,936				1,437
Carrying amount of mortgage loans held for sale				$	784,592			$	324,753

Mortgage loans are residential mortgages on properties located throughout the United States having maturities of up to 30 years, and include ARM loans that are not Portfolio ARM Loans. Pursuant to the terms of the mortgage loans, the borrowers have pledged the underlying real estate as collateral for the loans. It is the Company's practice to sell to third party investors any loans that do not constitute Portfolio ARM Loans shortly after they are funded, generally within 30 days.

As of December 31, 2004 and 2003, the Company had loan purchase commitments from third party investors for approximately $384.5 million and $91.7 million, respectively. Substantially all loans held for sale at December 31, 2004 and 2003 were subsequently sold to third party investors. All mortgage loans held for sale are pledged as collateral for warehouse lines payable (See Note 6).

As of December 31, 2004, the Company had aggregate locked pipeline commitments to fund mortgage loans held for sale of $638.3 million.

NOTE 5—DERIVATIVES AND HEDGING ACTIVITIES

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

	•	Fair value hedges, which are intended to manage the risks associated with potential changes in the fair value of loans held for sale; and

	•	Cash flow hedges, which are intended to manage the risks associated with potential changes in the Company's financing costs.

In connection with its mortgage loan origination activities, MortgageIT issues IRLCs to loan applicants and financial intermediaries. The IRLCs guarantee the loan terms, subject to credit approval, for a specified period while the application is in process, typically between 15 and 60 days. MortgageIT's risk management objective is to protect earnings from an unexpected change in the fair value of IRLCs by economically hedging the estimated closed loan volume from the IRLC pipeline. MortgageIT's pipeline hedging strategy primarily utilizes forward delivery contracts on mortgage-backed securities ("TBA Securities") to protect the value of its IRLCs. The TBA Securities, options on TBA Securities, forward sales commitments and IRLCs relating to mortgage loans held for sale, are free-standing derivative instruments and have been classified as such by the Company. Accordingly, these derivatives have been recorded at fair value with changes in fair value reflected in gain on sale of loans.

At December 31, 2004 and December 31, 2003, the notional amount of the Company's IRLCs relating to mortgage loans held for sale, was approximately $414.9 million and $294.3 million, respectively. The fair value of the IRLCs at December 31, 2004 and December 31, 2003 reflected a loss of approximately $384,000 and $1.2 million, respectively.

At December 31, 2004 and December 31, 2003 the notional amount of TBA Securities and options on TBA Securities outstanding was approximately $610.0 million and $495.0 million with a fair value loss of approximately $743,000 and $1.8 million, respectively.

At December 31, 2004 and December 31, 2003, the notional amount of the Company's forward sales commitments from third party investors was approximately $399.4 million and $96.9 million with a fair value gain of approximately $236,000 and $215,000, respectively.

F-20

---

Fair Value Hedges

The Company is exposed to interest rate risk in conjunction with the sale of mortgage loans. The Company manages the risk of interest rate changes associated with its loans held for sale through use of TBA Securities, options on TBA securities and forward sale commitments. These derivative instruments are designed to hedge potential changes in the value of loans held for sale. The Company's risk management policy is to hedge 100% of it's prime first mortgage loans held for sale.

The fair value adjustments for IRLCs, TBA Securities, options and forward sales commitments are included in gain on sale mortgage of loans.

Unallocated Loans

Unallocated loans represent hedged loans held for sale that have not yet been allocated to a forward sales contract. At December 31, 2004 only, derivative instruments related to the Company's unallocated loans held for sale were classified and accounted for as fair value hedges. These derivatives, and the related hedged loans held for sale, are carried at fair value with the changes in fair value recorded in earnings. For all previous periods presented, derivative instruments relating to the Company's unallocated loans were classified and accounted for as free-standing derivatives. These derivatives are carried at fair value with the changes in fair value recorded in earnings, and the related unallocated hedged loans held for sale are carried at the lower-of-cost-or-market.

Allocated Loans

Allocated loans represent hedged loans held for sale that have been allocated to a forward sales contract. At December 31, 2004, and for all prior periods presented, the forward sales contracts related to the Company's allocated loans held for sale, were classified and accounted for as free-standing derivatives. These derivatives are carried at fair value with the changes in fair value recorded in earnings. The related allocated loans held for sale are carried at the lower-of-cost-or-market.

Cash Flow Hedges

The Company primarily utilizes Eurodollar futures, interest rate cap agreements ("Cap Agreements") and interest rate swap agreements ("Swap Agreements") in order to manage potential changes in future LIBOR-based financing costs. The Company generally borrows funds based on short-term LIBOR-based interest rates to finance its Portfolio ARM Loans. However its Portfolio ARM Loans have an initial fixed interest rate period up to five years. As a result, the Company's existing and forecasted borrowings reprice to a new rate on a more frequent basis than does its Portfolio ARM Loans. Therefore, the purpose of these hedges is to better match the average repricing of the variable rate debt with the average repricing of the Portfolio ARM Loans.

All changes in the fair value of Cap Agreements and Swap Agreements for the period from November 24, 2004 through December 31, 2004 are recorded in accumulated other comprehensive income ("OCI") on the consolidated balance sheets and will be recognized as interest expense when the forecasted financing transactions occur. If it becomes probable that the forecasted transaction, which is the future interest payments on the Company's collateralized debt obligations, will not occur as specified at the inception of the hedging relationship, then the related gain or loss in OCI would be reclassified out of OCI and recognized in interest expense. The carrying value of these derivative instruments is included in hedging instruments on the accompanying consolidated balance sheets.

