New York Mortgage Trust Inc (NYMT) 2005 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the New York Mortgage Trust third quarter conference call.

(Operator Instructions)

As a reminder this conference is being recorded today, Thursday November 10th, 2005.

I would now like to turn the conference over to Ms. Julie Tu with the financial relations board.

Please go ahead, ma'am.

Good morning and welcome to New York Mortgage Trust third quarter conference call.

The press release was distributed yesterday after the close of the market.

If you did not receive a copy, the release is available on the company's website at www.nymtrust.com in the investor relation section.

Additionally, we are hosting a live webcast of today's call which you can access in the same section or through www.earnings.com.

Finally, to be added to the company's quarterly distribution list, please contact me at 212-827-3776.

At this time management would like me to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although New York Mortgage Trust believes the expectations reflected in any forward -looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.

Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the SEC.

Now at this time for opening remarks I would like to introduce Steven Schnall, Chairman of the board, Co-Chief Executive Officer and President.

Steven, please go ahead.

Thank you Julie and good morning everyone.

We appreciate your being able to join us today for our third quarter 2005 conference call, and we value your interest in New York Mortgage Trust.

Before we get into the key quarterly results I'd like to review the format for today's call.

I will provide some key observations about our third quarter operating performance and will also provide an update on our focus to prudently and profitably continue to grow our mortgage lending business.

Michael Wirth, our Chief Financial Officer will then proceed with a detailed recap of our financial results.

At the conclusion of our formal remarks, our executive management team, who are all here with me which includes David Akre our Vice Chairman and Co-CEO, Steve Mumma, our Chief Operating Officer and Chief Investment Officer and Joe Fierro, the mortgage company's Chief Operating Officer, and we'll all be available for questions.

Starting with an operations review; we are pleased to once again report a very active and successful quarter in which we recorded record loan origination volume, as well as record loan application volume.

During the quarter we continued to execute our business and growth plans and gained considerable momentum in our new wholesale lending division.

Now let me walk you through some of the specific highlights.

We achieved record loan origination volume of over $1 billion during the third quarter, which represents strong year-over-year growth of 141% as compared to 415 million for the same quarter, 2004.

Additionally, our originations growth continues to significantly out pace the market.

This record volume is a direct result of planned growth initiatives implemented since our IPO, and positions us to realize an estimated current annual origination run rate of approximately $4 billion.

This current run rate represents growth of approximately 222%, compared with our 2004 origination volume of 1.8 billion.

During the quarter we also experienced record loan application volume of 1.3 billion, which is right in line with our internal projections.

Looking ahead to the fourth quarter of 2005 we expect a seasonal drop off in retail production of approximately 10 to 15 % but we also expect that much of the seasonal retail slow down will be replaced by strong growth origination in our new wholesale business.

Looking ahead to 2006, we remain focused on achieving consistent origination growth and currently project origination volume of over $5 billion in 2006.

Its important to note that while the rise in interest rates, and that's the occasion for future increases and rates, will likely result in reduced consumer demand for refinances next year, we anticipate this trend will be fairly off set by our continued addition of permission based loan officers and new retail branched as well as our new recently launched wholesale division which I will update you in a few moments.

We also remain on target to achieve a substantially self originated portfolio by the beginning of next year.

From a financial perspective, we reported consolidated net income of 2.9 million or $0.16 per share during the third quarter, which represents a $2.4 million increase over last quarter and an increase of $400,000 over the third quarter of last year.

Net income in our mortgage portfolio management segment totaled 3.8 million or $0.21 per share for the third quarter, which was also as the amount of our third quarter dividend.

Of late this segment continues to be challenged by the current interest rate environment and our net interest spread contracted during the quarter by 30 basis point relative to priced sequential period.

As we mentioned during our second quarter conference call this reduction spread continues to reflect a flattened yield curve as well as an accelerated pre payment speed on our security portfolio.

As we continue to transition our portfolio from acquired securities to self regulated loans, they continue to realize incremental benefits associated with higher yielding self originations.

That being said, at present we are seeing an industry wide narrowing of the yield pick up from self originations.

This may for the foreseeable future enable us to realize a more favorable overall financial outcome by setting a portion of our own production which would have otherwise been securitized and retained in portfolio.

