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

FORM 10-Q

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

For the quarterly period ended: September 30, 2006

OR

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

For the transition period from                      to    

Commission File Number: 001-32213

MORTGAGEIT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Maryland			20-0947002
(State or other jurisdiction of incorporation or organization)					(IRS EmployerIdentification Number	)
33 Maiden Lane New York, New York			10038
(Address of principal executive offices)			(Zip Code)

Registrant's telephone number, including area code: (212) 651-7700

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

Yes     No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer             Accelerated filer             Non-accelerated filer

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

Yes       No   

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

COMMON STOCK, $0.01 PAR VALUE PER SHARE: 29,185,984 SHARES OUTSTANDING AS OF OCTOBER 31, 2006.

TABLE OF CONTENTS

						PAGE
Forward-Looking Statements								3
Part I			Financial Information					4
Item 1.			Financial Statements					4
			Consolidated Balance Sheets					4
			Consolidated Statements of Operations (Unaudited)					5
			Consolidated Statements of Comprehensive Income (Loss) (Unaudited)					6
			Consolidated Statements of Changes in Stockholders' Equity (Unaudited)					7
			Consolidated Statements of Cash Flows (Unaudited)					8
			Notes to Consolidated Financial Statements					9
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations					31
Item 3.			Quantitative and Qualitative Disclosures About Market Risk					57
Item 4.			Controls And Procedures					62
Part II.			Other Information					63
Item 1.			Legal Proceedings					63
Item 1A.			Risk Factors					64
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds					64
Item 3.			Defaults Upon Senior Securities					64
Item 4.			Submission of Matters to a Vote of Security Holders					64
Item 5.			Other Information					64
Item 6.			Exhibits					64
			Signatures

2

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain ‘‘forward-looking statements,’’ which are based on management's current expectations. Such forward-looking statements include information concerning possible or assumed future results of operations, trends, financial results and business plans, including, among other things, the ability of MortgageIT Holdings, Inc. (the ‘‘Company’’) to fund a fully-leveraged, self-originated loan portfolio, its anticipated loan funding volume and its ability to pay dividends. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that relate to future events and are generally identifiable by use of forward-looking terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘potential,’’ ‘‘intend,’’ ‘‘expect,’’ ‘‘endeavor,’’ ‘‘seek,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘overestimate,’’ ‘‘underestimate,’’ ‘‘believe,’’ ‘‘could,’’ ‘‘project,’’ ‘‘predict,’’ ‘‘continue’’ or other similar words or expressions. Forward-looking statements are based on the current economic environment and management's current expectations and beliefs, and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Forward-looking statements are inherently subject to significant economic, competitive, and other contingencies that are beyond the control of management. The Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to: its mortgage bank subsidiary’s continued ability to originate new loans, including loans that the Company deems suitable for its securitization portfolio; changes in the capital markets, including changes in interest rates and/or credit spreads; and the risk factors or other uncertainties described from time to time in the Company's filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K and this quarterly report on Form 10-Q.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this report. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company does not undertake, and specifically disclaims, any obligation to update or revise any of the forward-looking statements after the date of this quarterly report on Form 10-Q, to conform these forward-looking statements to actual results or to update the reasons why actual results could differ from those projected in the forward-looking statements.

3

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

			September 30, 2006						December 31, 2005
			(Unaudited)
ASSETS
Cash and cash equivalents				$	43,860					$	36,757
Restricted cash					2,641						712
Marketable securities held to maturity					—						3,675
Portfolio ARM Loans
ARM loans collateralizing debt obligations, net					4,642,282						4,681,554
ARM loans held for securitization, net					—						282
Total Portfolio ARM Loans					4,642,282						4,681,836
Mortgage loans held for sale					3,499,918						3,378,197
Mortgage-backed securities – available for sale					20,982						23,357
Hedging instruments					46,639						54,472
Accounts receivable, net of allowance					140,936						146,043
Prepaids and other assets					44,373						31,262
Goodwill					11,639						11,639
Property and equipment, net					16,607						13,941
Total assets				$	8,469,877					$	8,381,891
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Collateralized debt obligations				$	4,442,590					$	4,485,197
Warehouse lines payable					3,318,868						3,177,990
Repurchase agreements					94,692						87,058
Hedging instruments					7,422						8,801
Junior subordinated debentures					128,871						77,324
Notes payable and other debt					15,000						15,000
Accounts payable, accrued expenses and other liabilities					130,767						176,619
Total liabilities					8,138,210						8,027,989
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 125,000,000 shares authorized; 29,276,384 issued and 29,185,984 outstanding in 2006; 28,889,540 issued and 28,799,140 outstanding in 2005					293						289
Treasury stock					(1,178	)					(1,178	)
Additional paid-in capital					395,016						393,304
Unearned compensation – restricted stock					(3,174	)					(5,889	)
Accumulated other comprehensive income (loss)					8,189						13,225
Accumulated deficit					(67,479	)					(45,849	)
Total stockholders' equity					331,667						353,902
Total liabilities and stockholders' equity				$	8,469,877					$	8,381,891

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

4

MortgageIT Holdings, Inc. and Subsidiaries

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

			Three months ended September 30,												Nine months ended September 30,
			2006						2005						2006						2005
Revenues:
Gain on sale of mortgage loans				$	71,119					$	61,612					$	185,744					$	140,704
Brokerage revenues					4,301						7,506						16,549						20,179
Interest income					114,341						90,384						344,884						212,036
Interest expense					(115,530	)					(75,741	)					(336,853	)					(156,482	)
Net interest (expense) income					(1,189	)					14,643						8,031						55,554
Realized and unrealized (loss) gain on hedging instruments					(1,727	)					—						1,706						9,742
Other					797						209						1,654						715
Total revenues					73,301						83,970						213,684						226,894
Operating expenses:
Compensation and employee benefits					38,742						39,037						111,388						99,051
Processing expenses					16,515						16,014						63,301						40,064
General and administrative expenses					7,130						6,112						22,854						19,117
Rent					2,748						2,700						9,942						7,257
Marketing, loan acquisition and business development					1,320						1,206						3,864						3,126
Professional fees					4,437						2,411						10,879						7,238
Depreciation and amortization					1,699						984						4,888						2,621
Total operating expenses					72,591						68,464						227,116						178,474
Income (loss) before income taxes					710						15,506						(13,432	)					48,420
Income tax (benefit) expense					(731	)					6,841						(15,989	)					15,607
Net income				$	1,441					$	8,665					$	2,557					$	32,813
Per share data:
Basic				$	0.05					$	0.31					$	0.09					$	1.47
Diluted				$	0.05					$	0.30					$	0.09					$	1.44
Weighted average number of shares – basic					28,491						28,077						28,409						22,381
Weighted average number of shares – diluted					28,805						28,427						28,626						22,788

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

5

MortgageIT Holdings, Inc. and Subsidiaries

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

			Three months ended September 30,												Nine months ended September 30,
			2006						2005						2006						2005
Net income				$	1,441					$	8,665					$	2,557					$	32,813
Other comprehensive income:
Realized and unrealized (loss) gain on hedging instruments arising during the period					(30,071	)					20,254						1,985						9,008
Unrealized (loss) gain on mortgage-backed securities – available for sale, net of amortization					(367	)					—						317						—
Reclassification of (gain) loss included in net income					(1,615	)					1,062						(7,338	)					1,935
Net realized and unrealized gain (loss) during the period					(32,053	)					21,316						(5,036	)					10,943
Comprehensive (loss) income				$	(30,612	)				$	29,981					$	(2,479	)				$	43,756

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

6

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Nine months ended September 30, 2006 (Dollars and shares in thousands)

			Common Stock												Treasury Stock						Additional Paid-In Capital						Accumulated Deficit						Unamortized Cost of Restricted Stock						Accumulated Other Comprehensive Loss						Total Stockholders' Equity (Deficit)
			Shares						Amount
Balance at December 31, 2005					28,799					$	289					$	(1,178	)				$	393,304					$	(45,849	)				$	(5,889	)				$	13,225					$	353,902
Issuance of common stock in connection with restricted stock grants					317						3						—						559						—						—						—						562
Issuance of common stock in connection with exercise of stock options					104						1												1,246																								1,247
Restricted stock forfeitures					(34	)					—						—						(315	)					—						315						—						—
Amortization of the cost of restricted stock					—						—						—						—						—						2,400						—						2,400
Stock based compensation					—						—						—						222						—						—						—						222
Other comprehensive (loss) income					—						—						—						—						—						—						(5,036	)					(5,036	)
Dividends declared on common stock – $.85 per share					—						—						—						—						(24,187	)					—						—						(24,187	)
Net income					—						—						—						—						2,557						—						—						2,557
Balance at September 30, 2006					29,186					$	293					$	(1,178	)				$	395,016					$	(67,479	)				$	(3,174	)				$	8,189					$	331,667

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

7

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)

			Nine months ended September 30,
			2006						2005
Cash flows from operating activities:
Net income				$	2,557					$	32,813
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization					7,985						7,957
Stock based compensation					3,184						2,483
Unrealized gain on hedging instruments					(945	)					(7,635	)
Net amortization of mortgage-backed securities					2,710						—
Impairment of mortgage-backed securities					95						—
Impairment of mortgage servicing rights					85						—
Changes in operating assets:
Increase in restricted cash					(1,929	)					(12	)
Increase in mortgage loans held for sale					(121,721	)					(2,509,137	)
Decrease (increase) in accounts receivable					5,107						(85,785	)
Increase in prepaids and other assets					(13,859	)					(6,168	)
Changes in operating liabilities:
(Decrease) increase in accounts payable, accrued expenses and other liabilities					(40,839	)					61,012
Net cash used in operating activities					(157,570	)					(2,504,472	)
Cash flows from investing activities:
Decrease (increase) in ARM loans					39,554						(2,071,726	)
Purchases of property and equipment					(7,554	)					(5,544	)
Proceeds from maturities of marketable securities					15,500						19,322
Purchases of marketable securities					(11,825	)					(15,460	)
Net cash provided by (used in) investing activities					35,675						(2,073,408	)
Cash flows from financing activities:
Net proceeds from issuance of junior subordinated debentures					48,451						72,618
Proceeds from collateralized debt obligations					733,093						3,057,367
Payments made on collateralized debt instruments					(775,700	)					(490,116	)
Net borrowings from repurchase agreements					7,634						8,223
Net proceeds (payments) on hedging instruments					2,597						(10,035	)
Distributions paid					(29,202	)					(27,166	)
Proceeds from notes payable					15,000						—
Repayment of notes payable					(15,000	)					—
Proceeds from issuance of common stock					—						150,086
Proceeds from the exercise of stock options					1,247						1,698
Net proceeds of warehouse lines payable					140,878						1,803,980
Net cash provided by financing activities					128,998						4,566,655
Net increase (decrease) in cash and cash equivalents					7,103						(11,225	)
Cash and cash equivalents at beginning of period					36,757						70,224
Cash and cash equivalents at end of period				$	43,860					$	58,999

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

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.

In the opinion of management, all material adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. The interim financial information should be read in conjunction with MortgageIT Holdings, Inc.'s 2005 Annual Report on Form 10-K.

Basis of Presentation

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

As discussed further in Note 11, 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 its investment loan portfolio. Mortgage banking operations include loan origination, underwriting, funding, secondary marketing and loan brokerage, title and insurance activities.

The consolidated financial statements included herein contain results for Holdings, Holdings' wholly owned subsidiaries, MHL Funding Corp., Next at Bat Lending, Inc., MHL Reinsurance Ltd. and MortgageIT, and MortgageIT's wholly owned subsidiary Home Closer LLC (‘‘Home Closer’’). Home Closer provides title, settlement and other mortgage related services to the Company and its customers. All material intercompany account balances and transactions have been eliminated in consolidation.

Reclassification

Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current year presentation.

Use of Estimates

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

Adjustable Rate Mortgage (‘‘ARM’’) Loan Investment Portfolio

The Company's ARM loan investment portfolio is comprised of ARM loans collateralizing debt obligations and ARM loans held for securitization (collectively referred to as ‘‘Portfolio ARM Loans’’ or ‘‘ARM Loans’’). All of the Company's Portfolio ARM Loans are traditional ARM Loans, meaning they have interest rates that reprice in one year or less (‘‘Traditional ARMs’’ or ‘‘Traditional ARM

9

loans’’), hybrid ARM Loans that have a fixed interest rate for an initial period of not more than five years and then convert to Traditional ARMs for their remaining terms to maturity (‘‘Hybrid ARMs’’ or ‘‘Hybrid ARM loans’’), or pay option ARM Loans (‘‘POAs’’) that have a low introductory rate for the first 30-90 days and, thereafter, reprice monthly on the basis of an index, such as the 12-month Treasury average.

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

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

ARM loans held for securitization are mortgage loans the Company has originated and intends to securitize and retain.

Mortgage Loans Held for Sale

Unallocated Mortgage Loans Held For Sale

Unallocated mortgage loans held for sale represent loans that have not yet been allocated to a forward sales commitment. At September 30, 2006 and December 31, 2005, unallocated mortgage loans held for sale are carried at the lower of adjusted cost or market value. Determining market value requires judgment by management in determining how the market would value a particular mortgage loan based on characteristics of the loan and available market information.

Allocated Mortgage Loans Held For Sale

Allocated mortgage loans held for sale represent loans that have been allocated to a forward sales commitment. For the nine months ended September 30, 2006 and the year ended December 31, 2005, the Company qualified and elected to apply Statement of Financial Accounting Standards (‘‘SFAS’’) No. 133 ‘‘Accounting for Derivative Instruments and Hedging Activities’’ (‘‘SFAS No. 133’’) fair value hedge accounting for allocated loans held for sale. Allocated mortgage loans held for sale are carried at the lower of adjusted cost or market value. Determining market value requires judgment by management in determining how the market would value a particular mortgage loan based on characteristics of the loan and available market information. Adjusted cost includes the loan principal amount outstanding, deferred direct origination costs and fees, and any adjustment to the carrying amount of loans resulting from the application of hedge accounting.

Mortgage-Backed Securities – Available for Sale

Mortgage-backed securities – available for sale represent beneficial interests the Company purchased in the MortgageIT real estate mortgage investment conduit (‘‘REMIC’’) securitization.

Mortgage-backed securities classified as available for sale are reported at their estimated fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) (‘‘OCI’’). 

Mortgage-backed securities represent the retained interests in certain components of the cash flows of the underlying mortgage loans or mortgage securities transferred to securitization trusts. As payments are received, the payments are applied to the cost basis of the mortgage related security. Each period, the accretable yield for each mortgage security is evaluated and, to the extent there has been a change in the estimated cash flows, it is adjusted and applied prospectively. The estimated cash flows change as assumptions for credit losses, borrower prepayments and interest rates are updated. The accretable yield is recorded as interest income with a corresponding increase to the cost basis of the mortgage security.

10

At each reporting period subsequent to the initial valuation of the purchased securities, the fair value of mortgage securities is estimated based on different methods, including independent valuations from broker dealers. Management’s best estimate of key assumptions, including credit losses, prepayment speeds, the market discount rates and forward yield curves commensurate with the risks involved, are used in estimating future cash flows. To the extent that the cost basis of mortgage securities exceeds the fair value and the unrealized loss is considered to be other than temporary, an impairment charge is recognized and the amount recorded in OCI is reclassified to earnings as a realized loss.