The Company purchases Cap Agreements by incurring a one-time fee or premium. Pursuant to the terms of the Cap Agreements, the Company will receive cash payments if the interest rate index specified in the Cap Agreements increases above contractually specified levels. Therefore, such Cap Agreements have the effect of capping the interest rate on a portion of the Company's borrowings above a level specified by the Cap Agreement. The notional balances of the Caps generally decline over the life of these instruments approximating the declining balance of the Company's collateralized debt obligations.

F-21

---

Under the Company's existing Cap Agreements, the Company will receive cash payments should one-month LIBOR increase above the contract rates of the Caps, which range from 2.5% to 5.00%. The Cap Agreements had an average maturity of 3.8 years as of December 31, 2004 and will expire between July 2007 and November 2009.

The Company enters into Swap Agreements to fix the interest rate on a portion of the Company's borrowings as specified in the Swap Agreement. When the Company enters into a Swap Agreement, it agrees to pay a fixed interest rate as specificed in the agreement, typically based on LIBOR. Swap Agreements have the effect of converting the Company's variable-rate debt into fixed-rate debt over the life of the Swap Agreements.

Both Cap and Swap Agreements represent a means to lengthen the average repricing period of the Company's variable-rate collateralized debt obligations such that the average repricing duration of the borrowings more closely matches the average repricing duration of the Company's Portfolio ARM Loans.

The Company uses Eurodollar futures to hedge both forecasted and recognized LIBOR-based borrowings. When LIBOR-based interest rates change, the change in the value of Eurodollar futures can be expected to approximately offset the change in the value of the hedged LIBOR-based funding costs. The Company classifies and accounts for Eurodollar futures as free-standing derivatives. Accordingly, all realized net losses aggregating approximately $7.5 million have been recognized and included in realized loss on hedging instruments for the year ended December 31, 2004.

The following table presents notional amount, carrying amount and unrealized gains and (losses) recorded in OCI for the Company's cash flow hedges at December 31, 2004. The Company did not own any cash flow derivitive instruments at December 31, 2003. The carrying amount of the cash flow derivative instruments is included in hedging instruments in the accompanying balance sheet.

				December 31, 2004
				Notional Amount				Carrying Amount				Unrealized Gain (Loss)
				(Dollars in thousands)
Eurodollar futures contracts				$	3,136,250			$	710			$	—
Cap agreements					2,310,392				18,280				(574	)
Swap agreements					186,328				283				187
Total cash flow hedges				$	5,632,970			$	19,273			$	(387	)

NOTE 6—BORROWINGS

Collateralized Debt Obligations

On September 30, 2004, $811.2 million of ARM loans from the Company's investment loan portfolio were transferred to MortgageIT Trust 2004-1 and were securitized. On November 24, 2004, $635.3 million of ARM loans from the Company's investment loan portfolio were transferred to MortgageIT Trust 2004-2 and were securitized. In these transactions, the Company issued AAA/AA-rated floating-rate pass-through certificates totaling $1.4 billion to third party investors and retained $79.8 million of subordinated certificates, which provide credit support to the higher-rated certificates that were placed with third party investors. All of the securities retained by the Company were rated investment grade. The interest rates on the floating-rate pass-through certificates reset monthly and are indexed to one-month LIBOR. In connection with the issuance of these mortgage-backed securities which are also refered to as collateralized debt obligations, the Company incurred costs of $4.2 million. These costs are being amortized over the expected life of the securities using the level yield method. These transactions were accounted for as a financing of loans and represents permanent financing that is not subject to margin calls. The Company's collateralized debt obligations are issued by trusts and are secured by ARM loans deposited into the trust. For financial reporting and tax purposes, the trusts' ARM loans held as collateral are recorded as assets of the Company and the

F-22

---

issued mortgage-backed securities recorded as collateralized debt obligations. As of December 31, 2004, collateralized debt of $1.3 billion, net of debt issuance costs, is classified as collateralized debt obligations, net on the accompanying consolidated balance sheets.

As of December 31, 2004, the mortgage-backed securities were collateralized by ARM loans with a principal balance of $1.4 billion. The debt matures between 2033 and 2044 and is callable by the Company at par anytime after the total balance of the loans collateralizing the debt is amortized down to 20% of the original unpaid balance. The balance of this debt is reduced as the underlying loan collateral is paid down by borrowers and is expected to have an average life of approximately four years.

Repurchase Agreements

The Company had outstanding $67.7 million of repurchase agreements with a weighted average borrowing rate of approximately 2.2% and a weighted average remaining maturity of 144 days as of December 31, 2004. The Company did not have any repurchase agreements outstanding as of December 31, 2003.

