Repurchase Agreements

The Company had outstanding $83.5 million and $67.7 million of repurchase agreements with a weighted average borrowing rate of approximately 2.8% and 2.2% and a weighted average remaining maturity of 51 days and 144 days as of March 31, 2005 and December 31, 2004, respectively.

Warehouse Lines Payable

The Company has various warehouse credit facilities with major lenders that are used to fund mortgage loans. During the three months ended March 31, 2005, the Company negotiated two new credit facilities, which, when added to the Company's three existing credit facilities, brings to five the total number of facilities it may draw upon.

In March 2005, the Company entered into warehouse credit facility with Credit Suisse First Boston Mortgage Capital LLC ("CFSB") for a partially comitted credit limit of $400 million. 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. As of March 31, 2005, the Company had no outstanding borrowings on the line. This credit facility expires in February 2006.

In February 2005, the Company entered into warehouse credit facility with Greenwich Capital Financial Products Inc. ("Greenwich") for a comitted credit limit of $250 million. 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. As of March 31, 2005, the Company had $145.8 million outstanding on this facility.This credit facility expires in February 2006.

The Company maintains a credit facility (the "UBS Warehouse Facility"), with UBS Real Estate Securities, Inc. ("UBS"), which has 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 March 31, 2005 and December 31, 2004, the Company had outstanding on the line $634.0 million and $798.8 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 $1.1 million and $1.6 million for the three months ended March 31, 2005 and 2004, respectively, is included in brokerage revenue on the statement of operations. Loans on the conduit line, which totaled approximately $394.0 million and $435.1 million at March 31, 2005 and December 31, 2004, 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 Company maintains a credit facility with Merrill Lynch Mortgage Capital, Inc. ("Merrill Lynch"), which 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 March 31, 2005 and December 31, 2004, the Company had $907.0 million and $906.3 million, respectively, outstanding on this facility. This credit facility expires in August 2005.

The Company maintains a credit facility with Residential Funding Corporation ("RFC"), which 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 March 31, 2005 and December 31, 2004, the Company had outstanding approximately $318.8 million and $164.3 million, respectively, on this facility. This credit facility expires in April 2006.

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The weighted average effective rate of interest for borrowings under all warehouse lines of credit was approximately 3.3% and 2.6% for the three months ended March 31, 2005 and the year ended December 31, 2004, respectively.

All mortgage loans held for sale have been pledged as collateral under the warehouse credit facilities described above. In addition, the facilities contain various financial covenants and restrictions, including a requirement that the Company maintain specified leverage ratios and net worth amounts. As of March 31, 2005, the Company was not in compliance with certain covenants contained in certain of its credit facilities. Although waivers from the lenders with respect to these covenant violations have been obtained, no assurance can be made that the lenders will continue to waive future covenent violations, to the extent they occur.

Maturities of borrowings are as follows at March 31, 2005 (Dollars in thousands):

				Payments due by Period
				(unaudited))
				Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Collateralized debt obligations (1)(2)				$	2,236,303			$	46,703			$	16,908			$	26,783			$	2,145,909
Warehouse lines payable					2,005,546				2,005,546				—				—				—
Repurchase agreements					83,475				83,475				—				—				—

(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.

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•

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 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 March 31, 2005, the Trust had the following assets (in thousands):

a)	whole loans: $639,024 and

b)	cash and cash equivalents: $32,808.

•	As of March 31, 2005, the Trust had the following liabilities and equity (in thousands):

a)	short-term debt due to UBS: $633,954; and

b)	$37,878 in members' equity investment.

As of March 31, 2005, the Company included in its consolidated financial statements the assets, liabilities and operations of the Trust pursuant to FIN 46R.

NOTE 6—NOTES PAYABLE

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 March 31, 2005, 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. However, no assurance can be made that waivers will be granted in the future, to the extent such waivers are necessary. In November 2004, MortgageIT entered into an amendment that reduced the interest rate on the outstanding principal balance of each Note from 10% per annum to 7½% per annum for the period beginning October 1, 2004 and ending March 31, 2005. In addition, the amendment prohibited MortgageIT from prepaying the Notes prior to April 14, 2005.

NOTE 7—STOCKHOLDERS EQUITY

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 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, 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

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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. During the three months ended March 31, 2005, options to purchase 31,700 shares of common stock at $12.00 per share and 9,167 shares of restricted stock were forfeited and the Company granted options to purchase 2,500 shares of common stock, at an average exercise price of $12.98 per share, and 123,935 shares of restricted stock. The options and restricted stock will vest over a three-year period.

There were approximately 87,000 shares available for future grant under the 2004 Plan at March 31, 2005.

The weighted average fair value of options issued under the 2004 Plan, for the three months ended March 31, 2005, under the Black-Scholes option-pricing model, was $1.01 per option.

The weighted average fair value of options issued under the 2001 Plan, for the three months ended March 31, 2004, under the minimum value method, was $3.61 per option.

In April 2005, the board of directors adopted the MortgageIT Holdings, Inc. Amended Long-Term Incentive Plan (the "Amended Plan"), subject to the approval of the Company's stockholders. Under the Amended Plan, an additional 1,000,000 shares of the Company's common stock will be reserved for issuance; this addition of shares is the only material difference between the 2004 Plan and the Amended Plan. The Amended Plan will provide for the grant of incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock, and will terminate in 2015.

NOTE 8—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):

				(unaudited)
				Three months ended March 31,
				2005				2004
								(As restated)
Net income (loss)				$	15,728			$	(271	)
Dividends on convertible redeemable preferred stock:
Series A					—				180
Series B					—				1,007
Series C					—				345
Accretion of discount on preferred stock					—				129
Total dividends on preferred stock					—				1,661
Net income (loss) attributable to common stockholders				$	15,728			$	(1,932	)
Basic earnings per share:
Net income (loss) attributable to common stockholders				$	15,728			$	(1,932	)
Weighted average common stock outstanding for basic earnings per share					19,405				518
Basic earnings per share				$	0.81			$	(3.73	)
Diluted earnings per share:
Net income (loss) for diluted earnings per share				$	15,728			$	(1,932	)
Common stock outstanding for basic earnings per share computation					19,405				518
Assumed conversion of dilutive:
Stock options and unvested restricted stock					441				—
Weighted average common stock outstanding for diluted earnings per share (1)					19,846				518
Diluted earnings per share				$	0.79			$	(3.73	)

(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.

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Options, warrants and restricted stock aggregating 558,000 were excluded from the computation for the three months ended March 31, 2004, as their effect would have been anti-dilutive. Potentially dilutive common shares amounting to 4,524,000 relating to the conversion of Series A, Series B and Series C preferred stock and options were excluded from the computation for the three months ended March 31, 2004, as their effect would have been anti-dilutive.

NOTE 9—STATEMENT OF CASH FLOWS

Supplemental disclosure of cash flow information (Dollars in thousands)

				(unaudited)
				Three months ended March 31,
				2005				2004
Cash paid during the year for:
Interest				$	29,579			$	3,474
Income taxes					89				3,536

NOTE 10—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 three months ended March 31, 2005 (Dollars in thousands).