This shift though further exemplifies the enhanced benefit of being an active or self originating reach (ph).

In other words our ability to recognize gain on sale loans when portfolio conditions are less than optimal, simply adds total value to the overall active reach strategy.

We are pleased also to note that our retail mortgage lending segment was profitable after adding back hold on premiums on loans transfer to our portfolio, and expenses related to our new wholesale division.

This is a very important development to us and as we noted in the press release, we expect that our mortgage lending segment will be profitable notwithstanding the foregone premium on loans retained by the first quarter of 2006, best adding further to our overall net income.

The quarter ending September 30th 2005 was on fifth full quarter as a publicly traded company, and one in which we declared a cash dividend of $0.21 per share, which was paid on October 26, 2005 to share holders of record as of October 6th 2005.

As we project and discuss on last quarter's conference call this dividend payment was modestly below our third quarter distribution, due to an increase in premium amortization expenses, due to an acceleration of pre payments in our MBS - - in our purchased MBS portfolio and to a larger extent to a narrowing of many interest margins all for rising financial cost.

We ended the quarter with total assets of approximately $1.9 billion and a loan and mortgage securities portfolio of approximately $1.5 billion, which included $589 million in securitized loans and $140 million in residential loans held for securitization.

I am pleased to note that on July 28th, 2005 we successfully completed our second loan securitization of approximately 240 million, and we are expecting to complete our third securitization of approximately 250 million by the end of this year, which will be backed by high credit priority first claim adjustable rate and hybrid loans that were self originated through the mortgage bank - - mortgage company subsidiary.

Now we go to our new wholesale loan division; we are pleased that the ramp up of this business unit, kind of projected in access of $100 million a month by the second quarter of 2006.

As expected, while this unit landed a negative cash flow of 1.2 million during the third quarter, did not try to reach profitability in early next year.

Thereafter we expect the wholesale unit to add meaningfully to our GRL sales as well as provide for an additional steady source of high quality arm products for our weak portfolio.

Strategically as we discussed last quarter, we expect the wholesale division to enhance our ability to continue building our self originated weak portfolio and to add critical gain on self profits of the mortgage company subsidiary. we are also supplement our mortgage banking business to upset the traditional seasonals going down in our retail origination volume in the next couple of quarters.

Well then you've heard, we continued prudently to grow our mortgage origination business and are pleased with our team's accomplishments and our year-to-date performance.

Our focus remains on maximizing portfolio returns while generating additional net income in out TRS and in general for using our self origination advantage to accomplish both objectives.

The final item I would like to address is that our board of directors is recently approved a share re purchase plan which authorizes management to repurchase up to $10 million of the company's outstanding common stock.

We believe their stock currently under valued and repurchasing shares may positively impact our overall returns in this challenging environment, so we would only do in priced that are accretive to book value, earnings or both.

On that note I'd now like to turn the call over to Michael Wirth our CFO to review our financial results.

Thank you Steve good morning everyone.

Assuming that you all should have received our press release, therefore I will going through maybe we'll time for questions.

I would first like to peg down our third quarter's performance into the stake segments to give our listeners some detail of our operating strategies and financial results, and the context in which to evaluate this results.

I will start with the operations REIT or what we call our portfolio - - our mortgage portfolio management segment of our business on a stand alone basis.

The performance of the REIT, exclusive of all the taxable REIT's subsidiaries, is a major foundation for our dividend policy as we must distribute at least 90% of its earnings in order to maintain REIT status.

The third quarter 2005, the REIT on a stand alone basis had total revenues of 16.5 million and total expenses of 12.7 million.

This resulted in lead only net income of 3.8 million or $0.21 a share.

The dominant driver of the REIT's net income is the net interest income we earn on our portfolio of residential mortgage loans and securities.

The net interest margin earned on the REITs investments portfolio during the third quarter, inclusive of hedging costs to mitigate interest rate risk narrowed to 70 basis points down from 100 basis points in the prior quarter.

This reduction in the net interest margin is reflective of the current flattening of the yield curve, coupled with continued accelerated pre payments speeds on the company's securities portfolio.

