New York Mortgage Trust Inc (NYMT) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by, and welcome to the New York Mortgage Trust Third Quarter 2008 Earnings Conference Call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Friday November 7, 2008.

I would now like to turn the conference over to Scott Eckstein for the financial release.

Thank you, operator.

Good morning, everyone, and welcome to the New York Mortgage Trust Third Quarter 2008 Results Conference Call.

The press release was distributed at the close of market.

If you did not receive a copy, the release is available on the Company's website at www.nymtrust.com in the Investor Relations 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.

If you would like to be added to the Company's quarterly distribution list, please contact Samantha Alfonso at 212-827-3746.

At this time, management would like me to inform you that certain statements made during the 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 the expectations will be obtained.

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.

At this time, for opening remarks, I'd like to introduce Steve Mumma, Co-Chief Executive Officer, President, and Chief Financial Officer.

Please go ahead, Steve.

Thank you, Scott.

Good morning, everyone, and thank you for being on the call.

With me today is David Akre, our Co-CEO of the Company, and Jim Fowler, Chairman of the Board.

David will speak about our loan securitization portfolio later in the call, and Jim will be available for questions at the end of our call.

During the third quarter, we've experienced a reversal of trends from the second quarter, as financial markets became severely dislocated.

We saw the takeover of both GSEs by the government and a significant broker dealer bankruptcy filing, and numerous financial institutions receiving government to private capital infusions, as well as several forced mergers in the financial industry.

Liquidity again became the premium for the leverage read industry.

One month LIBOR increased by over 150 basis points to the end of the third quarter, and eventually topped out at approximately 4%, eventually topping out at 4.59% on October 10th.

This increase occurred during a period of time when fed funds was constant throughout the third quarter.

A majority of this rate increase occurred after September 15th, after these financial bankruptcy filings on the major broker dealer.

And it continued to increase throughout the month of October.

Most recently, LIBOR has started to decline in response to the global rate cut and multiple liquidity injections by governments around the world.

Our markets do remain, though, a long way from where they were at the beginning of the year.

We're dealing with less liquidity providers, higher haircuts, and higher relative financing costs for (technical difficulty).

However, most recently, we've seen some improvements since November with both our financing rates, and the terms of our repurchase agreements improving from previous months.

Now I'd like to talk about our third quarter results.

The Company's net portfolio margins for the third quarter was 136 basis points, a decrease of 7 basis points from the previous quarter.

The Company earned [$1 billion], or $0.11 per common share for the quarter ended September 30, 2008.

That's compared to a net loss of $20.7 million, or $11.39 per share for the same period in 2007.

The Company also declared a dividend -- a third quarter dividend of $0.16 per share.

That was paid on October 27th.

Our year to date dividend of $0.44 approximates our year to date REIT taxable earnings.

Reduction on net income was due mainly to increased borrowing costs, and the reversal of approximately $150,000 related to the Lehman bankruptcy filing.

As we have talked about in the past, we had subleased our previous corporate headquarters to Lehman Brothers, and delivered the space to them in August of 2008.

Upon this delivery, we were paid $1.8 million.

For US GAAP accounting purposes, this amount will be required to be amortized over the remaining life of the lease, until December 2010.

However, during the third quarter, we decided not to take any amount into income as the status of this sublease, due to the bankruptcy filing, is in question.

The Company remains named on the lease, and could be potentially liable in the event the lease is rejected by Lehman, and not taken by a purchaser.

We are in the process of trying to get this resolved, and are hopeful that this will be resolved during the fourth quarter.

As I previously stated, our portfolio net margin was 136 basis points, as compared to 143 basis points in the second quarter, and 85 basis points in the first quarter of 2008.

The Company's average earnings assets for the quarter were approximately $875 million, as compared to $899 million for the quarter ended June 30th, and $1 billion for the first quarter of 2008.

As of September 30, 2008, the Company had total assets of approximately $864 million, as compared to $897 million for the previous quarter, and $809 million for the period ending December 31, 2007.

Included in our total assets of September 30, 2008, were $480 million in MBS securities, and $358 million in mortgage loans held in securitization trusts.