Three months ended March 31, 2005

				Mortgage Investment Operations (1)				Mortgage Banking Operations (2)				Eliminations				Total
Gain on sale of mortgage loans				$	—			$	39,166			$	(7,059	)		$	32,107
Brokerage revenues					—				6,398				—				6,398
Interest income					33,271				19,555				926				53,752
Interest expense					(21,835	)			(9,651	)			—				(31,486	)
Net interest income					11,436				9,904				926				22,266
Realized and unrealized gain on hedging instruments					7,308				—				1,614				8,922
Other					—				263				—				263
Total revenues					18,744				55,731				(4,519	)			69,956
Operating expenses					3,014				48,801				(569	)			51,246
Income (loss) before income tax					15,730				6,930				(3,950	)			18,710
Income taxes					2				2,980				—				2,982
Net income (loss)				$	15,728			$	3,950			$	(3,950	)		$	15,728
Segment assets				$	3,177,849			$	1,460,037			$	(20,560	)		$	4,617,326

(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 MortgageIT

NOTE 11—COMMITMENTS AND CONTINGENCIES

The Company is a defendant in various legal proceedings. For further information, see Part II Other Information, Item 1. Legal Proceedings of this Form 10-Q. Although it is difficult to predict the outcome of any litigation, the Company has established a reserve of $2.0 million.

NOTE 12—SUBSEQUENT EVENT

During April 2005, through a trust subsidiary, MortgageIT issued and sold in a private placement $50 million of trust preferred securities ("TPS"). MortgageIT issued to the trust junior subordinated

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debentures to fund the trust's obligations on the TPS. The TPS are floating rate and bear a variable interest rate of 375 basis points above 3-month LIBOR, paid quarterly, and mature in 2035. They are redeemable at par after five years and at a premium to par in certain limited circumstances over the first five years. Proceeds from the TPS sale will be used to grow the Company's self-originated residential loan portfolio.

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

Unless the context suggests otherwise, the terms "Company," "Holdings," "we," "us," and "our" refer to MortgageIT Holdings, Inc., a Maryland corporation incorporated in March 2004, and its subsidiaries. "MortgageIT" or "TRS" refers to our wholly owned subsidiary, MortgageIT, Inc., a New York corporation.

Restatement of Consolidated Financial Statements

The consolidated statement of operations, and consolidated statement of cash flows for the three months ended March 31, 2004 have been restated.

For a further discussion of the corrections and restatements, see "Note 1A—Restatement of Consolidated Financial Statements" in the accompanying notes to the consolidated financial statements. The effect of the restatement of the consolidated financial statements is reflected in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below.

GENERAL

MortgageIT Holdings, Inc. is a residential mortgage lender that was formed in March 2004 to continue and expand the business of MortgageIT, Inc. Holdings is organized and conducts its operations to qualify as a real estate investment trust ("REIT") for federal income tax purposes and is focused on earning net interest income from mortgage loans originated by its taxable REIT subsidiary, MortgageIT. MortgageIT was incorporated in New York in February 1999, and began marketing mortgage loan services in May 1999. MortgageIT is a full-service residential mortgage banking company that is licensed to originate loans throughout the United States. MortgageIT originates single-family mortgage loans of all types, including prime ARM and fixed-rate, first lien residential mortgage loans. Prior to August 4, 2004, MortgageIT sold all of the loans it originated through both its retail and wholesale operations to third party investors. Home Closer LLC, a subsidiary of MortgageIT, Inc., provides settlement, title and related services. IPI Skyscraper Mortgage Corporation, which provided retail mortgage lending operations, was a wholly owned subsidiary of MortgageIT until it was merged with and into MortgageIT effective December 31, 2004.

The Company's business strategy is to self-originate prime ARM loans that are held in our investment portfolio and used to collateralize debt obligations, fund them using equity capital and borrowed funds, and generate earnings from the spread between the yield on our assets and our cost of borrowings. Our investment strategy is designed to mitigate credit risk and interest rate risk. Our mortgage loan investment portfolio consists primarily of prime ARM Loans that collateralize multi-class pass-through securities that we issue in securitization transactions, and prime quality ARM Loans that we intend to securitize.

The loans that we retain in our portfolio are serviced through a subservicing arrangement. Generally, we expect to continue to sell the fixed rate loans originated by MortgageIT to third parties as well as any ARM or hybrid ARM loans that we do not retain in our portfolio.

On August 4, 2004, we closed our initial public offering and sold 14.6 million shares of our common stock at a price to the public of $12.00 per share, for net proceeds of approximately $163.4 million, after deducting the underwriters' discount and other offering-related expenses. Since the completion of our initial public offering, the primary focus of our business has been to build a leveraged portfolio of single-family residential mortgage loans comprised largely of prime ARM and hybrid ARM loans, which have an initial fixed-rate period followed by an adjustable-rate period. Our portfolio of mortgage loans consists exclusively of loans originated by the TRS. As of March 31, 2005, we had transferred to our investment portfolio approximately $3.15 billion of single-family residential prime ARM and hybrid ARM loans originated by MortgageIT.

In November 2004, MortgageIT announced its plan to expand its wholesale subprime origination division and has established a sales leadership team in several key regions in order to intensify the

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focus on subprime single-family residential loan origination. As of March 31, 2005, this division had 298 employees and generated 9.7% of MortgageIT's total originations in the first quarter of 2005. The division is expanding organically, through the development of new branches managed by seasoned mortgage professionals. During the first quarter of 2005, this division added 5 branches with approximately 119 staff members in locations across the U.S. All of the subprime loan production is currently sold to third party investors and we do not currently anticipate holding subprime loans in our investment portfolio.

In October 2004, the Company launched a national correspondent lending platform. The newly created business unit, through its centralized management and loan acquisition teams, seeks to purchase prime first-lien closed mortgage loans from small to mid-sized banks, credit unions and mortgage bankers. In the first quarter of 2005, the correspondent business unit accounted for 4.8% of MortgageIT's total originations. These loans are subject to the same credit review standards utilized by our other prime production channels and are sold by our TRS to third-party investors.

DESCRIPTION OF BUSINESS

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 leveraged prime mortgage loan investment portfolio. Mortgage banking operations are driven by income generated from our mortgage loan origination business and include sales, loan processing, underwriting, funding, secondary marketing and brokerage activities.

Financial information regarding the Company's business segments can be found in Note 10 to the consolidated financial statements.

Mortgage Investment Operations

Our mortgage investment operations involve the acquisition and retention, in a leveraged portfolio, of either traditional ARM loans or hybrid ARM loans. Traditional ARM loans are mortgage loans that have interest rates that reprice in one year or less ("Traditional ARMs" or "Traditional ARM loans"), and hybrid ARM loans are mortgage 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," and together with the Traditional ARM loans, "Portfolio ARM Loans").

All of the Portfolio ARM Loans we acquire are originated in our mortgage banking operations and must meet the underwriting criteria and guidelines set forth in our investment and risk management policy. For purposes of maintaining liquidity for borrowings or as collateral, we may also invest in U.S. Treasury securities and debentures and discount notes guaranteed by two government-sponsored corporations, Federal National Mortgage Association ("FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac").