Relative to other residential mortgage assets, it is important to note that this 70 basis point net interest return was also reflective of the fact that our portfolios comprise of high credit quality prime loans which are not accompanied by levels of credit risks that one typically associates with lower quality all payer sub prime loans.

Our Tax Release Subsidiary or what we call our TRS, which is considered our mortgage lending segment, recognized 16.2 million in revenue and 17.1 million in expenses for a net loss of approximately $937,000 for the quarter ended September 30th 2005.

The combination of these two segments produced consolidated GAAP net income for the quarter of approximately 2.9 million.

The company retained in its investment portfolio approximately 15% of the approximate 1 billion loan origination volume generated by the TRS during the quarter.

The forgone premium that we have earned on this loans, had they been sold to third parties, we would have earned an additional estimated premium of income of $1.5 million.

The TRS would best operated at break even net income for the quarter, after consideration of the full loan premium and pro forma consolidated net income for the quarter would then be approximately 3.6 million.

During the quarter the TRS also incurred 1.2 million of continued start-up expenses, related to the creation of our new wholesale division, and accrued expenses of approximately 345,000 related to the assumption of the GRL branches in the sell force last year.

When assessing the performance of our TRS, it is relevant to view it without these items and exclusive of any foregone premium.

Looking at the TRS in this quarter illustrates that without the costs of these business development initiatives, all mortgages banking business was reasonably profitable for the third quarter, despite what has become a typically competitive market place.

As noted last quarter, our amortizing expenses related to the GRL acquisition continued to decrease from approximately 1.4 million in the first quarter to 817,000 in the second quarter to $345,000 in the third quarter.

The expenses related to GRL continue to decline to approximately $310,000 in the fourth quarter of 2005 and $165,000 in the first quarter of 2006.

With regard to our new wholesale division, origination volume continues to ramp up and is expected to generate positive net income within the coming months.

I'd like now to discuss other operating characteristics and bench marks.

The credit performance of the fifth - 1,550 loans in our investment portfolio is outstanding, only two such loans are delinquent and they represent only 0.16% of the total call balance.

As a testament to our stringent credit criteria, we currently expect no losses on these loans and no loans in our investment portfolio on non accrual status.

During the year total employees increased to 856 individuals at September 30th 2005 from 503 individuals a year ago.

Included in the total number of employees were 365 loan officers dedicated to originating loans, as compared to 200 loan officers at the end of September 2004.

Additionally the number of located -- our number of locations has increased to 66 at September 30th 2005, as compared to 28 locations at September 30th 2004.

This increase in personnel and origination locations continues to positively impact our origination volume.

In addition to the new origination volume from the GRL branch acquisition, our organic (inaudible) growth has been significant.

The combination of these efforts has resulted in a 141% increase in the origination volume for the third quarter of 2005, relative to the same quarter of the prior year.

As a result we are experiencing a current annual run rate of approximately 4 billion in originations, twice our historical annual run rate for 2004.

Approximately 69% of this production was banker loans and sold to third parties for gain on sale.

Approximately 15% of our third quarter 2005 production volume was retained in our investment portfolio and approximately 16% was brokered to other lenders.

For additional information related to characteristics of our loan originations, please refer to our earnings press release that was issued yesterday afternoon.

For the third quarter of 2005 the net GAAP cost of loans retained in our portfolio was approximately 55 basis point of par.

For loans we originated and sold to third parties for gain on sale premium, our gross gain on sales was approximately 314 basis points and our net gain on sales was approximately 130 basis points.

Non payable related G&A expense for the mortgage lending segment, as a percentage of originations was approximately 49 basis points for the third quarter.

Exclusive of payroll allocated to net gain on sale for banker and brokered loan originations, G&A expense for the mortgage lending centers as a percentage of originations was approximately 132 basis points.

As mentioned in our prior earnings calls, qualitatively we continue to make infrastructure improvements to facilitate the additional loan production growth we anticipate during the course of this year and beyond.

Our new loan operating system, under development for the better part of this year, is scheduled to be up and running by January 1st enabling increased loan origination capacity and operating efficiency that will ultimately impact the bottom line.

Let me now turn to some key points regarding New York Mortgage Trust balance sheet.

