8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (date of earliest event reported): December 21, 2005

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

(Exact name of Registrant as specified in its charter)

Virginia	54-1873198	000-50230
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)	(Commission File Number)

1001 Nineteenth Street

North Arlington, VA 22209

(Address of principal executive offices) (Zip code)

(703) 312-9500

(Registrant’s telephone number including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01.    Regulation FD Disclosure.

On December 21, 2005,  Friedman, Billings, Ramsey Group, Inc.  (the "Company")  held a conference call to discuss the matters announced in its press release dated December 21, 2005, and as set forth in the Form 8-K filed on December 21, 2005.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed "filed" for the purposes of Section 18 of the Securities Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01   Financial Statements and Exhibits.

EXHIBIT

 99.1      December 21, 2005 Conference Call Transcript.

  

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

	FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
December 22, 2005	By:	/s/ Eric F. Billings
		Eric F. Billings      Chairman and Chief Executive Officer

EX-99.1

EXHIBIT 99.1

Friedman, Billings, Ramsey Group, Inc. Conference Call Transcript
Wednesday, December 21, 2005

Eric Billings, Chairman and Chief Executive Officer
Richard J. Hendrix, President and Chief Operating Officer
J. Rock Tonkel, President and Head of Investment Banking
Kurt R. Harrington, Chief Financial Officer

KURT HARRINGTON--
Thank you. Good afternoon. Before we begin this afternoon's call, I would like
to remind everyone that statements concerning future performance, developments,
events, market forecasts, revenues, expenses, earnings, run rates, and any other
guidance on present or future periods constitute forward-looking statements.
These forward-looking statements are subject to a number of factors, risks, and
uncertainties that might cause actual results to differ materially from stated
expectations or current circumstances.

These factors include but are not limited to the effect of demand for public
offerings, activity in secondary securities markets, interest rates, our cost of
borrowing, interest spreads, mortgage prepayment speeds, mortgage delinquencies
and defaults, the risks associated with merchant banking investments, the
realization of gains and losses on principal investments, available
technologies, competition for business and personnel, and general economic,
political, and market conditions.

Additional information concerning these factors that could cause results to
differ materially is contained in FBR Group's annual report on Form 10-K, and in
quarterly reports on Form 10-Q. I would now like to turn over the call to FBR
Group's Chairman and Chief Executive Officer Eric Billings. Also joining us this
evening are Rick Hendrix, President and Chief Operating Officer, and Rock
Tonkel, President and Head of Investment Banking.

Eric Billings --
Good afternoon everyone. Let me start by saying that this call today is
specifically regarding an update on our MBS portfolio. We won't be discussing
the quarter, the year, or our outlook for 2006 today. We'll be back to you in
mid-February on that as part of our normal fourth quarter and year-end
announcement.

As we just announced about an hour ago, we have decided to reposition our
mortgage-backed securities portfolio, a move involving the sale of some portion
of the portfolio beginning in the first quarter of 2006. While this
repositioning is consistent with FBR's existing investment strategy which
includes maintaining a balance between our agency and non-prime mortgage
portfolios, it marks a change in our intent to hold securities in our MBS
portfolio that have unrealized loss positions until a recovery of fair value
occurs. Consequently, we have concluded that the unrealized losses in the values
of securities in the MBS portfolio as of December 31, 2005, a substantial
portion of which was reflected in the Company's September 30, 2005 balance sheet
in Accumulated Other Comprehensive Loss (AOCL), should be considered "other than
temporary" impairment, as defined in Statement of Financial Accounting
Standards(SFAS) 115, and will be recorded as a pre-tax charge to our earnings in
the fourth quarter of 2005.

Although the amount of the charge will be determined by fair values at year-end,
based on today's fair value of the MBS portfolio, the charge to pre-tax earnings
for the fourth quarter, net of hedging activities, would be approximately $185
million. This amount is $28 million or 16 cents per share greater than the $157
million AOCL that was already recorded for the MBS portfolio through the third
quarter of 2005. This will be a non-cash charge and may be adjusted up or down
depending on the year-end market values of the individual securities in the
portfolio. Our year-end book value would be the same whether or not we decided
to take these charges to income. We estimate book value at the end of the year
will be approximately $8.00 per share.