Warehouse Lines Payable

The Company has various warehouse credit facilities with major lenders that are used to fund mortgage loans. As of December 31, 2004, the first facility (the "UBS Warehouse Facility"), with UBS Real Estate Securities, Inc. ("UBS"), had an uncommitted credit limit of $1.25 billion, which includes a mortgage loan sale conduit facility. This credit facility may be terminated at the discretion of the lender. The facility provides for temporary increases in the line amount on an as-requested basis. Under the line, outstanding advances are secured by the specific mortgage loans funded, and bear interest at LIBOR plus a spread based on the types of loans being funded. Interest is payable at the time the outstanding principal amount of the advance is due, generally within 30 days. All advances under this agreement are evidenced by a note, which is secured by all of the loans funded through this facility. As of December 31, 2004 and 2003, the Company had outstanding on the line $798.8 million and $164.2 million, respectively. Under the conduit facility, the Company sells mortgage loans to UBS at a price equal to the committed purchase price from a third party investor, and records the transaction as a sale in accordance with SFAS No. 140. UBS, in turn, sells the loan to a third party investor. The Company facilitates the sale to the third party investor on behalf of UBS and receives a performance fee that varies depending on the time required by UBS to complete the transfer of the loans to the third party investor. The performance fee of $7.9 million and $9.9 million for the years ended December 31, 2004 and 2003, respectively, is included in brokerage revenue on the statement of operations. Loans on the conduit line, which totaled approximately $435.1 million and $190.1 million at December 31, 2004 and 2003, respectively, reduce availability under the facility until they are transferred to the third party investor by UBS. The mortgage loans sold to UBS are subject to repurchase under certain limited conditions, primarily if UBS determines that a mortgage loan was not properly underwritten. This credit facility expires in August 2005.

The second facility, with Merrill Lynch Mortgage Capital, Inc. ("Merrill Lynch") has a partially committed credit limit of $1.0 billion collateralized by the specific mortgage loans funded, and bears interest at LIBOR plus a spread based on the types of loans being funded. As of December 31, 2004 and 2003, the Company had $906.3 million and $79.6 million, respectively, outstanding on this facility. This credit facility expires in August 2005.

The third facility, with Residential Funding Corporation ("RFC"), has a committed credit limit of $400 million collateralized by the specific mortgage loans funded, and bears interest at LIBOR plus a spread based on the types of loans being funded. As of December 31, 2004 and 2003, the Company had outstanding approximately $164.3 million and $56.9 million, respectively, on this facility. This credit facility expires in April 2005.

The weighted average effective rate of interest for borrowings under all warehouse lines of credit was approximately 2.6% and 3.0% for the years ended December 31, 2004 and 2003, respectively.

F-23

---

All mortgage loans held for sale have been pledged as collateral under the warehouse credit facilities described above. In addition, two of the facilities contain various financial covenants and restrictions, including a requirement that the Company maintain specified leverage ratios and net worth amounts. As of December 31, 2004, the Company was not in compliance with the net income covenant in the UBS facility, as well as certain other covenants contained in certain of its credit facilities. Waivers from the lenders with respect to these covenant violations have been obtained.

Maturities of borrowings are as follows at December 31, 2004 (Dollars in thousands):

				Payments due by Period
				(Dollars in thousands)
				Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Collateralized debt obligations (1)(2)				$	1,331,986			$	26,621			$	9,836			$	15,480			$	1,280,049
Warehouse lines payable					1,869,385				1,869,385				—				—				—
Repurchase agreements					67,674				67,674				—				—				—

(1)	Excluding debt issuance costs.

(2)	Maturities of our collateralized debt obligations are dependent upon cash flows received from underlying loans receivable. Our estimate of their repayment is based on scheduled principal payments on the underlying loans receivable. This estimate will differ from actual amounts to the extent we experience pre-payments and/or loan losses.

Special-Purpose Warehouse Finance Subsidiary

The Company's UBS Warehouse Facility, described above under "—Warehouse Lines Payable," is administered by an agent on behalf of an institutionally managed medium term note conduit. Under the funding agreements governing the UBS Warehouse Facility, the Company transfers finance receivables to MortgageIT SPV I, a Delaware statutory trust (the "Trust") that has been established by the Company as a special purpose warehouse finance subsidiary of the Company. The Trust, in turn, issues notes (the "Notes") to the agent, collateralized by such finance receivables and cash. These transactions are treated as secured financing arrangements for financial reporting purposes. The agent provides funding under the Notes to the Trust pursuant to an advance formula, and the Trust forwards the funds to the Company in consideration for the transfer of finance receivables. Advances under the funding agreements bear interest at LIBOR plus specified fees depending upon the source of funds provided by the agent. The Company is required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the facility. Additionally, the funding agreements contain various covenants requiring certain minimum financial ratios, asset quality, and portfolio performance ratios (cumulative net loss, delinquency and repossession ratios) as well as deferment levels. Failure to meet any of these covenants, financial ratios or financial tests could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements or restrict the Company's ability to obtain additional borrowings under these agreements.

In addition, under the legal agreements that document the issuance and sale of the Notes:

•	all assets which are from time to time owned by the Trust are legally owned by the Trust and not by the Company.

•	the Trust is a legal entity separate and distinct from the Company and all other affiliates of the Company.

•	the assets of the Trust are legally assets only of the Trust, and are not legally available to the Company and all other affiliates of the Company or their respective creditors, for pledge to other creditors or to satisfy the claims of other creditors.

•	none of the Company or any other affiliate of the Company is legally liable on the debts of the Trust, except for an amount limited to 10% of the greater of (i) the total principal amount of Notes then outstanding under the Note Purchase Agreement plus the aggregate outstanding

F-24

---

	principal of all Mortgage Loans sold under the Loan Repurchase Agreement and the Loan Sale Agreement and (ii) the Facility Limit.