At September 30th 2005, we had total assets of 1.9 billion which includes 797 million of residential mortgage back securities, 589 million of mortgage loans house and securitization trust, 140 million of loans self help for investment, 144 million due from loan purchasers and 117 million of residential mortgage loans held for sale.

Our aggregate warehouse lines on the repurchased loans under these facilities was 1.7 billion as of September 30th 2005.

Helping us to maintain liquidity in financing capacity we have over 23 commercial investment banks providing us with financing arrangements with a capacity of over $5.6 billion.

Initial amount of the company's interest rates swaps as of September 30th was 670 million and the initial amount of our Caps as of September 30th 2005 was 1.5 billion.

Our net duration GAAP was a difference between the estimated maturities or lives over our earning assets and related financing facilities is now approximately nine months.

For the third quarter 2005 the average earnings assets in our investments portfolio was approximately 1.5 billion, with a weighted average coupon of 4.65% and a yield of earnings assets -- on earnings assets of 4.08%.

We financed this portfolio to repurchase agreements, warehouse funds and under lying interest rate hedges at rated average interest rates of 3.38% for the third quarter.

The combination of you on earning assets left the cost of finance and resulted in the net interest margin of 70 basis points for the third quarter.

For additional information you may access our 10-Q which is filed -- which will be filed within the next few days with the SEC.

You can access our file 10-Q at our website, www.nymtrust.com or at the SEC website at www.sec.gov.

That concludes my comments.

The management team at New York Mortgage Trust thanks you for your continued interest and support and I believe now we are ready to open the call for questions.

Thank you sir,

(Operator Instructions)

Our first question comes from Josh Peterman (ph) with JP Morgan, please go ahead with your question.

Hi guys, just a few things here first, last quarter you guys mentioned some rough dividend guidance from the next quarter, didn't hear that on this call any feel you can provide us?

Well we haven't provided dividend guidance but I guess what we can tell you is that we saw expansion cluster from rising cost of funds and continued accelerators into pre payments deeds, so at this point though we haven't given any specific guidance.

Okay, and a few other things here, you think gains on securities were pretty high in the quarter?

Its positive -- looks like rates were up for most of the quarter so I just - - wasn't sure of expecting them and what can we think going forward, I mean we've had a pretty constant stream of rising rates so far in the fourth quarter, should we expect that line item to go down?

Josh, it's Steve Mumma.

We are constantly reevaluating our portfolio and our portfolio includes not only mortgage securities but as well as the derivatives that head the net duration of portfolio, so we'll move around the portfolio and maybe we actually were selling some underperformance securities in the third quarter, but in combination with that we unwound some of the hedges, so that resulted in the net gain.

Okay so the more the hedges that are in the money?

I don't know the amount of hedges, it was some hedges that we --

Okay

-- but the overall net liability maturity remained the same, additional hedges as well than others.

Okay and so you said duration of the portfolio was nine months?

That's correct.

That's correct.

And you also said the gain on sales to the REIT was 55 basis points, is that right?

Well you wouldn't call that gain on sales that -- cost of loans to the REIT was 55 basis points.

That's for transfer price for GAAP purposes.

Okay and then just a couple of more things here, first portfolio composition you said substantially self originated by the end of the year I guess or beginning in '06, does that mean just a majority of home loans essentially and then you had some home loans that you had purchased, so how does that fit into it too?

It means a majority of whole loans.

A majority of whole loans will be self originated not majority of the portfolio?

Well most of the -- most of loans in the securities divisions that we've done were self originated.

You're correct in that we did purchase some loans earlier in the year.

But by the end of this year the majority of our portfolio will be comprised of secured pipe loans which includes the ones we purchased.

Okay .

Josh on the balance sheet currently the -- we have 589 million of loans, total securitization trust which we originated and then we have another 140 million waiting in the weeks plus what we've originated so far this quarter, to be securitized.

Okay, I see.

Okay so that doesn't -- that's not a comment on the composition of RNBS versus whole loans on the balance sheet?

No, I think over time the RNBS is going to go down and as we transition to a fully originated portfolio by the end of the year it will be around 900 to a $1 billion dollars in loans versus $500 million in RNBS and as we get into the first quarter we'll be substantially up to the 1.5 million in whole loans that originated.