Loan Securitizations

The Company securitizes mortgage loans by transferring them to independent trusts that issue securities collateralized by the transferred mortgage loans. The Company generally retains interests in all or some of the securities issued by the trusts. Certain of the securitization agreements may require the Company to repurchase loans that are found to have legal deficiencies after the date of transfer. The accounting treatment for transfers of assets upon securitization depends on whether or not the Company has retained control over the transferred assets. The Company's accounting policy for ARM loan securitizations complies with the provisions of SFAS No. 140 ‘‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities’’ (‘‘SFAS No. 140’’). Depending on the structure of the securitization, the accounting for securitizations is treated as either a sale or secured financing for financial statement purposes. The securitization transactions in the Company's mortgage investment operations segment are treated as secured financings under SFAS No. 140 as the Company has retained control over the transferred assets. The MortgageIT REMIC securitization completed in February 2006 was treated as a financing under SFAS No. 140. The MortgageIT REMIC securitization completed in November 2005 was treated as a sale under SFAS No. 140.

Mortgage Servicing Rights

Mortgage servicing rights retained in the REMIC securitization are recorded at allocated cost based upon the relative fair values of the transferred loans and the servicing rights. Mortgage servicing rights are amortized in proportion to and over the projected net servicing revenues. Periodically, the Company evaluates the carrying value of mortgage servicing rights based on their estimated fair value. If the estimated fair value is less than the carrying amount of the mortgage servicing rights, the mortgage servicing rights are written down to the amount of the estimated fair value. For purposes of evaluating and measuring impairment of mortgage servicing rights the Company stratifies the mortgage servicing rights based on their predominant risk characteristics.

Mortgage servicing rights are recorded in other assets in the consolidated balance sheets. The servicing fee income associated with the mortgage servicing rights is reported in other income in the consolidated statements of operations.

Derivative Instruments and Hedging Activities

The Company manages its interest rate risk exposure through the use of derivatives, including interest rate swaps, Eurodollar futures, forward delivery contracts on mortgage-backed securities (‘‘TBA Securities’’), options on TBA Securities, forward sale commitments and interest rate caps. In accordance with SFAS No. 133, all derivative instruments are recorded on the balance sheets at fair value.

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

Certain derivatives used in conjunction with interest rate risk management activities qualify for hedge accounting under SFAS No. 133. For derivative hedging activities to qualify for hedge accounting, the Company formally documents, at the inception of each hedge, the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the item or,

11

the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

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

The Company's cash flow hedges, which are used for LIBOR based borrowings, have the effect of fixing the interest rate on LIBOR based liabilities in the event that LIBOR based funding costs change. Gains and losses on 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.

The ineffective portion of the change in fair value of a derivative instrument that qualifies as either a fair value hedge or a cash flow hedge was approximately $2.5 million for the nine months ended September 30, 2006. The change in value of a derivative instrument that does not qualify for hedge accounting, is reported in earnings under the caption realized and unrealized gain (loss) on hedging instruments.

The Company employs a number of risk management monitoring procedures that are designed to ensure that its hedging arrangements are demonstrating, and are expected to continue to demonstrate, a high level of effectiveness. Hedge accounting is discontinued on a prospective basis if it is determined that the hedging relationship is no longer highly effective or expected to be highly effective in offsetting changes in fair value or cash flows of the hedged item. Additionally, the Company may elect, pursuant to SFAS No. 133, to re-designate a hedge relationship during an interim period and re-designate upon the rebalancing of a hedge relationship.

The Company's committed mortgage pipeline includes interest rate lock commitments (‘‘IRLCs’’) that have been extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. The Company classifies and accounts for the IRLCs associated with loans expected to be sold as free-standing derivatives. The Company does not assign fair value to IRLCs at inception of the loan commitment, but does record subsequent changes in fair value in gain on sale of mortgage loans on the consolidated statements of operations.

Repurchase Agreements

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

12

Other Comprehensive Income

SFAS No. 130, ‘‘Reporting Comprehensive Income,’’ divides comprehensive income into net income and other comprehensive income (loss), which consists of unrealized gains and losses on derivative financial instruments that qualify for cash flow hedge accounting under SFAS No. 133, and mortgage-backed securities — available for sale. Accumulated OCI is comprised of the following:

			Net Unrealized Loss on Mortgage-Backed Securities – Available for Sale						Net Realized and Unrealized Gain (Loss) on Derivative Financial Instruments						Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2004			$    —								(387	)					(387	)
Net change					(948	)					14,560						13,612
Balance at December 31, 2005				$	(948	)				$	14,173					$	13,225
Balance at January 1, 2006					(948	)					14,173						13,225
Net change					316						(5,352	)					(5,036	)
Balance at September 30, 2006 (unaudited)				$	(632	)				$	8,821					$	8,189

Revenue Recognition

Mortgage Investment Operations

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

Mortgage Banking Operations

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

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

Interest income is accrued as earned. Interest on mortgage loans held for sale accrues on loans from the date of funding through the date of sale. Interest on loans is computed based on the contractual loan note rate. Once a loan is 90 days or more delinquent or a borrower declares bankruptcy, the Company adjusts the value of its accrued interest receivable to what it believes to be collectible and stops accruing interest on that loan.

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

Loan Loss Reserves

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

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portfolio composition, delinquency trends, credit losses to date on underlying loans and remaining credit protection. If the credit performance of the Company's Portfolio ARM Loans is different than expected, the Company adjusts the allowance for loan losses to a level deemed appropriate by management to provide for estimated losses inherent in the Company's ARM loan portfolio. Two critical assumptions used in estimating the loan loss reserves are an assumed rate of default, which is the expected rate at which loans go into foreclosure over the life of the loans, and an assumed rate of loss severity, which represents the expected rate of realized loss upon disposition of the properties that have gone into foreclosure. The Company’s estimated loan loss reserves are comprised of baseline expected credit losses for the next four to six quarters and a stress component which considers the effects of alternative economic scenarios. The Company will charge off losses against the credit loss reserve at the time of loan disposition. The following table summarizes changes in the reserve:

			Nine months ended September 30, 2006						Year ended December 31, 2005
			(unaudited)
Loan loss reserve, beginning of period				$	4,123					$	674
Loan loss provision					964						3,449
Write offs					(1,087	)					—
Loan loss reserve, end of period				$	4,000					$	4,123

Stock Compensation

As of September 30, 2006, the Company had in effect the 2004 Long-Term Incentive Plan (the ‘‘2004 Plan’’) and the Amended Long-Term Incentive Plan (the ‘‘Amended Plan’’), which are described more fully in Note 8.

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), ‘‘Share-Based Payment’’ (SFAS No. 123R), requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). We adopted SFAS No. 123R using the modified prospective method and, accordingly, financial statement amounts for prior periods presented in this Form 10-Q have not been restated to reflect the fair value method of recognizing compensation cost relating to stock options.          

There was approximately $74,000 and $222,000 of before tax compensation cost related to stock options recognized in operating results during the three and nine months ended September 30, 2006, respectively. The associated future income tax benefit recognized was approximately $30,000 and $90,000 during the three and nine months ended September 30, 2006, respectively.

At September 30, 2006, there was approximately $250,000 of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized over a weighted-average period of 0.8 years.

Through December 31, 2005, the Company accounted for all transactions under which employees received shares of stock or other equity instruments in the Company based on the price of its stock in accordance with the provisions of Accounting Principles Board Opinion No. 25, ‘‘Accounting for Stock Issued to Employees.’’ Pursuant to these accounting standards, the Company recorded deferred compensation for stock awards at the date of grant based on the estimated values of the shares on that date. There was no stock option-based employee compensation cost reflected in net income because all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123, ‘‘Accounting for Stock-Based Compensation – Transition and Disclosure’’ (‘‘SFAS No. 123’’) for the three and nine months ended September 30, 2005. (Dollars in thousands, except per share data):

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			Three months ended September 30, 2005						Nine months ended September 30, 2005
			(unaudited)						(unaudited)
Net income attributable to common stockholders				$	8,665					$	32,813
Amortization of restricted stock, including forfeitures, net of tax effects					559						1,708
Stock-based employee compensation expense determined under the fair value method, net of related tax effects					(622	)					(1,881	)
Pro forma net income				$	8,602					$	32,640
Net income per share attributable to common stock:
Basic – As reported				$	0.31					$	1.47
Basic – Pro forma				$	0.31					$	1.46
Net income per share for diluted earnings per share:
Diluted – As reported				$	0.30					$	1.44
Diluted – Pro forma				$	0.30					$	1.43

Under the 2004 Plan, the fair value for each option granted was estimated at the date of grant using the Black-Scholes option-pricing model, with the following assumptions: risk-free interest rate of 3.75%, expected option lives of five years, 26% volatility and 9% dividend rate.

The weighted average fair value of options issued under the 2004 Plan, for the nine months ended September 30, 2005, under the Black-Scholes option-pricing model, was $1.01 per option.

No stock options have been granted under the Amended Plan.

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

Income Taxes

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

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

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

Fair Value of Financial Instruments

Cash and cash equivalents, marketable securities and accounts receivable are carried at amounts approximating fair value. Unallocated and allocated mortgage loans held for sale are carried at the lower of adjusted cost or market value, or at market value.

Mortgage-backed securities – available for sale are carried at fair value.

Derivative instruments related to the hedging of the Company's financing costs, including interest rate swap agreements, Eurodollar futures contracts and interest rate cap agreements (collectively ‘‘Portfolio Hedging Instruments’’) are carried at fair value and are classified as hedging instruments on the balance sheets.

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Derivative instruments, including IRLCs and those related to the hedging of the Company's locked pipeline loans and mortgage loans held for sale, including TBA Securities, options on TBA Securities, forward sale commitments and Eurodollar futures contracts, are carried at fair value and are classified as hedging instruments on the balance sheets.

Liabilities, including warehouse lines payable, collateralized debt obligations, notes payable and other debt, are carried at their contractual notional amounts which approximate fair value. Portfolio ARM Loans are carried at cost, as more fully described in Note 2.

The following table presents information as to the carrying amount and estimated fair value of certain of the Company's market risk sensitive assets, liabilities and hedging instruments at September 30, 2006 and December 31, 2005:

			September 30, 2006
			Carrying Amount						Estimated Fair Value
			(Dollars in thousands) (unaudited)
Assets:
Mortgage loans held for sale				$	3,499,918					$	3,521,076
ARM loans collateralizing debt obligations, net					4,642,282						4,598,891
Mortgage-backed securities – available for sale					20,982						20,982
Hedging instruments					46,639						46,639
Liabilities:
Warehouse lines payable				$	3,318,868					$	3,318,868
Collateralized debt obligations					4,442,590						4,452,057
Repurchase agreements					94,692						94,692
Junior subordinated debentures					128,871						128,871
Hedging instruments					7,422						7,422

			December 31, 2005
			Carrying Amount						Estimated Fair Value
			(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	3,378,197					$	3,383,752
ARM loans held for securitization, net					282						277
ARM loans collateralizing debt obligations, net					4,681,554						4,624,237
Mortgage-backed securities – available for sale					23,357						23,357
Hedging instruments					54,472						54,472
Liabilities:
Warehouse lines payable				$	3,177,990					$	3,177,990
Collateralized debt obligations					4,485,197						4,485,197
Repurchase agreements					87,058						87,058
Junior subordinated debentures					77,324						77,324
Hedging instruments					8,801						8,801

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2006, FASB issued SFAS No. 155, ‘‘Accounting for Certain Hybrid Financial Instruments’’, which addresses issues on the evaluation of beneficial interests issued in securitization transactions under SFAS No. 133. The statement also amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement shall be effective for all financial instruments acquired, issued, or subject to a remeasurement event occurring after December 31, 2006. The Company will adopt this statement when effective and is currently evaluating its impact.

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In March 2006, the FASB issued SFAS No. 156, ‘‘Accounting for Servicing of Financial Assets’’, an amendment of SFAS No. 140 (‘‘SFAS 156’’). This statement requires that an entity separately recognize a servicing asset or a servicing liability when it undertakes an obligation to service a financial asset under a servicing contract in certain situations. Such servicing assets or servicing liabilities are required to be initially measured at fair value, if practicable. SFAS 156 also allows an entity to choose one of two methods when subsequently measuring its servicing assets and servicing liabilities: (1) the amortization method or (2) the fair value measurement method. The amortization method existed under SFAS 140 and remains unchanged in (1) allowing entities to amortize their servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and (2) requiring the assessment of those servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date. The fair value measurement method allows entities to measure their servicing assets or servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period the change occurs. SFAS 156 introduces the notion of classes and allows companies to make a separate subsequent measurement election for each class of its servicing rights. In addition, SFAS 156 requires certain comprehensive roll−forward disclosures that must be presented for each class. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, so long as the entity has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. The Company will adopt this statement when effective and is currently evaluating its impact.

In July 2006, the FASB issued Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes’’ (‘‘FIN 48’’). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. The provisions of this interpretation apply to fiscal years beginning after December 15, 2006. Management is currently evaluating FIN 48, but does not currently expect it to have a material impact on the Company’s financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin (‘‘SAB’’) 108 ‘‘Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements’’ (SAB 108). SAB 108 requires that public companies utilize a ‘‘dual−approach’’ to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company is currently evaluating the impact of adopting SAB 108 but does not expect that it will have a material effect on our consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’ (‘‘SFAS No. 157’’). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 but does not expect that it will have a material effect on our consolidated financial position or results of operations.

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NOTE 2 — PORTFOLIO ARM LOANS

The following table presents the Company's Portfolio ARM Loans as of September 30, 2006 and December 31, 2005 (Dollars in thousands):

September 30, 2006 (unaudited)			ARM loans collateralizing debt obligations						ARM loans held for securitization						Total
Principal balance outstanding				$	4,597,856					$	—					$	4,597,856
Unamortized loan origination costs and fees					48,426						—						48,426
Loan loss reserves					(4,000	)					—						(4,000	)
Amortized cost, net					4,642,282						—						4,642,282
Gross unrealized loss					(43,391	)					—						(43,391	)
Estimated fair value				$	4,598,891					$	—					$	4,598,891
Carrying value				$	4,642,282					$	—					$	4,642,282

December 31, 2005			ARM loans collateralizing debt obligations						ARM loans held for securitization						Total
Principal balance outstanding				$	4,641,588					$	278					$	4,641,866
Unamortized loan origination costs and fees					44,089						4						44,093
Loan loss reserves					(4,123	)					—						(4,123	)
Amortized cost, net					4,681,554						282						4,681,836
Gross unrealized loss					(57,317	)					(5	)					(57,322	)
Estimated fair value				$	4,624,237					$	277					$	4,624,514
Carrying value				$	4,681,554					$	282					$	4,681,836

The loans that the Company retains in its portfolio are serviced through a subservicing arrangement. The TRS sells all of its fixed rate loan production to third parties, as well as any ARM loans that the Company does not retain in its portfolio.