•	assets of the Company which result from the issuance and sale of the Notes are:

	1)	any cash portion of the purchase price paid from time to time by the Trust in consideration of Mortgage Loans sold to the Trust by the Company; and

	2)	the value of the Company's net equity investment in the Trust.

•	As of December 31, 2004, the Trust had the following assets (in thousands):

	a)	whole loans: $801,933 and

	b)	cash and cash equivalents: $57,266.

•	As of December 31, 2004, the Trust had the following liabilities and equity:

	a)	short-term debt due to UBS: $798,772; and

	b)	$60,427 in members' equity investment.

As of December 31, 2004, the Company included in its consolidated financial statements the assets, liabilities and operations of the Trust pursuant to FIN 46R.

NOTE 7—NOTES PAYABLE AND OTHER DEBT (Dollars in thousands):

				December 31, 2004				December 31, 2003
Unsecured Promissory Notes (a)				$	—			$	1,125
Senior Secured Notes (b)					15,000				—
				$	15,000			$	1,125

(a)	Promissory note issued in connection with the IPI acquisition, which was paid in January 2004.

(b)

Senior Secured Notes due 2007 with an aggregate principal amount of $15 million were issued in March 2004. The Notes bear interest at a rate of 10% per annum, payable in quarterly installments beginning June 30, 2004. The notes are secured by a first priority security interest in all of MortgageIT's assets with the exception of its mortgage loans held for sale and ARM loans held for securitization. The Notes contain various restrictions and covenants. As of December 31,2004, MortgageIT was in compliance with all of the restrictions and covenants contained in the Note Purchase Agreement, except the warehouse line ratio for which a waiver has been obtained. In November 2004, MortgageIT's board of directors approved an amendment that reduces the interest rate on the outstanding principal balance of each Note from 10% per annum to 7 1/2% per annum for the period beginning October 1, 2004 and ending March 31, 2005. In addition, the amendment prohibits MortgageIT from prepaying the Notes prior to April 14, 2005.

NOTE 8—STOCKHOLDERS EQUITY

ISSUANCE OF COMMON STOCK

On August 4, 2004, the reorganization of MortgageIT was consummated. In the reorganization, MortgageIT became a wholly owned subsidiary of its holding company parent, Holdings, which is organized and conducts its operations to qualify as a REIT for U.S. federal income tax purposes. Concurrently with the reorganization, Holdings conducted an initial public offering of its common stock, whereby it issued 14.6 million shares at a price to the public of $12.00 per share. Net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses, approximated $163.4 million. Concurrently with the closing of the initial public offering, on August 4, 2004, holders of 6,764,338 shares of common stock and 14,859,659 shares of preferred stock of MortgageIT exchanged their shares for 4,804,473 shares of common stock of Holdings. In addition,

F-25

---

holders of 160,241 shares of common stock and 223,314 shares of preferred stock of MortgageIT, who either did not submit a vote in connection with the reorganization or who did not certify that they were accredited investors pursuant to applicable securities laws, exchanged their shares for cash payments totaling $2,179,843.

CONVERTIBLE REDEEMABLE PREFERRED STOCK

On August 4, 2004, holders of MortgageIT Convertible Redeemable Preferred Stock exchanged their shares for shares of common stock of Holdings or cash. Prior to the exchange, MortgageIT was authorized to issue 22,000,000 shares of convertible preferred stock, par value $.01 per share, of which 6,250,000 had been designated and issued as Series A Convertible Preferred Stock, 7,000,000 had been designated and 4,401,170 issued as Series B Convertible Preferred Stock, and 6,500,000 had been designated and 4,431,803 issued as Series C Convertible Preferred Stock. MortgageIT's Board of Directors was authorized to fix the rights and preferences of the 2,250,000 shares of undesignated preferred stock as necessary without further stockholder approval.

The Series A Convertible Redeemable Preferred Stock was held by private investors and was convertible at the option of the holder into shares of Class A Common Stock at a conversion rate of $1.00 per share, subject to adjustment. Annual dividends on each share were cumulative and payable quarterly at the discretion of MortgageIT's Board of Directors at the rate of 8% per annum on the liquidation value of $1.00 per share.

The Series B Convertible Redeemable Preferred Stock was held by private investors and was convertible at the option of the holder into shares of Class A Common Stock at a conversion rate of $5.6821 per share. This price reflected adjustments for the dilutive effect of the issuance of Series C Convertible Preferred stock during 2001. Annual dividends on each share were cumulative and payable quarterly at the discretion of MortgageIT's Board of Directors at the greater of 10% of the liquidation value of $6.4151 per share, compounded quarterly, or the amount of dividends paid on each share of Class A Common Stock.

The Series C Convertible Preferred Stock was held by private investors and was convertible at the option of the holder into shares of Class A Common Stock at a conversion rate of $2.4246 per share. Annual dividends on each share were cumulative and payable quarterly at the discretion of MortgageIT's Board of Directors at the greater of 10% of the original issue price of the Series C Convertible Preferred stock of $2.4246 per share, compounded quarterly, or the amount of dividends paid on each share of Common Stock.