Alright.

Great.

That's okay, I think I got what I wanted.

And then just last thing the expenses for the wholesale business, you said about 1.2 in the quarter, is that sort of flat running out?

It's actually dropping now because we have application volume coming in and funding so there's going to be increasing revenue against those expenses so by early next year that will actually become profitable and then start contributing towards earnings.

So the expenses aren't dropping, its just they're being offset by revenues.

Okay, alright perfect, thank you.

Our next question comes from Paul Miller with Friedman Billing Ramsey, please go ahead with your question.

Yes, thank you very much, can you on the NIM I guess or the ROE of the portfolio dropped from 100 to 70 basis points, can you break out what was CPR related and what was spread compressor related?

I can tell you that the majority of the reduction was related to CPR, I mean given -- if you look at our typical transition of our NIM over the last year, you've seen it and wrote about 10 to 15 basis points a quarter.

So that can be attributable to rising rates, the remaining of it's attributable to the increase in CPR.

You know CPRs went up from June 30th to 9/30 they went up 13% overall in the portfolio, and you would expect some relief as you come out of the summer months of the season so then especially given the right environment.

So we are - - I think people have been surprised with prepayment speeds especially in the hybrid market is, you're seeing securities with coupons that are below market rates still experiencing above normal prepayment speeds.

And then that leads me to the next question is that we are seeing CPR rates slow down, but correct me if I'm wrong, I think last call you mentioned that the majority of the increase in CPR rates is coming from your purchase portfolio and your REIT, as that shrinks and I think you've made a comment on this call that you should be self originator early part of '06, should we see -- could we see a bounce in the NIM?

Clearly we are hoping to see stabilization and we are hoping to see that reflective in the fourth quarter.

I mean there is no question of the CPR has started to slow down and we are hopeful that they will continue to do so, and the majority of the increase in speed visit our portfolio will be self originated portfolio has been fairly stable.

These self originates coming in with your models it's the purchased one that's --

Exactly.

- - outside of the models?

Exactly some of that's attributable to season too because the RNBS portfolio now is approaching 18 months seasoning so you are just seeing some of those contributing to the prepayment speed.

But in -- okay go ahead.

That's fine.

And then the other question is the duration gap I believe it's like eight to nine months?

That's right,

Correct me if I am wrong but I think in our - - my notes you had a target of six months, is -- am I correct on that?

Paul -- the policy, actually this is Dave Akre, the policy is actually 12 months or less.

12 months or less.

Okay.

That's the policy.

Historically and I think last quarter we ran around six months maybe that's what's your thinking off.

Okay.

Historically we've run around six.

Are you comfortable with eight or nine months or and -- or is it just the CPR rates that's driving this duration gap.

As you get closer to the end of the third cycle which we are likely at, you want to be less hedge because the next likely move is lower rates.

Because the fed typically overshoots, so you don't want to be fully hedged at the top of a Fed cycle that would be a mistake.

Okay.

In other words it's good to let it expand a little bit and this point.

You let it expand naturally because we - - hopefully we are at the end of the Fed - - federal --

Well I think we are certainly in the second half third quarter probably, basically what is happening our three ones are paying off and five ones are being - - are replacing the three ones, that's essentially what happened.

Okay, and the other question is talking to a lot of people out in the mortgage space is that a lot of small people, I'm not talking about your size, but a lot of small mortgage banking companies that aren't public are struggling out there and even some people getting calls on their repo lines and what not.

Are you seeing some decent M&A targets out there at this point?

We have been looking at a number of companies and we're not pulling the trigger on anything because we are seeing the same thing you are observing and so, and we think it's just prudent to kind of wait another quarter or so and the companies we've been looking at see how they performed in this tougher environment and there are a couple of companies we are interested in, a couple of companies that are interested in us and so, it's sort of a wait and see for us right now.

It's a tough market out there and the little companies are struggling.

And then the other issue is that we are seeing long term rates start to move.

Now nobody knows if this 460 is going to stick or not and some people say well maybe we can get to the 5% range which I think would push 30 or fixed rate mortgages maybe into the high 6 like 6 1/2 or above.

