New York Mortgage Trust Inc (NYMT) 2008 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the New York Mortgage Trust fourth-quarter conference call on March 27, 2009.

Throughout today's recorded presentation, all participants will be in a listen-only mode.

After the presentation, there will be an opportunity to ask questions.

(Operator Instructions).

I will now hand the conference over to Mr.

Scott Eckstein.

Please go ahead, sir.

Thank you, operator.

Good morning, everyone, and welcome to the New York Mortgage Trust's fourth-quarter and full-year 2008 (technical difficulty).

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 Alfonzo] 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, they 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 James Fowler, Chairman of the Board.

Jim, please go ahead.

Thank you very much, Scott and good morning, everybody, and thank you for joining the fourth-quarter 2008 full-year 2008 earnings call for New York Mortgage Trust.

On the call with me this morning is Steven Mumma, the Company's Chief Executive Officer.

After a few opening comments, I will turn the call over to Steve to review the details of our fourth quarter.

He will also provide information on activities during the first quarter of 2009 as was outlined in our earnings press release that was issued yesterday after the market closed.

Steve will then hand the call back to me for some comments on the loan portfolio and after this, we will be happy to take any questions.

As has been well-chronicled, 2008 was a year of unprecedented volatility that negatively impacted the operations of many financial institutions.

While New York Mortgage Trust did not go unscathed during the year, I am proud of the effort expended by New York Mortgage Trust's staff and management to stabilize the Company early in the year and then guided to the level of profitability and liquidity reported today.

As Steve will detail, New York Mortgage Trust successfully defended its balance sheet throughout 2008 until prices towards most capital consumptive mortgage-backed securities recovered to favorable levels.

Having achieved target prices during March, the majority of these bonds were sold resulting in the Company holding approximately $30 million of excess liquidity today.

We expect to sell the remainder of these securities in early to mid April and should generate another $10 million of excess liquidity.

Furthermore, while we are not giving longer-term guidance and while we do own assets that are producing above-market returns, we believe that our first-quarter dividend and earnings are sustainable throughout 2009.

More importantly, the first-quarter dividend and earnings do not reflect any return that we would expect to generate from the investment of the $35 million to $40 million of excess liquidity generated from the sale of securities.

As mentioned in our press release, we have spent considerable time reviewing investment opportunities across multiple alternative investment classes.

While there is nothing to report on this today, we expect to begin allocating capital on an unlevered basis sometime in the second quarter that we believe will be accretive to earnings and book value and that will begin utilizing our NOL.

Steve, let me turn the call over to you.

Thank you, Jim and welcome, everybody, today.

As we stated in our press release last night, we started 2008 with high hopes and in fact, we are well on our way through March 7, 2008.

By now, everyone is well aware of those events, as well as the many other events that occurred during 2008 that put financial stress on the system.

Throughout the remainder of 2008, the Company had only one goal -- stay funded and avoid a forced liquidation.

While we feel we were successfully at navigating throughout 2008, it did not come without a cost.

The Company lost $19.8 million in the first quarter as we took our portfolio leverage down from approximately 11 to 1 to 7 to 1 leverage, which remained throughout the duration of 2008.

Also, the Company took a fourth-quarter impairment charge of $5.3 million, $4.1 million of which related to the agency CMOs that we sold during the first quarter of 2009.

This charge was necessary as we no longer had the intent to hold those securities and I will speak further to this point later in the call.

We implemented new procedures during the year to address loan delinquencies, trying to identify potential issues earlier in the process enabling us to minimize losses to our securitizations.

We feel that 2009 will continue to be a trying market as the markets try to deal with the new government administration, new stimulus packages that seem to be coming on a daily basis and the continuing unwinding of failed institutions and the global economy that we feel still has a long way to go for recovery.

While these sound negative, we do feel that there are some factors in here that will be opportunistic for NYMT.

We have raised additional liquidity by selling our floaters and relieving capital constrains and now have opportunities in front of us where we feel that we can redeploy that capital into more lucrative and more opportunistic investments.

I would now like to review our fourth-quarter and full-year results for 2008.

The Company's core earnings for the fourth quarter of 2008 was $0.5 million or $0.06 per common share, excluding an MBS impairment charge of $5.3 million and one-time charges aggregating $0.4 million related to a severance payment and the write-off of capitalized securitization costs.

The Company had a net consolidated loss of $5.1 million, or $0.55 per common share for the quarter ending December 31, 2008 as compared to a $15.6 million loss or an $8.59 per common share loss for the same period in 2007.

The Company had a 2008 full-year consolidated net loss of $24.1 million, or $2.91 per common share as compared to a $55.3 million loss or $30.47 per common share for the full year of 2007.