No dividends were declared or paid during 2002 or 2003 on any series of preferred stock. Included in Convertible Redeemable Preferred Stock at December 31, 2002 was approximately $18,019,000 of undeclared and unpaid dividends on the Series A, B and C shares.

Restricted Stock — 1999 Equity Incentive Stock Compensation Plan

MortgageIT had reserved 116,000 shares of Class B Common Stock to issue to certain employees pursuant to its 1999 Equity Incentive Stock Compensation Plan ("1999 Plan"). In 2003, MortgageIT terminated the 1999 Plan and made no further awards under it. In August 2004, as a result of the reorganization of MortgageIT and Holdings' initial public offering, all 59,000 shares of Class B Common Stock issued and outstanding under the 1999 Plan were exchanged for shares of Holdings common stock.

In addition, in August 2004, the Company adopted the MortgageIT Holdings, Inc. 2004 Long-Term Incentive Plan (See below in this Note 8).

Stock Options — 2001 Stock Option Plan

In 2001, MortgageIT established the 2001 Stock Option Plan ("2001 Plan"). The 2001 Plan provided for the granting of stock options to employees, directors and consultants of MortgageIT to purchase up to 776,000 shares of Class B Common Stock. The exercise price of the options was not to be less

F-26

---

than the fair market value on the date of grant with a maximum term of ten years, or in the case of 10% stockholders, at 110% of the fair market value on the date of grant with a maximum term of five years. MortgageIT awarded options to purchase 241,000 shares during 2004 and 256,000 shares for the year ended December 31, 2003, all of which had a ten-year life and vested at the rate of one-third each year on the first three anniversaries of the respective grant date. The 2001 Plan terminated in August 2004.

In August 2004, options to purchase 45,000 shares of common stock were exercised at an exercise price of $4.96 per share. Proceeds to MortgageIT approximated $224,000. As a result of the reorganization of MortgageIT and Holdings' initial public offering, options to purchase 56,000 shares of common stock were exchanged for approximately $390,000 and options to purchase 535,000 shares were cancelled.

2004 Long-Term Incentive Plan

In August 2004, the Company adopted the MortgageIT Holdings, Inc. 2004 Long-Term Incentive Plan (the "2004 Plan"). A total of 1,725,000 shares of common stock have been reserved for issuance under the 2004 Plan, which terminates in 2014. The 2004 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock. In connection with the initial public offering, the Company granted options to purchase 1,062,775 shares of common stock at an exercise price of $12.00 per share and an aggregate of 216,577 shares of restricted stock. Subsequent to the offering, the Company granted options to purchase an additional 39,754 shares of common stock at an average exercise price of $15.12 per share and an additional 244,000 shares of restricted stock. The options and restricted stock will vest over a three-year period.

Activity for each of the plans is summarized as follows: (Shares in thousands)

				2004 Plan								2001 Plan
				Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price
Options outstanding, January 1, 2002					—			$	—				58			$	4.96
Granted					—				—				138				9.28
Exercised					—				—				—				—
Forfeited					—				—				(23	)			4.96
Options outstanding, December 31, 2002					—			$	—				173			$	8.44
Options outstanding, January 1, 2003					—				—				173			$	8.44
Granted					—				—				256				13.91
Exercised					—				—				(1	)			4.96
Forfeited					—				—				(24	)			12.37
Options outstanding, December 31, 2003					—			$	—				404			$	11.66
Options outstanding, January 1, 2004					—			$	—				404			$	11.66
Granted					1,102				12.11				241				13.91
Exercised					—				—				(45	)			4.96
Repurchased					—				—				(56	)			4.96
Cancelled					—				—				(535	)			13.91
Forfeited					(10	)			12.00				(9	)			13.91
Options outstanding, December 31, 2004					1,092			$	12.11				—			$	—

There were approximately 172,000 shares available for future grant under the 2004 plan at December 31, 2004.

The following table summarizes information pertaining to outstanding options at December 31, 2004 (Shares in thousands):

F-27

---

Range of Exercise Prices				Number Outstanding				Average Remaining Contractual Life				Number Exercisable
$12.00					1,052			9.6 years					—
$13.10 - $17.95					40			9.8 years					—

The weighted average fair value of options issued under the 2004 Plan, for the year ended December 31, 2004, under the Black-Scholes option-pricing model, was $1.07 per option.

The weighted average fair value of options issued under the 2001 Plan, for the years ended December 31, 2004, 2003, and 2002, under the minimum value method, was $3.61 per option, $3.35 per option, and $2.83 per option, respectively.

NOTE 9—COMMITMENTS AND CONTINGENCIES

Leases

The Company has entered into operating leases for commercial real estate and office equipment expiring at various dates through May 2011. At December 31, 2004, the Company's marketable securities were pledged to collateralize its main office lease. Rent expense is being recognized on a straight-line basis to account for rent concessions and escalations during the lease term, resulting in deferred rent of $1,337,000 and $1,167,000 at December 31, 2004 and 2003, respectively.