As of September 30th, the Company had total liabilities of $826 million, as compared to $855 million in the previous quarter, and $791 million at December 31, 2007.

Included in liabilities at September 30th is $406 million in MBS repurchase agreements, $346 million in permanent finance collateralized debt obligations, $20 million in convertible preferred debentures, and $45 million in subordinated trust debt.

As of September 30th, the MBS portfolio totaled approximately $480 million.

It consisted of $458 million of MBS securities, including $262 million of Agency ARM MBS, and $195 million of CMO agency floating rate securities.

We also had approximately $22 million of mostly AAA rated non-agency floating rate securities.

The MBS portfolio had an average coupon during the third quarter of 4.31%, and a yield of 4.26%.

The MBS portfolio had an average CPR rate of 10%, as compared to 9% in the second quarter, and 7% in the first quarter.

The MBS portfolio was financed in part with $406 million of repurchase agreements, with an average cost during the quarter of 2.65%, with an ending cost average of approximately 4.08%.

The average haircut of the Company's [within] repurchase agreements was approximately 9%, with an advanced rate of 91%.

The Company ended the quarter with five counterparties.

Most recently our repo rates have begun to decrease in rates, as well as in terms, and LIBOR has begun to come down.

Also, we have financed 10% of our existing repo book over year end with a new counterparty.

The Company maintained a conservative leverage ratio throughout the quarter of 7 to 1, and will continue to do so in the foreseeable future.

In addition, the investment portfolio includes $358 million of loans held of securitization trusts, or on-balance sheet securitization.

These loans had an average coupon of 5.68%, and an average yield of 5.33% during the quarter.

These loans are permanently financed with $346 million of collateralized debt obligations, which had an average cost of 3.96%, including the deferred interest cost of 74 basis points during the quarter.

There is approximately $133,000 left of deferred interest cost, which should be cleaned up after the month of November, as compared to $684,000 in deferred interest cost paid out in the second quarter.

The Company's net investment in our on-balance sheet securitizations is approximately $11.8 million after deducting the $1.4 million loan loss reserve.

Dave will speak in just a moment about the securitizations and our delinquency experiences throughout the quarter.

The Company also had $45 million of subordinated debentures outstanding, which had an average cost of 7.95% during the quarter, as well as $20 million of convertible preferred debentures, with an average cost of 10.75%.

We ended the quarter with the book value of $4.09 per common share.

Included in that book value number is $15.7 million of unrealized mark to market losses, or $1.69 per share per common share.

We continue to believe the agency strategy can deliver attractive incremental yields to our portfolio, and remain focused on alternative transactions that will allow us to transition out of our non-core assets into more opportunistic possibilities.

I'd like now to turn the call over to Dave Akre.

He'll speak about our securitization portfolio.

Thanks very much, Steve.

Good morning, everyone and thanks for dialing in.

Now for some details on the $356 million of prime hybrid loans held in securitization trusts that are permanently financed with collateralized debt obligations.

You'll remember that these are -- that we discontinued the securitization program in early 2006, as we were not comfortable with the credit risk at that time.

Thus, these are 2005 and earlier vintage predominantly full documentation loans with average loan to value ratios at origination of 69%, and average credit scores in excess of 735.

As of September 30, 2008, our greater than 60 day delinquencies were 165 basis points, or $5.8 million, with an additional 40 basis points or $1.4 million in REO.

Comparing those numbers to prior periods, our greater than 60 day delinquencies were 181 basis points on outstanding loans at the end of the second quarter 2008, 202 basis points at the end of the first quarter, and 194 basis points at year end 2007.

What this means is our delinquencies are lower at the end of the third quarter than any time this year.

Also keep in mind that the denominator in this calculation has been decreasing at a steady pace, which means that we've had to reduce delinquencies just to remain flat.

Obviously we've done better than that.

Looking at the October remittance reports, they do show a modest increase in delinquencies in seriously delinquent loans.

However, the overall delinquencies decreased by $2 million, or 17%.