The Company does not account for mortgage-backed securities created in connection with the securitization of Portfolio ARM Loans and placed with third party investors as sales and, therefore, does not record any gain or loss in connection with these securitization transactions. Instead, the Company accounts for the securities it issues as a long-term collateralized financing. As of September 30, 2006, the Company held approximately $4.6 billion of ARM loans that collateralize the securities resulting from its securitization activities, and are classified on its balance sheet as ARM loans collateralizing debt obligations, net.

The Company has credit exposure on its ARM Loan investment portfolio. During the nine months ended September 30, 2006, the Company recorded loan loss provisions totaling $964,000 to reserve for estimated future credit losses on Portfolio ARM Loans, and charged $1,087,000 against the allowance for losses during the period.

The following table summarizes Portfolio ARM Loan delinquency information as of September 30, 2006 and December 31, 2005 (Dollars in thousands):

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September 30, 2006 (unaudited)

Delinquency Status			Loan Count						Loan Balance						Percent of Portfolio ARM Loans						Percent of Total Assets
60 to 89 days					35					$	9,620						0.21	%					0.11	%
90 days or more					36						9,935						0.21						0.12
In bankruptcy and foreclosure					72						19,610						0.42						0.23
					143					$	39,165						0.84	%					0.46	%

December 31, 2005

Delinquency Status			Loan Count						Loan Balance						Percent of Portfolio ARM Loans						Percent of Total Assets
60 to 89 days					48					$	12,189						0.26	%					0.15	%
90 days or more					19						5,627						0.12						0.07
In bankruptcy and foreclosure					18						4,461						0.10						0.05
					85					$	22,277						0.48	%					0.27	%

NOTE 3 — MORTGAGE LOANS HELD FOR SALE

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

			September 30, 2006						December 31, 2005
			(unaudited)
Mortgage loans held for sale				$	3,451,582					$	3,331,966
Deferred origination costs and fees					48,336						46,231
Carrying amount of mortgage loans held for sale				$	3,499,918					$	3,378,197

Mortgage loans are residential mortgages on properties located throughout the United States having maturities of up to 40 years, and include ARM loans that are not Portfolio ARM Loans. Pursuant to the terms of the mortgage loans, the borrowers have pledged the underlying real estate as collateral for the loans. It is the Company's practice to sell to third party investors any loans that do not constitute Portfolio ARM Loans shortly after they are funded, generally within 30 to 60 days.

The Company had loan purchase commitments from third party investors for approximately $2.1 billion and $2.3 billion, as of September 30, 2006 and December 31, 2005, respectively. Substantially all loans held for sale at September 30, 2006 and December 31, 2005 were subsequently sold to third party investors. Substantially all mortgage loans held for sale are pledged as collateral for warehouse lines payable (See Note 6).

As of September 30, 2006 and December 31, 2005, the Company had aggregate locked pipeline commitments to fund mortgage loans held for sale of $2.6 billion and $2.3 billion, respectively.

NOTE 4 — DERIVATIVES AND HEDGING ACTIVITIES

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

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

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

In connection with its mortgage loan origination activities, MortgageIT issues IRLCs to loan applicants and financial intermediaries. The IRLCs guarantee the loan terms, subject to credit

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approval, for a specified period while the application is in process, typically between 15 and 60 days. MortgageIT's risk management objective is to protect earnings from an unexpected change in the fair value of IRLCs by economically hedging the estimated closed loan volume from the IRLC pipeline. MortgageIT's pipeline hedging strategy primarily utilizes TBA Securities to protect the value of its IRLCs. The TBA Securities, options on TBA Securities, forward sales commitments and IRLCs relating to mortgage loans held for sale, are derivative instruments and have been classified as such by the Company. Accordingly, these derivatives have been recorded at fair value with changes in fair value reflected in gain on sale of loans.

At September 30, 2006 and December 31, 2005, the notional amount of the Company's IRLCs relating to mortgage loans held for sale, was approximately $1.65 billion and $1.59 billion, respectively. The fair value of the IRLCs at September 30, 2006 and December 31, 2005 reflected a gain of approximately $8.4 million and $5.8 million, respectively.

At September 30, 2006 and December 31, 2005, the notional amount of TBA Securities and options on TBA Securities outstanding was approximately $1.30 billion and $1.03 billion, respectively, with a fair value loss of approximately $1.6 million and approximately $2.9 million, respectively.

At September 30, 2006 and December 31, 2005, the notional amount of the Company's forward sales commitments with third party investors was approximately $2.4 billion and $1.8 billion, respectively, with a fair value loss of approximately $3.1 million and approximately $4.6 million, respectively.

Fair Value Hedges

The Company is exposed to interest rate risk in conjunction with the sale of mortgage loans. The Company manages the risk of interest rate changes associated with its loans held for sale through use of TBA Securities, options on TBA Securities, forward sale commitments and Eurodollar futures contracts. These derivative instruments are designed to hedge potential changes in the fair value of loans held for sale.

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

Cash Flow Hedges

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

All changes in the fair value of derivatives designated as cash flow hedges, (Cap Agreements, Swap Agreements and the effective portion of the Eurodollar futures contracts), are recorded in OCI on the consolidated balance sheets and will be recognized as net interest income when the forecasted financing transactions occur. If it becomes probable that the forecasted transaction, which is the future interest payments on the Company's collateralized debt obligations, will not occur as specified at the inception of the hedging relationship, then the related gain or loss in OCI would be reclassified out of OCI and recognized in interest expense. The carrying value of these derivative instruments is included in hedging instruments on the accompanying consolidated balance sheets.

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

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Under the Company's existing Cap Agreements, the Company will receive cash payments should one-month LIBOR increase above the contract rates of the caps, which range from 3.00% to 6.02%. The Cap Agreements had an average maturity of 4.87 years as of September 30, 2006 and will expire between August 2007 and June 2014.

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

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

The Company uses Eurodollar futures contracts to hedge both forecasted and recognized LIBOR-based borrowings. When LIBOR-based interest rates change, the change in the value of Eurodollar futures contracts can be expected to approximately offset the change in LIBOR-based funding costs.

The following table presents notional amount, carrying amount and realized and unrealized gains and (losses) recorded in OCI for the Company's cash flow hedges at September 30, 2006 and December 31, 2005. The carrying amount of the cash flow derivative instruments is included in hedging instruments in the accompanying balance sheets.

			September 30, 2006 (unaudited)
			Notional Amount						Carrying Amount						Net Gain (Loss)
			(Dollars in thousands)
Eurodollar futures contracts				$	1,200,000					$	(602	)				$	522
Cap agreements					4,203,632						29,366						(402	)
Swap agreements					503,747						8,836						8,701
Total cash flow hedges				$	5,907,379					$	37,600					$	8,821

			December 31, 2005
			Notional Amount						Carrying Amount						Net Gain (Loss)
			(Dollars in thousands)
Eurodollar futures contracts				$	4,141,000					$	469					$	(3,627	)
Cap agreements					3,971,027						31,524						6,801
Swap agreements					596,463						11,264						10,999
Total cash flow hedges				$	8,708,490					$	43,257					$	14,173

As of September 30, 2006, the net gain in OCI was approximately $8.8 million. The Company estimates that, over the next twelve months, approximately $2.2 million of this net gain will be reclassified from OCI to net interest income.

NOTE 5 — REMIC SECURITIZATION

In November 2005, MortgageIT completed its first REMIC securitization, whereby a pool of ARM loans totaling approximately $388 million was securitized and sold to the public. The Company retained the mortgage servicing rights and retained approximately $24.3 million in mortgage-backed securities created in the transaction.

The available for sale mortgage-backed securities consist of the Company’s investment in the interest-only, prepayment penalty and other subordinated securities that the trust issued. The unrealized losses and estimated fair value of the available for sale mortgage-backed securities as of

21

September 30, 2006 and December 31, 2005, are approximately $632,000 and $21.0 million, and $948,000 and $23.4 million, respectively.

MortgageIT records mortgage servicing rights arising from the sale of loans in the REMIC securitization. The carrying value of mortgage servicing rights and the estimated fair value of the servicing rights as of September 30, 2006 and December 31, 2005, are approximately $2.5 million and $2.9 million, and $2.5 million and $2.6 million, respectively.

In February 2006, MortgageIT completed its second REMIC transaction, which was structured to qualify as a financing and, as such, is included in collateralized debt obligations, discussed below.

NOTE 6 — BORROWINGS

Collateralized Debt Obligations

In the February 2006 REMIC securitization, the Company issued, through a trust, AAA and AA-rated floating-rate pass-through certificates totaling $723.0 million and A-rated subordinated floating-rate securities totaling $10.1 million to third party investors, and retained $33.3 million of subordinated certificates, which provide credit support to the higher-rated certificates.

In addition, through December 31, 2005, the Company had issued AAA/AA-rated floating-rate pass-through certificates totaling $5.25 billion and A+/BBB+ subordinated floating-rate securities totaling $55.1 million to third party investors and retained $112.2 million of subordinated certificates, which provide credit support to the higher-rated certificates that were placed with third party investors. The interest rates on the floating-rate pass-through certificates reset monthly and are indexed to one-month LIBOR.

In connection with the issuance of these mortgage-backed securities, which are also referred to as collateralized debt obligations, the Company incurred costs of $17.7 million through September 30, 2006. These costs are being amortized over the expected life of the securities using the level yield method. These transactions were accounted for as financings of loans and represent permanent financing that is not subject to margin calls. The Company's collateralized debt obligations are issued by trusts and are secured by ARM loans deposited into the trust. For financial reporting and tax purposes, the trusts' ARM loans held as collateral are recorded as assets of the Company and the issued mortgage-backed securities are recorded as collateralized debt obligations.

The mortgage-backed securities were collateralized by ARM loans with a principal balance of $4.6 billion, as of both September 30, 2006 and December 31, 2005. The debt matures between 2033 and 2036 and is callable by the Company at par anytime after the total balance of the loans collateralizing the debt is amortized down to 20%, or 10% for the February 2006 REMIC securitization, of the original unpaid balance. The balance of this debt is reduced as the underlying loan collateral is paid down by borrowers and is expected to have an average life of approximately 2.5 years.

Repurchase Agreements

The Company had $94.7 million and $87.1 million outstanding under repurchase agreements with a weighted average borrowing rate of approximately 5.5% and 3.5% and a weighted average remaining maturity of 25 days and 26 days as of September 30, 2006 and December 31, 2005, respectively.

Junior Subordinated Debentures

During March 2006, MortgageIT issued approximately $51.5 million of junior subordinated debentures (the ‘‘2006 Debentures’’). The 2006 Debentures were issued to a trust subsidiary of MortgageIT in order to fund such trust's obligations with respect to an aggregate of $50 million of trust preferred securities which were issued by such trust subsidiary. The 2006 Debentures are floating-rate and bear a variable interest rate of 360 basis points above 3-month LIBOR, paid quarterly, and mature in 2036. They are redeemable, by MortgageIT, at par, after five years and at a premium to par in certain

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limited circumstances over the first five years. In connection with the issuance of the 2006 Debentures, the Company incurred costs of $1.5 million. These costs are being amortized over the expected life of the 2006 Debentures using the interest method.

During April and May 2005, MortgageIT issued an aggregate of approximately $77.3 million of junior subordinated debentures (the ‘‘2005 Debentures’’). The 2005 Debentures were issued to trust subsidiaries of MortgageIT in order to fund such trust's obligations with respect to an aggregate of $75 million of trust preferred securities which were issued by such trust subsidiary. The 2005 Debentures 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, by MortgageIT, at par, after five years and at a premium to par in certain limited circumstances over the first five years. In connection with the issuance of the 2005 Debentures, the Company incurred costs of $2.5 million. These costs are being amortized over the expected life of the 2005 Debentures using the interest method.

As of September 30, 2006, the Company did not include in its consolidated financial statements the assets, liabilities and operations of the trust subsidiaries pursuant to FASB Interpretation No. 46 (revised December 2003), ‘‘Consolidation of Variable Interest Entities’’ (‘‘FIN 46R’’). As of September 30, 2006 and December 31, 2005, the Company recorded its investment in the trust subsidiaries, of approximately $3.8 and $2.3 million, respectively, in prepaids and other assets in the accompanying consolidated balance sheets.

Warehouse Lines Payable

As of September 30, 2006, the Company had eight warehouse credit facilities with major lenders that it used to fund mortgage loans. During October 2006, the Company’s warehouse credit facilities with JPMorgan Chase Bank, National Association, Greenwich Capital Financial Products Inc. and Residential Funding Corporation expired according to their terms.

In May 2006, the Company entered into a warehouse credit facility with Bank of America, N.A., for a noncommitted credit limit of $1.0 billion. 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 September 30, 2006, there were no outstanding borrowings on the line. This credit facility expires in May 2007.

In July 2006, the Company entered into a warehouse credit facility with DB Structured Products, Inc., an indirect subsidiary of Deutsche Bank AG, (‘‘DB Structured Products’’) for a committed credit limit of $5.0 billion. 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 September 30, 2006, the Company had approximately $3.0 billion outstanding on this facility. This credit facility expires in July 2007. On July 11, 2006, the Company entered into a definitive agreement to be acquired by DB Structured Products, which is described more fully in Note 13.

The Company maintains a warehouse credit facility with Credit Suisse First Boston Mortgage Capital LLC for an uncommitted credit limit of $750 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 September 30, 2006 and December 31, 2005, the Company had outstanding approximately $147.9 million and $384.1 million, respectively, on this facility. This credit facility expires in December 2006.

The Company maintains a warehouse credit facility with Merrill Lynch Bank USA, which has a partially committed credit limit of $1.25 billion. 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 September 30, 2006 and December 31, 2005, the Company had outstanding approximately $107.0 million and $1.1 billion, respectively, on this facility. This credit facility expires in December 2006.

The Company maintains a credit facility (the ‘‘UBS Warehouse Facility’’) with UBS Real Estate Securities, Inc. (‘‘UBS’’), for an uncommitted credit limit of $2.0 billion, which includes a mortgage loan sale conduit facility. The Company has no outstanding borrowing on this line and does not expect

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to have any additional borrowings on this line, and expects to terminate it in November 2006. The facility provides for temporary increases in the line amount on an as-requested basis. Under the UBS Warehouse Facility, 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 to 60 days. As of September 30, 2006, there were no outstanding borrowings on the line. As of December 31, 2005, the Company had outstanding approximately $589.0 million on this facility. 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 $43,000, $2.3 million, $1.6 million and $3.7 million for the three and nine months ended September 30, 2006 and 2005, respectively, is included in brokerage revenue on the statement of operations. As of September 30, 2006, there were no loans on the conduit line. Loans on the conduit line, which totaled approximately $1.1 billion at December 31, 2005, reduced availability under the facility until they were 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.

The Company maintained a warehouse credit facility with JPMorgan Chase Bank, National Association, which expired in October 2006, for a noncommitted credit limit of $500 million. Under the line, outstanding advances were secured by the specific mortgage loans funded, and bore interest at LIBOR plus a spread based on the types of loans being funded. As of September 30, 2006, there were no outstanding borrowings on the line. As of December 31, 2005, the Company had outstanding approximately $153.4 million on this facility.

The Company maintained a warehouse credit facility with Greenwich Capital Financial Products Inc., which expired in October 2006, for an uncommitted credit limit of $750 million. Under the line, outstanding advances were secured by the specific mortgage loans funded, and bore interest at LIBOR plus a spread based on the types of loans being funded. As of September 30, 2006, there were no outstanding borrowings on the line. As of December 31, 2005, the Company had outstanding approximately $485.6 million on this facility.