In addition, in connection with the preparation of our quarterly financial
statements, we may conclude that other than temporary impairment charges are
warranted with respect to certain unrealized losses in our merchant banking
equity investments. At Q3 our net mark was $52 million and as of the close of
business today it was virtually unchanged. As always we will evaluate each
security in the portfolio on an individual basis, and it is likely that we will
determine that certain investments represent other than temporary impairments by
accounting standards. That said, I want to reiterate that we like the businesses
we own in the portfolio and are confident we will continue to achieve very
acceptable returns on the portfolio as a whole.

The decision to reposition the MBS portfolio was influenced by, among other
things, the continuation of short-term rate increases by the Federal Reserve
Board and the associated flattening of the yield curve, both of which have
created a negative spread in our MBS portfolio. Repositioning this portfolio
will allow us to achieve higher returns on our capital than we would otherwise,
and will have a significant positive effect on our earnings going forward.
Specifically, this decision will result in 2006 earnings being approximately
$100 million higher than they would be otherwise. We also believe that taking
this charge now in the fourth quarter of 2005 will increase our capacity to pay
dividends according to our policy.

While this is a significant write-down, it is the right thing to do for the
business. Since 2001 through this year and including the write-down, our
mortgage portfolio has produced very acceptable returns for the business-
exceeding a 15% return on equity over that period. Historically however, we have
focused on achieving the maximum returns available, regardless of the timing of
those returns. Going forward, we plan to hedge our liabilities in this portfolio
more extensively, generating more stable returns as we move forward.

This step we are taking today is the right action to put us on a much better
footing for the future, and to put a tough 2005 behind us. Our investment
banking and institutional brokerage businesses have been growing share and
performing very well, but pressures in our mortgage-related businesses have been
overshadowing that performance. I am optimistic that we will now be able to
enter 2006 in a position to maximize earnings and our dividend paying capacity.

Let me now open the call to your questions.  Operator?

Operator: [Operator Instructions].

Your first question comes from Steven Eisman, FrontPoint.

STEVEN EISMAN:
Hi, thanks for taking my question. I have two questions. The first question is,
why is this charge being called a non-cash charge, if you're going to be selling
securities at an actual loss? Then I have a question afterwards please.

RICHARD HENDRIX:
The charge as it's taken will be noncash, because we
will not have sold any securities before the end of this year. And to the extent
that we do sell securities, it may become cash, obviously, based on what we
invest in those mortgages, but we're not trying to telegraph that we're
about to sell the entire portfolio. So it is non-cash in 2005, and to the extent
that we sell assets in 2006, it will be cash against those original investment
amounts.

STEVEN EISMAN:
Okay, and second question, I'd like a clarification if you could please on the
merchant banking portfolio. I think Eric said that the negative mark is still
roughly around 52 million dollars. But that mark does not include any marks on
the private equity portfolio which until now have been held at cost. Is there a
possibility here of write-downs on the private equity portfolio as well? Also,
related, on the last call, I asked a question about this portfolio and about the
potential for permanent impairment charges and in response to that question,
Kurt said that the company did not see at this time any permanent impairment
charges in any part of the portfolio. That call occurred on October 26th. It's
two months later. Could you tell us what has happened since then to perhaps
change your mind?

RICHARD HENDRIX:
Sure. This is Rick. As we talked about in that call, and as we always have, the
determination for other than temporary impairment charges with regard to the
merchant portfolio is different than it is with fixed income portfolio. So
with the merchant portfolio, by definition, you can't hold these equities to
maturity; there is no ultimate maturity. So the test is how far below your cost
basis those securities are currently valued and for how long they have been
valued meaningfully below your cost basis. Just through the passage of time,
we're getting closer to the point where it would be
appropriate if those securities continued to trade meaningfully below their cost
basis, to look at an other than temporary impairment charge. And what we're
telling people is, that in certain securities, as we make that evaluation, which
will take place as part of our normal closing process that we now believe it's
likely that certain of these securities will have other than temporary
impairments associated with them. So...

STEVEN EISMAN:
Could you say that that is also true with respect to some of the private equity
positions that are not public?