These improved results reflect continued determined focus on our part, contacting and working with distressed borrowers, looking at their balance sheets and ability to pay, entering into repayment plans or modifications, as well as selling any REOs as quickly and prudently as possible.

In entering into modification agreements, we're able to make the loans cash flow again and avoid substantial losses associated with foreclosures, all while not forgiving principal.

As of today, we have approximately $1 million in modifications that have been approved, with another $4.6 million in the modification process.

We are thus optimistic that our improved delinquency trends will continue.

Prepayment [speeds] during the quarter averaged 19% from the loans in securitization trusts, as compared to 22% in the second quarter.

As we've said before, given the high quality of our loan portfolio, these borrowers don't have issues when they decide to refinance or pay off.

Finally, repurchase requests remain unchanged in the quarter.

These are requests made by loan investors some time ago that pertained to loans sold by our discontinued mortgage lending operation.

Keep in mind that we have not sold a loan in over a year and a half that would be subject to one of these repurchase agreements.

And we continue to resolve these issues in a cost effective manner.

Further details on the third quarter will be available in our 10-Q, which is planned to be filed next week.

That will be available on either our website, which is nymtrust.com, or on the SEC's website, which is sec.gov.

With that, let me turn it back over to the operator for questions.

Thank you, sir.

We will now queue the question and answer session.

(Operator Instructions).

And our first question comes from the line of [Adrian Mackie] with [Freestyle].

Please go ahead.

Good morning.

I have three questions.

Can you talk a little bit about your likely dividend policy going forward?

You've been paying out more than you've been earning.

I assume that there's going to be some impact on earnings from the Lehman situation.

And the second question is, can you just walk us through how those economics work?

And then lastly, have you, from a strategic standpoint, thought about establishing a broker dealer operation, which could potentially make things a lot easier for you?

Let me answer each question individually.

As it relates to the dividends, the current dividend amount that we've paid to date represents what we anticipated as our REIT taxable earnings on a year to date basis.

As you know, we took a fairly substantial loss in the first quarter.

However, the majority of those losses, for tax purposes are capital losses, and have to be offset against capital gains.

So therefore, you're forced to pay out dividends related to taxable income, not your GAAP income.

As it relates to Lehman, and what the impact potentially could be, we do have -- we are the named subleaser until 2010.

Lehman took down the lease.

That particular building has 10 floors in it that were occupied by Lehman Brothers.

Barclays has taken down a substantial amount on those floors.

They have 60 days to determine whether they're going to accept the leases or not.

There's not been any official rejection yet of the lease.

We're in the lease at $33 a square foot.

The building itself, six months ago was leasing space in the $80 to $100 a square foot.

Clearly that's not the case today.

We're fairly hopeful and opportunistic feeling that we can get out of that lease at a minimal cost.

And that's what we're working on right now.

But as it stands today, it's unclear to us whether Lehman is going to take the lease or not, or another party, not Lehman itself, because of the value of the lease.

What are the overall economics?

From what I remember --

The overall economics is that the lease costs about $200,000 a month.

There's 27 months left on the lease, from October 1st of '08 until 2010.

We've received $1.8 million that we have as a credit against that.

We also have over $1 million related to money that we received when we moved into the space in 2003 that were also for GAAP purposes forced to amortize over time.

So we have a total of $2.9 million in reserves that we could offset against any loss before you'd actually incur loss to the income statement.

Okay.

We feel pretty confident that there will not be a material cost to the Company related to that lease today.

What's the quarterly earnings impact?

Well the way accounting -- US GAAP releases are crazy.

The US GAAP releases (technical difficulty) five words or less, as income that you receive up front payment, you have to amortize over the life of the lease.

However, if you anticipate a loss for the lease, you have to take the full loss in one period.

So in theory, if you couldn't sublease the space, the accountants would force you to take a full reserve of the loss, offset by any income you have today.

That's not taking into consideration that you're actual cost of lease is based on the market, and your ability to sublease that probably improves just because your cost base is relative to other lenders in the building, so it's going to be much lower.

So we're still dealing with that.

So I don't know the exact cost.