Could you see a shift in more armed product in that environment or would you think your overall market will take a hit if we start seeing much higher 30 or fixed rate mortgages?

No our forward production would probably increase if the curve steepness with the long ends going up, you would probably see people gravitating back towards arms again.

I mean right now we are seeing about 50-50.

Are you seeing any movement in the arms at this point or is it just still too early to tell?

We've generally been running at a higher percentage of arms in the national market anyway.

So, I think that as more of the broad market start shift from fixed to arms, our run rate will become more normal.

And then you guys announced a $10 million buy back this morning.

Is that - - I guess the question becomes - - is that because you are not seeing just the portfolio you don't think you are going to grow up by that much.

Or are you going to wait till you get a better opportunity to grow the portfolio or you are just sure you have excess capital to a point you want to return it to shareholders given with the share price is trading.

Well it's an up to 10 million it maybe zero but the idea is - - if the stock price continues to decline to a point where it's well below book gained acquired back shares might be more favorable in terms of accretions and net income, than we are investing in loans.

So -- we are just - - we are watching it but we have got the authorization from the board to do something if that opportunity presents itself.

Would you -- do you have a target price would you buy it like would you buy it below -- would you buy it above book at this level would you rather buy below book.

Buying below book is much more accretive but are you looking at the price and is a book value the inflection point?

Book value is the inflection point I don't think we would buying anything back above book.

Okay, thank you very much.

Thanks Paul.

Our next question comes from Steve Delaney with Ryan Beck please go ahead with your question.

Good morning guys and congrats on moving the Darnings needle forward here and what's obviously very tough environment.

Is it possible with and Paul asked questions about prepaid speeds and you answered that in a general sense is there - - it possible to share with us the - -either in dollar amounts or in basis points the impact of any acceleration charges on premium amortization not the scheduled stuff but just the extra charges?

I can tell you Steve, if you look at the actual numbers when you look at our P&L I have it in front of me, but I believe the amortization cost was up approximately $400,000 in the third quarter from the second quarter - -

Okay.

And if at the end of the second quarter we were actually anticipating the overall amortization cost to go down.

So and on our portfolio is slightly smaller at the end of the third quarter than it was in the second quarter --

Yes

So I think that's the best way as a guide to look at what we are looking is that the total increase of 400,000 is directly equivalent to the increase in speeds.

Okay.

Alright that's helpful Steve.

Sure.

And then looking at the OCI account for a minute it looks like there was a net negative mark of 3.2 million.

And we are seeing sort of two things going on obviously this quarter we are seeing obviously some negative marks on AFS mortgage securities portfolios which you certainly have even though you are an active REIT but you have got the legacy portfolio and we are also seeing some positive marks on effective cash flow hedges for swabs.

So, can you - - within that 3.2 I'm assuming that's a net number of both of those events?

That's correct.

Actually Steve, the one difference you have to keep in mind with an active versus a passive, is the passives are 100% available for sales so they have the negative of the security portfolio going down on value

Correct.

In line with the positives of what's going up .

Right.

If you look at 100% active REIT and they're all loans.

The loan valuation changes the flow of the acquisition - -

Exactly that's how the maturity - -

But the cash flow hedge is due flow to the equity?

Sure.

So, ours is a combination of both?

Right, and that's what really driving that difference.

Part of that was this is a tough quarter for the REIT environment they sold off pretty hard the head settlement changed drastically.

And as our RNDS portfolio starts to see even further the majority of our RNDS portfolio is three one you will becoming 18 months to row by the year end we will start trading back towards a one year security instead of a three year security.

So, we think this will improve from here on out given a fairly stable REIT environment going forward.

Right and shouldn't even though in addition to the timing of yours getting closer to the reset, I'm not a bond guy but that would think that if the traders when they look at the speed the saw in July and August they freaked and it - - is it possible that over here over the next couple of months it's pre - - as speeds normalize.

Is that -- do you expect to see that in pricing on the Hybrid NBS as we go into November and December and the end of the year, just by the function of speed flowing.

It will depend on which type of hybrid you are speaking of.

I think the more season hybrids will begin to retain value because people will be looking at the tail value of the seats and there is more value remaining in the tail seats.

