UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006.

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

FOR THE TRANSITION PERIOD FROM                      TO                     

NEW CENTURY FINANCIAL CORPORATION

MARYLAND		56-2451736
(State of Incorporation)		(I.R.S. Employer Identification No.)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. þ Yes o No

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

Large accelerated filer þ		Accelerated filer o		Non accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of April 30, 2006, the registrant had 56,397,064 shares of common stock outstanding.

 

 

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2006

INDEX

		Page
PART I—FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			50
PART II—OTHER INFORMATION			51
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 4. Submission of Matters to a Vote of Security Holders			52
Item 6. Exhibits			52
SIGNATURES			53
EXHIBIT INDEX			54
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 10.10
EXHIBIT 10.11
EXHIBIT 10.12
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 31.3
EXHIBIT 32.1
EXHIBIT 32.2
EXHIBIT 32.3

Certain information included in this Quarterly Report on Form 10-Q may include “forward-looking” statements under federal securities laws, and the company intends that such forward-looking statements be subject to the safe-harbor created thereby. Such statements include, without limitation, (i) the company’s business strategy, including its investment of capital to maintain a portfolio of mortgage loans; (ii) the company’s ability to manage risk, including credit risk; (iii) the company’s understanding of its competition; (iv) the company’s expectations with respect to market trends; (v) the company’s projected sources and uses of funds from operations; (vi) the company’s potential liability with respect to legal proceedings; (vii) the potential effects of proposed legislation and regulatory actions; (viii) the company’s expectation that the adoption of SFAS 155 will not have a material impact on the Company’s financial statements; (ix) the company’s expectation that the initial adoption of SFAS 156 will not have a material impact on the Company’s retained earnings; (x) the company’s expectations with respect to renewing or extending its various credit facilities; (xi) the company’s expectation that its decisions regarding secondary marketing transactions in 2006 will be affected by secondary marketing conditions and the company’s ability to access external sources of capital; (xii) the company’s current intention that it will not structure any securitizations as sales in 2006; (xiii) the company’s expectation that a significant source of its revenue will continue to be interest income generated from its portfolio of mortgage loans held by the company and its qualified REIT subsidiaries; (xiv) the company’s expectation that it will continue to generate revenue through its taxable REIT subsidiaries from the sale of loans, servicing income and loan origination fees; (xv) the company’s expectation that the primary components of its expenses will be (a) interest expense on its credit facilities, securitizations and other borrowings, (b) general and administrative expenses and (c) payroll and related expenses arising from its origination and servicing businesses; (xvi) the company’s belief that it may designate interest rate swap contracts as hedge instruments in the future; (xvii) the company’s intention to manage its cost structure to remain efficient even if loan origination volume declines; (xviii) the company’s intention to focus on maximizing the net execution of its whole loan sales and cost-cutting strategies; (xix) the company’s belief that a securitization structure offers the most attractive means to finance loans on its balance sheet; (xx) the company’s belief that, in light of its current strategy to raise interest rates, its loan production volume may decrease as a result of these higher interest rates on the mortgages the company originates; (xxi) the company’s expectation that non-prime gain-on-sale will improve in future quarters of 2006 based on stronger secondary demand for its product and forward-sale commitments extending into the third quarter of 2006; (xxii) the company’s expectation that it will likely see a return to normal levels of discounted loan sales in the second half of 2006; (xxiii) the company’s beliefs, estimates and assumptions with respect to its critical accounting policies; (xxiv) the company’s estimates and assumptions relating to the interest rate environment, the economic environment, secondary market conditions and the performance of the loans underlying its residual assets and mortgage loans held for investment; (xxv) the company’s use of a prepayment curve to estimate the prepayment characteristics of its mortgage loans; (xxvi) the company’s principal strategies to effectively manage its liquidity and capital; (xxvii) the company’s intention to execute its stock repurchase program while maintaining its targeted cash and liquidity levels; (xxviii) the company’s expectation that it will continue to manage the percentage of loans sold through whole loan sales transactions, off-balance sheet securitizations, and securitizations structured as financings, including the use of NIM structures as appropriate, giving consideration to whole loan prices, the amount of cash required to finance securitizations structured as financings, the expected returns on such securitizations and REIT qualification requirements; (xxix) the company’s expectation that its liquidity, credit facilities and capital resources will be sufficient to fund its operations for the foreseeable future, while enabling the company to maintain its qualification as a REIT under the requirements of the Internal Revenue Code of 1986, as amended, or the Code; and (xxx) the company’s expectation that any future declarations of dividends on its common stock will be subject to its earnings, financial position, capital requirements, contractual restrictions and other relevant factors.