The funding of our mortgage loan portfolio primarily consists of borrowings from our warehouse lines of credit for loans awaiting securitization, the issuance of collateralized debt obligations ("CDOs") and repurchase agreements. We acquire ARM loans for our investment portfolio with the intention of securitizing them by transferring them to independent trusts. In order to facilitate the securitization of our loans, we generally create subordinate certificates, which provide a specified amount of credit enhancement to the higher rated certificates. Upon securitization, we finance the loans through the issuance of CDOs in the capital markets and occasionally retain certain subordinate certificates. We service Portfolio ARM Loans through a subservicer.

We do not account for CDOs placed with third party investors as sales and, therefore, do not record any gain or loss in connection with securitization transactions. The securitizations are accounted for as long-term collateralized financings. Consequently, the Portfolio ARM Loans transferred to the independent trust are shown as assets on our balance sheet. On our balance sheet, our Portfolio ARM Loans consist of ARM loans collateralizing debt obligations and ARM loans held for securitization. We, therefore, generate revenue in our mortgage investment operations from the spread between the

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interest income on our Portfolio ARM Loans and our cost of borrowings (i.e., the interest expense on our CDOs, warehouse lines of credit, or repurchase agreements).

The loan securitization process benefits us by creating highly liquid securitized assets that can be readily financed in the capital markets.

Portfolio Strategy

It is our general policy to originate 100% of the ARM Loans we hold in our investment portfolio. However, we retain the right to purchase mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac or the Government National Mortgage Association ("GNMA" or "Ginnie Mae").

We select loans for inclusion in our investment portfolio based on a variety of credit risk factors. Our Portfolio Management Committee has established specific loan investment guidelines including minimum FICO scores, maximum loan-to-value ratios, maximum loan size and other applicable credit quality criteria.

According to our investment guidelines, we invest at least 85% of assets in high quality ARMs and Hybrid ARMs and short-term investments including:

•	Prime ARM and Hybrid ARM mortgage loans that have been deposited into trusts that issue mortgage-backed securities collateralized by the transferred loans;

•	FNMA and FHLMC mortgage securities;

•	ARM securities rated within one of the two highest rating categories by at least one of the nationally recognized statistical ratings agencies (Moody's Investors Service ("Moody's"); Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"); or Fitch Ratings ("Fitch"));

•	securities and loans that are unrated but that we determine to be of comparable quality to comparable high-quality mortgage securities; and

•	cash and cash equivalents, including short-term investments in U.S. Treasury and agency non-mortgage securities.

The portfolio also may retain certain classes of our mortgage-backed securities that are below investment grade (below BBB). Interests in non-investment grade assets will comprise no more than 25% of stockholders' equity on an historical cost basis.

At March 31, 2005, we held total assets of $4.62 billion, of which $4.47 billion consisted of both loans held for sale and loans held for investment. That compares to $3.54 billion in total assets at December 31, 2004, of which $3.38 billion consisted of both loans held for sale and loans held for investment. At March 31, 2005, over 85% of the assets we held, including cash and cash equivalents, were high quality ARM Loans and short-term investments.

Mortgage Banking Operations

Our mortgage banking operations are conducted through our wholly owned TRS subsidiary, MortgageIT, and its subsidiaries. The TRS is a full-service residential mortgage banking company that is licensed to originate loans throughout the United States

The TRS generates revenue through the origination, sale and brokering of mortgage loans sourced through its loan production channels. This revenue primarily consists of gain on sale of mortgage loans, loan brokerage revenues and net interest income. Gain on sale of mortgage loans is generated from the sale of mortgage loans to investors, on a servicing released basis, generally within 30 to 60 days of funding. Accordingly we do not capitalize the value of mortgage servicing rights. Gain is recognized based on the difference between the net sales proceeds and the carrying value of the mortgage loans sold and is recognized in earnings at the time of sale. The carrying value of the mortgage loans sold includes direct loan-related origination costs and fees. Brokerage revenue consists of fees and commissions earned by brokering mortgage loans ultimately funded by third party lenders. Interest on mortgage loans held for sale accrues on loans from the date of funding through the date of sale.

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MortgageIT's mortgage banking operations expenses consist primarily of:

•	loan origination commissions, salaries and employee benefits;

•	mortgage loan processing expenses;

•	general and administrative expenses;

•	marketing, loan acquisition and business development expenses; and

•	rent expense, professional fees, and depreciation expense.

A substantial portion of MortgageIT's expenses are variable in nature. Loan origination commissions are paid to loan production officers only upon the origination of the mortgage loan, making such commission expenses 100% variable. Salaries, benefits and other related payroll costs may fluctuate based upon management's assessment of current and predicted future levels of mortgage loan origination volume.

Loan Underwriting

We follow a specific underwriting methodology based on the following philosophy—first evaluate the borrower's ability to repay the loan, and then evaluate the value of the property securing the loan. We have developed underwriting guidelines and practices that establish clear parameters for our loan underwriters and credit officers to make loan approval decisions. For mortgage loans retained in our investment portfolio, we seek those loans that we believe have low risk of default and resulting loss. Although our loan underwriting procedures are structured to predict future borrower payment patterns and financial capability, based on the borrower's past history and current financial information, as well as our ability to collect the remaining loan balance through foreclosure in the event of a default, no assurance can be made that every loan originated will perform as anticipated.

In evaluating the borrower's ability and willingness to repay a loan, we review and analyze the following aspects of the borrower: credit score, income and its source, employment history, debt levels in revolving, installment and other mortgage loans, credit history and use of credit in the past, and the ability and/or willingness to provide verification for the above. Credit scores, credit history, use of credit in the past and information as to debt levels can typically be obtained from a third party credit report through a credit repository. Those sources are used in all instances, as available. Sometimes, borrowers have little or no credit history that can be tracked by one of the primary credit repositories. In these instances, the reason for the lack of history is considered and taken into account. In our experience, most prospective borrowers have accessible credit histories.

In evaluating a potential property to be used as collateral for a mortgage loan, we consider all of the following aspects of the property: the loan balance versus the property value, i.e., the loan-to-value ratio, or LTV, the property type, how the property will be occupied (a primary residence, second home or investment property), if the property's apparent value is supported by recent sales of similar properties in the same or a nearby area, any unique characteristics of the property and our confidence in the data and their sources.

Other considerations that may effect our decision regarding a borrower's loan application are the borrower's purpose in requesting the loan (purchase of a home as opposed to cashing equity out of the home through a refinancing, for example), the loan type (adjustable-rate, including adjustment periods and loan life rate caps, or fixed-rate), and any items unique to a loan that we believe could affect credit performance.