So I think those will catch more value on the other hand if you have seven ones to ten ones and speed flow them - -

Oh sure.

It's hard to extend out.

Right I'm thinking - -

It's a double edge sword.

I'm think of your shorter of stuff

Yes absolutely.

Okay.

The tail value will take more value on.

Okay and then last question here, when you talk about the wholesale division going forward you talk about the cost of 1.2 you really - - you phrase that in the terms of the expense.

So I guess what I'm assuming is that it takes a while to build a pipeline and even if you get applications pending you're off closing so I'm assuming that any origination volume or revenue in the third quarter was minimal, is that accurate?

That's correct.

Okay.

Alright and you'll start seeing closings here in the fourth quarter so, it looks like to me it was a bout a $0.04 hit right?

Probably slightly higher than that, slightly higher.

Okay, but we could wrap up - - sort of readably expect it was $0.04 to $0.05

$0.04 to $0.05.

Between now and the first quarter we could sort of readably expect that to go away.

We originated about $10 million in loans last month, keep in mind this is a brand new business.

This month we are expecting something in the 30+ range --

Okay.

- - and next month 50 to 60 but for the first quarter of next year we should be running in 100 million plus range which is well past our break even point.

Excellent.

Okay thanks guys.

Okay thank you.

Thank you Steven.

Thanks Steve.

Our next question comes from Mark Patterson with NWQ Investment Management, please go ahead with your question.

Thank you most of this things have been asked.

But, some redundancy here, the row forward on the portfolio, the available for sale securities they didn't originate that just continues to run down, that's 905 last quarter down to 797.

That's correct.

And there were no sales of those securities or they were - -

There was a partial sale of some of those securities

Under performing securities in terms of the yield.

Okay, so the - - on the income statement having the $1.3 million on the gain on sales, securities and hedges a lot of most of that hedges but there is some security stuff there?

That's correct.

Okay on the roll forward on the self originator, I think you said what I'm guessing roughly about high 20s maybe 30% of your billion dollars or origination went to the REIT?

Roughly 15% actually for the past --for the few months ended September 30th.

15% so 150 million roughly?

That's correct.

Okay and the foregone gain because you can't recognize it was 1.5 million for those?

That's roughly 1.5.

That's about 100 basis points?

That's correct.

And you are -- so you're saying now for the 850, or I guess I would have to look at your ware house.

But for the stuff that was actually sold here gain net was 130 I thought I heard you say?

Yes.

That's right.

Okay.

and part of that difference between a 130 and 100 is just a composition of a long as your selling versus your retaining.

Right - - you haven't really cranked up the wholesale though for the third quarter production and so when I look at the statistics between arm and fixed rate purchase and refine I'm seeing a little bit of movement there where we've gone a little bit lower on the purchase component and a little bit lower on arm component versus last quarter is there any material to that?

Or - -

Well - -

Trend wise?

Nothing that really jumps out of us.

There is really going to be fluctuations from quarter to quarter normally anyway.

Okay and a little bit higher LTV on the product in general as well as any change in underwriting particulars?

Keep in mind that when you, if you are looking at the press release those LTVs and vicos are actually on total originations including those ones that we said sell of at the - -

Yes.

That's correct, I'm talking about total production.

Okay.

Okay.

For the stuff that's going into your book, has there been -- can you give us a comparison of LTV and - -

No they've been fairly stable, 69 roughly on average.

60 okay.

Four or five points lower than your total production number?

Correct yes.

Okay.

Keep in mind we originated a fair amount of FHA loans which have 97 LTVs - -

Right.

And some all day loans which could be at a CL TV at 95 or 100 but we just don't hold those.

Right yes I was looking at the sub totals the non FHA as 73.5 so you put stuffs gone in your portfolio 69 so stuff that's going away has got to be closer to 75 or something like that.

Yes, the LCD is in the portfolio at roughly 69% and the five of those are roughly 734.

Yes.

Okay

No changes in underwriting philosophy in the portfolio.

Great and then I guess one final thing that the - - you know your hopes of at least getting break even if not having some profitability in first quarter of '06 in the tax for each sub, that would be something that you feel like you can get to even if we really didn't see any improvement and gain on sell margins from here?