The Company declared and paid a fourth-quarter dividend of $0.10 per common share and had total dividends declared for the year of $0.54 per common share.

The reduction in full-year net income was due mainly to two factors -- the $19.8 million we lost, as I previously said in the first quarter of 2008, as well as a $5.3 million fourth-quarter impairment charge, $4.1 million of which was related to the CMOs.

The Company had a net interest margin of $7.9 million for the year, as well as $6.9 million in expenses.

The Company incurred $1.5 million in loan losses primarily related to the on-balance sheet securitizations.

Those loan losses were incurred during the first quarter of 2008 and for the remainder of the year, we had minimal losses, additional losses in the portfolio.

Our portfolio net margin for the quarter was 131 basis points as compared to 136 basis points for the previous quarter ended September 30, 2008 and as compared to 46 basis points for the fourth quarter of 2007.

The Company's average earning assets for the quarter were approximately $842 million as compared to $875 million for the previous quarter and $799 million for the quarter ended December 31, 2007.

As of December 31, 2008, the Company had total assets of approximately $853 million as compared to $809 million at December 31, 2007.

Included in those total assets were $477 million of MBS securities and $350 million in mortgage loans held in securitization trusts.

The Company had total liabilities of $814 million as of December 31, 2008 as compared to $790 million as of December 31, 2007.

Included in these liabilities as of December 31, 2008 were $402 million of MBS repurchase agreements, $336 million of permanently financed collateralized debt obligations, $20 million in convertible preferred debentures and $45 million in subordinated debentures.

As of December 31, 2008, our residential mortgage-backed securities portfolio totaled approximately $477 million consisting of $456 million of MBS securities, including $258 million of agency RMBS and $198 million of agency CMO floating-rate securities.

The remainder of $22 million was invested in non-agency securities.

The residential mortgage-backed securities portfolio had an average coupon during the fourth quarter of 446 with a yield of 4.38%.

MBS portfolio had an average CPR rate for the quarter of 9% as compared to 10% for the third quarter and had an average 9% CPR rate for the duration of 2008.

The MBS portfolio was financed in part with $402 million in repurchase agreements with an average quarterly cost of 3.36% and the year ending cost of 2.62%.

The average haircut on the outstanding repurchase agreements was approximately 9% for an advance rate of 91%.

The Company had six counterparties extending credit to us at the end of the quarter.

The Company maintained a conservative leverage ratio of 7 to 1 throughout the year after March of 2008.

As we transition into our alternative investment strategy, overall leverage should be lower as we are reducing the balance we borrowed against our portfolio.

In addition, the investment portfolio also includes $348 million of loans held in securitization trusts for our on-balance sheet securitizations.

These loans had an average coupon of 5.39% and an average yield of 5.29%.

These loans are permanently financed with $336 million of collateralized debt obligation, which had an average cost of 3.22%.

The average spread on our liabilities on the CDOs, stated spread, is 38 basis points over one month LIBOR for our year-ending cost of 85 basis points for a total liability cost before amortization bond issuance costs.

The Company's net investment in our on-balance sheet securitization is approximately $12 million or the difference between the asset and the liabilities.

That $12 million is net of the $1.4 million reserve that we carry against those Jim Fowler will speak after I finish with further detail on the securitized loan portfolio and the experience on our delinquencies.

The Company also had $45 million of subordinated debentures outstanding with an average interest cost of 8.62% during the quarter and $20 million of convertible debentures, which had an average cost of 10.75% for the quarter.

We ended the year with a $4.21 book value per common share.

Included in this number is $8.5 million in unrealized fair value losses, or $0.91 per common share.

Now I would like to give an update on where we stand for 2009.

As we stated in our press release, for the first quarter of 2009, we will begin to show the efforts of 2008.

We are going to give earnings guidance for the first quarter of 2009 of a range of $0.20 to $0.24 per common share.

In addition, on March 25, 2009, our Board has approved an $0.18 per common share dividend, which we believe is a sustainable base throughout the duration of 2009 and something we intend to improve on as we deploy some of our excess capital into our alternative investment strategy.

This excess cash capital was generated by selling approximately $146 million of our agency CMO portfolio, resulting in approximately $30 million of liquidity.

These sales resulted in a net gain of approximately $0.2 million.

As we exit the remaining position, or approximately $50 million, we should free up an additional $10 million of liquidity.

The Company's alternative investment strategy will focus on investments that will return superior risk-adjusted returns on our leverage agency strategy, accretive to both our earnings and book value and will begin to use our NOL.

The Company anticipates investing alternative investments during the second quarter.

I would now like to turn the call back over to Jim so he can speak out about our securitization loans.

Thank you.