The Company maintained a credit facility with Residential Funding Corporation, which expired in October 2006, for a committed credit limit of $54 million, collateralized by the specific mortgage loans funded, and bore interest at LIBOR plus a spread based on the types of loans being funded. As of September 30, 2006 and December 31, 2005, the Company had outstanding approximately $21.3 million and $510.1 million, respectively, on this facility.

The weighted average effective rate of interest for borrowings under all warehouse lines of credit was approximately 5.9% and 4.3% for the nine months ended September 30, 2006 and the year ended December 31, 2005, respectively.

Substantially 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. The Company was not in compliance with a covenant contained in one of its warehouse credit facilities as of July 31, 2006 and August 31, 2006, for which waivers have been obtained. No assurance can be made that the Company's lenders will waive future covenant violations, if violations occur.

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Maturities of borrowings are as follows at September 30, 2006 (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)				$	4,442,590					$	953,440					$	1,854,135					$	1,555,977					$	79,038
Warehouse lines payable					3,318,868						3,318,868						—						—						—
Repurchase agreements					94,692						94,692						—						—						—
Junior subordinated debentures					128,871						—						—						—						128,871

(1)	Payments on the Company's collateralized debt obligations are dependent upon cash flows received from underlying loans receivable. The Company's estimate of its repayment is based on scheduled principal payments on the underlying loans receivable, adjusted for estimated pre-payments. This estimate will differ from actual pre-payment amounts.

NOTE 7 — NOTES PAYABLE

MortgageIT issued senior secured notes maturing in 2007, with an aggregate principal amount of $15 million, in March 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 note purchase agreement governing the notes contains various restrictions and covenants. As of September 30, 2006, MortgageIT was in compliance with all of the restrictions and covenants contained in the related note purchase agreement. If covenant violations occur in the future, there can be no assurance that the investor will waive them.

In November 2004, MortgageIT entered into an amendment of the note purchase agreement, which reduced the interest rate on the outstanding principal balance thereunder from 10% per annum to 7.5% 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. In August 2005, MortgageIT entered into an amendment and restatement of the note purchase agreement, which reduced the interest rate on the outstanding principal balance thereunder from 10% per annum to 5.5% for the period as of August 23, 2005 and ending at maturity. In addition, this amendment required MortgageIT to pay a premium on any optional prepayment of the notes on or prior to July 31, 2006.

In February 2006, MortgageIT sold an additional aggregate principal amount of $15 million of senior secured notes to the investor, and amended the interest rate to 6.5% for all notes outstanding as of February 21, 2006 and ending at maturity. In August 2006, MortgageIT repaid an aggregate principal amount of $15 million of senior secured notes to the investor. In September 2006, the investor notified MortgageIT that it intends to exercise its purchaser put right for all amounts owed under the note purchase agreement on December 19, 2006.

NOTE 8 — STOCKHOLDERS EQUITY

Stock Repurchase Plan

In October 2005, the Company announced that its board of directors authorized a program to repurchase up to $30 million of the Company's outstanding common stock. The repurchase program allows for shares to be purchased from time to time at management's discretion based upon ongoing assessments of the capital needs of the Company and the market valuation of its stock. Through December 31, 2005, the Company repurchased 90,400 shares of common stock at an average price of $13.03 per share. There were no repurchases during the nine months ended September 30, 2006.

2004 and Amended Long-Term Incentive Plans

In August 2004, the Company adopted the MortgageIT Holdings, Inc. 2004 Long-Term Incentive Plan (the ‘‘2004 Plan’’). A total of 1,725,000 shares of common stock have been reserved for issuance under the 2004 Plan, which terminates in 2014.

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In April 2005, the board of directors adopted the MortgageIT Holdings, Inc. Amended Long-Term Incentive Plan (the ‘‘Amended Plan’’), which was subsequently approved by the Company's stockholders. Under the Amended Plan, an additional 1,000,000 shares of the Company's common stock were reserved for issuance; this addition of shares is the only material difference between the 2004 Plan and the Amended Plan. The Amended Plan will terminate in 2015.

Both the 2004 Plan and the Amended Plan provide for the grant of incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock. During the nine months ended September 30, 2006, options to purchase 47,648 shares of common stock, at an average exercise price of $12.05 per share, and 34,321 shares of restricted stock were forfeited, and the Company granted 317,345 shares of restricted stock. The stock options and restricted stock will vest over a three-year period. There have been no stock option grants made under the Amended Plan.

During the nine months ended September 30, 2006, 181,938 shares of restricted stock vested.

There were approximately 859,000 shares available for future grant at September 30, 2006, under both the 2004 Plan and the Amended Plan.

NOTE 9 — 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 September 30,												Nine months ended September 30,
			2006						2005						2006						2005
Net income				$	1,441					$	8,665					$	2,557					$	32,813
Basic earnings per share:
Weighted average common stock outstanding for basic earnings per share					28,491						28,077						28,409						22,381
Basic earnings per share				$	0.05					$	0.31					$	0.09					$	1.47
Diluted earnings per share:
Net income for diluted earnings per share				$	1,441					$	8,665					$	2,557					$	32,813
Common stock outstanding for basic earnings per share computation					28,491						28,077						28,409						22,381
Assumed conversion of dilutive:
Stock options and unvested restricted stock					314						350						217						407
Weighted average common stock outstanding for diluted earnings per share					28,805						28,427						28,626						22,788
Diluted earnings per share				$	0.05					$	0.30					$	0.09					$	1.44

NOTE 10 — STATEMENT OF CASH FLOWS

Supplemental disclosure of cash flow information (Dollars in thousands)

			(Unaudited) Nine months ended September 30,
			2006						2005
Cash paid during the year for:
Interest				$	348,595					$	148,441
Income taxes					5,525						14,561

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NOTE 11 — 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, secondary marketing and loan brokerage, title and insurance activities. Following is a summary of the Company's segment operating results for the three and nine months ended September 30, 2006 and 2005 (Dollars in thousands).

Three months ended September 30, 2006 (unaudited)

			Mortgage Investment Operations						Mortgage Banking Operations						Eliminations						Total
Gain on sale of mortgage loans				$	—					$	71,083					$	36					$	71,119
Brokerage revenues					—						4,301						—						4,301
Interest income					67,507						59,250						(12,416	)					114,341
Interest expense					(60,378	)					(68,715	)					13,563						(115,530	)
Net interest income (expense)					7,129						(9,465	)					1,147						(1,189	)
Realized and unrealized loss on hedging instruments					(1,727	)					—						—						(1,727	)
Other					20						777						—						797
Total revenues					5,422						66,696						1,183						73,301
Operating expenses					2,718						69,853						20						72,591
Income (loss) before income tax					2,704						(3,157	)					1,163						710
Income tax (benefit) expense					—						(731	)					—						(731	)
Net income (loss)				$	2,704					$	(2,426	)				$	1,163						1,441
Segment assets				$	4,870,649					$	4,419,832					$	(820,604	)				$	8,469,877

Allocation of eliminations:

			Mortgage Investment Operations						Mortgage Banking Operations						Total
Net income (loss) before eliminations				$	2,704					$	(2,426	)				$	278
Eliminations					1,052						111						1,163
Net income (loss)				$	3,756					$	(2,315	)				$	1,441

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Three months ended September 30, 2005 (unaudited)

			Mortgage Investment Operations						Mortgage Banking Operations						Eliminations						Total
Gain on sale of mortgage loans				$	—					$	69,211					$	(7,599	)				$	61,612
Brokerage revenues					—						7,506						—						7,506
Interest income					50,640						37,785						1,959						90,384
Interest expense					(42,443	)					(33,522	)					224						(75,741	)
Net interest income					8,197						4,263						2,183						14,643
Other					—						209						—						209
Total revenues					8,197						81,189						(5,416	)					83,970
Operating expenses					3,566						65,270						(372	)					68,464
Income before income tax					4,631						15,919						(5,044	)					15,506
Income taxes					—						6,841						—						6,841
Net income				$	4,631					$	9,078					$	(5,044	)				$	8,665
December 31, 2005
Segment assets				$	4,926,820					$	3,584,137					$	(129,066	)				$	8,381,891

Allocation of eliminations:

			Mortgage Investment Operations						Mortgage Banking Operations						Total
Net income before eliminations				$	4,631					$	9,078					$	13,709
Eliminations					2,183						(7,227	)					(5,044	)
Net income				$	6,814					$	1,851					$	8,665

Nine months ended September 30, 2006 (unaudited)

			Mortgage Investment Operations						Mortgage Banking Operations						Eliminations						Total
Gain on sale of mortgage loans				$	—					$	185,618					$	126					$	185,744
Brokerage revenues					—						16,549						—						16,549
Interest income					202,011						172,198						(29,325	)					344,884
Interest expense					(178,425	)					(192,532	)					34,104						(336,853	)
Net interest income (expense)					23,586						(20,334	)					4,779						8,031
Realized and unrealized gain on hedging instruments					1,706						—						—						1,706
Other					(75	)					1,729						—						1,654
Total revenues					25,217						183,562						4,905						213,684
Operating expenses					5,516						221,331						269						227,116
Income (loss) before income tax					19,701						(37,769	)					4,636						(13,432	)
Income tax (benefit) expense					—						(15,989	)					—						(15,989	)
Net income (loss)				$	19,701					$	(21,780	)				$	4,636					$	2,557
Segment assets				$	4,870,649					$	4,419,832					$	(820,604	)				$	8,469,877

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Allocation of eliminations:

			Mortgage Investment Operations						Mortgage Banking Operations						Total
Net income (loss) before eliminations				$	19,701					$	(21,780	)				$	(2,079	)
Eliminations					4,338						298						4,636
Net income (loss)				$	24,039					$	(21,482	)				$	2,557

Nine months ended September 30, 2005 (unaudited)

			Mortgage Investment Operations						Mortgage Banking Operations						Eliminations						Total
Gain on sale of mortgage loans				$	—					$	161,614					$	(20,910	)				$	140,704
Brokerage revenues					—						20,179						—						20,179
Interest income					124,341						83,458						4,237						212,036
Interest expense					(96,687	)					(59,925	)					130						(156,482	)
Net interest income					27,654						23,533						4,367						55,554
Realized and unrealized gain on hedging instruments					8,128						—						1,614						9,742
Other					—						715						—						715
Total revenues					35,782						206,041						(14,929	)					226,894
Operating expenses					10,308						169,741						(1,575	)					178,474
Income before income tax					25,474						36,300						(13,354	)					48,420
Income taxes					2						15,605						—						15,607
Net income				$	25,472					$	20,695					$	(13,354	)				$	32,813
December 31, 2005
Segment assets				$	4,926,820					$	3,584,137					$	(129,066	)				$	8,381,891

Allocation of eliminations:

			Mortgage Investment Operations						Mortgage Banking Operations						Total
Net income before eliminations				$	25,472					$	20,695					$	46,167
Eliminations					5,981						(19,335	)					(13,354	)
Net income				$	31,453					$	1,360					$	32,813

NOTE 12 — COMMITMENTS AND CONTINGENCIES

On July 13, 2006, as amended on September 15, 2006, Mr. Jerry Pressner, a purported stockholder of the Company, filed a complaint styled Pressner v. MortgageIT Holdings, Inc., et al., (Index No. 602472/06) in the Supreme Court of the State of New York in New York County against the Company and seven of its eight directors. The complaint alleged, among other things, that the Company’s directors breached their fiduciary duties by failing to maximize stockholder value with regard to the proposed acquisition by DB Structured Products. Among other things, the complaint sought class action status, a court order enjoining the Company and its directors from proceeding with or consummating the merger, and the payment of attorneys' fees and expenses.

On September 25, 2006, the Company entered into a Memorandum of Understanding with the plaintiff in the above referenced action that led to the execution of a Stipulation and Agreement of Compromise, Settlement and Release on October 6, 2006 (the ‘‘Stipulation’’). Pursuant to the Stipulation, the Company agreed to include certain additional disclosures in its proxy statement relating to the special stockholders’ meeting to vote on the proposed acquisition by DB Structured

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Products from that which were included in its preliminary proxy statement that was filed on August 11, 2006. On October 18, 2006, the Court entered an Order Regarding Preliminary Approval of Class Action and Notice to Class, which, among other things, approved the Notice of Pendency of Class Action and Hearing Thereon, and contained additional information regarding the litigation, the settlement of the litigation according to the terms of the Stipulation (the ‘‘Settlement’’), and procedures for objecting to the Settlement, among other things.

The parties have agreed to seek final Court approval of the Settlement, which will provide for certification of a non-opt-out class of the Company’s stockholders, for entry of a judgment dismissing the purported class action with prejudice and a complete release and settlement of all claims that were made or could have been made in the litigation. The parties entered into the Stipulation to eliminate the burden, risk and expense of further litigation. The Stipulation is not an admission by the Company or its directors of any breach of duty, liability or wrongdoing. Subject to the occurrence of certain events, including the consummation of the merger and final Court approval of the Settlement, the entity surviving the merger has agreed to pay plaintiff's counsel attorney's fees in an amount not to exceed $250,000 and documented expenses in an amount not to exceed $25,000.

On February 16, 2006, EMC Mortgage Corp. (‘‘EMC’’) filed suit against MortgageIT in the 95th Judicial District Court of Dallas County, Texas. This suit alleges, among other things, that MortgageIT is obligated to repurchase from EMC approximately $70.5 million in sub-prime mortgage loans sold to EMC pursuant to a Mortgage Loan Purchase and Interim Servicing Agreement dated January 1, 2003, as amended, due to alleged breaches of representations and warranties as well as alleged early payment default repurchase obligations with respect to such loans. The case was subsequently removed to the U.S. District Court for the Northern District of Texas, Dallas Division. MortgageIT moved to dismiss EMC’s third amended complaint, which motion was denied, except with respect to EMC’s claim for attorneys’ fees. MortgageIT is in the process of evaluating the claims and its counterclaims and preparing an answer. MortgageIT intends to vigorously defend the suit. At this stage of the proceedings, it is not possible to predict the outcome of this litigation.

In addition to these cases, in the ordinary course of business, the Company is a defendant in or party to a number of pending and threatened legal actions and proceedings, and is also involved from time to time in investigations and administrative proceedings by governmental agencies. Certain of such actions and proceedings involve alleged violations of consumer protection laws, including claims relating to the Company’s loan origination and collection efforts, and other federal and state banking laws. Certain of such actions and proceedings include claims for breach of contract, restitution, compensatory damages, punitive damages and other forms of relief. Due to the difficulty of predicting the outcome of such matters, the Company can give no assurance that it will prevail on all claims made against it; however, management believes, based on current knowledge and after consultation with counsel, that these legal matters and administrative proceedings and the losses, if any, resulting from the final outcome thereof, will not have a material adverse effect on the Company’s financial position, results of operations or liquidity, but can give no assurance that they will not have such an effect.

Although it is difficult to predict the outcome of any litigation, the Company has established litigation reserves where necessary in accordance with generally accepted accounting principles.