Future minimum lease payments under the Company's operating leases are as follows (Dollars in thousands):

Year ending December 31,
2005				$	7,572
2006					6,827
2007					6,153
2008					5,075
2009					3,452
Thereafter					1,727
Total minimum lease payments				$	30,806

Operating lease payments in the above table are exclusive of real estate taxes and other operating expenditures and have been reduced by future minimum sublease rental payments. Total rent expense is reflected net of sublease income of approximately $200,000, $213,000 and $205,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Litigation

On September 29, 2004, and amended on October 12, 2004, an action was filed in the U.S. District Court for the Southern District of New York against our subsidiary, MortgageIT and IPI Skyscraper Mortgage which was, at the time, a subsidiary of, and has now been merged with and into, MortgageIT. The case was filed by four former loan officers of a MortgageIT branch in Newburgh, New York, and seeks to recover allegedly unpaid minimum wage and overtime under both federal and New York labor laws. The case was filed as a putative class action; a motion for certification of a class under New York law and for collective action under federal law was filed on March 11, 2005. We are vigorously asserting our defenses in this action.

In addition to this case, the Company is a defendant in various legal proceedings involving matters generally incidental to its business. Although it is difficult to predict the outcome of these proceedings, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the Company's consolidated financial position or results of operations.

F-28

---

Defined Contribution Plan

The Company maintains 401(k) retirement plans that cover all qualified employees. The plans match employee contributions up to 2% of the participant's salary. For the years ended December 31, 2004, 2003 and 2002, the Company recognized expense of $514,000, $589,000 and $408,000, respectively, related to the plans.

The Company maintained a deferred compensation plan that covered certain employees of the Company. Based on the terms of the plan, a portion of the annual incentive award was recorded as deferred compensation and is payable in cash over the applicable vesting period. At December 31, 2004 and 2003, respectively, approximately $1,302,000 and $2,128,000 of deferred compensation was included in prepaids and other current assets, and is being amortized to compensation expense over the applicable vesting period. Amounts payable under this plan at December 31, 2004 and 2003, including both current and deferred awards payable, were approximately $2,143,000 and $2,510,000, respectively, and are included in accrued expenses.

The Company terminated the deferred compensation plan effective December 31, 2004. One-third of the balance of participating employees' deferred compensation accounts as of December 31, 2004 will be distributed in cash on or before January 15, 2005, and the remainder of the principal amount in the accounts will earn 5% simple interest and will be paid in equal parts to these employees on March 15, 2005, June 15, 2005, September 15, 2005 and December 15, 2005. The aforementioned payments are due to participants, provided they are employees on the related distribution dates.

NOTE 10—INCOME TAXES

The provision for income taxes is as follows (Dollars in thousands):

				Year Ended December 31,
				2004				2003				2002
								(As restated)				(As restated)
Current:
Federal				$	912			$	2,764			$	—
State					696				1,832				252
					1,608				4,596				252
Deferred:
Federal					295				(591	)			—
State					(286	)			(206	)			—
					9				(797	)			—
Provision for Income Taxes				$	1,617			$	3,799			$	252

The difference between the U.S. federal tax rate and the Company's effective tax rate in 2004 and 2003 is due primarily to changes in the estimated state tax rates and non-deductible expenses. The difference between the U.S. federal tax rate and the Company's effective tax rate in 2003 and 2002 is due primarily to utilitization of net operating loss carryforwards, changes in the valuation allowance related to the net deferred tax asset, and changes in state tax rates in 2003, offset by certain nondeductible expenses. The effective income tax rate differed from the Federal statutory rate as follows (Dollars in thousands):

F-29

---

				Year Ended December 31,
												(As restated)								(As restated)
				2004								2003								2002
				Amount				%				Amount				%				Amount				%
Federal income tax provision at statutory rate				$	(2,322	)			(34.0	)		$	9,545				34.0			$	377				34.0
Tax effect of non-taxable REIT Income					(2,108	)			(30.9	)			—				—				—				—
Tax on TRS income eliminated in consolidation					5,647				82.7				—				—				—				—
State income taxes, net of Federal benefit					191				2.8				3,335				11.9				319				28.7
Decrease in valuation allowance					—				—				(7,940	)			(28.3	)			(504	)			(45.5	)
Change in estimated state tax rates					114				1.7				(1,167	)			(4.2	)			—				—
Other—net					95				1.4				26				0.1				60				5.4
				$	1,617				23.7	%		$	3,799				13.5	%		$	252				22.6	%

The major sources of temporary income tax differences and the related deferred tax effect are as follows (Dollars in thousands):

				2004				2003
								(As restated)
Deferred tax assets:
Reserves and allowances				$	2,631			$	2,167
Stock-based compensation					7				—
Mark to market — derivative instruments					940				54
Accrued expenses					900				535
Tax credit carry forward					244				—
Total deferred tax assets					4,722				2,756
Deferred tax liabilities:
Deferred charges					2,465				711
Property and equipment					750				665
Goodwill					719				583
Total deferred tax liabilities					3,934				1,959
Net deferred tax assets				$	788			$	797

The Company provided a valuation allowance against deferred tax assets at December 31, 2002 because, based on available information, the probability of utilizing its deferred tax assets did not meet the "more likely than not" test under SFAS No. 109. Due to profitable operations in 2003 and favorable operating trends, the valuation allowance was reversed at December 31, 2003. At December 31, 2003, the net deferred tax asset was included in prepaids and other current assets.