But if -- worse case scenario, in the fourth quarter, they could make you take a reserve that could be, let's say $5.2 million less $2.9 million, or $2.3 million, when the reality is if the next month in January you sublease it, you'd be reversing that full reserve back out in the following quarter.

How much, in terms of income, do you -- in terms of this amortization, did you book in the third quarter though?

No income.

We booked -- we stopped booking that when Lehman filed bankruptcy.

And we've reversed the amount that we had taken.

So there was nothing --

What was happening is we had signed a deal with Lehman back in '06 for $3 million, and then we sold the mortgage company to IndyMac Bank, who didn't vacate the premises.

So IndyMac Bank started paying us the penalty that we were getting from Lehman.

We received $1.2 million of it this year as a penalty payment from IndyMac, and then Lehman paid us $1.8 million in August.

Okay.

And before you talk about broker dealers, can you just talk a little bit more about the sustainability of the dividend?

I think excluding Lehman Brothers, the portfolio itself is generating positive earnings.

I think the average cost of our liabilities for the fourth quarter, given where LIBOR has gone, is going to closely approximate the cost of the third quarter.

Now that will be dependent on a couple of key things.

We have the -- our CDO liabilities we've said on the 25th or two business days before the 25th for both November and December, those will be critical LIBOR rate days.

If LIBOR stays within a range of where it is today at 1.62%, that will bring our liability costs down within line of the average of the third quarter.

If there's some spike in the marketplace that brings those rates back up, then the outcome of that for our earnings will be different.

Okay.

But I think there is sustainability there, given any unforeseen events.

Now every time somebody's said that the last three quarters, there's been fairly significant unforeseen events.

So we're just dealing with less and less financial institutions that have those events.

So hopefully we've seen the worst of it and are moving forward.

There's enough liquidity that's been pumped into the marketplace that at some point, it's got to start taking hold.

The -- in the third quarter, were there any one time items that --

No.

The earnings decrease from -- of $0.03 per share really was a combination of -- we're talking about $250,000 because the share base is so small.

So of the $250,000, $150,000 is Lehman, and then you have a hodgepodge of -- we had increase -- we had a spike in our borrowing costs right at the end of September, which probably cost us a little bit less than $100,000.

And then you had some incidental legal costs that came in a little bit higher than we anticipated.

But nothing unusual that we experienced in the second or first quarter.

So reading between the lines a little bit there, kind of $0.11 was your LIBOR prediction is probably reasonable for the fourth quarter.

But should that come down --

If we had to put a range on it -- exactly.

If we had to put a range on it, and I don't want to put it on a per share number, but I think if you had to put a range on it, as we sit today, it's probably between $0.09 and $0.13, somewhere around there.

Okay.

Because again, it's going to be very dependent because as all borrowers are, and it looks like the way our repos are being repriced, LIBOR is going down.

It's just a matter of how much does the repo rate follow LIBOR down.

Right.

I know.

What about the broker dealer?

The broker dealer, we've looked at several possibilities from a strategic alternative.

And we do know one of the largest players in our space is going to start up a broker dealer.

That seems to make some sense to the extent that you can connect the lenders of cash to the people who need the cash.

Clearly our industry needs to figure out a more stable way to raise short term debt than dealing, depending on the broker dealer (inaudible).

We're considering everything, but we have not specifically talked -- looked into setting up a broker dealer in the fourth quarter.

Okay.

Okay, thanks.

Thank you.

Our next question is from the line of [Chuck Reach] with Blue Line Capital.

Please go ahead.

Good morning.

Just want to begin with a couple of housekeeping issues.

Can you give us a sense as to what your haircuts were on the agency hybrids versus the floaters for the quarter?

Yes, yes.

The agencies were -- the agency ARMs were 6%.

The CMO floaters were 12%.

So there was no real change from the second quarter?

Minimal change, yes.

And the non-agency piece was 20%, up slightly.

Okay.

And can you give us any -- has there been any sort of deterioration in those haircuts with your roles?

No.

I would tell you as we have moved financing from one dealer -- we've moved financing around with a couple of counterparties.