The company cautions that these statements are qualified by important factors that could cause its actual results to differ materially from expected results in the forward-looking statements. Such factors include, but are not limited to, (i) the condition of the U.S. economy and financial system; (ii) the interest rate environment; (iii) the effect of increasing competition in the company’s sector; (iv) the condition of the markets for whole loans and mortgage-backed securities; (v) the stability of residential property values; (vi) the company’s ability to comply with the requirements applicable to REITs; (vii) the company’s ability to increase its portfolio income; (viii) the company’s ability to continue to maintain low loan acquisition costs; (ix) the potential effect of new state or federal laws and regulations; (x) the company’s ability to maintain adequate credit facilities to finance its business; (xi) the outcome of litigation or regulatory actions pending against the company; (xii) the company’s ability to adequately hedge its residual values, cash flows and fair values; (xiii) the accuracy of the assumptions regarding the company’s repurchase allowance and residual valuations, prepayment speeds and loan loss allowance; (xiv) the ability to finalize forward sale commitments; (xv) the ability to deliver loans in accordance with the terms of forward sale commitments; (xvi) the assumptions underlying the company’s risk management practices; and (xvii) the ability of the company’s servicing platform to maintain high performance standards. Additional information on these and other factors is contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2005 and the company’s other periodic filings with the Securities and Exchange Commission.

The company assumes no, and hereby disclaims any, obligation to update the forward-looking statements contained in this Quarterly Report on Form 10-Q.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 2006 and December 31, 2005

(Dollars in thousands)

		March 31,				December 31,
		2006				2005
		(Unaudited)
ASSETS
Cash and cash equivalents		$	569,757				503,723
Restricted cash			847,228				726,697
Mortgage loans held for sale at lower of cost or market			6,352,645				7,825,175
Mortgage loans held for investment, net of allowance of $209,804 and $198,131, respectively			16,102,880				16,143,865
Residual interests in securitizations			208,791				234,930
Mortgage servicing assets			40,559				69,315
Accrued interest receivable			96,135				101,945
Income taxes, net			69,152				80,823
Office property and equipment, net			94,239				86,886
Goodwill			95,841				92,980
Prepaid expenses and other assets			343,955				280,751
Total assets		$	24,821,182				26,147,090
LIABILITIES AND STOCKHOLDERS’ EQUITY
Credit facilities on mortgage loans held for sale		$	6,169,194				7,439,685
Financing on mortgage loans held for investment, net			15,948,873				16,045,459
Accounts payable and accrued liabilities			533,832				508,163
Convertible senior notes, net			—				4,943
Notes payable			33,438				39,140
Total liabilities			22,685,337				24,037,390
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares at March 31, 2006 and December 31, 2005; issued and outstanding 4,500,000 shares at March 31, 2006 and December 31, 2005			45				45
Common stock, $0.01 par value. Authorized 300,000,000 shares at March 31, 2006 and December 31, 2005; issued and outstanding 56,359,671 and 55,723,267 shares at March 31, 2006 and December 31, 2005, respectively			564				557
Additional paid-in capital			1,237,380				1,234,362
Accumulated other comprehensive income			67,016				61,045
Retained earnings			830,840				828,270
			2,135,845				2,124,279
Deferred compensation costs			—				(14,579	)
Total stockholders’ equity			2,135,845				2,109,700
Total liabilities and stockholders’ equity		$	24,821,182				26,147,090

See accompanying notes to unaudited condensed consolidated financial statements.