NOTE 13 — PENDING ACQUISITION BY DEUTSCHE BANK

On July 11, 2006, the Company entered into a definitive agreement to be acquired by DB Structured Products, for $14.75 in cash per share of Company common stock, or approximately $429 million in the aggregate. The transaction is expected to close during the first quarter of 2007, pending regulatory approvals, approval by the Company’s stockholders and the satisfaction of other customary closing conditions.

On or about October 20, 2006, the Company’s definitive merger proxy statement was mailed to stockholders of record as of October 13, 2006 in connection with the Company’s special meeting of stockholders scheduled for November 30, 2006.

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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.

GENERAL

Formed in March 2004, Holdings is organized and conducts its operations to qualify as REIT for federal income tax purposes, and is focused on earning net interest income from mortgage loans originated by MortgageIT, its taxable REIT subsidiary. 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 mortgage loans throughout the United States. MortgageIT originates single-family mortgage loans of all types, with a particular focus on 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 (‘‘Home Closer’’), a subsidiary of MortgageIT, Inc., provides settlement, title and related services.

Our business strategy has been to self-originate prime ARM loans that are used to collateralize debt obligations, and generate earnings by holding these loans or investment securities in our portfolio and receiving the spread between the yield on our assets and the cost of borrowings. However, the Company neither transferred any loans to the portfolio nor completed any loan securitizations during the third quarter ended September 30, 2006. Rather, the Company’s strategy during the third quarter of 2006, and the strategy the Company expects to employ going forward, is to sell to third party investors all (and not just certain of) the loans it originates. While the Company will continue to generate earnings by holding the loans and investment securities currently in our portfolio and receiving the spread between the yield on our assets and the cost of borrowing, the Company will generate an increase in earnings from the mortgage loans it sells to third party investors.

Our investment strategy is designed to mitigate credit risk and interest rate risk. Our mortgage loan investment portfolio consists primarily of self-originated prime ARM Loans that collateralize multi-class pass-through securities that we issue in securitization transactions, and prime ARM Loans that we intend to securitize. A small portion of the portfolio consists of mortgage-backed securities (‘‘MBS’’) issued by the TRS through a real estate mortgage investment conduit (‘‘REMIC’’). Mortgage-backed securities are debt obligations that represent claims to the cash flows from pools of mortgage loans. A REMIC is an entity through which an issuer can sell multiple-class securities to investors. The entity invests in a pool of mortgages, and sells interests in those mortgages through securities with one or more senior classes as well as subordinated classes that assume the credit risk of defaults and delinquencies.

A REMIC securitization may be structured to qualify as either a sale or a financing for accounting purposes. The REMIC securitization executed by the TRS in November 2005 is structured to qualify as a sale, and as such, the loans are removed from our balance sheet, but the Company retains excess interest, prepayment penalty and subordinated securities for its investment portfolio. In such transactions the TRS generates gain on sale revenue through the sale of loans to the REMIC, and may also retain mortgage servicing rights (‘‘MSR’’) on the underlying loans, thereby generating a stream of revenue over the life of the loans. The securities purchased by the Company for its investment portfolio are funded with a combination of repurchase line financing and equity capital. The REMIC securitization executed by the TRS in February 2006 is structured to qualify as a financing. The loans therefore remain on our balance sheet, and the Company generates earnings by receiving the spread between the yield on these loan assets and the cost of borrowings. The Company used a combination of multi-class pass-through securities, repurchase line financing and equity capital for this REMIC securitization.

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The loans that we retain in 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 portfolio.

On August 4, 2004, we closed our initial public offering and sold 14.6 million shares of 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 traditional ARM and hybrid ARM loans, the majority of 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 September 30, 2006, we had transferred to our investment portfolio approximately $6.3 billion of residential traditional ARM and hybrid ARM loans originated by MortgageIT, as well as $24.3 million of investment securities collateralized by self-originated ARM loans.

In June 2005, the Company conducted a secondary public offering of its common stock and sold 7,289,428 shares at a price to the public of $18.25 per share. In July 2005, the underwriters of the secondary public offering exercised, in full, their option to purchase an additional 1,422,646 shares of common stock from the Company at the public offering price of $18.25 to cover over-allotments. Net proceeds to the Company, after deducting the underwriting discount and estimated offering expenses, were approximately $150 million. In addition, certain stockholders sold 2,194,878 shares in the secondary public offering. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

In April and May 2005, the Company issued, in two private placements, an aggregate of $75 million of trust preferred securities (‘‘TPS’’) through trust subsidiaries and sold them to collateralized debt obligation pool vehicles under Rule 144A of the Securities Act of 1933. The floating-rate TPS bear a variable interest rate of 375 basis points above 3-month LIBOR, paid quarterly, and will mature in 2035. They are redeemable at par after five years and, in certain limited circumstances, at a premium to par in less than five years. Proceeds from the TPS sale were used to grow the Company’s self-originated loan portfolio as well as to support the continued expansion of the Company’s taxable REIT subsidiary.

In March 2006, the Company issued $50 million of TPS through a trust subsidiary and sold them to collateralized debt obligation pool vehicles under Rule 144A of the Securities Act of 1933. The floating-rate TPS bear a variable interest rate of 360 basis points above 3-month LIBOR, paid quarterly, and will mature in 2036. They are redeemable at par after five years and, in certain limited circumstances, at a premium to par in less than five years. Proceeds from the TPS sale were used to support the continued expansion of the Company’s taxable REIT subsidiary.

In October 2005, the Company announced a program to repurchase up to $30 million of its outstanding common stock, depending upon management’s discretion based upon ongoing assessments of the capital needs of the Company and the market valuation of its stock. During the fourth quarter of 2005, the Company repurchased approximately $1.2 million of its stock. There were no repurchases during the nine months ended September 30, 2006.

Also, in October 2005, Holdings established a captive mortgage reinsurance company, which generates earnings from mortgage insurance premiums paid on a portion of the loans originated by MortgageIT. Approximately 6.3% of the loans originated by MortgageIT during the first nine months of 2006 required mortgage insurance.

In December 2005, the TRS declared a $10 million dividend to Holdings, substantially all of which was included in the 2005 dividend payments paid to shareholders of the Company.

During the fourth quarter of 2005, gain on sale margins for sub-prime loans narrowed significantly industry-wide. In response to these adverse industry conditions, the Company reduced its presence in the sub-prime origination market by decreasing the number of its sub-prime branches and implementing related work force reductions. In the first quarter of 2006, the Company exited the national wholesale sub-prime market. Funded sub-prime volume during the first nine months of 2006

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was reduced to $246 million, or 1% of MortgageIT’s total originations during the period. As of September 30, 2006, all but $21.6 million of sub-prime inventory had been allocated to trades. The Company continues to originate sub-prime loans through a division of its traditional prime retail origination channel. However, the Company's sub-prime loan volume is not a material component of its total originations. All of the sub-prime loan production is sold to third party investors and we do not hold sub-prime loans in our investment portfolio.

In October 2006, the Company notified the approximately ninety employees in its correspondent lending division that the Company will be ceasing its correspondent lending operations. Although more than one-half of the positions will be eliminated within the Company’s correspondent lending division, many employees are expected to transition over to the DB Structured Products correspondent lending group at the time the proposed acquisition of the Company by DB Structured Products is completed. Pending the completion of the proposed acquisition, the Company has assigned to DB Structured Products’ correspondent lending group approximately thirty employees who previously worked in the Company’s correspondent lending division.

On July 11, 2006, the Company entered into a definitive agreement to be acquired by DB Structured Products for $14.75 in cash per share of Company common stock, or approximately $429 million in the aggregate. The transaction is expected to close during the first quarter of 2007, pending regulatory approvals, approval by the Company’s stockholders and the satisfaction of other customary closing conditions.

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 11 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Mortgage Investment Operations

Our mortgage investment operations involve the acquisition and retention, in a leveraged portfolio, of traditional ARM loans, hybrid ARM loans, pay option ARMs and mortgage-backed securities (collectively, ‘‘Portfolio Assets’’). 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 and pay option ARMs, collectively referred to as (‘‘Portfolio ARM Loans’’). Pay option ARMs (‘‘POAs’’) are mortgage loans that carry a low introductory or ‘‘teaser’’ rate for the first 30-90 days, and thereafter reprice monthly on the basis of an index such as the 12-month Treasury Average. POAs offer three monthly payment options each month: permitting the borrower to pay a fully amortizing amount, including principal and interest; interest only; or an amount that is less than the accrued interest. This last option results in an increase in the loan balance due, which is commonly referred to as ‘‘negative amortization.’’ Approximately one-third of the loan collateral in the REMIC securitization completed by the TRS in February 2006 consisted of POAs. Although the loans from this REMIC remain on the balance sheet of the TRS for reporting purposes, we consider them to be part of the Company’s investment portfolio.

All of the Portfolio ARM Loans we acquire are originated by 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 or debentures and discount notes guaranteed by either of two government-sponsored corporations, Federal National Mortgage Association (‘‘FNMA’’ or ‘‘Fannie Mae’’) and Federal Home Loan Mortgage Corporation (‘‘FHLMC’’ or ‘‘Freddie Mac’’).

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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 originate ARM loans for our investment portfolio and either securitize them from the TRS with subsequent purchase of a portion of the securities by Holdings, or transfer the loans to Holdings 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.

When a securitization is accomplished through Holdings, 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 interest income on our Portfolio ARM Loans and our cost of borrowings (i.e., the interest expense on our CDOs, warehouse lines of credit, and repurchase agreements).

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

When a securitization is accomplished through the TRS and the securitization is structured to qualify as a sale, we account for MBS placed with third party investors as sales and consequently record a gain or loss in connection with the securitization transaction. The TRS may also retain the MSR associated with the securitized loans. The securities purchased by Holdings are shown as assets on our balance sheet. These securities are classified as available for sale and, therefore, are carried at fair value on the balance sheet.

When a securitization is accomplished through the TRS and the securitization is structured to qualify as a financing, we do not record a gain or loss in connection with the securitization transaction. The loans used as collateral in the securitization are shown as assets on the balance sheet of the TRS. Although the loans from such securitizations remain on the balance sheet of the TRS for reporting purposes, we consider them to be part of the Company’s investment portfolio.

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 Corporate Risk 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:

•	Traditional ARM and Hybrid ARM mortgage loans that have been deposited into trusts that issue MBS 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’’));

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•	securities and loans that are unrated but that we determine to be of comparable quality to comparable high-quality rated 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 MBS 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.

The Company neither transferred any loans to the portfolio nor completed any loan securitizations during the third quarter ended September 30, 2006. Rather, the Company’s strategy during the third quarter of 2006, and the strategy the Company expects to employ going forward, is to sell all (and not just certain of) the loans it originates to third party investors.

Mortgage Banking Operations

Our mortgage banking operations are conducted through 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 typically 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 generally capitalize the value of MSR. 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. When the TRS securitizes loans through a REMIC transaction, structured to qualify as a sale, it generates gain on sale revenue when the loans are sold to the REMIC, and it also may capitalize the value of MSR and amortize it in proportion to, and over the period of, estimated net servicing income (the excess of servicing revenues over servicing costs). 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.

The first REMIC securitization completed by the TRS in November 2005 was collateralized by POAs. In this transaction, a pool of POA loans totaling approximately $388 million was securitized and sold to the public. We retained the mortgage servicing rights and retained approximately $24 million in MBS created in the transaction.

In February 2006, MortgageIT completed its second REMIC transaction, which was structured to qualify as a financing. In the February 2006 REMIC transaction, we issued, through a trust, AAA and AA-rated floating-rate pass-through certificates totaling $723.0 million and A-rated subordinated floating-rate securities totaling $10.1 million to third party investors, and retained $33.3 million of subordinated certificates, which provide credit support to the higher-rated certificates.

MortgageIT's mortgage banking operations expenses consist primarily of:

•	loan origination commissions, salaries and employee benefits;

•	mortgage loan processing expenses;

•	general and administrative expenses;

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•	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 typically can 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, e.g., the loan-to-value ratio, 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 (e.g., purchase of a home as opposed to cashing equity out of the home through a refinancing), the loan type (e.g., 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 transferred to our investment loan portfolio, sold or brokered to third party investors, or used in REMIC transactions to collateralize MBS that are sold to third party investors as well as to the REIT. However, the Company neither transferred any loans to the portfolio nor completed any loan securitizations or REMIC transactions during the third quarter ended September 30, 2006. Rather, the Company's strategy during the third quarter of 2006, and the strategy the Company expects to employ going forward, is to sell to third party investors all (and not just certain of) the loans it originates. Our mortgage banking operations consist primarily of the following activities:

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

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

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

•	secondary loan marketing operations; and

•	mortgage loan title, settlement and other mortgage related services through Home Closer.

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. When we execute a REMIC transaction structured to qualify as a sale from the TRS, we use our loans to collateralize MBS that are sold to third party investors as well as to the REIT.

All of our sub-prime 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 nine months ended September 30, 2006, MortgageIT's purchase loan originations represented approximately 45% 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, sub-prime loans and ‘‘Alt A’’ loans, as well as home equity and second lien mortgage loans.

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 MBS and options on such securities in the forward delivery TBA market; Eurodollar futures contracts; 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 further information on our interest rate risk management, see Item 3 Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk Management of this quarterly report on Form 10-Q and Note 4 — Derivatives and Hedging Activities to the consolidated financial statements.

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RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of total revenues for the three and nine months ended September 30, 2006 and 2005.

			Three months ended September 30,												Nine months ended September 30,
			2006						2005						2006						2005
Revenues:
Gain on sale of mortgage loans					97.0	%					73.4	%					86.9	%					62.0	%
Brokerage revenues					5.9	%					8.9	%					7.7	%					8.9	%
Net interest income					(1.6	)%					17.4	%					3.8	%					24.5	%
Realized and unrealized gain on hedging instruments					(2.4	)%					—	%					0.8	%					4.3	%
Other					1.1	%					0.3	%					0.8	%					0.3	%
Total revenues					100.0	%					100.0	%					100.0	%					100.0	%
Operating expenses:
Compensation and employee benefits					52.9	%					46.4	%					52.1	%					43.6	%
Processing expenses					22.5	%					19.1	%					29.6	%					17.7	%
General and administrative expenses					9.7	%					7.3	%					10.7	%					8.4	%
Rent					3.7	%					3.2	%					4.7	%					3.2	%
Marketing, loan acquisition and business development					1.8	%					1.4	%					1.8	%					1.4	%
Professional fees					6.1	%					2.9	%					5.1	%					3.2	%
Depreciation and amortization					2.3	%					1.2	%					2.3	%					1.2	%
Total operating expenses					99.0	%					81.5	%					106.3	%					78.7	%
Income (loss) before income taxes					1.0	%					18.5	%					(6.3	)%					21.3	%
Income taxes					(1.0	)%					8.1	%					(7.5	)%					6.9	%
Net income					2.0	%					10.4	%					1.2	%					14.4	%

Three months ended September 30, 2006 compared to three months ended September 30, 2005

Net (loss) income

On a consolidated basis, our net income decreased from approximately $8.7 million in the third quarter of 2005 to approximately $1.4 million in the third quarter of 2006. The decrease is primarily attributable to lower net interest income from mortgage banking and the investment portfolio. Total revenues decreased approximately 13% from $84.0 million in the third quarter of 2005 to approximately $73.3 million in the third quarter ended of 2006. Gain on sale of mortgage loans increased by approximately 15% to $71.1 million in the third quarter of 2006 compared to approximately $61.6 million in the third quarter of 2005, while net interest income decreased by approximately 108% from $14.6 million to a loss of $1.2 million. The realized and unrealized loss on hedging instruments used in our investment portfolio hedging program increased from zero in the third quarter of 2005 to approximately $1.7 million in the third quarter of 2006. Brokerage revenue decreased by approximately 43% to $4.3 million in the third quarter of 2006 compared to approximately $7.5 million in the third quarter of 2005. Total expenses increased by approximately 6% from approximately $68.5 million in the third quarter of 2005 to approximately $72.6 million in the third quarter of 2006, despite a 19% decrease in funded loans from approximately $9.2 billion in the third quarter of 2005 to approximately $7.5 billion in the third quarter of 2006. The increase in total expenses for the third quarter of 2006, compared to the third quarter of 2005, is primarily the result of expenses associated with the proposed acquisition of the Company by DB Structured Products. In addition, income tax expense decreased approximately $7.5 million from income tax expense of $6.8 million in the third quarter of 2005 to a $731,000 income tax benefit in the third quarter of 2006. This benefit resulted primarily from a decrease in income before income taxes of the TRS of approximately $19.1 million from income before income taxes of approximately $15.9 million in the third quarter of 2005 to a loss before income taxes of approximately $3.2 million in the third quarter of 2006.