Business Strategy

All of the loans originated at the TRS are either transferred to our investment loan portfolio, or sold or brokered to third party investors. Our mortgage banking operations consist primarily of the following activities:

•	retail prime production operations, including both brokered loans and funded loans that are originated through MortgageIT's IPI Skyscraper Division of retail branch offices and through its internet origination channel;

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•	wholesale prime production operations, including loans originated through retail loan brokers and correspondents that are not MortgageIT employees and funded by MortgageIT through its MIT Lending Division;

•	subprime production operations, including both retail loans originated through MortgageIT's retail subprime department, and wholesale loans originated through MortgageIT's NB Lending Division;

•	correspondent lending operations, including loans originated through banks, credit unions and mortgage bankers and funded by MortgageIT through its Correspondent Lending Division;

•	secondary loan marketing operations; and

•	mortgage loan title, settlement and other mortgage related services through MortgageIT's subsidiary, Home Closer LLC.

Sale of Loans

We generally sell our mortgage loans on a whole loan, non-recourse basis. However, we do have potential liability under the representations and warranties we make to purchasers and insurers of the loans. In the event of a breach of such representations and warranties, we may be required to either repurchase the subject mortgage loans or indemnify the investor or insurer. In such cases, any subsequent credit loss on the mortgage loans is recognized by MortgageIT.

All of our subprime loan production is sold to third party investors.

Loan Products

MortgageIT originates both mortgage loans to finance home purchases, referred to as purchase mortgage loans, and loans to refinance existing mortgage loans. For the quarter ended March 31, 2005, MortgageIT's purchase loan originations represented approximately 51% of its total residential mortgage loan originations measured by principal balance.

MortgageIT originates prime first lien conventional and non-conventional, conforming single-family residential mortgage loans. In addition, MortgageIT also originates a lesser amount of non-conforming first lien single-family residential mortgage loans such as jumbo loans, non-prime loans and "Alt A" loans, as well as home equity and second mortgage loans. Substantially all of the loans originated by MortgageIT allow for prepayment without penalty, and we retain loans that allow for prepayment without penalty.

Hedging Activities

We generally do not seek to anticipate the direction of interest rates as a part of our business strategy. We seek to maintain hedge positions that avoid the effects of severe interest rate movements, which might otherwise impair our ability to earn net interest income and gain on sale revenues. Accordingly, we generally seek to mitigate interest rate risk by matching the repricing durations of our Portfolio ARM Loans with the repricing durations of our liabilities. We also seek to mitigate the interest rate risk associated with our mortgage loans held for sale and interest rate lock commitments issued to borrowers.

For our mortgage investment operations, subject to the limitations imposed by the REIT qualification tests, some or all of the following financial instruments are used for hedging financing cost interest rate risk: Eurodollar futures contracts, interest rate swaps, interest rate caps, collars and floors, and other instruments that may be determined to be advantageous and are permitted under the investment and risk management policy adopted by our board of directors.

For our mortgage banking operations, some or all of the following financial instruments are used for hedging the fair value of loans held for sale: forward sale loan commitments and forward sales and purchases of mortgage-backed securities and options on such securities in the forward delivery TBA market, Eurodollar futures, and other instruments that may be determined to be advantageous and are permitted under the investment and risk management policy adopted by our board of directors.

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For further information on our interest rate risk management, see Item 3 Quantitative and Qualitative Disclosures About Market Risk–Interest Rate Risk Management of this Form 10-Q and Note 4 – Derivatives and Hedging Activities in the accompanying notes to the consolidated financial statements.

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of total revenues for the three months ended March 31, 2005 and 2004.

				Three months ended March 31,
				2005				2004
								(As restated)
Revenues:
Gain on sale of mortgage loans					45.9	%			55.5	%
Brokerage revenues					9.1	%			33.8	%
Net interest income					31.8	%			10.7	%
Realized and unrealized gain on hedging instruments					12.8	%			—
Other					0.4	%			0.0	%
Total revenues					100.0	%			100.0	%
Operating expenses:
Compensation and employee benefits					39.8	%			63.8	%
Processing expenses					14.8	%			13.3	%
General and administrative expenses					9.7	%			9.0	%
Marketing, loan acquisition and business development					1.3	%			4.1	%
Rent					3.3	%			7.0	%
Professional fees					3.3	%			2.3	%
Depreciation and amortization					1.1	%			2.4	%
Total operating expenses					73.3	%			101.9	%
Income (loss) before income taxes					26.7	%			(1.9	)%
Income taxes					4.2	%			(0.9	)%
Net income (loss)					22.5	%			(1.0	)%

Three months ended March 31, 2005 compared to three months ended March 31, 2004

Net income (loss)

Consolidated net income increased from a net loss of $(271,000) for the three months ended March 31, 2004 to a net gain of $15.7 million for the three months ended March 31, 2005. The increase is attributable to higher net interest income, higher gain on sale of mortgage loans, and gains on derivatives instruments used in our investment portfolio hedge program. Total revenues increased by approximately 170% to $70.0 million for the quarter ended March 31, 2005 from $25.9 million for the comparable period in 2004, while total expenses increased by approximately 94% to $51.2 million from $26.4 million. Our loan brokerage volume and revenue decreased by 20.8% and 26.8%, respectively, from the first quarter of 2004. Gain on sale of mortgage loans increased by 123.7% in the first quarter of 2005 compared to the comparable period in 2004 and we recorded a $8.9 million gain on derivatives used in our investment portfolio hedging program. In addition, net interest income increased by 703.5% to $22.3 million in the first quarter of 2005 from $2.8 million in the comparable period in 2004.

Mortgage Investment Operations

Our mortgage investment operations segment, or "REIT," began operations on August 4, 2004 following our reorganization and initial public offering. This business segment generates revenue from net interest income earned on our Portfolio ARM Loans.

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Revenues

Net interest income.    REIT net interest income was $11.4 million on average earning assets of $2.8 billion for the three months ended March 31, 2005. The following table presents the average balance for each category of our interest-earning assets and interest-bearing liabilities, with the corresponding annualized effective rate of interest and the related interest income or expense for the same period:

Average Balance, Rate and Interest Income/Expense Table
(Dollars in thousands)

				For the three months ended March 31,
				2005
				Average Balance				Effective Rate				Interest Income and Expense
Interest-earning assets:
Portfolio ARM Loans				$	2,785,694				4.84	%		$	33,135
Cash and cash equivalents					30,014				1.84				136
					2,815,708				4.80				33,271
Interest-bearing liabilities:
Collateralized debt obligations					2,154,269				3.22				4,242
Warehouse lines payable					510,651				3.38				17,039
Repurchase agreements					81,983				2.75				554
					2,746,903				3.23				21,835
Net interest-earning assets and spread				$	68,805				1.57	%		$	11,436
Net interest margin (1)									1.65	%

(1)	Net interest margin is computed by dividing annualized net interest income by the average daily balance of interest-earning assets.

Expenses

REIT operating expenses totaled $3.0 million for the three months ended March 31, 2005, primarily consisting of:

•	compensation and employee benefits;

•	mortgage loan processing expenses; and

•	professional fees and general and administrative expenses.

A substantial portion of REIT expenses are generally fixed in nature. The variable expenses are primarily processing expenses including subservicing costs, provision for credit losses and brokerage commission expenses paid on Eurodollar contracts.