One counterparty, we ended up with a lower haircut.

The other counterparty up with a higher.

But on average, I would say the average haircut at the end of the quarter was 8.86%, rounded to 9%, and right now we're sitting at 9.3% rounded down to 9%.

So it's changed, but nothing material.

I'm sorry, you said 8.

--

We were at 8.86% on average, across the repo book.

And --

And its 9.3% today?

Yes.

So you had a slight uptick.

We're working with some counterparties that we can probably reduce that.

Keep in mind also though, we did put 10% of our book out over year end.

And typically a three month repo requires a larger haircut than a one month repo.

I was listening to the Anworth call last night, and they said virtually all the ability to term out repos ended in September.

And almost all repo has taken place at 30 days or less.

That's right.

I'm just curious, when did you do that transaction?

Within the last two weeks.

So what's happening -- so now what people are weighing in, people are starting to give you some terms, because I think the dealer desks are trying to lock in some higher rates.

Rates are going down too.

Yes, and rates are coming down pretty hard.

So as a -- on our side, we're grappling with do we wait for lower rates, or do we try to offset a potential liquidity squeeze at the end of the year?

So we'll do a combination of both.

But that's why I think you're starting to see some one month and three month liabilities come out available to you, because they're trying to lock in with the higher rates, because these guys are putting the money into the Fed or into sources where I suspect the repo desk now is making several hundred basis points, when they were making five to 10 basis points at the beginning of the year.

Can you give us a sense as to what the cost was for the term repo?

The cost was in the high threes.

And that was at a time when -- when we did the trade, they were sub-LIBOR fundings, which at the time, I thought was very advantageous.

And roughly what percentage of the repo book?

10%.

And those were CMOs.

Okay.

So those are the floaters.

Yes.

All right.

Sequentially your costs came down, even with the higher --

Yes, because -- yes, exactly.

Legal costs and -- I'm just trying to get a sense as to how we should be thinking about your -- the cost structure and what do you think a reasonable run rate is.

I think the expense base in the third quarter is pretty indicative of the run rate.

Now the one caveat is going to be the outcome of the Lehman lease.

But as we said today, I'm pretty confident that that's not going to have a significant impact on our earnings.

But I think the run rate in the third quarter, from an expense base, will approximate what we're looking at.

Effectively you could sublet out the space at $33 a foot and [defuse] it, correct?

Absolutely.

Absolutely.

The question is, we -- exactly.

You get somebody in there, and at $33 a square foot on a building that usually traded $80 to $100, I'm clearly hopeful that there will be, A, somebody in the building, B, the management of the building, or somebody else who's willing to just step in and take the lease down.

And I'm sorry, how much square footage?

It's 66,000 square feet.

It's a big space.

That's $200,000 a month.

And I wanted to get just an update from you guys on the potential to see some sort of adjustments to the terms of the J&P convert to alleviate the classification of the security as debt and into equity.

Has there been any progress on that?

We've had discussions, and it comes down to, given where our stock is trading today, I don't think we want to put them in a position where you're going to convert somebody at a 50% discount to book.

And we've been in a situation when we put that -- when we put that transaction into place in January, the terms of the deal relative to the deal that had been struck throughout this year, were generous from a company standpoint.

It's just the market turned so rapidly in March that as you know, and as we've discussed before, the price of our stock came thorough the conversion price pretty hard.

And we have not come to any terms that we could get -- where I thought it made sense to the Company to renegotiate that -- to issue those many shares at a discount, a severe discount to book.

So we have not -- we do not have any transactions in place that we're going to convert them at a lesser price today.

We've talked to J&P about that.

And we actively talk about that.

And as it stands right now, we don't have anything in place.

I would just encourage that -- revisit that.

There's -- your stock is -- your stock for sale, there clearly aren't enough bidders to take out the stock that's for sale, despite your stock trading below 50% of book value.

And almost all your assets are now guaranteed by the US government.

There's clear dislocation here.

And candidly, I can understand people's reluctance to buy more stock at a structurally subordinated position to a convert.

And again, I'm clearly of the opinion that removing that structural subordination would create a lot of buyers.