At 12/31/2008, New York Mortgage Trust had $348 million of loans held in securitization trusts that were permanently financed with $336 million of nonrecourse debt.

The balance of loans at 9/30/2008 was $358 million, representing an annualized prepayment rate of approximately 12%, which is very positive for a portfolio that currently enjoys a net spread of approximately 430 basis points and has levers on a nonrecourse basis 33 to 1.

Virtually all of these loans were originated in 2005 with full income documentation and with an average FICO score above 700.

Loan performance continues to be very good with a 60-day delinquency of 173 basis points and 55 basis points of REO and the comparable statistic, a survey of the better performing issuance shelves shows 2005 vintage prime jumbo loans with average 60-day delinquency of 317 basis points.

At September 30, 2008, 60-day delinquency was 165 basis points and REO was 40 basis points.

The eight basis point increase in 60-day delinquency over the past quarter was largely due to the lower dollar balance of loans outstanding.

New York Mortgage Trust continues to enjoy a very high cure rate on 30-day delinquency.

While we are hearing from borrowers that their financial stress is rising, more recent spikes in delinquency are what I might describe as being media-driven.

For those borrowers that have legitimate financial stress, we are taking advantage of recent government initiatives to assist borrowers.

For those that do not, we are collecting payments.

From a loss mitigation standpoint, virtually all portfolio remediation work is now being completed by New York Mortgage Trust and JMP staff.

We have brought this work in-house to ensure that each loan is handled in the most efficient way possible and that nothing falls through the cracks.

In doing so, we believe we have significantly reduced delinquency and loss rates on the portfolio and we continue to believe our securitizations will produce excellent cash flow and returns.

With that, I think we will turn the call over to the operator to conduct question-and-answers.

(Operator Instructions).

Chris Biles, CJB Capital Management.

Good morning, guys and congratulations on all the good work.

Just a couple of questions here as it relates to current book value numbers.

We are almost a full quarter away from that 12/31 date.

Can you shed some light on that?

We have given earnings guidance, Chris and we have stated that we sold a large part of our CMO book at a basic net gain of $0.2 million.

I think everybody is well aware that prices in the fixed income market have definitely improved since year-end.

So I think you can read into those numbers.

I would rather not state an exact book value, but I think that it is a very good assumption that the book value has increased since year-end.

Okay.

And looking through the sales data, I am just trying to get a sense for what that cash position might be worth today.

It looks like you had roughly $17 million at the end of September.

I know there were some charges taken in Q4 and it looks like you generated, what, $26.5 million or so in sales in the floaters and you are anticipating selling or generating an additional $10 million.

So just as we look at that liquidity and we are starting to look at different asset classes and moving forward in the business model, can you give me a sense for how much cash per share you have got today?

Well, I think when you look at a leverage company, I think you have to be careful when you look at the cash because the cash is all relative to your debt outstanding.

And we can generate cash by borrowing more money, but the cash that we have freed up was capital -- haircuts that were tied up in CMO floaters that probably average approximately 12%.

So we are going to have about $45 million of cash at the end of the year.

We will not invest 100% of that cash into an alternative investment.

We do need some of that liquidity to continue to defend our agency ARM repo book that we lever about seven times.

So I think we have adequate cash to begin our investment, alternative investment strategy, but I don't think you should ever look at a leverage company and say, okay, it is free cash; you can do whatever you want with.

We do have outstanding liabilities that we do have to meet over time.

On a blended basis, can you give me a sense for where leverage is?

I mean as we go into the end of March, I think our leverage is going to come in about a little less than 6 to 1, 6 to 1 times.

We are going to run a repo book that is going to be mostly related to agency ARM securities and as we develop our alternative investment strategy, that will be on a non-levered basis.

So what you will see over time with our Company is a leverage ratio that will decrease because we're putting assets on the books that don't have leverage with them.

Right.

So as we refer or you are referring to these alternative investments, can you give us a sense for -- I mean this is a slightly different business model than what we set out a year ago when the Company raised capital.

How can we feel comfortable, given the environment we have been in and the environment we are clearly still in, that you guys will be successful at deploying the capital?

What level of comfort can you give us?

Jim, do you want to speak to that initially and I can follow up with that?

Sure.

Good morning, Chris.

When we raised money, we talked on the roadshow and in all of our filings that, over time, we would be transitioning that to introducing some element of alternative assets in the taxable subsidiaries of the Company to take advantage of the returns to be earned from doing so and also the Company's NOL.

I think what I would have you and have everybody think about with regard to this is there has been a significant dislocation in the marketplace for fixed income assets.

And to the extent that a large part of that price decline has been liquidity-related, we sit today with a lot of liquidity and over the past six months during a time which we have been stabilizing the Company, we have also been doing our homework at looking at the assets that are out there and have looked at lots of opportunities.