Mortgage Banking Operations

Revenues

Gain on sale of mortgage loans.    Gain on sale of mortgage loans increased approximately 173% to $39.2 million for the three months ended March 31, 2005 from $14.4 million for the three months ended March 31, 2004. On a standalone basis, whole loan sales increased by 178% to $3.6 billion for the three months ended March 31, 2005 from $1.3 billion for the three months ended March 31, 2004. On a consolidated basis, mortgage whole loan sales to third parties increased by 114.2 % to $2.8 billion, after the elimination of $814 million in intercompany loan sales, for the three months ended March 31, 2005 from $1.3 billion for the three months ended March 31, 2004.

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Brokerage Revenue.    Brokerage revenue decreased by approximately 26.8% to $6.4 million for the three months ended March 31, 2005 from $8.7 million for the three months ended March 31, 2004. The decrease was attributable to a 20.8% decrease in the volume of loans brokered to third parties, resulting from a general industry decline in volume during the three months ended March 31, 2005, as well as by our strategy to increase retail funded loan volume and reduce retail brokered loan volume.

Net interest income.    Net interest income increased by approximately 257% to $9.9 million for the three months ended March 31, 2005 from $2.8 million for the three months ended March 31, 2004. The increase is primarily attributable to a higher average balance of loans held for sale due to a higher volume of originations, as well as greater net interest spreads due to reduced borrowing costs. The following table presents the average balance for each category of our interest-earning assets and interest-bearing liabilities, with the corresponding annualized effective rate of interest and the related interest income or expense.

Average Balance, Rate and Interest Income/Expense Table
(Dollars in thousands)

				For the three months ended March 31,
				2005												2004
				Average Balance				Effective Rate				Interest Income and Expense				Average Balance				Effective Rate				Interest Income and Expense
Interest-earning assets:
Mortgage loans held for sale				$	1,224,643				6.48	%		$	19,525			$	388,328				5.54	%		$	5,289
Cash and cash equivalents					7,436				1.63				30				14,256				0.80				28
					1,232,079				6.45				19,555				402,584				5.37				5,317
Interest-bearing liabilities:
Warehouse lines payable					1,185,117				3.21				9,370				376,678				2.74				2,534
Note payable and other debt					15,000				7.63				281				501				10.00				12
					1,200,117				3.27				9,651				377,179				2.74				2,546
Net interest-earning assets and spread				$	31,962				3.18	%		$	9,904			$	25,405				2.63	%		$	2,771
Net interest margin (1)									3.27	%											2.80	%

(1)	Net interest margin is computed by dividing annualized net interest income by the average daily balance of interest-earning assets.

Expenses

Compensation and employee benefits.    Compensation and employee benefits expenses increased approximately 63% to $26.9 million for the three months ended March 31, 2005 from $16.5 million for the three months ended March 31, 2004. The increase was primarily due to a 99.4% increase in the volume of funded loans to $4.3 billion in the three months ended March 31, 2005 from $2.2 billion in the three months ended March 31, 2004, as well as the addition of 17 branches opened between March 31, 2004 and March 31, 2005.

Processing expenses.    Mortgage loan processing expenses increased approximately 186% to $9.8 million for the three months ended March 31, 2005, from $3.4 million for the three months ended March 31, 2004. The increase was primarily due to an increase in the number of units and a higher repurchase reserve due to increased prime and subprime origination volume.

General and administrative expenses.    General and administrative expenses increased by 169% to $6.2 million for the three months ended March 31, 2005 from $2.3 million for the three months ended March 31, 2004. This increase was primarily due to a 99.4% increase in the volume of funded loans to

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$4.3 billion in the three months ended March 31, 2005 from $2.2 billion in the three months ended March 31, 2004, as well as an increase in the number of branches to 51 during the first quarter of 2005 from 34 in the comparable period in 2004. In addition, the results include the impact of special legal charges and reserves in the amount of $2.5 million associated with the Company's SFAS NO. 133 review and restatement and other legal matters.

Marketing, loan acquisition and business development expenses.    Marketing, loan acquisition and business development expenses decreased approximately 15% to $895,000 for the three months ended March 31, 2005 from $1.0 million for the three months ended March 31, 2004. The decline was primarily due to decreased use of internet loan production leads by the retail loan production division.

Rent expense.    Rent expense increased approximately 25.4% to $2.3 million for the three months ended March 31, 2005 from $1.8 million for the three months ended March 31, 2004. This increase was primarily due to an increase in the number of branches to 51 operating during the first quarter of 2005 from 34 in the comparable period in 2004.

Professional fees.    Professional fees increased approximately 209% to $1.8 million for the three months ended March 31, 2005 from $587,000 for the three months ended March 31, 2004. This increase was primarily due to legal and audit expenses related to the Company's restatement of its financials in connection with SFAS No.133 accounting standards, as well as outstanding litigation and regulatory matters.

Depreciation and amortization expenses.    Depreciation and amortization increased 27.2% to $796,000 for the three months ended March 31, 2005 from $626,000 for the three months ended March 31, 2004. The increase was primarily due to increased capital expenditures related to 17 new branches opened between March 31, 2004 and March 31, 2005.

Income tax expense.    MortgageIT made the election to be treated as a taxable REIT subsidiary and, therefore, is subject to federal and state corporate income taxes. Accordingly, the Company records a tax provision on the taxable income of the TRS, which includes intercompany income that is eliminated in our consolidated statements of operations.

FINANCIAL CONDITION

Prior to our reorganization as a REIT, our assets consisted primarily of mortgage loans held for sale. At March 31, 2005 and December 31, 2004, our assets consisted of both Portfolio ARM Loans and mortgage loans held for sale, representing 66% and 30% of total assets at March 31, 2005, and 73% and 22% of total assets at December 31, 2004.

Total assets increased $1.08 billion from December 31, 2004 to March 31, 2005. The increase primarily reflects an increase in Portfolio ARM Loans in the amount of $464.8 million and an increase in mortgage loans held for sale in the amount of $620.4 million. Portfolio ARM Loans consists of $2.38 billion and $1.43 billion of ARM loans that collateralize debt obligations, and $684.9 million and $1.17 billion of ARM loans held for securitization at March 31, 2005 and December 31, 2004, respectively. The growth of ARM loans that collateralize debt obligations was primarily funded by an increase in securitizations of $901.7 million and $1.33 billion and the growth in ARM loans held for securitization and mortgages held for sale was primarily funded by an increase in warehouse lines payable of $136.2 million and $1.57 billion at March 31, 2005 and December 31, 2004, respectively.

The following table presents various characteristics of our Portfolio ARM Loans as of March 31, 2005. The aggregate unpaid principal balance of the loans included in this table is approximately $3.0 billion.