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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 September 30,
			2006																		2005
			Average Balance						Effective Rate/Yield						Interest Income and Expense						Average Balance						Effective Rate/Yield						Interest Income and Expense
Interest-earning assets:
Portfolio Assets				$	4,827,468						5.47	%				$	65,986					$	4,197,398						4.97	%				$	52,595
Mortgage loans held for sale					3,601,327						5.34						48,106						3,003,055						4.98						37,699
Cash and cash equivalents					46,029						2.16						249						77,345						0.46						90
					8,474,824						5.40						114,341						7,277,798						4.93						90,384
Interest-bearing liabilities:
Collateralized debt obligations					4,599,786						5.13						59,006						3,648,052						4.14						38,056
Warehouse lines payable					3,505,731						5.76						51,574						3,275,739						4.24						35,025
Other debt					248,939						7.78						4,950						177,870						5.93						2,660
					8,354,456						5.41						115,530						7,101,661						4.23						75,741
Net interest-earning assets and spread				$	120,368						(0.01	)%				$	(1,189	)				$	176,137						.70	%				$	14,643
Net interest margin(1)											(0.06	%)																	.80	%

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

Mortgage Investment Operations

Revenues

Net interest income.    Net interest income decreased approximately 13% to $7.1 million for the three months ended September 30, 2006 from approximately $8.2 million for the comparable period ended September 30, 2005. The decrease was due to a lower net interest margin, driven by the flattening yield curve, partly offset by higher average interest-earning assets of approximately $4.9 billion for the three months ended September 30, 2006 compared with average interest-earning assets of approximately $4.3 billion for the comparable period ended September 30, 2005. Net interest margin for our mortgage investment operations declined to .58% for the three months ended September 30, 2006 from .76% for the comparable period ended September 30, 2005 due to continued flattening of the yield curve as average one-month LIBOR rose to 5.35% in the third quarter of 2006 from 3.60% in the third quarter of 2005.

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The following table presents the average balance for each category of REIT 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 September 30,
			2006																		2005
			Average Balance						Effective Rate						Interest Income and Expense						Average Balance						Effective Rate						Interest Income and Expense
Interest-earning assets:
Portfolio Assets				$	4,824,894						5.42	%				$	65,391					$	4,197,398						4.76	%				$	50,328
Cash and cash equivalents and other assets					94,224						8.98						2,116						97,889						1.27						312
					4,919,118						5.49						67,507						4,295,287						4.68						50,640
Interest-bearing liabilities:
Collateralized debt obligations					4,599,786						5.12						58,924						3,648,052						4.12						37,908
Warehouse lines payable					—						—						—						346,580						4.25						3,711
Repurchase agreements					97,568						5.83						1,454						85,546						3.82						824
					4,697,354						5.03						60,378						4,080,178						4.13						42,443
Net interest-earning assets and spread				$	221,764						0.46	%				$	7,129					$	215,109						.55	%				$	8,197
Net interest margin(1)											0.58	%																	.76	%

(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 decreased approximately 34% to $463,000 for the three months ended September 30, 2006 from $699,000 for the comparable period ended September 30, 2005. The decrease was primarily due to a decrease in the number of employees dedicated to the investment operations as the business continues to achieve economies of scale.

Processing expenses.    Mortgage loan processing expenses decreased approximately 41% to $825,000 for the three months ended September 30, 2006 from approximately $1.4 million for the comparable period ended September 30, 2005. The decrease was primarily due to a lower provision for loan losses.

General and administrative expenses.    General and administrative expenses decreased approximately 64% to $364,000 for the three months ended September 30, 2006 from approximately $1.0 million for the comparable period ended September 30, 2005. This decrease was primarily due to lower insurance and other administrative expenses.

Professional fees.    Professional fees increased approximately 128% to $1.1 million for the three months ended September 30, 2006 from $468,000 for the comparable period ended September 30, 2005. This increase was primarily due to higher legal and other professional expenses, including expenses associated with the proposed acquisition of the Company by DB Structured Products.

Mortgage Banking Operations

Revenues

Gain on sale of mortgage loans.    Gain on sale of mortgage loans increased by approximately 3% to $71.1 million for the three months ended September 30, 2006 from $69.2 million for the three months

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ended September 30, 2005. Mortgage whole loan sales to third parties increased by approximately 7% to $7.1 billion for the three months ended September 30, 2006 from $6.6 billion for the three months ended September 30, 2005. Gain on sale of sub-prime loans decreased to a loss of approximately $632,000 for the three months ended September 30, 2006 from a gain of approximately $15.6 million for the three months ended September 30, 2005.

Brokerage revenue.    Brokerage revenue decreased by approximately 43% to $4.3 million for the three months ended September 30, 2006 from approximately $7.5 million for the three months ended September 30, 2005 due to a 28% decline in brokered loan volume.

Net interest income.    Net interest income decreased by approximately $13.5 million to a loss of $9.5 million for the three months ended September 30, 2006 from income of $4.3 million for the three months ended September 30, 2005. The decrease is primarily attributable to higher borrowing costs on warehouse lines payable in the third quarter of 2006 resulting from an increase in average one-month LIBOR to 5.35% from 3.60% in the third quarter of 2005, and a higher percentage of funded POAs carrying low teaser rates. In addition, the results of a state regulatory examination led to a reduction in net interest income of approximately $1.5 million in the third quarter of 2006.

The following table presents the average balance for each category of mortgage banking 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 September 30,
			2006																		2005
			Average Balance						Effective Rate						Interest Income and Expense						Average Balance						Effective Rate						Interest Income and Expense
Interest-earning assets:
Mortgage loans held for sale				$	3,601,328						5.34	%				$	48,106					$	3,003,055						4.98	%				$	37,699
Portfolio Assets					715,985						6.10						10,910						—						—						—
Cash and cash equivalents					42,485						2.21						234						9,462						3.60						86
					4,359,798						5.44						59,250						3,012,517						4.98						37,785
Interest-bearing liabilities:
Warehouse lines payable					3,505,731						5.76						51,573						2,929,159						4.24						31,314
Junior subordinated debentures and other debt					963,467						6.96						17,142						122,829						7.13						2,208
					4,469,198						6.02						68,715						3,051,988						4.36						33,522
Net interest-earning assets and spread				$	(109,400	)					(0.58	)%				$	(9,465	)				$	(39,471	)					.62	%				$	4,263
Net interest margin(1)											(0.87	)%																	0.56	%

(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 remained approximately constant at $38.3 million for the three months ended September 30, 2006 and 2005, respectively.

Processing expenses.    Mortgage loan processing expenses increased approximately 6% to $15.8 million for the three months ended September 30, 2006 from approximately $15.0 million for the three months ended September 30, 2005. This increase results from higher tax service expense, bad debt expense, partially offset by lower other processing expenses due to lower funded volume.

41

General and administrative expenses.    General and administrative expenses increased by approximately 29% to $6.6 million for the three months ended September 30, 2006 from approximately $5.1 million for the three months ended September 30, 2005. This increase was primarily due to higher administrative expenses resulting from continuing branch expansions.

Marketing, loan acquisition and business development expenses.    Marketing, loan acquisition and business development expenses increased approximately 10% to $1.3 million for the three months ended September 30, 2006 from approximately $1.2 million for the three months ended September 30, 2005. The increase was primarily due to higher business development expenses associated with the expansion of branches in new geographic areas.

Rent expense.    Rent expense remained approximately constant at $2.7 million for the three months ended September 30, 2006 and 2005, respectively.

Professional fees.    Professional fees increased approximately 74% to $3.4 million for the three months ended September 30, 2006 from approximately $1.9 million for the three months ended September 30, 2005. This increase was primarily due to higher litigation defense costs, increased regulatory examination and compliance costs, and expenses associated with the proposed acquisition of the Company by DB Structured Products.

Depreciation and amortization expenses.    Depreciation and amortization expenses increased approximately 73% to $1.7 million for the three months ended September 30, 2006 from approximately $1.0 million for the three months ended September 30, 2005. The increase was primarily due to leasehold improvements for branch expansions as well as investments in computer system software.

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. Income tax expense decreased approximately $7.5 million to an income tax benefit of $731,000 for the three months ended September 30, 2006 from income tax expense of approximately $6.8 million for the three months ended September 30, 2005. This benefit resulted primarily from a decrease in income before income taxes of approximately $19.1 million from income before income taxes of approximately $15.9 million in the third quarter of 2005 to a loss before income taxes of approximately $3.2 million in the third quarter of 2006.

Nine months ended September 30, 2006 compared to nine months ended September 30, 2005

Net (loss) income

On a consolidated basis, net income decreased from approximately $32.8 million for the nine months ended September 30, 2005 to approximately $2.6 million for the nine months ended September 30, 2006. The decrease is primarily attributable to losses incurred in the wind-down of our national wholesale sub-prime operations during 2006, lower net interest income in mortgage banking and in the investment portfolio, and lower realized and unrealized gains on hedging instruments used in our investment portfolio hedging program. Total revenues decreased by approximately 6% to $213.7 million for the nine months ended September 30, 2006, from approximately $226.9 million for the comparable period in 2005. Gain on sale of mortgage loans increased by approximately 32% to $185.7 million in the first nine months of 2006 compared to approximately $140.7 million in the comparable period in 2005, while net interest income decreased by approximately 86% from $55.6 million to approximately $8.0 million. In addition, the realized and unrealized gain on hedging instruments used in our investment portfolio hedging program decreased by approximately 83% from $9.7 million in the first nine months of 2005 to $1.7 million in the first nine months of 2006. Brokerage revenue decreased by approximately 18% to $16.5 million for the nine months ended September 30, 2006, from approximately $20.2 million for the comparable period in 2005. Total expenses increased approximately 27% to $227.1 million for the nine months ended September 30, 2006 from approximately $178.5 million for the nine months ended September 30, 2005 primarily driven by

42

higher sub-prime loan repurchase expenses, expenses associated with the proposed acquisition of the Company by DB Structured Products, and a 11% increase in funded loans from approximately $20.0 billion for the nine months ended September 30, 2005 to approximately $22.3 billion for the nine months ended September 30, 2006. In addition, income tax expense decreased period-over-period by approximately $31.6 million from income tax expense of $15.6 million for the nine months ended September 30, 2005 to a $16.0 million income tax benefit for the nine months ended September 30, 2006. This benefit resulted primarily from a decrease in income before income taxes of the TRS of approximately $74.1 million from income before income taxes of approximately $36.3 for the nine months ended September 30, 2005 to a loss before income taxes of approximately $37.8 million for the nine months ended September 30, 2006.

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 nine months ended September 30,
			2006																		2005
			Average Balance						Effective Rate/Yield						Interest Income and Expense						Average Balance						Effective Rate/Yield						Interest Income and Expense
Interest-earning assets:
Portfolio Assets				$	4,960,286						5.36	%				$	199,467					$	3,459,746						4.97	%				$	128,498
Mortgage loans held for sale					3,420,311						5.63						144,421						2,007,816						5.53						83,006
Cash and cash equivalents					46,271						2.87						996						64,229						1.11						532
					8,426,868						5.46						344,884						5,531,791						5.13						212,036
Interest-bearing liabilities:
Collateralized debt obligations					4,719,113						4.93						174,530						2,806,551						3.89						81,588
Warehouse lines payable					3,336,401						5.90						149,268						2,426,919						3.82						69,269
Other debt					236,165						7.29						13,055						147,126						5.11						5,625
					8,291,679						5.36						336,853						5,380,596						3.89						156,482
Net interest-earning assets and spread				$	135,189						0.10	%				$	8,031					$	151,195						1.24	%				$	55,554
Net interest margin(1)											0.13	%																	1.34	%

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

Mortgage Investment Operations

Revenues

Net interest income.    Net interest income for our mortgage investment operations decreased approximately 15% to $23.6 million for the nine months ended September 30, 2006 from approximately $27.7 million for the comparable period ended September 30, 2005. The decrease was due to a lower net interest margin, driven by the flattening yield curve, partially offset by higher average interest-earning assets of $5.1 billion for the nine months ended September 30, 2006 compared with average interest-earning assets of $3.5 billion for the comparable period ended September 30, 2005. Net interest margin for our mortgage investment operations declined to .62% for the nine months ended September 30, 2006 from 1.05% for the comparable period ended

43

September 30, 2005 due to continued flattening of the yield curve as average one-month LIBOR rose to 5.02% in the first nine months of 2006 from 3.12% in the first nine months of 2005.

The following table presents the average balance for each category of REIT 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 nine months ended September 30,
			2006																		2005
			Average Balance						Effective Rate						Interest Income and Expense						Average Balance						Effective Rate						Interest Income and Expense
Interest-earning assets:
Portfolio Assets				$	4,957,895						5.27	%				$	195,922					$	3,459,746						4.79	%				$	123,953
Cash and cash equivalents and other assets					97,352						8.34						6,089						50,672						1.02						388
					5,055,247						5.33						202,011						3,510,418						4.74						124,341
Interest-bearing liabilities:
Collateralized debt obligations					4,719,113						4.93						174,321						2,806,551						3.89						81,347
Warehouse lines payable					2,275						4.74						82						467,417						3.78						13,210
Repurchase agreements					96,701						5.49						4,022						88,600						3.22						2,130
					4,818,089						4.88						178,425						3,362,568						3.84						96,687
Net interest-earning assets and spread				$	237,158						0.45	%				$	23,586					$	147,850						.90	%				$	27,654
Net interest margin(1)											0.62	%																	1.05	%

(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 decreased approximately 52% to $1.1 million for the nine months ended September 30, 2006 from approximately $2.3 million for the comparable period ended September 30, 2005. The decrease was primarily due to a decrease in the number of employees dedicated to the investment operations as the business continues to achieve economies of scale.