RICHARD HENDRIX:
That could also be true with  respect to some of the  private  equity  positions
that are not public. And just to be clear, because,  Steve, we talked about this
on the third quarter call. At that time you were asking  specifically about CMET
and People's Choice, which are two securities we hold at cost currently.  And we
won't know until we get to the end of our reporting  period whether or not those
would be other than temporarily impaired,  but they will certainly be securities
that we would look at. To the extent  that it's  appropriate  we'll  write those
down to whatever the current values are.

ERIC BILLINGS:
And clearly,  Steven, it is our intent at this time to look at all securities as
is very  appropriate,  and to put 2006 on a very, very positive  footing.  So we
will be, you know,  scrutinizing  the  portfolio  very very  carefully  in these
regards but I do want to stress that assuming  that that were to occur,  none of
this  would  change,  the fact in that any  case,  regardless  of the  amount to
include all of it,  would it not result in a book value  meaningfully  different
than the $8 book value.

STEVEN EISMAN:
Okay. Thank you very much.

OPERATOR: Your next question comes from Richard Herr. [Keefe, Bruyette & Woods]

RICHARD HERR:
Hi. Good Afternoon.

RICHARD HENDRIX:
Hi.

RICHARD HERR:
Just a question on the extra $100 million that you expect to have now at 2006.
Could you kind of give us an idea of how much you plan on selling in order to
reposition the portfolio to generate that 100 million, how much MBS you plan on
selling?

RICHARD HENDRIX:
Well, Richard,  we're going to make determinations  about how much we sell as we
go through the first  quarter and through '06. So we're not really in a position
to tell you specifically,  you know, what type of transactions may occur. What I
will tell you is that simply by writing down the  portfolio  the yield that gets
reported will be improved.  Now,  obviously,  we would not have this  write-down
unless we had  changed  our  intent  with  regard to  holding a portion  of this
portfolio,  so there will be sales and the  reinvestment  of those  proceeds  in
addition to the higher  yields on the existing  portfolio,  are going to be $100
million or more.  But we're not in a position  right now to be talking about how
much specifically we may sell.

RICHARD HERR:
Okay. So just so I'm clear, the $100 million is not necessarily based on selling
anything. It's just the improvement on the yield from marking these positions
down.

RICHARD HENDRIX:
No you have a combination of both in there. And again, we clearly intend to
sell, as we said in the press release. Whether that number turns out to be,
25% or 50% is not clear today. In any of those events, we're going to have
the kind of improvement in earnings that we're talking about.

RICHARD HERR:
Okay,  okay. So I'll guess we should kind of take that $100 million  increase as
kind of -- how should we be thinking about that then if we're not given any kind
of guidance in terms of how to think  about the capital  reposition  towards the
sub-prime portfolio?

RICHARD HENDRIX:
We're not saying we're  repositioning  this capital in the sub-prime  portfolio.
That $100 million to the extent that there are any  reinvestment  assumptions in
it are very modest, single-digit-type reinvestment decisions. Because in today's
market the  opportunities  to redeploy to MBS are, you know,  there, but they're
limited,  and you're not being paid a lot for the leverage.  So just reinvesting
into the  un-leveraged  mortgage  securities would provide with you a little bit
over a 5%  yield,  and it  doesn't  take much more than that to get to your $100
million number.

RICHARD HERR:
Okay.  Okay, the press release mentions the negative spread in the MBS. Is there
any way you can maybe  quantify?  Is it kind of where it was last  quarter,  the
negative 35 BPS, or has it kind of trended lower since then?

RICHARD HENDRIX:
Well, it's trended lower. Our cost of funds today as we sit here is about 4.35%,
now it won't average that for the quarter, because that includes the last rate
hike, but we have got a 4.35 cost of funds, give or take right now, and our
reported yield is going to be, something below 3.4%.

RICHARD HERR:
In the agency...

RICHARD HENDRIX:
In just the agency portfolio.

ERIC BILLINGS:
In the MBS portfolio. You are referring to a combination, but the MBS will be at
that level.

RICHARD HERR:
Okay. Thank you very much.

ERIC BILLINGS:
Thank you, Richard.

OPERATOR:
Your next question comes from Riley Tiffany from Cambridge Place Investment.