But the stock down here at such a significant discount to what's likely a liquidation value on a worst case basis.

Anyway, I'll get off the call and let someone else ask questions.

Thanks.

Thanks, Chuck.

Thank you.

And our next question is from the line of [Mark Lumen], Cowen Capital.

Please go ahead.

Thanks a lot.

Most of my questions have been answered.

Just more on the counterparties.

You said you have five now.

And did I hear you right when you said the one that's funded over year end is a new party?

Given the spreads widening out, are you seeing more players coming into the business?

I think what you're seeing -- and one of the things we've tried to do is reach out to some non-traditional lenders in the repo market.

And I think because spreads are wide, you are attracting some new players in the marketplace.

We were in the process -- we were seeing in late August and early September some foreign bank institutions that were active participants at the beginning of the year who dropped out in March and April, entertaining, coming back into the marketplace.

And then with the events that happened in September, they've dropped back out.

Hopefully they're looking to come back in early next year.

But we've been successful in talking to some domestic banks in terms of getting some repos put in place.

And those are the types of lines that we're pursuing.

Given the programs that are available to banks now when they can punch securities into the Fed or into the FHLB with the rates and haircuts that they're getting, they're in a position where they can take down some fairly secure assets, government guaranteed assets, and end up generating 200-plus spreads on very short term.

It's not a -- it's not a long term business plan, but I think there's guys out there that want to take advantage of it.

And then relative to the haircuts still moving up from what would have been an extremely high level historically, you said that it's gone from 8.86% to 9.3%.

Where do you see that going?

I think the agency ARMs are going to settle in around the 6% -- 5% to 6% range.

Now the other asset classes, the non-agency and the CMOs, those haircuts are dealer by dealer, and there's not really any consistency there.

So I think that movement in our haircuts is a combination of security class, as well as dealer.

So we're working with some dealers that we think can probably bring that down.

And I think over time, if we get to a market that's less volatile, you'll see the haircuts come down.

I don't think we'll ever go back down to the low levels that we saw at the beginning of the year, just because of the mechanism for credit departments to restrict leverage in the industry.

Thanks a lot, guys.

Okay.

Thank you.

(Operator Instructions).

And our next question is from the line of [Chris Kyle] with CJB Capital Management.

Please go ahead.

Hi, guys.

Just a question for you on the stated book value number this quarter versus last quarter.

It looks to me like you closed out the June quarter at $4.50 or at $4.09.

Can you explain a little bit in greater detail the unrealized mark to market loss of $15.7 million, or that $1.69 a share?

Sure.

In terms of where they -- yes.

We -- you saw price -- you saw spreads widen across the board at all asset classes.

We saw our swap book increase from mark to market as a gain, and you saw negative movements in our securities.

We ended up the quarter, which will be in our Q -- we ended up the quarter with about a $6.6 million unrealized loss in our floater book, which puts us right down in the low 90s.

We had an agency hybrid ARM book that had an unrealized loss of $3.7 million.

And our non-agency portfolio was marked down to over $4 million, which puts that price in the low 80s on average, to the high 70s.

We took some fairly significant hits there.

We also marked down our credit pieces related to our fourth securitization that we owned the bottom three traunches.

Those got market down.

So very low carrying costs just because of the mark to market process.

And while this securitization, for example, we've got a cost basis now on our books of about $2.

That fourth securitization has experienced no credit losses, has de minimis delinquencies, yet we've marked about $2 million, $2.5 million of bonds down to a $4 cost basis.

But because of the way we go through and do our marks, and historically have done our marks, we wanted to be conservative in those.

I think that you realize those values could be higher than that.

But you're in a market today, we're getting valuations on securities -- for some securities it's very difficult.

Okay.

So as far as what we can expect as a reasonable assumption or a number that we could get back over time, can you give me an estimate or a range?

Like everybody that you've seen who's failed over the last nine months, to the extent that we can remain funded and liquid, we have the majority of our assets, 96% of them, are agency, today government guaranteed securities.