Now, we certainly know a couple of things.

One is that doing one-off bond trades just because assets look cheap is probably not going to be given any sort of premium valuation by investors.

But we do think that there is an opportunity in this market, if there is ever going to be an opportunity, to deploy this capital into a growth business and that has been our primary focus.

Now we haven't reached any conclusions on this.

All we are simply stating is that there are lots of things out there, there are lots of teams of people that are out there.

We think there are tremendous opportunities to develop a growth business here and we are reviewing that.

And I think we will have more to report on that as the next couple of months will allow it.

But I think Steve is exactly right.

We do have a lot of liquidity today.

It is not all going into any one strategy and when we do put it into a strategy, we will be doing so on a basis that we think will deliver far superior risk-adjusted returns than could have been earned in the current strategy and we will be successful doing so.

So we have looked at lots of things.

We continue to look at things, but it is not -- we are not out thinking about just buying what people are describing as cheap bonds.

We are looking to -- if there is an opportunity to build a growth business around the capital and the Company.

We do and we will maintain REIT status as we go through the deployment of this capital.

Okay.

And last question, regarding the first quarter, you have given a range of $0.20 to $0.24.

Are you comfortable giving a full-year number or a range I should say?

We would rather not at this point, Chris.

I mean we want to take baby steps.

The last time we did an earnings guidance was I think at the end of February last year and in March.

I think what we will do is, as we get through the first quarter and we start to deploy some capital in our alternative investment strategy, I think we will try to give another guidance for the second quarter and then maybe at that point when we get a better feel of where the market is going to play out with some of these programs that the government put in, if we get a little bit more comfortable with that, we will think about putting out a year-end guidance.

Thank you.

And just to follow on with that, Chris, just one thing.

We will have our K out I believe today.

In it we have some disclosure on the balance sheet both from an asset and a liability point of view.

You will be able to I think look at where the capital is allocated.

We do have one category of assets that have very high returns right now and that is the CMO portfolio, the owned loan portfolio that is securitized.

To the extent that that is prepaying at a 12% prepayment rate given its very high ROE is very positive.

We want to continue to watch those prepayment speeds, but so far, so good.

But I think the combination of the rate of prepayment on that portfolio plus the pace at which capital is deployed will dictate earnings throughout the balance of the year and given that we don't know how sustainable a 12% prepayment speed is -- although the first-quarter cash generation would suggest that it continues to be roughly in the same ballpark -- that will -- that gives us pause on guidance.

But I think as we go through the next couple of months as we watch longer-term rates and mortgage rates, we will have a better ability to at least provide longer-term guidance than just quarter by quarter.

Great.

Thank you very much.

Chuck Griege, Blue Line Capital.

Good morning, gentlemen.

Just a couple of follow-up questions on some of the things Chris touched on.

One, I would like to commend you guys on the strategy with regard to the floaters.

Clearly, patience has paid off here and being able to sell these things at your cost basis or even a slight premium to that after what has transpired over the last 12 months, I think you guys deserve some credit for that.

Secondly, just another editorial.

With regard to your earnings releases, I would really encourage you guys to do -- to include just the quarterly information, as well as the annual information.

It would be a lot easier for us to do our work if you know what I mean in terms of the income statement.

With regard to the questions, can you give us a breakdown as to where you have your primary assets and liabilities marked at 12/31 so we can get a little better understanding as to where we think things might be at 3/31?

Sure, I think, Chuck, later today when we file the K, I think, one, you will have the quarterly information in there and two, you will be able to see by asset class and liability where all those things are marked.

If you wouldn't mind just looking at that and if you have any other questions, please feel free to call me back.

But in general, the CMO floaters were marked at approximately the $97 price.

The agency ARMs were marked in the high $102 price.

The non-agency, which is a very small part of the balance sheet, was probably marked in the mid to low $70 price.

The liabilities, we do not take any positive marks on liabilities even though you could argue that our subordinated debentures or trust-preferred securities are well below par, but we know we intend to pay those back, so we are not taking any benefit from a GAAP standpoint to the earnings statement.

They will be a fair value number out there.

And all the other liabilities are short term.

The CDO debt, again, is backing our loans, so there will be a fair value footnote that talks about those valuations, but in my mind, unless you are planning on buying that debt back, you don't really -- you don't have the ability to capture those gains.

They are really a reporting number, but they are a theoretical number and not really a practical number in my mind from an economic value standpoint.

And how about the swaps?

The swaps, well, the swaps, we had about a $4 million mark-to-market loss as of year-end.

You had a pretty massive rally in the treasury market and if you look at interest rate swaps today, there is two components of a mark-to-market swap.