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Dollars in thousands, except per share)

(Unaudited)

		Three Months Ended
		March 31,
		2006				2005
Interest income		$	463,002				331,071
Interest expense			(283,213	)			(162,081	)
Net interest income			179,789				168,990
Provision for losses on mortgage loans held for investment			(27,825	)			(30,238	)
Net interest income after provision for losses			151,964				138,752
Other operating income:
Gain on sale of mortgage loans			129,527				139,752
Servicing income			15,642				6,722
Other income			14,631				3,873
Total other operating income			159,800				150,347
Other operating expenses:
Personnel			116,721				128,522
General and administrative			57,475				41,775
Advertising and promotion			12,703				19,832
Professional services			9,190				7,806
Total operating expenses			196,089				197,935
Earnings before income taxes			115,675				91,164
Income taxes			11,940				6,404
Net earnings			103,735				84,760
Dividends paid on preferred stock			2,566				—
Net earnings available to common stockholders		$	101,169				84,760
Basic earnings per share		$	1.82				1.55
Diluted earnings per share		$	1.79				1.48
Basic weighted average shares outstanding			55,519,570				54,779,457
Diluted weighted average shares outstanding			56,695,269				57,266,628

See accompanying notes to unaudited condensed consolidated financial statements.

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

		Three Months Ended
		March 31,
		2006				2005
Net earnings		$	103,735				84,760
Net unrealized gains on derivative instruments designated as hedges			5,261				72,913
Reclassification adjustment into earnings for derivative instruments			793				5,261
Tax effect			(83	)			(2,337	)
Comprehensive income		$	109,706				160,597

See accompanying notes to unaudited condensed consolidated financial statements.

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Twelve Months Ended December 31, 2005 and Three Months Ended March 31, 2006
(In thousands, except per share amounts)

																						Accumulated
		Preferred				Preferred				Common				Common				Additional				Other
		Shares				Stock				Shares				Stock				Paid-In				Comprehensive				Retained				Deferred
		Outstanding				Amount				Outstanding				Amount				Capital				Income (Loss)				Earnings				Compensation				Total
Balance at December 31, 2004			—				—				54,703				547				1,108,590				(4,700	)			781,627				(7,499	)			1,878,565
Proceeds from issuance of common stock			—				—				1,880				19				26,440				—				—				—				26,459
Proceeds from issuance of preferred stock			4,500				45				—				—				108,619				—				—				—				108,664
Repurchases and cancellation of treasury stock			—				—				(879	)			(9	)			(29,465	)			—				—				—				(29,474	)
Cancelled shares related to stock options			—				—				(244	)			(2	)			(12,414	)			—				—				—				(12,416	)
Conversion of convertible senior notes			—				—				15				—				500				—				—				—				500
Issuance of restricted stock, net			—				—				248				2				14,493				—				—				(14,495	)			—
Amortization of deferred compensation			—				—				—				—				—				—				—				7,415				7,415
Net earnings			—				—				—				—				—				—				416,543				—				416,543
Tax benefit from non-qualified stock options			—				—				—				—				17,599				—				—				—				17,599
Other comprehensive income, net of tax			—				—				—				—				—				65,745				—				—				65,745
Dividends declared on common stock, $6.50 per share			—				—				—				—				—				—				(364,482	)			—				(364,482	)
Dividends declared on preferred stock, $1.20 per share			—				—				—				—				—				—				(5,418	)			—				(5,418	)
Balance at December 31, 2005			4,500				45				55,723				557				1,234,362				61,045				828,270				(14,579	)			2,109,700
Proceeds from issuance of common stock			—				—				329				3				6,701				—				—				—				6,704
Cancelled shares related to stock options			—				—				(17	)			—				(744	)			—				—				—				(744	)
Compensation expense for common stock options			—				—				—				—				3,000				—				—				—				3,000
Excess tax benefits for non-qualified stock options			—				—				—				—				975				—				—				—				975
Conversion of convertible senior notes			—				—				166				2				4,998				—				—				—				5,000
Restricted stock, net			—				—				159				2				(2,099	)			—				—				—				(2,097	)
Compensation expense for restricted stock			—				—				—				—				4,766				—				—				—				4,766
Reclassification of deferred compensation in connection with adoption of FAS 123R			—				—				—				—				(14,579	)			—				—				14,579				—
Net earnings			—				—				—				—				—				—				103,735				—				103,735
Other comprehensive income, net of tax			—				—				—				—				—				5,971				—				—				5,971
Dividends declared on common stock, $1.75 per share			—				—				—				—				—				—				(98,599	)			—				(98,599	)
Dividends declared on preferred stock, $0.57 per share			—				—				—				—				—				—				(2,566	)			—				(2,566	)
Balance at March 31, 2006 (unaudited)			4,500				45				56,360				564				1,237,380				67,016				830,840				—				2,135,845

See accompanying notes to unaudited condensed consolidated financial statements.

NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

		Three Months Ended
		March 31,
		2006				2005
Cash flows from operating activities:
Net earnings		$	103,735				84,760
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of office property and equipment			8,253				4,378
Other amortization			26,637				16,540
Stock-based compensation			7,766				2,853
Excess tax benefits from stock-based compensation			(975	)			—
Cash flows received from residual interests			1,368				6,787
Accretion of Net Interest Receivables, or “NIR”			(7,307	)			(4,024	)
Servicing gains			—				(8,120	)
Fair value adjustment of residual securities			32,078				1,330
Provision for losses on mortgage loans held for investment			27,825				30,238
Provision for repurchase losses			3,202				548
Mortgage loans originated or acquired for sale			(11,767,855	)			(6,480,899	)
Mortgage loan sales, net			13,331,896				6,516,864
Principal payments on mortgage loans held for sale			11,906				41,014
Decrease in credit facilities on mortgage loans held for sale			(1,270,491	)			(53,087	)
Net change in other assets and liabilities			(118,634	)			124,057
Net cash provided by operating activities			389,404				283,239
Cash flows from investing activities:
Mortgage loans originated or acquired for investment, net			(1,655,294	)			(3,803,344	)
Principal payments on mortgage loans held for investment			1,654,644				1,102,785
Sale of mortgage servicing rights			24,516				—
Purchase of office property and equipment			(15,607	)			(17,086	)
Acquisition of net assets			(9,795	)			—
Net cash used in investing activities			(1,536	)			(2,717,645	)
Cash flows from financing activities:
Proceeds from issuance of financing on mortgage loans held for investment, net			1,612,464				2,888,602
Repayments of financing on mortgage loans held for investment			(1,715,581	)			(303,797	)
Increases in restricted cash			(120,531	)			(26,765	)
Net proceeds from issuance of stock			6,704				411
Decreases in notes payable, net			(5,702	)			(4,200	)
Payment of dividends on common stock			(94,756	)			(82,569	)
Payment of dividends on preferred stock			(2,566	)			—
Excess tax benefits from stock-based compensation			975				—
Purchase of common stock			(2,841	)			—
Net cash provided by (used in) financing activities			(321,834	)			2,471,682
Net increase in cash and cash equivalents			66,034				37,276
Cash and cash equivalents, beginning of year			503,723				842,854
Cash and cash equivalents, end of period		$	569,757				880,130
Supplemental cash flow disclosure:
Interest paid		$	289,446				167,305
Income taxes paid			1,478				6,144
Supplemental noncash financing activity:
Restricted stock issued		$	4,766				17,619
Restricted stock cancelled			2,097				—
Accrued dividends on common stock			98,599				85,803

See accompanying notes to unaudited condensed consolidated financial statements.

1. Basis of Presentation

New Century TRS Holdings, Inc. (formerly known as New Century Financial Corporation), a Delaware corporation (“New Century TRS”), was incorporated on November 17, 1995. New Century Mortgage Corporation, a wholly owned subsidiary of New Century TRS (“New Century Mortgage”), commenced operations in February 1996 and is a mortgage finance company engaged in the business of originating, purchasing, selling and servicing mortgage loans secured primarily by first and second mortgages on single-family residences. NC Capital Corporation, a wholly owned subsidiary of New Century Mortgage (“NC Capital”), was formed in December 1998 to conduct the secondary marketing activities of New Century (as defined below). New Century Credit Corporation (formerly known as Worth Funding Incorporated), a wholly owned subsidiary of New Century (“New Century Credit”), was acquired in March 2000 by New Century Mortgage. NC Residual IV Corporation, a wholly owned subsidiary of New Century (“NCRIV”) was formed in September 2004 to hold a portfolio of mortgage loans held for investment. After consummation of the Merger (defined below), New Century purchased New Century Credit from New Century Mortgage. As used herein, except where the context suggests otherwise, for time periods before October 1, 2004, the terms “the Company,” “our,” “its,” “we,” “the group,” and “us” mean New Century TRS Holdings, Inc., and its consolidated subsidiaries, and for time periods on and after October 1, 2004, the terms “the Company,” “our,” “its,” “we,” “the group,” and “us” refer to New Century Financial Corporation and its consolidated subsidiaries.