RILEY TIFFANY:
Hi guys. I want to try to just ask a corollary question to what Rich was getting
at,  which is when you reduce the  portfolio,  assuming  that you must have some
kind  of game  plan to kind of  reduce  the  portfolio,  how do you  think  your
financial  leverage will come out, kind of vis-a-vis the reduction and vis-a-vis
the reduction in book value that ensues?

ERIC BILLINGS:
Again,  reduction in book value is less than 3%. So,  first of all,  that's very
small versus third quarter. But we would anticipate probably the likely event as
we look at the world today, and obviously this can change, is that our liquidity
and our  leverage,  our  leverage  will go down  during the course of this year,
maybe  meaningfully,  and our liquidity will increase fairly  substantially this
year. We will react to investment opportunities as they occur. Our model that is
generating  the growth of earnings over 100 million,  as Rick said,  using very,
very conservative  reinvestment options. Should, and if the environment changes,
then we can invest more effectively, then we would react. But as the environment
exists today, we would anticipate that we would keep the redeployed capital that
we have in a fairly un-leveraged circumstance.

RILEY TIFFANY:
Can I just ask, you also  mentioned in the third quarter  release that about 6.5
billion of the MBS portfolio will prepay or reprice in the next eighteen months.
Could that be a decent  benchmark for to us think about the amount that might be
reduced,  because you said that that would be  substantially  beneficial  to the
yield, and therefore the spread on the portfolio.

RICHARD HENDRIX:
That is the case, but that's not probably a number that you want to think about
in terms of what we might sell. We have securities that are repraising at this
- -- and as we make determinations on what we may sell after the write-dant's
going to be based on what our expectations are in terms of total returns for
those individual securities. So it very well could be the case that you'd sell
your longer dated assets that aren't going to be repricing, keep the shorter
dated assets and get to a point where 100% of the portfolio is either going to
be socialtiond prepay, or repraise, and I'm not saying that'sing what going to
happen but that would be a reasonable way to lack at the portfolio.

RILEY TIFFANY:
And just one more question. You increased the duration on the portfolio, or the
portfolio's duration increased to 1.29 at the end of the third quarter. Can you
give us some idea about whether that duration will have increased in this
quarter and, therefore, your sensitivity to the flat curve?

RICHARD HENDRIX:
I don't have a duration number on the portfolio right in front of
me. I suspect, just based on the roll down, the fact than we haven't invested in
any new ARM securities that would have extended maturities for the portfolio, we
should have a lower duration at the end of the year, even prior to any sales
than we did at September 30th.

RILEY TIFFANY:
Okay. Thanks a lot, guys.

RICHARD HENDRIX:
Thank you.

OPERATOR:
Your next question comes from Adam Weinrich, Basswood Partners.

ADAM WEINRICH:
Hi,  thank you.  Just a question on -- a strategic  question  on  investing  and
securities  funded  with  basically,  REPOs at the  overnight  rate.  If I think
through  the cycle why should we ever earn better on,  something  better on that
business  than the OAS at which  you  bought  the  securities?  I mean I've been
waiting for this change to come for a while. It seems almost inevitable when you
take that kind of  interest  rate  mismatch.  Why would you ever earn  something
better than the OAS in this cycle, and why do it in the first place?

ERIC BILLINGS:
Well, I guess could you look at the history of the portfolio going back over the
last five years since 2001 when we started investing the portfolio. And as we've
indicated the return  through that time frame  including the write-down has been
approximately  15%, and so the intent going  forward  would be to put on certain
hedges,  and some  various  different  forms that can  provide  returns  that
are at minimum acceptable levels, even in more adverse circumstances, and
although may cause  certain  periods of returns - for  instance,  when the yield
curve is steeper,  our returns were considerably higher, they would be less high
because of the hedging that we would do, but would also mitigate  these kinds of
activities.  And so,  when you look at that time total  return of the  portfolio
over the  time,  we  believe  that the  returns  are very  acceptable  given the
character  and the nature of the business and will continue to be. And they will
reflect the yield curves,  and in certain  environments they will be better than
other  environments.  We will react  accordingly.  But we do intend to hedge the
portfolio  much more  significantly  on a go forward base and cause the earnings
stream to be less volatile than it has been historically.