There is the straight interest rate yield and most swaps for REITs who fund on a monthly basis, we are now dealing with a basis swap between one-month LIBOR and three-month LIBOR that historically was a couple basis points in cost, which now costs you about 50 basis points.

So if you look at our $4 million mark, probably 50% of it is due to overall interest rate market and 50% of it is due to this basis swap between one and three months.

The second part of that, the basis swap, is again a cost if we have to exit the swap, but it is not an economic cost to the firm as we borrow one month and swap on one month.

So that is something over time we will get back just as a function of the market.

Okay.

And I wanted to get your thoughts on CPRs as we sit here at almost the end of March (multiple speakers).

Sure, if you looked at --.

Can you give us a little update as to what you are seeing both in the agency portfolio and the securitization?

Yes, I think that if you looked -- it's interesting.

If you looked at the research that was put out at the end of December, everybody was predicting speeds to go up into the 30 and 40 CPRs in the first quarter, which clearly did not happen.

I think what people are realizing, two things.

One, people are credit-disadvantaged out there when they go through the refinancing process, either through appraisal or their overall credit standing, it is much more difficult to get approved.

And two, the amount of people available to process loans has been diminished dramatically because of all the exits out of this business.

So the pipeline, which used to be able to do a refinancing in 30 to 45 days, probably takes between 60 and 90 days.

Our personal experience in our portfolio, January was very slow, less than seven CPR.

February, the overall portfolio paid around 12 CPR and in March, it paid at 18 CPR.

So you're seeing it ramp up and I would predict in our portfolio for the second quarter that you're going to see speeds going into mid to high 20s.

I don't think you're going to see the spikes that we saw in '05 and '03 where you saw numbers jumping up into the 60 to 70 CPR just because I don't think there is capacity to process loans at that rate.

I do think you will get an extended peak in the 30s, mid to high 30s on some collateral types.

Some collateral types will experience that, but not all collateral types.

It will also depend on if Fannie and Freddie come out with some kind of streamline refi where they are going to waive all appraisal requirements.

That could create a much higher CPR rate.

(multiple speakers).

Have you heard much on that particular point?

I had heard that if you had a conventional mortgage, if you went out and got an appraisal, so long as your loan amount did not exceed 105% of the current appraised value, that you would be able to do a refi.

If it exceeds 105%, you are kind of out of luck.

And that is the problem because most people who took out mortgages at the end of '06 and '07 are probably the latter, exceeding 105%.

Now the risk is, as Fannie Mae and Freddie Mac come out and say we are already underwriting the risk of this borrower, we are not going to -- so therefore, the appraisal is somewhat meaningless because I already have this risk and if I can put them into a lower interest-paying mortgage that improves his economic overall situation, that may be a way to help the economy, but that would clearly increase CPR speeds.

Okay.

And maybe, Jim, can you just elaborate -- I don't know all the nuances of our tax code.

Can you just elaborate a little bit on how you guys would be able to use your NOLs, just what would the process have to be for a REIT to be able to utilize the NOLs?

Jim, I will take that.

Yes, go ahead, Steve.

Well, as you know, Chuck, we had a mortgage company that was operating in a taxable REIT subsidiary.

That particular subsidiary filed a separate return away from the REIT parent company, so that subsidiary is where the NOL is trapped in.

So that subsidiary -- we would actually end up booking assets from our alternative investment strategy into our TRS.

The TRS also holds our subordinated debentures, which generate about $3 million of interest expense deductions with very little income currently going on in that subsidiary.

So the first $3 million of income that we generate there will be offset on an ongoing basis with the subordinated debt costs.

If we have income that exceeds that, which we anticipate we will, we will be able to utilize some previous year's NOLs to shelter that income.

Two advantages.

One, because the income is generated in a TRS, for REIT purposes, we are not required to dividend that money out.

We can if we'd like to, but we don't have to.

That allows us to build book value.

So to the extent that we can get our book value up and start earning a multiple of our book value that could be advantageous to stockholders.

We look at that and review that given the market environment we are in when we come to a quarter-end.

Secondly, that income, as I said, we don't have to dividend it out, so we can reinvest that income back into the investments, which again returns a higher yielding for the overall shareholders.

So you have some flexibility there.

So the TRS structure in our case will allow us to shelter some income.

Okay.

The alternative investments you are going to have to put into a subsidiary anyway because, more than likely, they are not going to be re-qualifying assets.

So if they are mortgage-related, yes, they will be, but they won't qualify for hold-pull purposes, so you will have to put them in a subsidiary that gets consolidated up into the REIT.

So you have a shell?

Yes.

That's where the NOLs reside?

Yes.

And you would not be required to pay out the income and by doing so, you could utilize the NOL and still build book value on a consolidated basis?

Correct.