F-30

---

NOTE 11—EARNINGS PER SHARE

Basic and diluted income per share are calculated in accordance with SFAS No. 128, "Earnings Per Share." The basic and diluted income per common share for all periods presented were computed based on the weighted-average number of common shares outstanding, as follows (Dollars and shares in thousands, except per share data):

				Year ended December 31,
				2004				2003				2002
								(As restated)				(As restated)
Net (loss) income				$	(8,446	)		$	24,275			$	858
Dividends on convertible redeemable preferred stock:
Series A					426				686				633
Series B					2,397				3,800				3,442
Series C					822				1,302				1,180
Accretion of discount on preferred stock					302				511				502
Total dividends on preferred stock					3,947				6,299				5,757
Net income (loss) attributable to common stockholders				$	(12,393	)		$	17,976			$	(4,899	)
Basic earnings per share:
Net income (loss) attributable to common stockholders				$	(12,393	)		$	17,976			$	(4,899	)
Weighted average common stock outstanding for basic earnings per share					8,517				518				514
Basic earnings per share				$	(1.46	)		$	34.71			$	(9.53	)
Diluted earnings per share:
Net income (loss) attributable to common stockholders				$	(12,393	)		$	17,976			$	(4,899	)
Add preferred stock dividends					—				6,299				—
Net income (loss) for diluted earnings per share				$	(12,393	)		$	24,275			$	(4,899	)
Common stock outstanding for basic earnings per share computation					8,517				518				514
Assumed conversion of dilutive:
Convertible preferred stock					—				4,067				—
Stock options and unvested restricted stock					—				59				—
Weighted average common stock outstanding for diluted earnings per share (1)					8,517				4,644				514
Diluted earnings per share				$	(1.46	)		$	5.23			$	(9.53	)

(1)	Reflects, on a retroactive basis, for all periods presented, the exchange of approximately 12.80 shares of MortgageIT common stock for each share of Holdings common stock and the retention and retirement of common shares pursuant to the reorganization of MortgageIT.

F-31

---

Options, warrants and restricted stock aggregating 154,000, 428,000 and 173,000 were excluded from the computation for the years ended December 31, 2004, 2003 and 2002, respectively, as their effect would have been anti-dilutive. Potentially dilutive common equivalent shares amounting to 2,630,000 and 4,718,000 relating to the conversion of Series A, Series B and Series C preferred stock, restricted stock and options were excluded from the computation for the years ended December 31, 2004 and 2002, respectively, as their effect would have been anti-dilutive.

NOTE 12—STATEMENT OF CASH FLOWS

Supplemental disclosure of cash flow information (Dollars in thousands)

				Year ended December 31,
				2004				2003				2002
Cash paid during the year for:
Interest				$	23,779			$	14,051			$	10,403
Income taxes					6,007				1,870				244

NOTE 13—SEGMENT REPORTING

The Company operates its business in two primary segments, mortgage investment operations conducted in the REIT and mortgage banking operations conducted in the TRS. Mortgage investment operations are driven by the balance of Portfolio ARM Loans and the net interest income generated on those balances. Mortgage banking operations includes loan origination, underwriting, funding, brokering and secondary marketing. Following is a summary of the Company's segment operating results for the years ended December 31, 2004, 2003 and 2002 (Dollars in thousands).

Year ended December 31, 2004

				Mortgage Investment Operations (1)				Mortgage Banking Operations (2)				Eliminations				Total
Gain on sale of mortgage loans				$	—			$	82,386			$	(11,989	)		$	70,397
Brokerage revenues					—				36,283				—				36,283
Interest income					23,941				36,012				393				60,346
Interest expense					(13,004	)			(16,455	)			—				(29,459	)
Net interest income					10,937				19,557				393				30,887
Realized loss on hedging instruments					(1,701	)			—				(6,151	)			(7,852	)
Other					—				566				—				566
Total revenues					9,236				138,792				(17,747	)			130,281
Operating expenses					3,036				135,211				(1,137	)			137,110
Income (loss) before income tax					6,200				3,581				(16,610	)			(6,829	)
Income taxes					—				1,617				—				1,617
Net income (loss)				$	6,200			$	1,964			$	(16,610	)		$	(8,446	)
Segment assets				$	2,435,967			$	1,117,160			$	(16,167	)		$	3,536,960
Segment liabilities				$	1,067,873			$	2,244,302			$	33,118			$	3,345,293

(1)	Commenced operations on August 4, 2004. The Company operated in one segment, Mortgage Banking, prior to August 4, 2004.

(2)	Represents the consolidated results of operations for Mortgage IT, Inc.

F-32

---

Note 14—Summarized Quarterly Results (Unaudited)

The following is a presentation of the quarterly results of operations (Dollars and shares in thousands, except per share data):