On April 5, 2004, New Century TRS’s board of directors approved a plan to change New Century TRS’s capital structure to enable it to qualify as a real estate investment trust, or REIT, for United States federal income tax purposes.

On April 12, 2004, New Century TRS formed New Century Financial Corporation (formerly known as New Century REIT, Inc.), a Maryland corporation (“New Century”).

Pursuant to the merger that implemented the restructuring of New Century TRS in order for it to qualify as a REIT (the “Merger”), New Century became the publicly-traded parent listed on the New York Stock Exchange, or NYSE, traded under the ticker symbol “NEW,” which succeeded to and continued to operate substantially all of the existing businesses of New Century TRS and its subsidiaries. The Merger was consummated and became effective on October 1, 2004, and was accounted for on an “as if pooling basis.” These consolidated financial statements give retroactive effect to the Merger for the periods presented. Accordingly, under “as if pooling accounting,” the assets and liabilities of New Century TRS transferred to New Century in connection with the Merger have been accounted for at historical amounts as if New Century TRS was transferred to New Century as of the earliest date presented and the consolidated financial statements of New Century prior to the Merger include the results of operations of New Century TRS. Stockholders’ equity amounts presented for years prior to the formation of New Century are those of New Century TRS, adjusted for the Merger exchange rate.

On September 2, 2005, Home123 Corporation, an indirect wholly owned subsidiary of New Century (“Home123”), purchased the origination platform of RBC Mortgage Company, or RBC Mortgage, that expanded the Company’s retail presence on a nationwide basis, its channels of distribution and its mortgage product offerings to include conventional mortgage loans, loans insured by the Federal Housing Administration and loans guaranteed by the Veterans Administration. The purchase price for the net assets was $80.6 million, and was accounted for using the purchase method. Of the aggregate amount, $7.6 million was the fair value of assets acquired and $4.1 million was the fair value of liabilities assumed. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was $77.1 million and was allocated and recorded as goodwill at Home123.

On February 3, 2006, one of New Century’s indirect subsidiaries, New Century Warehouse Corporation, completed the purchase of Access Lending Corporation’s platform that provides warehouse lending services to middle-market residential-mortgage bankers. The purchase price for the net assets was $9.8 million, and was accounted for using the purchase method. The fair value of the assets acquired was $94.3 million acquired and the fair value of the liabilities assumed was $87.7 million. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed was allocated to and recorded as goodwill. Additionally, pursuant to the terms of the purchase and assumption agreement governing the transaction, Access Lending is entitled to receive additional payments for two years, based upon profitability. The results of operations for the platform acquired have been included in the Company’s condensed consolidated financial statements since the date of acquisition.

The accompanying condensed consolidated financial statements include the consolidated financial statements of New Century’s wholly-owned subsidiaries, New Century TRS, New Century Credit, and NCRIV. All material intercompany balances and transactions are eliminated in consolidation.

The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, refer to the consolidated financial statements and notes thereto included in New Century’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission.

Reclassification

Certain amounts from the prior year’s presentation have been reclassified to conform to the current year’s presentation.

Recent Accounting Developments

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which provides the following: (1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (4) clarifies that concentrations of credit in the form of subordination are not embedded derivatives and (5) amends Statement of Financial Accounting Standards No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement 125” to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 for accounting for certain hybrid financial instruments is effective for the Company beginning January 1, 2007. Adoption of SFAS 155 is not expected to have a material impact on the Company’s financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS 156”), which provides the following: (1) revised guidance on when a servicing asset and servicing liability should be recognized, (2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, (3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur, (4) upon initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities for securities that are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. SFAS 156 is effective for the Company beginning January 1, 2007 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. The impact to retained earnings as a result of the initial adoption of SFAS 156 is expected to be immaterial.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash equivalents consist of cash on hand and due from banks.

Restricted Cash

As of March 31, 2006, restricted cash totaled $847.2 million, and included $49.3 million in cash held in various margin accounts associated with the Company’s interest rate risk management activities, $570.9 million in cash held in custodial accounts associated with its mortgage loans held for investment, $183.1 million in cash held in trust associated with its credit facilities, $42.5 million in cash held in a cash reserve account in connection with its asset-backed commercial paper facility, and $1.4 million in cash held in trust accounts on behalf of borrowers. As of December 31, 2005, restricted cash totaled $726.7 million, and included $73.4 million in cash held in a margin account associated with the Company’s interest rate risk management activities, $633.0 million in cash held in custodial accounts associated with its mortgage loans held for investment, and $20.0 million in cash held in a cash reserve account in connection with its asset-backed commercial paper facility, and $0.3 million in cash held in trust accounts on behalf of borrowers.