Okay.

Look, we are not trying to get 100% clarity on the alternative assets, but, as Chris said, you guys are going to morph a meaningful portion of the portfolio from what were conventional mortgages, albeit the floaters which are less liquid, and do some alternative assets.

How should we think about that asset base?

Well, I think you need to think of it as, one, we know where our strengths and weaknesses are as a management team here.

We are not going to -- it is easy to buy bonds in the marketplace and it is easy to buy what people think are cheap bonds that tend to be cheaper over time.

We are going to do our homework.

We will work with groups of people who have expertise in those investments that we are looking at to make sure that we are not missing something in that investment.

There is no guarantee on any investment, but this is not something that we are going to go out and shotgun and put that money to work in two days.

I mean this is something that we have already looked at some possible investment alternatives over the last three months and have elected not to do anything to date.

So we will be very slow and diligent in this process and it is something that, if we start to build a model out, we will probably bring another person on board that has a specific expertise in that venue.

It is just a matter of where we think the best opportunities are to begin this investment strategy.

But you can't give us any more color on that?

Well, okay, so for example, we would look at distressed non-agency securities.

We have seen similar securities to our own securitizations trade in the marketplace in the $0.40 and $0.30 on the dollar.

That doesn't mean that that is a great investment.

That means that we need to look at that securitization, understand the servicing of that securitization, the underlying loans and run some of the scenarios against those loans and stress scenarios and see that, across our range of expectations of defaults and losses, what is returned to us.

There are situations out there where people are going to be sellers that may not be economic sellers, they will be distressed sellers.

Those are the opportunities that we want to try to move on.

Okay.

I guess the last question I would ask is, in the context of where your book value likely is today relative to where it was at 12/31, and where your stock price is, this is obviously a sensitive subject here.

It is very difficult to trade the stock, so current holders -- I don't know if trapped is the right word, but we really can not sell the stock without taking a meaningful hit on where it is trading.

And it is already trading at, call it, let's just say 60% of where book value likely is at 3/31.

Talk to us about the deliberation internally of why not just pursue an orderly liquidation and capture the difference between $3 and, just to pick a number, $5 of liquidation value?

Well, I will talk a little bit and Jim, maybe you follow up.

I think when you look at our book value, which we would agree with you the stock is trading at a significant discount to that book value, and I would say today, we stand in a better position from a liquid book value than we have in the past probably 18 months.

We are still dealing with -- you have a securitization that is generating significant cash flows, although if you sell it into the marketplace, you probably don't get paid the economic value of those cash flows, by a long shot.

We still have $20 million some locked in non-agency securities that support cash flows that we think are going to pay down over the next six to 12 months at a fairly rapid rate that allows us to capture the discount on those prices that if we were to go out and sell them, you are not going to be able to monetize that and bring down a decent -- what we think is an adequate return to the existing shareholders.

So our book value is better; our book value is more liquid.

I still think to unwind the Company at this point is probably not the best return to the common shareholder today.

I think we can generate some significant returns with the cash flows from our securitizations that people currently are not willing to pay for.

But that is something, Chuck, that we do look at and we do monitor on a daily basis actually to see where we stand and what is the right decision.

That is something that is discussed at great length.

If you were to guesstimate orderly liquidation, right, what do you think you'd get as we sit here today between now and year-end?

Because you have got -- as you said, CPRs are going to clearly accelerate here as we get into the second quarter.

And obviously there is a lot of risk at deploying capital.

And I think that is why you're pursuing an alternative strategy rather than buying hybrids at close to $104 in the marketplace today and assuming a lot of prepayment risk.

I would say $104.50 to $105, yes, exactly.

That's right.

That is a tough thing to put -- I mean it is very -- I am not trying to evade this question.

I mean to get an orderly -- I don't think there is such a thing anymore as an orderly liquidation.

As soon as somebody gets a hint that you're in the process of liquidating, it goes from being orderly to a rapid distressed sale.

We have some liabilities on the balance sheet that in theory you could possibly try to reduce them at a cost below market that would improve that liquidation.

But you really can't go that route until you start the process.

So I would hate to put a number on that, Chuck, right now.

Okay.

I'll [see the report].

John Wimsatt, KBW Asset Management.

Hey, guys.

A quick question.

Can you tell me how big the NOL is?

The NOL is currently at $64 million and that is something that -- we clearly would love to be in a position to utilize 100% of that.

That would signify that our alternative investment strategy was a 100% success, but there is ample NOL to use to shelter income for the foreseeable future.

Right.

So what qualifies for something that's going to go -- I mean what qualifies as an alternative investment?

Is that just anything you buy outside of the agency strategy?

I think we refer to the alternative strategy as anything that is non-agency RMBS-related.