				Year Ended December 31, 2004
				Fourth Quarter				Third Quarter				Third Quarter
								As restated				As reported
Gain on sale of mortgage loans				$	20,763			$	14,405			$	14,269
Brokerage revenues					6,739				8,955				8,955
Interest income					32,934				15,804				15,804
Interest expense					(17,533	)			(6,925	)			(6,925	)
Net interest income					15,401				8,879				8,879
Realized gain (loss) on hedging instruments					2,004				(9,856	)			—
Other					294				248				248
Operating expenses					(43,026	)			(34,838	)			(34,838	)
Income taxes					(413	)			242				(144	)
Dividends on preferred stock					—				(587	)			(587	)
Net income (loss) attributable to common stockholders				$	1,762			$	(12,552	)		$	(3,218	)
Basic				$	0.09			$	(0.93	)		$	(0.24	)
Diluted				$	0.09			$	(0.93	)		$	(0.24	)
Average number of common shares outstanding — Basic					19,405				13,451				13,451
Average number of common shares outstanding — Diluted					19,760				13,451				13,451
				Year Ended December 31, 2004
				Second Quarter				Second Quarter				First Quarter				First Quarter
				As restated				As reported				As restated				As reported
Gain on sale of mortgage loans				$	20,875			$	21,904			$	14,354			$	15,768
Brokerage revenues					11,844				11,844				8,745				8,745
Interest income					6,291				6,291				5,317				5,317
Interest expense					(2,455	)			(2,455	)			(2,546	)			(2,546	)
Net interest income					3,836				3,836				2,771				2,771
Other					17				17				7				7
Operating expenses					(32,875	)			(32,875	)			(26,371	)			(26,371	)
Income taxes					(1,669	)			(1,884	)			223				(375	)
Dividends on preferred stock					(1,699	)			(1,699	)			(1,661	)			(1,661	)
Net income (loss) attributable to common stockholders				$	329			$	1,143			$	(1,932	)		$	(1,116	)
Basic				$	0.64			$	2.21			$	(3.73	)		$	(2.16	)
Diluted				$	0.41			$	0.58			$	(3.73	)		$	(2.16	)
Average number of common shares outstanding — Basic					518				518				518				518
Average number of common shares outstanding — Diluted					4,917				4,917				518				518

F-33

---

				Year Ended December 31, 2003
				Fourth Quarter				Third Quarter				Third Quarter
								As restated				As reported
Gain on sale of mortgage loans				$	16,596			$	21,792			$	23,552
Brokerage revenues					14,212				18,013				18,013
Interest income					5,861				6,793				6,793
Interest expense					(3,313	)			(3,484	)			(3,484	)
Net interest income					2,548				3,309				3,309
Other					20				39				39
Operating expenses					(30,737	)			(36,873	)			(36,873	)
Income taxes					(357	)			(850	)			(2,016	)
Dividends on preferred stock					(1,640	)			(1,604	)			(1,604	)
Net income (loss) attributable to common stockholders				$	642			$	3,826			$	4,420
Basic				$	1.24			$	7.40			$	8.55
Diluted				$	0.48			$	1.17			$	1.30
Averge number of common shares outstanding — Basic					517				517				517
Average number of common shares outstanding — Diluted					4,734				4,645				4,645
				Year Ended December 31, 2003
				Second Quarter				Second Quarter				First Quarter				First Quarter
				As restated				As reported				As restated				As reported
Gain on sale of mortgage loans				$	26,784			$	25,396			$	22,043			$	16,862
Brokerage revenues					16,456				16,456				14,349				14,349
Interest income					6,325				6,325				5,345				5,345
Interest expense					(3,729	)			(3,729	)			(3,078	)			(3,078	)
Net interest income					2,596				2,596				2,267				2,267
Other					49				49				872				872
Operating expenses					(37,072	)			(37,072	)			(29,189	)			(29,189	)
Income taxes					(1,193	)			(1,847	)			(1,399	)			(937	)
Dividends on preferred stock					(1,552	)			(1,552	)			(1,503	)			(1,503	)
Net income (loss) attributable to common stockholders				$	6,068			$	4,026			$	7,440			$	2,721
Basic				$	11.74			$	7.79			$	14.39			$	5.26
Diluted				$	1.67			$	1.22			$	1.99			$	0.94
Average number of common shares outstanding — Basic					517				517				517				517
Average number of common shares outstanding — Diluted					4,559				4,559				4,498				4,498

NOTE 15—MINIMUM NET WORTH REQUIREMENT

MortgageIT is a HUD Title II Nonsupervised Delegated Mortgagee. As such, the MortgageIT is subject to certain minimum net worth requirements as established by HUD. As of December 31, 2004 and 2003, the Company's net worth (which, at December 31, 2003 includes preferred stock for HUD purposes) was $35,260,000 and $32,192,000, respectively, in excess of HUD's minimum net worth requirement of $1,000,000.

F-34

---

Pursuant to the requirements of Section 13 on 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

								MORTGAGEIT HOLDINGS, INC.
				By:				/s/ DOUG W. NAIDUS
								Name: Doug W. Naidus
								Title: Chairman and Chief Executive Officer
								Date: March 31, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name		Title		Date
/s/ DOUG W. NAIDUS		Chief Executive Officer (Principal Executive Officer)		March 31, 2005
Doug W. Naidus
/s/ GLENN J. MOURIDY		Chief Financial Officer (Principal Financial and Accounting Officer)		March 31, 2005
Glenn J. Mouridy
/s/ FRED A. ASSENHEIMER		Director		March 31, 2005
Fred A. Assenheimer
/s/ WILLIAM L. COLLINS		Director		March 31, 2005
William L. Collins
/s/ MICHAEL N. GARIN		Director		March 31, 2005
Michael N. Garin
/s/ MICHAEL J. MAROCCO		Director		March 31, 2005
Michael J. Marocco
/s/ NANCY McKINSTRY		Director		March 31, 2005
Nancy McKinstry
/s/ MARK C. PAPPAS		Director		March 31, 2005
Mark C. Pappas
/s/ TIMOTHY SCHANTZ		Director		March 31, 2005
Timothy Schantz

---