Mortgage Loans Held for Sale

Mortgage loans held for sale are stated at the lower of amortized cost or fair value as determined by outstanding commitments from investors or current investor-yield requirements, calculated on an aggregate basis.

Mortgage Loans Held for Investment

Mortgage loans held for investment represent loans securitized through transactions structured as financings, or pending securitization through transactions that are expected to be structured as financings. Mortgage loans held for investment are stated at amortized cost, including the outstanding principal balance, less the allowance for loan losses, plus net deferred origination costs. The financing related to these securitizations is included in the Company’s condensed consolidated balance sheet as financing on mortgage loans held for investment.

Allowance for Losses on Mortgage Loans Held for Investment

In connection with its mortgage loans held for investment, the Company establishes an allowance for loan losses based on its estimate of losses inherent and probable as of the balance sheet date. The Company charges off uncollectible loans at the time of liquidation. The Company evaluates the adequacy of this allowance each quarter, giving consideration to factors such as the current performance of the loans, characteristics of the portfolio, the value of the underlying collateral and the general economic environment. In order to estimate an appropriate allowance for losses for loans held for investment, the Company estimates losses using “static pooling,” which stratifies the loans held for investment into separately identified vintage pools. Provision for losses is charged to the Company’s consolidated statement of income. Losses incurred are charged to the allowance. Management considers the current allowance to be adequate.

Residual Interests in Securitizations

Residual interests in securitizations, or Residuals, are recorded as a result of the sale of loans through securitizations that the Company structures as sales rather than financings, referred to as “off-balance sheet securitizations.” The Company may also sell Residuals through what are sometimes referred to as net interest margin securities, or NIMS.

In a securitization structured as a sale, the Company sells a pool of loans to a trust for a cash purchase price and a certificate evidencing its residual interest ownership in the trust. The trust raises the cash portion of the purchase price by selling senior certificates representing senior interests in the loans in the trust. Following the securitization, purchasers of senior certificates receive the principal collected, including prepayments, on the loans in the trust. In addition, they receive a portion of the interest on the loans in the trust equal to the specified “investor pass-through interest rate” on the principal balance. The Company receives the cash flows from the Residuals after payment of servicing fees, guarantor fees and other trust expenses if the specified over-collateralization requirements are met. Over-collateralization requirements are generally based on a percentage of the original or current unpaid principal balance of the loans and may be increased during the life of the transaction depending upon actual delinquency or loss experience. A NIMS transaction, through which certificates are sold that represent a portion of the spread between the coupon rate on the loans and the investor pass-through interest rate, may also occur concurrently with or shortly after a securitization. A NIMS transaction allows the Company to receive a substantial portion of the gain in cash at the closing of the NIMS transaction, rather than over the actual life of the loans.

The Annual Percentage Rate, or APR, on the mortgage loans is relatively high in comparison to the investor pass-through interest rate on the certificates. Accordingly, the Residuals described above are a significant asset of the Company. In determining the value of the Residuals, the Company estimates the future rate of prepayments, prepayment penalties that it will receive, delinquencies, defaults and default loss severity as they affect the amount and timing of the estimated cash flows. The Company estimates average cumulative losses as a percentage of the original principal balance of the mortgage loans of 1.80% to 4.94% for adjustable-rate securities and 1.47% to 5.64% for fixed-rate securities. The Company bases these estimates on historical loss data for the loans, the specific characteristics of the loans, and the general economic environment. While the range of estimated cumulative pool losses is fairly broad, the weighted average cumulative pool loss estimate for the entire portfolio of residual assets was 3.74% at March 31, 2006. The Company estimates prepayments by evaluating historical prepayment performance of its loans and the impact of current trends. The Company uses a prepayment curve to estimate the prepayment characteristics of the mortgage loans. The rate of increase, duration, severity, and decrease of the curve depends on the age and nature of the mortgage loans, primarily whether the mortgage loans are fixed or adjustable and the interest rate adjustment characteristics of the mortgage loans (6-month, 1-year, 2-year, 3-year, or 5-year adjustment periods). These prepayment curve and default estimates have resulted in weighted average lives of between 2.28 to 2.64 years for the Company’s adjustable-rate securities and 2.31 to 3.52 years for its fixed-rate securities.