That would be non-agency RMBS.

That could be CMBS.

That could be CLO debt.

It would be a fixed-income instruments, but it would be something that would be outside of the agency RMBS strategy.

Okay.

And you said right now, I mean including the liquidation of the rest of the CMOs, there is about $40 million to put into that strategy immediately if you found the assets?

That's right.

Okay.

And the NOL is $64 million.

Okay, okay.

That's great.

You guys did a great job.

Thanks.

Scott Preston, [Encompass] Investment.

Good morning, guys.

Just a couple of questions on -- kind of circling back to the alternative investments.

Obviously this is a little bit different strategy than you guys have kind of gone with in the past and requires a lot more people power and a lot more time and energy.

Can you just talk a little bit around your resources, how you're going to develop those, what the costs might be?

Then kind of secondly on that strategy, what kind of -- I understand you guys are looking I guess at the non-agency mortgage-backed securities.

Can you kind of just give us a little bit more color on what type of securities you'll be looking at, how you are going to be approaching that and what kind of ROEs you think you can be earning on an unlevered basis in those assets?

Jim, do you want to do that?

Sure.

I think Steve's comment on the non-agency was more illustrative than specific, but it is one of the asset classes we have certainly reviewed.

But I think your question on resources is exactly right.

This Company has six or seven people in it now and Steve has shown an exceptional acumen for managing an agency portfolio and has -- our Company has benefited from his excellent relationships on the street, but we all agree that we need to -- if there is going to be any alternative asset investing, that will need to come with a complement of professionals with significant domain expertise.

And that is part and parcel with our review is, first, what are the right asset classes; second, who are the right people; and third, is it a growth opportunity or is it simply a bond trade and our desire is much more for the former than the latter.

So I think that, if and when something is announced, when it is, you will look at it and say, we have hit on all three of those points.

And it is time consuming.

We've spent a lot of time both at JMP and with New York Mortgage looking at this.

We have got a lot of people at JMP that are involved and see lots of opportunities.

New York Mortgage Trust is benefiting from the very accomplished bankers at JMP in that regard.

So we will have more to report on that at some point, we believe.

But you will read about something that will be an initiative rather than anything that is just single asset-related.

Okay.

What kind of -- do you have any idea of what kind of ROEs you will be looking at?

What will be your benchmarks for getting into alternatives?

What kind of unlevered ROEs would you kind of need to be attracted to such securities?

Sure.

I think if you put aside the risk of holding agency securities today at the prices at which they are being offered, the ROEs in that market today are probably 17%, 18% on a levered basis.

Six to 7 to 1 I think is probably the right math.

For an alternative asset to be attractive, I think it has to be a multiple of that, maybe twice that, if not more so for it to be attractive with a considerable portion of that return deemed through due diligence to be liquidity-related rather than credit-related.

I mean there is no shortage of stranded assets on balance sheets on dealers and banks across the country.

Some attractive, some not.

But when I think about hurdle ROEs for these opportunities, it has to be much higher than current ROEs and secondly, that has to be more related to liquidity than it has to be related to credit.

So that is the filtering process we are going through as we are weighing these opportunities.

And then again, when we find an asset class or an opportunity that looks attractive, we then go about identifying the experts that can manage that initiative for us.

Okay, and then --

I think you will expect -- sorry to interrupt -- but I think you will expect on the resource front, those will become -- those won't be outside managers that won't be aligned with New York Mortgage.

They will be very much aligned with New York Mortgage from a compensation point of view, from an operating point of view and will likely become employees of either New York Mortgage, JMP Asset Management, etc.

Okay.

And then finally, can you guys give us -- actually two follow-ups.

Can you give us an update on the Lehman Barclays lease in New York?

And then just if you have a ballpark on kind of what the annual costs, given your guys size, what the costs are of being a public company?

Sure.

The Barclays Lehman lease, we fully reserve any cost that we think may be related to that as far as we can tell, so that is something that we think is behind us and we hope to move forward from that.

We will probably be taking some of that reserve back in income over the years as this thing works its way out.

So I think, from an exposure standpoint, we are fully reserved for that lease.

As it relates to a public company cost, you probably have -- D&O insurance for our business model for our size company is probably going to run close to $900,000 to $1 million a year.

You have audit costs that run around $500,000 to $600,000 a year.

You have Sarbox costs that probably cost another $150,000 to $200,000 a year.

Those are really the three main costs of insurance for being a public company.

One of the things we have tried to do is we can develop a new strategy and eventually grow this Company.

What you want to do is leverage off that expense base.

Those expenses would be fixed over I think a decent amount of growth for this company before you would see an increase in those costs.

So that is one of the things -- a year ago, one of our goals was to raise additional capital to grow the capital base to offset some of these expenses.