ADAM WEINRICH:
Right. I mean, but I guess,  aside from taking  interest rate risk,  which is, I
guess, basically what you end up doing, but I think that economically,  how does
one earn more than the OAS of the mortgage backed from this sort of strategy?  I
mean  Freddie Mac played that game for ten years and now they freely  admit they
wont earn more,  they can't earn more than the OAS. I mean,  is there  something
that  you can do to earn  more  than  just  the  option-adjusted  spread  in the
mortgages, or is it sort of this GAAP, kind of, this difference between GAAP and
how a fixed income portfolio manager might view that?

ERIC BILLINGS:
Well again,  you're very academic and theoretical and very  interesting.  Having
said that, we can tell you what's happened historically, and this is in cash and
has been paid out in the form of the cash  dividends.  And so, to the degree you
descrine, it is taking rate risks, certainly there's a portion of this which is,
in point of fact,  has a rate risk component to it, and which to a certain level
of degree,  is acceptable to us. Clearly we will hedge the portfolio,  as I said
more  significantly,  to provide certain minimum levels on every marginal dollar
invested of equity  capital.  But these are dynamic  portfolios,  and as dynamic
portfolios  in any  financial  business,  that  provides  an  ability  to invest
capital. As new capital rolls off, you redeploy it in a new environment. And so,
if you assume,  for  instance  that today we would  redeploy  capital,  we would
deploy  capital on a  leveraged  basis at a low ROE,  maybe 8 or 9%, and so one,
let's assume that the Fed stops  raising  rates.  While,  eventually  the agency
assets to the degree that we reprice  up, then we'll have a higher  opportunity,
and at the dynamic  portfolio,  that will get us a blended  ROE, and the inverse
will occur and there will be movement  around that.  We think the history of the
returns  demonstrates that if you manage the portfolio that way, you can achieve
returns that are  acceptable  and will continue to be. But there are a number of
different components to this.

ADAM WEINRICH:
Okay. Thank you.

OPERATOR: Your next question comes from Eric Caudell, Harvey Capital.

ERIC CAUDELL:
A lot have been asked and answered, but can you just reiterate again so
basically basically isn't going to affect the increased emphasis on the
changeover to the percentage of assets in the first portion of the portfolio?

RICHARD HENDRIX:
No, and that we intend to keep  virtually  all, I mean we're always  moving some
capital  around within the business at any point in time. But virtually all this
in the MBS  portfolio  now.  Your  question  was on assets and the asset mix may
change things, and how much leverage we employ with the capital.  But really, we
have  not  changed  the  strategy.  We  continue  to  believe  that  there's  an
appropriate mix between the non-prime assests and the agency assets.  And so the
bulk of this capital will be reinvested  there, and hence to the extent that its
not invested  there over time,  and I say 'over time' simply because we're going
to be  patient in the  redeployment  here,  it  probably  wouldn't  -- go to the
nonprime  portfolio.  It may go to other parts of our business as we continue to
build out.

ERIC CAUDELL:
I guess from, if you are selling more of the conforming portfolio and continuing
to go the sub-prime portion, so the percentage of sub-prime assets say middle of
next year,  its going to be higher  than it  otherwise  would be if you  haven't
taken this action, is that...

RICHARD HENDRIX:
Well, I think we made pretty  clear at the end of September  that we had reached
the asset  levels from a target  standpoint  that we  intended in the  non-prime
portfolio. So we are continuing to build that portfolio now. Just by definition,
if we take assets down on the agency side, thats going to change the asset mix a
little bit, but its not going to change the capital mix which is generally  what
we've  discussed  as kind of a 60:40  to  70:30  mix  with  more of the  capital
invested in the agency side of the business.

ERIC CAUDELL:
Got it. Okay, thanks very much.

RICHARD HENDRIX:
Thank you.

OPERATOR:
Your next question comes from Richard Herr, KBW.

RICHARD HERR:
Hi guys. Thanks for taking my follow-up. Just if you could touch on briefly was
there any, do you expect to have any kind of gain on sale in Q4?

ERIC BILLINGS:
Gain on sales...

RICHARD HERR:
[indiscernible]...route to save Q3 levels?

ERIC BILLINGS:
Richard, we're really not talking about the Q4 results right now if you are
referring to merchant activities and things like that. We really will do that in
a conference call when we get into February.