Processing expenses.    Mortgage loan processing expenses decreased approximately 41% to $2.2 million for the nine months ended September 30, 2006 from approximately $3.7 million for the comparable period ended September 30, 2005. The decrease was primarily due to a lower provision for loan losses.

General and administrative expenses.    General and administrative expenses decreased approximately 70% to $825,000 for the nine months ended September 30, 2006 from approximately $2.8 million for the comparable period ended September 30, 2005. This decrease was primarily due to lower insurance and other administrative expenses.

Professional fees.    Professional fees decreased approximately 10% to $1.4 million for the nine months ended September 30, 2006 from approximately $1.6 million for the comparable period ended September 30, 2005. This decrease was primarily due to lower legal and other professional expenses, offset by expenses associated with the proposed acquisition of the Company by DB Structured Products.

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Mortgage Banking Operations

Revenues

Gain on sale of mortgage loans.    Gain on sale of mortgage loans increased approximately 15% to $185.6 million for the nine months ended September 30, 2006 from approximately $161.6 million for the nine months ended September 30, 2005. Mortgage whole loan sales to third parties increased by approximately 48% to $20.1 billion for the nine months ended September 30, 2006 from approximately $13.5 billion for the nine months ended September 30, 2005. Gain on sale of sub-prime loans decreased to a loss of approximately $10.8 million for the nine months ended September 30, 2006 from a gain of approximately $35.4 million for the nine months ended September 30, 2005.

Brokerage revenue.    Brokerage revenue decreased by approximately 18% to $16.5 million for the nine months ended September 30, 2006, from approximately $20.2 million for the comparable period in 2005, due to an 18% decline in brokered loan volume from the comparable period.

Net interest income.    Net interest income decreased by approximately $43.8 million to a loss of $20.3 million for the nine months ended September 30, 2006 from income of $23.5 million for the nine months ended September 30, 2005. The decrease is attributable to higher borrowing costs on warehouse lines payable in the first nine months of 2006 resulting from an increase in average one-month LIBOR to 5.02% from 3.12% in the first nine months of 2005, as well as a higher percentage of funded POAs carrying low teaser rates. In addition, the results of a state regulatory examination led to a reduction in net interest income of approximately $1.5 million in the third quarter of 2006.

The following table presents the average balance for each category of mortgage banking 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 nine months ended September 30,
			2006																		2005
			Average Balance						Effective Rate						Interest Income and Expense						Average Balance						Effective Rate						Interest Income and Expense
Interest-earning assets:
Mortgage loans held for sale				$	3,420,311						5.63	%				$	144,420					$	2,007,816						5.53	%				$	83,006
Portfolio Assets					615,811						5.82						26,893						—						—						—
Cash and cash equivalents					40,401						2.92						885						23,587						2.56						452
					4,076,523						5.63						172,198						2,031,403						5.49						83,458
Interest-bearing liabilities:
Warehouse lines payable					3,334,126						5.90						149,185						1,959,502						3.83						56,059
Junior subordinated debentures and other debt					848,697						6.74						43,347						68,806						7.51						3,866
					4,182,823						6.07						192,532						2,028,308						3.95						59,925
Net interest-earning assets and spread				$	(106,300	)					(0.44	)%				$	(20,334	)				$	3,095						1.54	%				$	23,533
Net interest margin(1)											(0.67	)%																	1.55	%

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

45

Expenses

Compensation and employee benefits.    Compensation and employee benefits expenses increased approximately 14% to $110.3 million for the nine months ended September 30, 2006 from approximately $96.7 million for the nine months ended September 30, 2005. The increase was primarily due to higher average non-production staffing and an 11% increase in funded loans to approximately $22.3 billion in the first nine months of 2006 from approximately $20.0 billion in the first nine months ended September 30, 2005.

Processing expenses.    Mortgage loan processing expenses increased approximately 62% to $61.5 million for the nine months ended September 30, 2006 from approximately $38.0 million for the nine months ended September 30, 2005. The increase was primarily due to higher sub-prime loan repurchase expenses in the first nine months of 2006 relative to the first nine months of 2005.

General and administrative expenses.    General and administrative expenses increased by approximately 31% to $21.4 million for the nine months ended September 30, 2006 from approximately $16.3 million for the nine months ended September 30, 2005. This increase was primarily due to branch expansions, as well as 11% higher origination volumes.

Marketing, loan acquisition and business development expenses.    Marketing, loan acquisition and business development expenses increased approximately 24% to $3.9 million for the nine months ended September 30, 2006 from approximately $3.1 million for the nine months ended September 30, 2005. The increase was primarily due to higher business development expenses associated with the expansion of branches in new geographic areas and higher period-over-period originations.

Rent expense.    Rent expense increased approximately 37% to $9.9 million for the nine months ended September 30, 2006 from approximately $7.3 million for the nine months ended September 30, 2005. This increase was primarily due to expansion of existing branches, as well as fees associated with the termination of leases within our wholesale sub-prime and prime retail divisions during the first nine months of 2006.

Professional fees.    Professional fees increased approximately 67% to $9.5 million for the nine months ended September 30, 2006 from approximately $5.7 million for the nine months ended September 30, 2005. This increase was primarily due to higher litigation defense costs, increased regulatory examination and compliance costs, as well as higher technology consulting expenses, and expenses associated with the proposed acquisition of the Company by DB Structured Products.

Depreciation and amortization expenses.    Depreciation and amortization expenses increased approximately 87% to $4.9 million for the nine months ended September 30, 2006 from approximately $2.6 million for the nine months ended September 30, 2005. The increase was primarily due to leasehold improvements for branch expansions as well as investments in computer system software.

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. Income tax expense decreased period-over-period by approximately $31.6 million from income tax expense of $15.6 million for the nine months ended September 30, 2005 to approximately $16.0 million of income tax benefit for the nine months ended September 30, 2006. This benefit primarily resulted from a decrease in income before income taxes of approximately $74.1 million from income before income taxes of approximately $36.3 for the nine months ended September 30, 2005 to a loss before income taxes of approximately $37.8 million for the nine months ended September 30, 2006.

46

FINANCIAL CONDITION

At September 30, 2006 and December 31, 2005, our assets consisted of both Portfolio ARM Loans and mortgage loans held for sale, representing 55% and 41%, respectively, of total assets at September 30, 2006, and 56% and 40%, respectively, of total assets at December 31, 2005.

Total assets increased by $88.0 million from December 31, 2005 to September 30, 2006. The increase primarily reflects an increase in mortgage loans held for sale in the amount of $121.7 million, offset by a decrease in Portfolio Arm Loans in the amount of $39.6 million.

The following table presents various characteristics of our Portfolio ARM Loans as of September 30, 2006. The aggregate unpaid principal balance of the loans included in this table is approximately $4.6 billion.

47

			Average						High						Low
Original loan balance				$	286,507					$	1,500,000					$	21,207
Coupon rate on loans					5.68	%					8.75	%					3.50	%
% Gross margin					2.32	%					2.75	%					2.00	%
Lifetime cap					5.99	%					9.95	%					5.00	%
Original term (months)					360						360						360
Remaining term (months)					343						353						326
Geographic distribution (top 5 states):
California																	53.3	%
Arizona																	7.4
Washington																	6.6
Florida																	5.3
Nevada																	3.1
Other																	24.3
Occupancy status:
Owner occupied																	89.1	%
Investor																	8.3
Second home																	2.6
Documentation type:
Full Documentation																	40.6	%
Stated Income/Verified Assets																	47.8
Stated Income/Stated Assets																	4.2
Verified Assets																	2.6
No Documentation																	4.8
Loan purpose:
Purchase																	55.9	%
Cash-out refinance																	27.8
Rate & term refinance																	16.3
Original loan-to-value:
80.01% and over																	2.0	%
70.01%-80.00%																	71.5
60.01%-70.00%																	15.7
50.01%-60.00%																	6.1
50.00% or less																	4.7
Weighted average original loan-to-value																	73.9	%
Property type:
Single family																	60.3	%
PUD																	23.6
Condominium																	11.9
Other residential																	4.2
ARM loan type:
3-year hybrid																	18.7	%
5-year hybrid																	75.8
Pay Option																	5.0
Other																	0.5
ARM interest rate caps:
Initial cap:
Under 3.00																	5.3	%
3.01-4.00																	0.0
4.01-5.00																	22.0
5.01-6.00																	72.7
Periodic cap:
None																	0.2	%
Under 1.00%																	0.0
Over 1.00%																	99.8
Percent of interest-only loan balances																	78.9	%
FICO score at origination:
801 and over																	2.7	%
751 to 800																	31.8
701 to 750																	43.3
651 to 700																	21.5
650 or less																	0.7
Weighted average FICO(1) score:																	732

(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.

48

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 are described below. Additional information regarding our accounting policies is contained in Note 1 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

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 gain or loss on the associated derivative financial instruments would be reflected in current period earnings. See Note 4 of our consolidated financial statements included elsewhere in this quarterly report on Form 10-Q 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.

Gains and losses on a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income (loss) 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, forward delivery contracts on MBS (‘‘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 interest rate lock commitment (‘‘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

49

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.

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 quarterly 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 is 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.

REMIC Securitization

MortgageIT structured its November 2005, REMIC securitization so that control over the collateral was transferred and the transfer was accounted for as a sale. In accordance with SFAS No. 140, a gain or loss on the sale is recognized based on the carrying amount of the financial assets involved in the transfer, allocated between the assets transferred and the retained interests based on their relative fair value at the date of transfer. In the REMIC securitization, MortgageIT retained the right to service the underlying mortgage loans and Holdings also purchased certain mortgage securities issued by the trust (see Note 5 to the consolidated financial statements included elsewhere in this quarterly report on Form 10-Q). The gain recognized upon securitization depends on, among other things, the estimated fair value of the components of the REMIC securitization — the loans transferred, the mortgage securities purchased and the mortgage servicing rights. We obtain the estimated fair value of the MBS from different sources, including broker dealers. The initial value of the MBS we purchase in a REMIC securitization is derived from the allocated cost, based upon the relative fair value of the entire REMIC securitization.

An implied yield (discount rate) is calculated based on the initial value derived above and using projected cash flows generated using assumptions for prepayments, expected credit losses and interest rates. Additionally, this yield serves as the initial accretable yield used to recognize income on the securities.

Mortgage Servicing Rights

MortgageIT recorded MSR arising from the sale of mortgages in the November 2005, REMIC securitization at the allocated cost, utilizing the relative fair value allocation method based upon an

50

estimate of what a third party would pay for the MSR. The MSR are amortized in proportion to and over the estimated period of net servicing income. MortgageIT subsequently evaluates and measures the MSR for impairment by comparing the unamortized balance against the fair value obtained from a broker dealer. An impairment loss is recognized for MSR that have an unamortized balance in excess of the estimated fair value.

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. 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 from our mortgage investment operations are the issuance of MBS, 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 MBS that we issue. Through September 30, 2006, we completed seven securitization transactions, in which we securitized ARM loans into a series of pro rata pay, floating-rate securities, and the February 2006 REMIC securitization.

In these transactions, we issued AAA and AA− rated floating-rate pass-through certificates totaling $5.97 billion and A+/BBB+ subordinated floating-rate securities totaling $65.2 million to third party investors, and retained $145.5 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 MBS, we incurred securitization costs of $15.5 million, including investment banking fees, legal fees and other related costs. The securitization costs are amortized over the expected life of MBS.

Outstanding MBS were collateralized by ARM loans with a remaining principal balance of $4.6 billion, as of both September 30, 2006 and December 31, 2005. These MBS mature between 2033 and 2036 and are callable at par by us after the total remaining balance of the loans collateralizing the debt is paid down to 20%, or 10% for the February 2006 REMIC securitization, of its 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 2.5 years.

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 MBS to a counterparty and we agree to repurchase those assets at a future date. At maturity, we repurchase the assets 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 September 30, 2006 and December 31, 2005, we had $94.7 million and $87.1 million of securities outstanding under the repurchase agreements, respectively.

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These financing arrangements are short-duration facilities, generally 30 days, secured by the retained interest in our MBS, 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 but one of our warehouse credit facilities to finance loans that are held for securitization by the REIT.

Liquidity from Mortgage Banking Operations

The principal sources of liquidity from our mortgage banking operations are our warehouse credit 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. Warehouse credit facilities generally have a term of one year and have been renewed annually. As of September 30, 2006, the aggregate amount of our warehouse facilities was $11.3 billion and the amount available for additional borrowings under these facilities was approximately $8.0 billion.

These facilities bear interest at LIBOR plus a spread based on the types of loans being funded. The weighted average effective rate of interest for borrowings under all warehouse credit facilities was approximately 5.9% and 4.3% for the nine months ended September 30, 2006 and the year ended December 31, 2005, respectively.

As of September 30, 2006, the Company had eight warehouse credit facilities with major lenders that it used to fund mortgage loans. During October 2006, the Company’s warehouse credit facilities with JPMorgan Chase Bank, National Association, Greenwich Capital Financial Products Inc. and Residential Funding Corporation expired according to their terms, bringing the total number of facilities it may draw upon to five. The Company expects to terminate its warehouse credit facility with UBS Real Estate Securities Inc., under which it has no outstanding borrowings, in November 2006.

All mortgage loans held for sale have been pledged as collateral under the above warehouse credit facilities. The documents governing MortgageIT's warehouse credit facilities contain a number of compensating balance requirements and restrictive financial and other covenants that, among other things, require it to maintain 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.

The Company was not in compliance with a covenant contained in one of its warehouse credit facilities as of July 31, 2006 and August 31, 2006, for which waivers have been obtained. No assurance can be made that the Company's lenders will waive future covenant violations, if violations occur. These facilities contain covenants limiting the Company's ability to:

•	consolidate, merge or enter into similar extraordinary transactions;

•	transfer or sell a substantial amount of assets;

•	create additional 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 the Company's ability to pay cash or stock dividends on its common stock. In addition, under the facilities, the Company cannot continue to finance a mortgage loan that it holds through the facility if:

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

•	the Company fails 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 credit facility agreement).

In addition to the warehouse facilities, MortgageIT issues junior subordinated debentures (the ‘‘Debentures’’).

During March 2006, MortgageIT issued $51.5 million of the Debentures. The Debentures were issued to a trust subsidiary of MortgageIT in order to fund the trust's obligations with respect to an aggregate of $50 million of trust preferred securities which were issued by such trust subsidiary. The Debentures are floating-rate and bear a variable interest rate of 360 basis points above 3-month LIBOR, paid quarterly, and mature in 2036. They are redeemable, by MortgageIT, at par after five years and at a premium to par in certain limited circumstances over the first five years. In connection with the issuance of the Debentures, the Company incurred costs of $1.5 million. These costs are being amortized over the expected life of the securities.

During April and May 2005, MortgageIT issued $77.3 million of the Debentures in two separate private placements. The Debentures were issued to a trust subsidiary of MortgageIT in order to fund the trust's obligations with respect to an aggregate of $75 million of trust preferred securities which were issued by such trust subsidiary. The Debentures are floating-rate securities and bear a variable interest rate of 375 basis points above 3-month LIBOR, paid quarterly, and mature in 2035. They are redeemable, by MortgageIT, at par after five years and at a premium to par in certain limited circumstances over the first five years. In connection with the issuance of the Debentures, the Company incurred costs of $2.5 million. These costs are being amortized over the expected life of the securities.