Okay, and Steve, just to follow up on the Lehman Barclays lease.

How much have you reserved for that?

We have a reserve of about $1.8 million.

Okay, thank you, guys.

[Tom Gilbert], Talon Capital.

Guys, thanks.

This call has been very strong.

All our questions have been answered, so thank you.

That was easy.

Thank you.

(Operator Instructions).

Chris Biles, CJB Capital Management.

Sorry, guys.

My question has been answered.

Thank you.

John Wimsatt, KBW Asset Management.

Hey, guys.

Have you guys given any thought as the alternative investment strategy goes in place of these government programs, the leverage that might be available?

Yes, I think for us so far, I mean TALF 2 looks like the one that may have some promise for us.

The other ones are going to be tough -- I mean we could participate in the -- to buy any new securitizations, but the returns on that I don't think right now given where the spreads are -- I mean it's credit cards, autos, SBA loans and student loans.

I just don't think from the return bogeys that we are looking to get, you're going to be able to achieve that on those particular instruments.

But I think if we get into a position where we can participate in some kind of purchasing of distressed assets from financial institutions that are being absorbed by the FDIC, then I think there is going to be some opportunities there, which I believe is the direction they are trying to head in.

Initially, the announcement on Monday of this week about the distressed assets to the FDIC was targeted towards the larger institutions.

I think over time that will broaden.

We hope it will broaden.

One of the things also, John, that I think about is let's say TALF 2 comes out and it is only directed to asset classes where we don't think are growth opportunities.

Let's say AAA, residential RMBS are TALF 2 eligible.

Let's say the government gives 4 to 1 leverage and let's say they are trading at $0.65 on the dollar today.

That would say the ROE on that would be somewhere around 50% or 60%.

Well, you and I both know that 50% and 60% ROEs don't stay around very long and those credit spreads should tighten pretty significantly.

Now while we might not be directly involved in that, the general tightening of credit spreads would be very beneficial across all asset classes, particularly if we have correctly identified those assets whose price discounts are liquidity-related and now liquidity is coming back in the marketplace and people start looking more broadly at different credit assets.

So we will certainly look at TALF 2 when it comes out.

We might not take advantage of it depending upon what asset classes there are.

But if it does come out and if the categories are broad, if it includes AAA, CMBS, legacy assets, RMBS, etc.

and those spreads tighten, that is going to be I think constructive across all credit spreads and we would expect to be a beneficiary of that in addition to having our money invested in something that we think is a growth initiative that we can turn into a continuation of a real business.

So for the time being as you get prepayments and whatnot, are you not planning on reinvesting them in the existing strategies?

You are going to sort of built cash to do the alternatives?

Yes, I think we will use a portion of that cash to -- we are going to have to maintain a certain size of agency qualifying assets to both comply with REIT rules, as well as [fortiac] rules.

So we are always cognizant of those requirements.

So we won't just be winding down the agency portfolio; we will have to make some additional investments in the agency ARM portfolio, not in the near future, but we will be over the course of 2009.

Right.

The $0.91 or the $8.5 million of unrealized fair value loss, the $3 million to the MBS portfolio, is that to just the agency MBS?

No, it is more on the non-agency MBS.

Okay.

So that may or may not be recovered?

It may or may not be recovered.

Although the non-agency securities that we do own, the largest three bonds that we do own are support cash flows.

So you can look at scenarios in 2009.

We will be substantially out of those bonds in the next three to six months I think.

Just given where they are paying today, I think we're in pretty good shape there.

And the rest of it was -- when you say derivative instruments, is that just the swaps?

There are interest rate caps that we have on two of the securitizations that are included in there, which you are not going to really recover those.

They have basically been written off to zero.

And I don't see us recovering that before they expire and then the last part is the interest rate swaps, which --.

(multiple speakers).

How much of the $5.5 million are the caps?

$1.5 million.

Sorry?

$1.5 million.

Oh, okay.

So there is $4 million then related to the swats?

That's right.

And I also think the point that Steve made earlier is worth repeating.

The swaps are amortizing swaps, so the amounts of that mark that is related to the difference between the one-month LIBOR and the three-month LIBOR will just naturally amortize back into book value as the underlying assets amortize as well.

Got it.

So all but maybe $0.20 of that is recoverable?

I think so, yes.

All right, great.

Thanks, guys.

There appear to be no further questions.

I will now hand the conference back to management.

Great, everybody.

Well, thank you very much for joining us and we will look forward to talking again on our first-quarter results soon and I also think we will be taking advantage of the invitation by JMP Securities to speak at their conference and hope most of you will be there as well.

Thank you very much.

Thank you.

This concludes today's conference call.

Thank you for participating.