We are trending in that direction certainly as you can see the overall net income was a loss in the terrace (ph) declined significantly.

The only thing that will get in our way is just the seasonality December, January, February are typically slower months than the rest of the year so short of that I would say by early next year--

Second quarter is looking pretty decent.

Second quarter is looking very good.

Okay.

Thanks you guys.

Thank you Mark.

Thanks Mark.

Our next question comes from Jason Arnold with RBC please go ahead with your question.

Okay good morning.

Actually, this is Jim Marker (ph).

How are you guys doing?

Hi, Jim.

Couple of questions, could you give us a break down on the actual dollar amounts of loans sold and securities sold in the quarter?

Sure our loans sold?

Yes.

Our loans sold in the quarter, we banked to third parties roughly 600-- roughly 693,000, that's 93 million our sold bankered loans.

And brokerage.

Steven Schnall;

And brokered loans we've brokered about 159 million.

And the rest were retained in the portfolio.

Okay and then in terms of looking at the CPR environment obviously three ones are prepaying it surprisingly high speeds I think most would agree.

Can you give us sort of a feel for how the CPR has looked In your portfolio 31 versus 51 and then a total and then and maybe just some broad commentary on why you think the 31s are prepaying so rapidly and whether or not that trend is going to abate at any particular point in time?

My personal feel on the three ones is two fold.

Majority of our R&D three ones rated in the summer of '04 and we are predominately amortizing versus ILO interest only and as Ray - - as the three one had started its season and these are coupons around the in the phone net coupon of 400 corner gross around four and half.

These people are clearly under water from a rate stand point in terms of where they can refinance but I --, my opinion is the borrower is choosing to go into an interest only mortgage taking a higher interest rate but ultimately ending up lower into payment.

But there is a decent amount of cash out activity if you look at the national numbers and the cash out remain a fairly decent segment of the origination market place.

So I think it's a combination of IL and cash out.

But it's actually a-- we see it as a benefit trust because it's our lower coupons in our portfolio and they are paying up at the highest speed so we are able to replace those with much higher coupons.

And we take the hit on the ammonization but we are able to reinvest in a more advanced interest rate in that market.

Roughly at one point premiums on those assets.

So it's not killing us to pay down they are not killing us at the same time we are able to go out and reinvest at 125 basis point higher coupons.

So your real overall portfolio is roughly 1% premium?

Overall yes a little bit higher than that.

In terms of just breaking down three one versus five one CPRs in the quarter?

Three ones and five ones actually at break in.

I'd really look at them different than that but from our RNBS stand point from the securities portfolio I would say the five ones actually have a pretty higher speed than the three one although on the particular five ones that we own I don't think that's reminiscent of the overall industry.

It's just we have a very small population of five one securities versus three one the majority of our securities is three one.

And the overall loan portfolio they seem to be fairly consistent across the loan portfolio.

But again I think that's a factor of the seasons as the loans versus the RNBS and just the relationship of the coupon to where the current rating environment is.

Alright one more question if I could.

You mentioned that you are expecting to probably over the near date or immediate term sell more of your production than you have in previous or prior quarters.

And I was wondering if you could kind of outline for us what types of loans you are going to be retaining and then what sorts of loans would you be more inclined to sell and sort of some commentary on gain and sale margins within that context as well.

To date we've still been retaining all the production that met our portfolio credit characteristics because the odds of it - - what we're seeing there now is that the yields you can get in portfolios compared to the opportunity to gain incremental yield in the portfolio by repaying loans as compared to the gain on sell opportunities they are kind of equaling out now so we are really just its--.

The comment was not that we definitely planned to sell loans but we are looking at it today and it's in the near future we can begin to see more benefits by picking up a taxable gain in the subsidiaries as opposed to the extra yield picked up in the self originations in the short term we may consider doing that.

We haven't done it yet though.

Okay, thank you.

Thank you

(Operator Instructions)

Gentlemen, at this time there are no additional questions.

Please continue.

Okay.

Well, that will wrap it up thanks again for your support and we look forward to talking to you in next quarter.

Thank you, sir.

Ladies and gentlemen, this concludes the New York Mortgage Trust Third quarter conference call.

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