RICHARD HERR:
Okay, fair enough and maybe just lastly you can discuss a little bit on the
capital with the broker dealer and maybe how much the loan, what the loan looks
like from the broker dealer to the REIT holding company? Thanks.

RICHARD HENDRIX:
Rich,  I mean,  we're moving  capital  around  between the two  entities  fairly
frequently.  It's not -- I don't have in that front of moment  again,  we're not
intending to discuss our overall results. Fourth quarter results, we're going to
get into that in the middle of February.  But in any event,  it doesn't have any
impact on this portfolio.

ERIC BILLINGS:
Yeah, when we maintain  somewhere  around $150 to $175 million of capital in the
broker-deal,  and  that  will  up and  down,  just  with  different  activities,
depending  on  regulatory  underwriting,  that we  require  different  levels of
capital  usually  for day or two days or  something  like that and we'll move it
back and forth.

RICHARD HERR:
Okay, and do you think that this, the loans from the broker-dealer to the REIT
could be in excess of where it ended last year, around $85 million?

ERIC BILLINGS:
Kurt is saying right now, its zero.

RICHARD HERR:
IT'S 0. SO THE LOAN IS REPAID.

ERIC BILLINGS:
Yes, but it moves -- as I said it moves back and forth-- it's a cash management
tool. Its really nothing more or less than that.

RICHARD HERR:
Okay, thank you.

ERIC BILLINGS:
Thank you.

OPERATOR: Your next question comes from Alvar Soosaar, Cohen Brothers.

ALVAR SOOSAAR:
Hey guys, that I was wondering whether since these securities were listed as
being held to maturity, previous periods, whether this may cause you to
restate some of those prior period earnings.

RICHARD HENDRIX:
Yeah,  there's no statement  in  connection  with this  charge.  There is simply
deeming  the change in value  other than  temporary  impairment.  We're going to
continue to have the portfolio as an  available-for-sale  portfolio.  There's no
restatement of previous  numbers and there is no change in our accounting  going
forward.

ALVAR SOOSAAR:
Okay thanks.

RICHARD HENDRIX:
Thank you.

OPERATOR:
Your next question comes from David Honold, Turner Investments.

DAVID HONOLD:
My question was asked, thanks.

ANSWER:
Thank you.

OPERATOR:
Your next question comes from Mark Patterson, NWQ Investment Management.

MARK PATTERSON:
On the RMBS  portfolio I guess I'm trying to put all pieces  together.  If, when
you sell some  assets  at the  beginning  of the year,  or I guess you make that
decision  whenever  you do, your idea would be that  leverage  would be lowered,
even if you have to  reinvest  in some new assets  you'd have  lowered  leverage
ratio going forward the on the RMBS portfolio?

RICK HENDRIX:
In this environment, yes, Mark. As we said
we're going to be patient with the redeployment of capital, the opportunities
and what you're paid for the incremental leverage is not terribly attractsive
today. I would expect we're going to have lower leverage, certainly for the next
few quarters.

MARK PATTERSON:
Okay,  and then with  respect to the reit rules,  i mean how, is there a certain
level in terms of how large the  portfolio is that you can go down to or is that
not even part of the discussion?

RICHARD HENDRIX:
Well,  it's always part of the  discussion  because we pay  attention to it, but
we've  been in such  substantial  compliance,  in the high 90s,  in terms of our
asset mix,  against the 75% test.  But even if we took the MBS assets to 0, we'd
still  have,  very,  very  significant  margins  for  compliance.  So there's no
practical issue with regard to the REIT rules.

MARK PATTERSON:
Okay. More on the portfolio. You mentioned that you increased the amount of
hedging that you do going forward as well so if you have lower leverage on the
portfolio and you also increase the hedging, is there a certain type of I guess
optical ROE that you're looking at seeing for a new portfolio? I mean, it's
obviously going to be lower.