There's no reason to believe that over time these things are not going to trade back to par, which would mean you would recover a substantial amount of that mark to market.

However, today we're dealing with the market where the net -- we're in a net seller market.

There's a lot more sellers than there is buyers, and that's why you've had pressure on pricing for the last six months.

Okay, so just to put it in layman's terms here, you've got $4.09 in book value at the end of September, and you've got $1.69 a share in that mark to market loss.

Let's assume for a second that you get half of that back.

Book value just -- so we all understand this, book value would theoretically go up by $0.845.

That's right.

Okay.

Closer to $5.

Okay.

Now one other thought or question I have here is valuation versus the peer group.

I know that with the relative lack of liquidity in your shares, its tough to pinpoint any single day, but I think somebody had brought this up earlier, that you trade at less than half of the stated book value, which appears to be a low book value to begin with, while your peer group trades anywhere from 80% to north of one times.

Net of having somebody convert or generate some sort of quick bang to book value, what do you have in mind?

Well part of the pressure on our stock price, at least in my opinion, is if you look at the volume of shares that trade on a daily basis on our stock, and you're well aware that the pipe transaction that we raised in February of $60 million represents a large amount of our shareholders in that pipe transaction and not that many investors hands.

So one of the issues we have with our stock is if in fact one of those investors want to get out of their position, it puts tremendous pressure on the price of our stock.

So the stock you'll see over the last quarter, you'll have days where it will hit $0.50 on 100 shares of volume.

So we have to deal with that issue.

The book value, we have a fairly, in my opinion, conservatively marked book.

96% of our investment securities are agency government guaranteed.

We've reserved out of the losses and our loans, we're working hard to get the delinquencies down.

So I think the book value is pretty solid.

The problem is, from a stock standpoint, there's a total disconnect between book value and our stock price.

And there is, it's -- we're a small company, we're dealing with liquidity in the stock issues, and that's put pressure on the price.

If we get the sellers cleared out, I think the stock trades back to a more reasonable relationship to our book value.

Okay.

I guess the only other thought that I would have as it relates to spreads, it sounds to me like we had that LIBOR number, that one month LIBOR at north of 4%, then it's 3%, now it's 2%, now it's -- then it was 2% and now we're down to -- I think you said 165 basis points.

Given that, what is the impact or direct relation that has on repo rates today, if you were to test the market?

Versus where you were --

There's no question, every day that we've done repos in the last week, our cost of borrowings has gone down.

So it is trending down.

What's not happening is -- up until September, your repo rates were closely priced to LIBOR.

Now as LIBOR's at 1.62%, and let's say you were borrowing at 3% -- they're going to lower it to 2.5%, you're still 80 basis points over LIBOR.

So that spread has not collapsed as much as you'd like to see it.

I think it's going down, but it's not going down as quick as it is.

And the other thing you're seeing is the rates that you get on repo are not closely aligned around one rate.

For instance, you can go out to five people, and you can have borrowings from three different guys and get three different total different rates on the same exact type of security.

And what you're seeing in our marketplace is you do not have the ability that you used to have at the beginning of the year, that if you're lender A, and you don't like the rate, you move to lender B.

It's much more difficult to move between lenders today.

So to some extent, your negotiating ability has been decreased from a rate standpoint, which prevents the rates from coming down as far as you'd like to see.

And the lenders take advantage of that by charging high rates.

Okay.

So -- and my last question here as it relates to a worst case scenario.

We've had -- these are unprecedented times, with respect to broker dealer failures and the strain it's had on the markets and the spreads, et cetera.

Can you walk me through a liquidation scenario of your portfolio at current levels, and what you think its worth to shareholders on a per share basis?

That's a pretty tough call because I think if you look at the companies that got liquidated, the large firms, the valuation which what they thought the firm was worth versus where it ended up trading had a [caverns] between it.

We can get marks very easily on a lot of our securities, but there's some asset classes that the liquidation clearing bid on a particular date could be 10 to 20 points difference from day one to day two.

It all depends on what's happening in that day, and if there's somebody out there who would like those assets.

So do I really want to put an exact number?

I don't know what that number is.