Also, MortgageIT entered into a note purchase agreement in March 2004, whereby MortgageIT sold an aggregate principal amount of $15 million of senior secured notes (the ‘‘Notes’’) to an investor; MortgageIT sold an additional aggregate principal amount of $15 million of Notes to the investor in February 2006. The proceeds from the sale of the Notes provide working capital for MortgageIT. Under the related note purchase agreement, as amended, the Notes bore interest at (i) a rate of 10% per annum through September 30, 2004, (ii) a rate of 7.5% per annum from October 1, 2004 through March 31, 2005, (iii) a rate of 10% per annum from April 1, 2005 to August 23, 2005, (iv) a rate of 5.5% per annum from August 24, 2005 to February 20, 2006 and (v) a rate of 6.5% per annum from February 21, 2006 to maturity. 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. In August 2006, MortgageIT repaid an aggregate principal amount of $15 million of senior secured notes to the investor. In September 2006, the investor notified MortgageIT that it intends to exercise its purchaser put right for all amounts owed under the note purchase agreement on December 19, 2006. As of September 30, 2006, MortgageIT was in compliance with all of the restrictions and covenants contained in the note purchase agreement. If covenant violations occur in the future, there can be no assurance that the investor will waive them.

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

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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, to date, 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

The Company's cash and cash equivalents increased to $43.9 million at September 30, 2006 from $36.8 million at December 31, 2005. The Company's primary sources of cash and cash equivalents during the nine months ended September 30, 2006 were as follows:

•	a $140.9 million increase in warehouse lines payable;

•	a $48.5 million increase from net proceeds from the issuance of junior subordinated debentures;

•	a $39.6 million decrease in Portfolio ARM Loans;

•	a $7.6 million increase in borrowings from repurchase agreements; and

•	a $5.1 million decrease in receivables.

The Company's primary uses of cash and cash equivalents during the nine months ended September 30, 2006 were as follows:

•	a $121.7 million increase in mortgage loans held for sale;

•	a $42.6 million decrease in collateralized debt obligations;

•	a $40.8 million decrease in accounts payable, accrued expenses and other liabilities; and

•	a $29.2 million distribution payment.

Payment of Distributions

On December 16, 2004, we declared our initial distribution on our common stock of $0.44 per share. The distribution was made in January 2005 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash distribution of approximately $8.5 million exceeded the minimum taxable income distribution requirements for the year.

On March 16, 2005, we declared a cash dividend on our common stock of $0.48 per share. The dividend was distributed in April 2005 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash dividend of approximately $9.3 million exceeded the minimum taxable income distribution requirements for the quarter.

On May 17, 2005, we declared a cash dividend on our common stock of $0.48 per share. The dividend was distributed in July 2005 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash dividend of approximately $9.3 million exceeded the minimum taxable income distribution requirements for the quarter.

On September 21, 2005, we declared a cash distribution on our common stock of $0.48 per share. The distribution was made in October 2005 and, for financial reporting purposes, was reflected as an

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increase in our accumulated deficit. The total cash distribution of approximately $13.6 million exceeded the minimum taxable income distribution requirements for the quarter.

On December 12, 2005, we declared a cash distribution on our common stock of $0.48 per share. The distribution was made in January 2006 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash distribution of approximately $13.6 million exceeded the minimum taxable income distribution requirements for the quarter.

On March 17, 2006, we declared a cash distribution on our common stock of $0.25 per share. The distribution was made in April 2006 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash distribution of approximately $7.1 million exceeded the minimum taxable income distribution requirements for the quarter.

On June 14, 2006, we declared a cash distribution on our common stock of $0.30 per share. The distribution was made in July 2006 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash distribution of approximately $8.5 million exceeded the minimum taxable income distribution requirements for the quarter.

On September 14, 2006, we declared a cash distribution on our common stock of $0.30 per share. The distribution was made in October 2006 and, for financial reporting purposes, was reflected as an increase in our accumulated deficit. The total cash distribution of approximately $8.6 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 MBS 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 to 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

In our REMIC securitization, we pooled the loans we originated and sold them to a trust where they serve as collateral for asset-backed securities, which the trust issues to the public and to the REIT. See Note 5 of our consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for further information pertaining to our REMIC securitization.

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CONTRACTUAL OBLIGATIONS

We had the following commitments (excluding derivative financial instruments) at September 30, 2006:

			Payments due by Period
			(Dollars in thousands) (unaudited)
			Total						Less than 1 year						1-3 years						3-5 years						More than 5 years
Collateralized debt obligations(1)			$4,442,590							$	953,440					$	1,854,135					$	1,555,977				$79,038
Warehouse lines payable			3,318,868								3,318,868						—						—						—
Repurchase agreements			94,692								94,692						—						—						—
Junior subordinated debentures			128,871								—						—						—						128,871
Operating leases(2)			41,146								12,580						20,117						8,449						—
Notes payable			15,000								15,000						—						—						—

(1)	Payments on 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, adjusted for pre-payments. This estimate will differ from actual pre-payment amounts.

(2)	Net of subleases

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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 September 30, 2006 and December 31, 2005:

			September 30, 2006 (unaudited)
			Notional Amount						Carrying Amount						Estimated Fair Value
			(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	3,434,301					$	3,499,918					$	3,521,076
ARM loans collateralizing debt obligations, net					4,597,856						4,642,282						4,598,891
Mortgage-backed securities – available for sale											20,982						20,982
Hedging instruments					6,357,928						46,639						46,639
Liabilities:
Warehouse lines payable				$	3,318,868					$	3,318,868					$	3,318,868
Collateralized debt obligations					4,442,590						4,442,590						4,452,057
Repurchase agreements					94,692						94,692						94,692
Junior subordinated debentures					128,871						128,871						128,871
Hedging instruments					11,052,813						7,422						7,422

			December 31, 2005
			Notional Amount						Carrying Amount						Estimated Fair Value
			(Dollars in thousands)
Assets:
Mortgage loans held for sale				$	3,327,144					$	3,378,197					$	3,383,752
ARM loans held for securitization, net					278						282						277
ARM loans collateralizing debt obligations, net					4,641,588						4,681,554						4,624,237
Mortgage-backed securities – available for sale											23,357						23,357
Hedging instruments					11,152,164						54,472						54,472
Liabilities:
Warehouse lines payable				$	3,177,990					$	3,177,990					$	3,177,990
Collateralized debt obligations					4,485,197						4,485,197						4,485,197
Repurchase agreements					87,058						87,058						87,058
Junior subordinated debentures					77,324						77,324						77,324
Hedging instruments					7,242,693						8,801						8,801

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

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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 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

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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 to date, such losses are possible. For example, 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

			September 30, 2006
			Unpaid Principal Balance						Portfolio Mix
			(Dollars in thousands)
Traditional ARM Loans:
Index:
Six-month LIBOR				$	14,476						0.3	%
One-year constant maturity treasury					6,598						0.2	%
					21,074						0.5	%
Hybrid ARM Loans:
Index:
3 years or less					858,712						18.6	%
Over 3 years to 5 years					3,487,832						75.9	%
					4,346,544						94.5	%
Pay Option ARM Loans					230,238						5.0	%
				$	4,597,856						100.0	%

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 Hybrid ARM loans. 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 contracts and interest rate cap agreements (collectively, ‘‘Portfolio Hedging Instruments’’) in order to better match the repricing durations of our Portfolio ARM Loans and our issued mortgage-backed securities.

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

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

We enter into interest rate cap agreements (‘‘Cap Agreements’’) by incurring a one-time fee or premium. Pursuant to the terms of the Cap Agreements, we will receive cash payments if the LIBOR-based interest rate index specified in any such Cap Agreement increases above contractually 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 interest rate swap agreements (‘‘Swap Agreements’’) to fix the interest rate on a portion of our borrowings as specified in the Swap Agreement. When we enter into a Swap Agreement, we generally agree to pay a fixed interest rate, generally based on LIBOR. These Swap Agreements have the effect of converting our variable-rate debt into fixed-rate debt over the life of the Swap Agreements.

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 September 30, 2006 — 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 September 30, 2006

			Basis Point Increase (Decrease) in Interest Rate
			(100)						(50)						+50						+100
			(Dollars in thousands)
Change in market values of:
Assets				$	52,700					$	28,600					$	(36,300	)				$	(76,000	)
Hedged liabilities					(39,600	)					(24,000	)					33,100						71,700
Net change in market value of portfolio equity				$	13,100					$	4,600					$	(3,200	)				$	(4,300	)
Percentage change in market value of portfolio equity					5.30	%					1.90	%					(1.30	)%					(1.70	)%

The use of Portfolio Hedging Instruments is a critical part of our interest rate risk management strategies, and the effects of these Portfolio 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 September 30, 2006, under the then prevailing yield curve, as well as with instantaneous parallel 50 bp shifts in the curve. Positive portfolio duration indicates that the market value of the investment portfolio, net of borrowings and hedges, will decline if interest rates rise and increase if interest rates decline. The closer duration is to zero, the less interest rate changes are expected to affect the market value of portfolio equity.

As of September 30, 2006

			Basis Point Increase (Decrease) in Interest Rate
			(100)						(50)						Base						+50						+100
			(Years)
Duration of Assets					1.04						1.17						1.33						1.53						1.69
Duration of Borrowings and Hedges					0.59						0.91						1.23						1.53						1.80
Net Portfolio Duration					0.45						0.26						0.10						0.00						(0.11	)

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, changes in the shape of the yield curve 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, Eurodollar futures contracts 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

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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, Eurodollar futures contracts and TBAs to hedge its mortgage loans held for sale. The notional amount of the derivative contracts, along with the underlying rate and terms of such contracts, are equivalent to the unpaid principal amount of the mortgage inventory being hedged; hence, the derivative contracts effectively fix the forward sales price and, thereby, substantially mitigate interest rate and price risk to MortgageIT.

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

•	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

Evaluation of disclosure controls and procedures

The Company carried out an evaluation, with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its 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 quarterly report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that it is able to record, process, summarize and report the information the Company is required to disclose in the filings it submits to the SEC within the time periods required.

Changes in internal control over financial reporting

During the quarter ended September 30, 2006, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

On July 13, 2006, as amended on September 15, 2006, Mr. Jerry Pressner, a purported stockholder of the Company, filed a complaint styled Pressner v. MortgageIT Holdings, Inc., et al., (Index No. 602472/06) in the Supreme Court of the State of New York in New York County against the Company and seven of its eight directors. The complaint alleged, among other things, that the Company’s directors breached their fiduciary duties by failing to maximize stockholder value with regard to the proposed acquisition by DB Structured Products. Among other things, the complaint sought class action status, a court order enjoining the Company and its directors from proceeding with or consummating the merger, and the payment of attorneys' fees and expenses.

On September 25, 2006, the Company entered into a Memorandum of Understanding with the plaintiff in the above referenced action that led to the execution of a Stipulation and Agreement of Compromise, Settlement and Release on October 6, 2006 (the ‘‘Stipulation’’). Pursuant to the Stipulation, the Company agreed to include certain additional disclosures in its proxy statement relating to the special stockholders’ meeting to vote on the proposed acquisition by DB Structured Products from that which were included in its preliminary proxy statement that was filed on August 11, 2006. On October 18, 2006, the Court entered an Order Regarding Preliminary Approval of Class Action and Notice to Class, which, among other things, approved the Notice of Pendency of Class Action and Hearing Thereon, and contained additional information regarding the litigation, the settlement of the litigation according to the terms of the Stipulation (the ‘‘Settlement’’), and procedures for objecting to the Settlement, among other things.

The parties have agreed to seek final Court approval of the Settlement, which will provide for certification of a non-opt-out class of the Company’s stockholders, for entry of a judgment dismissing the purported class action with prejudice and a complete release and settlement of all claims that were made or could have been made in the litigation. The parties entered into the Stipulation to eliminate the burden, risk and expense of further litigation. The Stipulation is not an admission by the Company or its directors of any breach of duty, liability or wrongdoing. Subject to the occurrence of certain events, including the consummation of the merger and final Court approval of the Settlement, the entity surviving the merger has agreed to pay plaintiff's counsel attorney's fees in an amount not to exceed $250,000 and documented expenses in an amount not to exceed $25,000.

On February 16, 2006, EMC Mortgage Corp. (‘‘EMC’’) filed suit against MortgageIT in the 95th Judicial District Court of Dallas County, Texas. This suit alleges, among other things, that MortgageIT is obligated to repurchase from EMC approximately $70.5 million in sub-prime mortgage loans sold to EMC pursuant to a Mortgage Loan Purchase and Interim Servicing Agreement dated January 1, 2003, as amended, due to alleged breaches of representations and warranties as well as alleged early payment default repurchase obligations with respect to such loans. The case was subsequently removed to the U.S. District Court for the Northern District of Texas, Dallas Division. MortgageIT moved to dismiss EMC’s third amended complaint, which motion was denied, except with respect to EMC’s claim for attorneys’ fees. MortgageIT is in the process of evaluating the claims and its counterclaims and preparing an answer. MortgageIT intends to vigorously defend the suit. At this stage of the proceedings, it is not possible to predict the outcome of this litigation.

In addition to these cases, in the ordinary course of business, the Company is a defendant in or party to a number of pending and threatened legal actions and proceedings, and is also involved from time to time in investigations and administrative proceedings by governmental agencies. Certain of such actions and proceedings involve alleged violations of consumer protection laws, including claims relating to the Company’s loan origination and collection efforts, and other federal and state banking laws. Certain of such actions and proceedings include claims for breach of contract, restitution, compensatory damages, punitive damages and other forms of relief. Due to the difficulty of predicting the outcome of such matters, the Company can give no assurance that it will prevail on all claims made against it; however, management believes, based on current knowledge and after consultation with counsel, that these legal matters and administrative proceedings and the losses, if any, resulting

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from the final outcome thereof, will not have a material adverse effect on the Company’s financial position, results of operations or liquidity, but can give no assurance that they will not have such an effect.

Although it is difficult to predict the outcome of any litigation, the Company has established litigation reserves where necessary in accordance with generally accepted accounting principles.

Item 1A.    Risk Factors

Except as set forth below, there have been no material changes in our risk factors from those disclosed in our 2005 Annual Report on Form 10-K.

Risks Relating to the Company’s Proposed Acquisition by Deutsche Bank.

On July 11, 2006, the Company entered into a definitive agreement to be acquired by DB Structured Products for $14.75 in cash per share of Company common stock, or approximately $429 million in the aggregate. The transaction is subject to the fulfillment or waiver of a number of conditions to closing, including the receipt of Company stockholder approval and all requisite regulatory approvals, and other customary closing conditions. If any of the closing conditions are not fulfilled or waived, or if the requisite stockholder votes in favor of the transaction are not obtained, the acquisition of the Company by DB Structured Products will not close.

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 AND FINANCIAL STATEMENT SCHEDULES

Exhibits filed with this Form 10-Q

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.)

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

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	‘‘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.)

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:    November 8, 2006

By:    /s/ GLENN J. MOURIDY                            

		Name:   Glenn J. Mouridy    Title: President and Chief Financial Officer    Date:    November 8, 2006

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