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				Average				High				Low
Original loan balance				$	295,345			$	1,000,000			$	35,621
Coupon rate on loans					5.25	%			7.00	%			3.38	%
% Gross margin					2.36	%			3.00	%			1.75	%
Lifetime cap					11.02	%			18.00	%			3.88	%
Original term (months)					360				360				360
Remaining term (months)					355				360				346
Geographic distribution (top 5 states):
California													63.9	%
Arizona													6.2
Washington													4.5
Florida													3.9
Illinois													2.8
Other													18.7
Occupancy status:
Owner occupied													89.6	%
Second home													8.2
Investor													2.2
Documentation type:
Full/Alternative													51.6	%
Other													48.4
Loan purpose:
Purchase													52.9	%
Cash-out refinance													28.1
Rate & term refinance													19.0
Original loan-to-value:
80.01% and over													2.6	%
70.01%-80.00%													68.6
60.01%-70.00%													17.5
50.01%-60.00%													6.4
50.00% or less													4.9
Weighted average original loan-to-value													73.5	%
Property type:
Single family													62.4	%
Condominium													22.2
PUD													10.7
Other residential													4.7
ARM loan type:
3-year hybrid													37.9	%
5-year hybrid													60.9
Other													1.2
ARM interest rate caps:
Initial cap:
Under 3.00													9.7	%
3.01-4.00													0.0
4.01-5.00													24.8
5.01-6.00													65.5
Periodic cap:
None													0.9	%
Under 1.00%													0.3
Over 1.00%													98.8
Percent of interest-only loan balances													78.0	%
Weighted average FICO (1) score:													733

(1)	FICO is a credit score, ranging from 300 to 850, with 850 being the best score, based upon the credit evaluation methodology developed by Fair, Isaac and Company, a consulting firm specializing in creating credit evaluation models.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of financial condition and results of operations is based on the amounts reported in our consolidated financial statements. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), many of which require the use of estimates, judgments and assumptions that affect reported amounts. Changes in the estimates and assumptions could have a material effect on these consolidated financial statements. In accordance with recent SEC guidance, those material accounting policies that we believe are the most critical to an investor's understanding of our financial results and condition and require complex management judgment have been described below. Additional information regarding our accounting policies is contained in Note 1 to the consolidated financial statements.

Derivatives and Hedging Activities

We utilize derivatives to manage interest rate risk exposure. In accordance with SFAS No. 133, "Accounting for Derivative Investments and Hedging Activities," all derivative instruments are recorded at fair value. We designate every derivative instrument as either (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment, (2) a hedge of the variability of cash flows to be paid related to either a forecasted or recognized liability, or (3) a free-standing derivative instrument.

To qualify for hedge accounting under SFAS No. 133, we must demonstrate, on an ongoing basis, that our interest rate risk management activity is highly effective. We determine the effectiveness of our interest rate risk management activities using standard statistical measures. If we are unable to qualify certain of our interest rate risk management activities for hedge accounting, then the change in fair value of the associated derivative financial instruments would be reflected in current period earnings. See Note 4 of our consolidated financial statements for further information pertaining to our accounting for derivatives and hedging activities.

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 the fair value of the hedged asset or liability, are recorded in earnings. Our fair value hedges are used 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 cash flow hedge are recorded in OCI 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. Our cash flow hedges are used primarily to hedge the financing cost for forecasted or recognized mortgage-backed collateralized debt obligations.

We obtain the fair value of Eurodollar futures, TBA securities, options on TBA securities and interest rate swaps and caps from quoted market prices.

The fair value of forward sale commitments to deliver mortgages is estimated using current quoted market prices for dealer or investor commitments as applies to our existing positions.

The fair value of an IRLC is based on an estimate of the fair value of the underlying mortgage loan, and given the probability that the loan will fund within the terms of the IRLC. After issuance, the value of an IRLC can change and be either positive or negative, depending on the change in value of the underlying mortgage loan. The probability that the underlying loan will fund is driven by a number of factors, in particular, the change, if any, in mortgage rates after the lock date. In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. The probability that a loan will fund within the terms of the IRLC also is influenced by the source of the applicant, purpose for the loan (purchase or refinance) and the application approval rate.

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

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Interest Income on Portfolio ARM Loans

Interest income is accrued based on the outstanding principal amount and contractual terms of our loans. Direct loan origination fees and costs are deferred and amortized as an interest income yield adjustment over the life of the related loans using the effective yield method. 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. See Item 3 – Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk Management in this report on Form 10-Q for further details.

Loan Loss Reserves

MortgageIT's historical operations had an insignificant amount of loan losses due to default or non-performance on the loans primarily because mortgage loans were sold soon after being originated. Because we now hold loans for investment, we record an allowance for loan losses reflecting our estimate of future loan default losses. Our Portfolio ARM Loans are collectively evaluated for impairment, as the loans are homogeneous in nature. The allowance is based upon management's assessment of the various risk factors affecting our investment loan portfolio, including current economic conditions, the makeup of the portfolio based on credit grade, loan-to-value ratios, delinquency status, historical credit losses, purchased mortgage insurance and other factors deemed to warrant consideration. The allowance is maintained through ongoing loss provisions charged to operating income and are reduced by loans that are charged off. Determining the allowance for loan losses is subjective in nature due to the estimates required and the potential for imprecision. 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.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs. It is our policy to have adequate liquidity available at all times. As a result of our initial public offering, which was completed on August 4, 2004, we believe our existing cash balances, funds available under our credit facilities and cash flows from operations are sufficient to fund our current level of operations for at least the next 12 months. We manage liquidity to ensure that we have the continuing ability to maintain cash flows that are adequate to fund operations and meet commitments on a timely and cost-effective basis.

Liquidity from Mortgage Investment Operations

The principal sources of liquidity for our mortgage investment operations are the issuance of mortgage-backed securities, repurchase agreements, and principal payments and net interest earned from our Portfolio ARM Loans. The net interest income earned from our Portfolio ARM Loans is the primary source of income and liquidity for the payment of dividends to our stockholders. We believe that our liquidity level is in excess of that necessary to pay dividends to our stockholders and to satisfy our operating requirements.

Loan securitizations are the primary funding source for our Portfolio ARM Loans.

We securitize mortgage loans by transferring them to independent trusts that issue securities collateralized by the transferred mortgage loans. The loan securitization process benefits us by creating highly liquid securitized assets that can be readily financed in the capital markets. We believe there is a reliable and stable market for term financing of investment grade mortgage-backed securities that we issue.

Through March 31, 2005, we completed three securitization transactions in which we securitized ARM loans into a series of pro rata pay, floating-rate securities. The securitization process benefits us by

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enabling us to issue permanent financing that is not subject to rollover risk or margin calls, and by creating highly liquid assets that can be readily financed in the reverse repurchase agreement market.

In these transactions, we issued AAA and AA-rated floating-rate pass-through certificates totaling $2.34 billion to third party investors, and retained $101.4 million of subordinated certificates, which provide credit support to the higher-rated certificates. The interest rates on the floating-rate pass-through certificates reset monthly and are indexed to the one-month LIBOR rate. In connection with the issuance of these mortgage-backed securities we incurred securitization costs of $7.2 million, including investment banking fees, legal fees and other related costs. The securitization costs are amortized over the expected life of the mortgage-backed securities.