I don't think any firm that's borrowing in the short term market today can confidently say what their firm is worth on a liquidation basis.

It's just something that you don't want to try.

I am confident that if we had to liquidate the portfolio, we're not going out of business.

And there will be some value left in the Company.

We do monitor that.

But to put a price on it, I'd prefer not to do that, Chris.

Okay.

Thanks guys, good luck.

Thank you.

(Operator Instructions).

And we do have a follow up question from the line of Adrian Mackie.

Please go -- with Freestyle.

Please go ahead.

Just following up on that last question, if you announced you just liquidated in one fell swoop, but you would essentially put the portfolio in runoff, you would theoretically get $5 and change less whatever the liquidation operating costs might be.

Is that a fair assumption?

That's a fair assumption.

But keep in mind that the assets that we have are 30-year amortizing assets.

So the runoff could be a long time.

Okay, but what's the average life?

The average life -- the old average life?

The average life -- I think the average life on all mortgage assets are going to be dependent on all these modification programs that are sitting out there, and the impact that's going to have on securities.

And their ability to modify people in deals -- but they don't own the securities, but they're the servicer on it.

So the average life in that, let's say today, is about five years.

Okay.

We're in a lower rate environment.

The question is, if you look where interest rates are today or mortgage rates are, there's a huge problem there.

They have to work on -- the government and all these programs hopefully will do a better job getting the right spread relationship between the Treasury market and the mortgage market.

The mortgage market rate should be in the low 5%s.

We're sitting at 6.5% for conforming, and non-agency stuff is in the high 8%s or low 9%.

That has a huge impact on prepayments.

Fixed rates are well up in the 7%s, mid to high 7%s.

And we've found its 8.5% to 9% at other lenders.

But conceivably you could put things into runoff and over time, the factors that you're talking about would hopefully work in the Company's favor assuming that this market recovers.

I think what everybody's trying to do in our industry is buckle down your balance sheet, get your funding as secure as possible, and because everybody's confident most of the assets in the agency REIT space are good assets.

It's just a matter of being able to fund them and get through to the other side.

And I think you'll see a nice recovery in everybody's book value.

And there's no ARMs being produced.

There's 4% of the originations are in ARMs.

So on the one hand, the supply, there's almost no supply.

And what you're seeing trade in the marketplace are deleveraging from various accounts.

And the demand side right now is optimistic banks and a small amount of money managers.

But I think once you get through some settlement of the marketplaces, people will look at the ARM asset classes trading at 250 over swaps, when it used to trade at 75 and 80 on a [tight] over swaps, they're going to get back into the asset classes and prices are going to recover.

And fixed rate collateral, this week alone, has tightened in about a point versus Treasuries on a price basis.

A little bit more than a point even.

So clearly there's buying -- there's buying in that sector, which should likely go into the ARM sector as well.

But what we want to try and do is have that benefit translating into your stock price.

And it's difficult to see how that's going to happen, given your current small size and the lack of investors to attribute even the valuations that the larger mortgage rates have to you.

We're working actively, Adrian, in trying to resolve some of the issues that have been discussed today.

We understand that we're small.

When we put the plan in place at the beginning of the year, the intention was not to be small today.

We didn't anticipate March.

We didn't anticipate September events either.

So we clearly understand that we have a cost basis that needs to be spread out over a larger capital basis, be it with a merger with somebody else or raising additional capital, or some type of transaction.

But we definitely understand that we're too small.

And we are working aggressively to try to solve that problem.

And we're trying to solve it in a way that's most beneficial to our shareholders.

Okay.

Fair enough.

That's all I have, operator.

Thanks, Adrian.

Thank you.

And there are no further questions at this time.

I would like to turn the call back to management for any closing remarks.

Thank you very much, and thank you, everyone, for participating today.

And we appreciate talking to you.

We look forward to talking to you in the future.

And if you have any additional questions, please feel free to call myself, David Akre, or Jim Fowler.

Thank you.

Thank you, ladies and gentlemen.

This concludes the New York Mortgage Trust third quarter 2008 earnings conference call.

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