ERIC BILLINGS:
Well  Mark,  on the  margins  so what  we're  really  talking  about then on the
marginal new invested  asset.  I think what we would like to target is a minimum
return of, say, 9% on an incremental asset that we would invest,  and ideally it
would be  higher  than  that but  that is where we would  protect  it so that it
wouldn't  be lower than that.  But then  because  of the  dynamic  nature of the
portfolio,  new capital that would then be deployed  subsequent days or weeks or
months or  quarters,  at ideally  higher level and the blended  totality,  would
allow to us achieve returns that would be, on balance, higher than what we would
protect to our lowest  level.  But I think what we intend to do with the hedging
is give a certain  minimum  returns in the  portfolio,  albeit,  we would expect
certainly to achieve higher returns than that, certainly on average and with any
of the equity deployed.

MARK PATTERSON:
Okay. I guess the assets that would you consider selling, are these assets that
are, you know, getting close to their reset dates in general?

ERIC BILLINGS:
Again,  Mark,  we're really not very into what we would or would not sell. We're
simply  saying  that we will look at this in the  ensuing  time frames and we'll
make the appropriate  judgments,  but again, the easiest way to think about this
is this 185 mark in the environment that we are in now, we're going to lose that
money in any case.

MARK PATTERSON:
Right.

ERIC BILLINGS:
So, by just  holding  these  assets  through the  timeframe,  we would lose that
capital.  And by taking this action, we not only will not lose that capital,  we
will  redeploy the capital so as to get that back and more. So we will achieve a
considerably better net present value in the deployment of the capital this way.
But how  we'll do that  precisely  Mark will  really  just  depend  on  numerous
different  factors as we go into the next  weeks,  and months and  quarters  and
we'll  make  judgments  accordingly.  There are good  opportunities  in  certain
respects  either way. You could make a case that  selling some of these  shorter
dated assets are better than the longer.  But there's great case in the inverse,
and these are different things we balance as we make those judgments as we go.

MARK PATTERSON:
Okay, and in respect to the $100 million that you had brought up and a couple of
questions  have been asked about it, the $185 million,  roughly you look at that
and say if you had CPRs of,  say,  call it 30%,  you might see $50,  $60 million
come through as an offset of yourt amortization of that negative OCI components.
So that's like a meaningful piece of the 100 million.

RICHARD HENDRIX:
Well, just to be clear, Mark, what you're saying is...

MARK PATTERSON:
If you had the negative?

RICK HENDRIX:
Of the $100 million, a lot of that will be premium amortization.

MARK PATTERSON:
A lot of the  $100  million  would be the  absence  of the  amortization  of the
negative mark in the OCI.

RICHARD HENDRIX:
That's true. No question about that.

MARK PATTERSON:
Okay.

RICHARD HENDRIX:
But I think, in addition to that, because with that really gets into what
the GAAP earnings are; this is when Eric talks about the net present value
benefit of this, thats a cash analysis.

MARK PATTERSON:
Yeah I understand that.

RICHARD HENDRIX:
And so te cash analysis is meaningfully positive as well.

MARK PATTERSON:
Yeah okay. One more question on the port -- the merchant portfolio. I believe it
was Steve's questions, you know, as I understood it, I don't have the list in
front of me, but it was about a quarter of the portfolio was private, as I
recall. Is that roughly a decent number?

RICK HENDRIX:
That's probably high in terms of capital. Maybe accurate
in terms of names.

MARK PATTERSON:
Okay. And the -- the People's Choice position I know is like a 10%, 10% plus
position.

RICK HENDRIX:
People's Choice our basis on that investment is $32.9 million.

MARK PATTERSON.
Okay on 300. OKAY. GREAT. THANKS.

RICHARD HENDRIX:
Sure.

ERIC BILLINGS:
Thanks Mark.

OPERATOR:
Your next question comes from Jeff Hires, Third Point.

JEFF HIRES:
Good afternoon and thanks for taking my call. A question about the $100 million
and earnings accretion. Does that incorporate the current forward curve and the
resulting impact on your MBS portfolio and funding costs? Or was that a static
measure based upon the asset mark-down, the yields today, and your current
funding costs?

RICHARD HENDRIX:
Yes that's based on the forward curve.

JEFF HIRES:
Okay, thank you.

OPERATOR:
At this time there are no further questions.

ERIC BILLINGS:
Well, thank you all for joining us. We appreciate it, and we will look forward
to speaking to you all in the future, and I look forward to a very good 2006.
Thank you all again.

OPERATOR:
THIS CONCLUDES TODAY'S CONFERENCE CALL. YOU MAY NOW DISCONNECT.