As of March 31, 2005 and December 31, 2004, outstanding mortgage-backed securities were collateralized by ARM loans with a remaining principal balance of approximately $2.4 billion and $1.4 billion, respectively. These mortgage-backed securities mature between 2033 and 2035 and are callable at par by us after the total remaining balance of the loans collateralizing the debt is paid down to 20% of their original balance. The balance of our debt is also reduced as the underlying loan collateral is paid down, and is expected to have an average life of approximately four years.

In April 2005, we completed our fourth securitization in which we issued AAA and AA-rated floating rate securities totaling $649.1 million and A+/A subordinated floating rate securities totaling $16.3 million to third party investors.

We also utilize repurchase agreements as a source of financing for our mortgage investment operations. These arrangements vary in size and other characteristics among multiple providers. In particular, repurchase agreements have terms that will vary with respect to advance rates, interest spreads, size, duration and other characteristics depending on the nature of the underlying collateral in the program.

Under these agreements, we sell some or all of the retained interest in our mortgage-backed securities to a counterparty and we agree to repurchase those assets at a future date. At maturity, we purchase the assets back from the counterparty at an amount equal to the original sales price plus interest. During the term of a repurchase agreement, we continue to earn principal and interest on the underlying mortgage assets. As of March 31, 2005 and December 31, 2004, we had $83.5 million and $67.7 million of repurchase agreements outstanding, respectively.

These financing arrangements are short-duration facilities, generally 30 days, secured by the retained interest in our residential mortgage-backed securities, the value of which may move inversely with changes in interest rates. A decline in the market value of our investments may limit our ability to borrow or result in lenders requiring additional collateral. As a result, we could be required to sell some of our investments under adverse market conditions in order to maintain liquidity. If such sales are made at prices lower than the amortized costs of such investments, we will incur losses.

In addition, we draw down on all of our warehouse facilities, except for the facility with RFC, to finance loans that are held for securitization by the REIT.

Liquidity from Mortgage Banking Operations

For our mortgage banking operations, our principal sources of liquidity are our warehouse facilities and our principal use of liquidity is the origination of new mortgage loans.

To originate a mortgage loan, MortgageIT utilizes its short-term warehouse credit facilities that are available to fund mortgage loans held for sale. These facilities are secured by the mortgage loans owned by MortgageIT and by certain other assets, including cash deposited in interest-bearing collateral accounts. Advances drawn under these facilities bear interest at rates that vary depending on the type of mortgage loans securing the advances. These facilities are subject to sub-limits, advance rates and terms that vary depending on the type of mortgage loans securing these financings and the ratio of MortgageIT's liabilities to its tangible net worth. As of March 31, 2005, the aggregate warehouse facilities aggregated $ 3.3 billion and the maximum amount available for additional borrowings under these facilities was approximately $900.4 million.

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These facilities bear interest at LIBOR plus a spread based on the types of loans being funded. The documents governing MortgageIT's warehouse facilities contain a number of compensating balance requirements and restrictive financial and other covenants that, among other things, require it to maintain a minimum ratio of total liabilities to tangible net worth, minimum levels of tangible net worth, liquidity and stockholders' equity and maximum leverage ratios, as well as to comply with applicable regulatory and investor requirements.

During the three months ended March 31, 2005, the Company negotiated two new credit facilities, which when added to the Company's three existing credit facilities, bring to five, the total number of facilities it may draw upon.

The weighted average effective rate of interest for borrowings under all warehouse lines of credit, was approximately 3.3% and 2.6% for the three months ended March 31, 2005 and the year ended December 31, 2004, respectively.

All mortgage loans held for sale have been pledged as collateral under the above warehouse credit facilities. In addition, the facilities contain various financial covenants and restrictions, including a requirement that we maintain specified leverage ratios and net worth amounts. As of March 31, 2005, we were not in compliance with certain covenants contained in certain of our credit facilities. Although waivers from the lenders with respect to these covenant violations have been obtained, no assurance can be made that the lenders will continue to waive future covenent violations, to the extent they occur. The agreements also contain covenants limiting our ability to:

•	consolidate, merge or enter into similar transactions;

•	transfer or sell assets;

•	create liens on the collateral; or

•	change the nature of its business, without obtaining the prior consent of the lenders, which consent may not be unreasonably withheld.

These limits may in turn restrict our ability to pay cash or stock dividends on our common stock. In addition, under the warehouse facilities, we cannot continue to finance a mortgage loan that we hold through the warehouse facility if:

•	the loan is rejected as "unsatisfactory for purchase" by the ultimate investor and has exceeded its permissible warehouse period, which varies by facility;

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

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

•	the loan ceases to be an eligible loan (as determined pursuant to the warehouse facility agreement).

In addition to the warehouse facilities, MortgageIT has entered into a mortgage loan purchase agreement with UBS, which we refer to as a conduit facility. Under this agreement, UBS purchases a loan from MortgageIT, which enables MortgageIT to record the sale and recognize the gain on sale. Upon sale, MortgageIT removes both the loans and the corresponding warehouse liability from its balance sheet. A third party subsequently purchases the loan directly from UBS. MortgageIT facilitates the final settlement of the loan sale between UBS and the third party, and receives a performance fee for services provided to UBS. MortgageIT classifies the performance fee as brokerage revenue. The capacity available under the conduit facility is included in the $1.25 billion warehouse facility. The overall facility capacity at any given time is reduced by the outstanding balance on the warehouse facility plus the outstanding balance of the conduit facility. The conduit facility is not a committed facility and may be terminated at the discretion of UBS.

In addition to the warehouse facilities, and the UBS conduit facility, MortgageIT has entered into a $15 million Note Purchase Agreement with Technology Investment Capital Corp. ("TICC"), whereby

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MortgageIT sold an aggregate principal amount of $15 million of senior secured promissory notes (the "Notes") to TICC. The proceeds from the sale of the Notes provide working capital for MortgageIT. The Notes bore interest at a rate of 10% per annum through September 30, 2004, and bear interest at the rate of 7.5% per annum for the period from October 1, 2004 through March 31, 2005. Beginning on April 1, 2005, the Notes bear interest at the rate of 10% per annum. Interest on the Notes is payable quarterly in arrears.The Notes provide for a single payment of the entire amount of the unpaid principal and any unpaid accrued interest on the Notes on March 29, 2007. As of March 31, 2005, 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. However, no assurance can be made that waivers will be granted in the future, to the extent such waivers are necessary.

MortgageIT makes certain representations and warranties, and is subject to various affirmative and negative financial and other covenants, under the terms of both the warehouse credit facilities and certain investor loan sale agreements regarding, among other things, the loans' compliance with laws and regulations, their conformity with the investors' underwriting standards and the accuracy of information. In the event of a breach of these representations, warranties or covenants or in the event of an early payment default, these loans may become ineligible collateral for the warehouse credit facilities or may become ineligible for sale to an investor, and MortgageIT may be required to repurchase the loans from the warehouse lender or the investor. MortgageIT has implemented procedures to help ensure quality control and conformity to underwriting standards and to minimize the risk of being required to repurchase loans. MortgageIT has been required to repurchase loans it has sold from time to time; however, these repurchases have not had a material impact on the results of operations of MortgageIT.

MortgageIT's ability to originate and fund loans has historically depended in large part on its ability to sell the mortgage loans it originates at a premium in the secondary market so that it may generate cash proceeds to repay borrowings under its warehouse facilities. The value of MortgageIT's loans is relevant in determining the overall amount of borrowings that will be available to it under its financing facilities. The value of our loans depends on a number of factors, including:

•	interest rates on our loans compared to market interest rates;

•	the borrower credit risk classification;

•	loan-to-value ratios, loan terms, underwriting and documentation; and

•	general economic conditions.

Cash and Cash Equivalents

Our cash and cash equivalents decreased to $40.3 million at March 31, 2005 from $70.2 million at December 31, 2004. Our primary sources of cash and cash equivalents during the three months ended March 31, 2005 were as follows:

•	a $901.2 million increase in collateralized debt obligations;

•	a $136.2 million increase in warehouse lines payable; and

•	a $15.8 million increase in repurchase agreements.

Our primary uses of cash and cash equivalents during the three months ended March 31, 2005 were as follows:

•	a $1.1 billion increase in Portfolio ARM Loans and mortgage loans held for sale; and

•	a $8.5 million dividend payment.

Payment of Dividends

On December 16, 2004, we declared our initial common stock dividend of $0.44 per share. The dividend was distributed in January 2005 and was generated from our operating activities. The total cash dividend of approximately $8.5 million exceeded the minimum taxable income distribution requirements for the year.

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On March 16, 2005, we declared our second common stock dividend of $0.48 per share. The dividend was distributed in April 2005 and was generated from our operating activities. The total cash dividend of approximately $9.3 million exceeded the minimum taxable income distribution requirements for the quarter.

We are required to make annual distributions of our income to our stockholders in order to maintain our REIT status 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 REIT distribution requirements and to avoid corporate income tax and the nondeductible excise tax. Further, certain of our assets may generate substantial mismatches between REIT taxable income and available cash. Such assets could, for example include mortgage-backed securities we hold that have been issued at a discount and require the accrual of taxable income in advance of the receipt of cash. As a result, our taxable income may exceed our cash available for distribution and the requirement to distribute a substantial portion of our net taxable income could cause us to: (1) sell assets under adverse market conditions, (2) borrow on unfavorable terms or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt in order to comply with the REIT distribution requirements.

INFLATION

For the periods presented herein, inflation has been relatively low and we believe that inflation has not had a material effect on our results of operations. To the extent inflation increases in the future at a rate that is faster than the market currently anticipates, interest rates are also likely rise, which would likely reduce the number of mortgage loans we originate. A reduction in the number of loans we originate resulting from increased inflation would adversely affect our future results of operations. Additionally, to the extent that the investment portfolio earnings are sensitive to rising interest rates, unanticipated increases in inflation may adversely affect our results of operations.

OFF-BALANCE SHEET ARRANGEMENTS

None.

CONTRACTUAL OBLIGATIONS

We had the following commitments (excluding derivative financial instruments) at March 31, 2005 (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)				$	2,236,303			$	46,703			$	16,908			$	26,783			$	2,145,909
Warehouse lines payable					2,005,546				2,005,546				—				—				—
Repurchase agreements					83,475				83,475				—				—				—
Operating leases (3)					31,229				8,040				13,498				8,657				1,034
Notes payable					15,000				—				15,000				—				—

(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.

(3)	Net of sublease.

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ITEM 3.    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 March 31, 2005 and December 31, 2004:

				March 31, 2005
				Notional Amount				Carrying Amount				Estimated Fair Value
				(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	1,395,133			$	1,402,487			$	1,402,487
Forward delivery commitments					770,797				2,495				2,495
Mortgage loans held for sale, net									1,404,982				1,404,982
ARM loans held for securitization, net					678,379				684,918				683,738
ARM loans collateralizing debt obligations, net					2,355,993				2,379,556				2,373,585
Hedging instruments					5,553,216				44,151				44,151
Liabilities:
Warehouse lines payable				$	2,005,546			$	2,005,546			$	2,005,546
Collateralized debt obligations, net					2,236,303				2,229,829				2,236,303
Repurchase agreements					83,475				83,475				83,475
Hedging instruments					2,562,085				3,151				3,151

				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

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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 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

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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 yield 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.

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

Repricing Characteristics of Portfolio ARM Loans

				March 31, 2005
				Unpaid Principal Balance				Portfolio Mix
				(Dollars in thousands)
Traditional ARM Assets:
Index:
Six-month LIBOR				$	36,032				1.2	%
One-year constant maturity treasury					422				—
					36,454				1.2	%
Hybrid ARM Assets:
Index:
3 years or less					1,151,064				37.9	%
Over 3 years to 5 years					1,846,854				60.9	%
					2,997,918				98.8	%
				$	3,034,372				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.

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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 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 specified levels. Therefore, such Cap Agreements have the effect of capping the interest rate expense on a portion of 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 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 March 31, 2005 — 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 March 31, 2005

				Basis Point Increase (Decrease) in Interest Rate
				(100)				(50)				+50				+100
				(Dollars in thousands)
Change in market values of:
Assets				$	61,097			$	32,932			$	(35,550	)		$	(72,372	)
Hedged liabilities					(55,793	)			(28,900	)			31,296				65,341
Net change in market value of portfolio equity				$	5,304			$	4,032			$	(4,254	)		$	(7,031	)
Percentage change in market value of portfolio equity					2.78	%			2.11	%			(2.23	)%			(3.69	)%

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.

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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 March 31, 2005, 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 investment portfolio, net of borrowings and hedges, 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.

				Basis Point Increase (Decrease) in Interest Rate
				(100)				(50)				Base				+50				+100
				(Years)
Duration of Assets					1.42				1.79				2.07				2.24				2.34
Duration of Borrowings and Hedges					1.67				1.83				2.00				2.18				2.37
Net Portfolio Duration					(0.25	)			(0.04	)			0.07				0.06				(0.03	)

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 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

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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.

•	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 4.    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 Note 1A to the consolidated 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, commencing November 24, 2004, we

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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. As of March 31, 2005, we qualified for and elected to apply SFAS No. 133 fair value hedge accounting for forward sales commitments.

We expect that we will continue to comply with the documentation requirements of SFAS No. 133 for all hedged loans held for sale, and for interest rate caps and swaps. 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.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

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, we are a defendant in various other legal proceedings involving matters generally incidental to our business. Although it is difficult to predict the outcome of these other proceedings, management believes, based on discussions with counsel, that any ultimate liability will not materially affect our consolidated financial position or results of operations.

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

None.

Item 3.    Defaults Upon Senior Securities

None.

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

None.

Item 5.    Other Information

None.

Item 6.    Exhibits

Exhibits filed with this Form 10-Q:

No.				Description
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.
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.).

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No.				Description
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.).

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Pursuant to the requirements 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:   May 12, 2005

By:    /s/ GLENN J. MOURIDY

Name:   Glenn J. Mouridy Title: President and Chief Financial Officer Date:    May 12, 2005

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