During the three months ended March 31, 2006, the Residuals provided $1.4 million in cash flow to the Company. The Company performs an evaluation of the Residuals quarterly, taking into consideration trends in actual cash flow performance, industry and economic developments, as well as other relevant factors. During the quarter ended March 31, 2006, the Company increased its prepayment rate assumptions based upon actual performance and made minor adjustments to certain other assumptions, resulting in a $32.1 million decrease in the fair value of the Residuals for the quarter that is recorded as a reduction to gain on sale of mortgage loans. During the three months ended March 31, 2006 and 2005, the Company did not complete any securitizations structured as sales.

The bond and certificate holders and their securitization trusts have no recourse to the Company for failure of mortgage loan borrowers to pay when due. The Company’s Residuals are subordinate to the bonds and certificates until the bond and certificate holders are fully paid.

The Company is party to various transactions that have an off-balance sheet component. In connection with the Company’s off-balance sheet securitization transactions, as of March 31, 2006, there were $6.6 billion in loans owned by the off-balance sheet trusts. The trusts have issued bonds secured by these loans. The bondholders generally do not have recourse to the Company in the event that the loans in the various trusts do not perform as expected. Because these trusts are “qualifying special purpose entities,” in accordance

with generally accepted accounting principles, the Company has included only its residual interest in these loans on its condensed consolidated balance sheet. The performance of the loans in the trusts will impact the Company’s ability to realize the current estimated fair value of these residual assets.

Derivative Instruments Designated as Hedges

The Company accounted for certain Euro Dollar futures and interest rate cap contracts, designated and documented as hedges pursuant to the requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS 133. Pursuant to SFAS 133, these contracts have been designated as hedging the exposure to variability of cash flows from the Company’s financing on mortgage loans held for investment attributable to changes in interest rates. Cash flow hedge accounting requires that the effective portion of the gain or loss in the fair value of a derivative instrument designated as a cash flow hedge be reported in other comprehensive income and the ineffective portion be reported in current earnings.

Income Taxes

New Century is a REIT for federal income tax purposes and is not generally required to pay federal and most state income taxes if it meets the REIT requirements of the Internal Revenue Code of 1986, as amended, or the Code. Also, each of New Century’s subsidiaries that meet the requirements of the Code to be a qualified REIT subsidiary, or a QRS, are not generally required to pay federal and most state income taxes. However, New Century must recognize income taxes in accordance with Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes,” (“SFAS 109”) for each of its taxable REIT subsidiaries, or TRS, whose income is fully taxable at regular corporate rates.

SFAS 109 requires that inter-period income tax allocation be based on the asset and liability method. Accordingly, New Century recognizes the tax effects of temporary differences between its tax and financial reporting bases of assets and liabilities that will result in taxable or deductible amounts in future periods.

2. Mortgage Loans Held for Sale

A summary of mortgage loans held for sale, at the lower of cost or fair value at March 31, 2006 and December 31, 2005, is as follows (dollars in thousands):

		March 31,				December 31,
		2006				2005
Mortgage loans held for sale:
First trust deeds		$	5,636,636				7,110,772
Second trust deeds			704,930				704,430
Net deferred origination costs and other			11,079				9,973
		$	6,352,645				7,825,175

At March 31, 2006, the Company had mortgage loans held for sale of approximately $99.3 million on which the accrual of interest had been discontinued. If these mortgage loans had been current pursuant to their terms, interest income would have increased by approximately $2.1 million for the three months ended March 31, 2006.

3. Mortgage Loans Held for Investment

For the three months ended March 31, 2006, the Company securitized $1.7 billion in mortgage loans through transactions structured as financings. A summary of the components of mortgage loans held for investment at March 31, 2006 and December 31, 2005 is as follows (dollars in thousands):

		March 31,				December 31,
		2006				2005
Mortgage loans held for investment:
First trust deeds		$	15,533,562				15,877,535
Second trust deeds			661,103				334,689
Allowance for loan losses			(209,804	)			(198,131	)
Net deferred origination costs			118,019				129,772
		$	16,102,880				16,143,865

At March 31, 2006, the Company had mortgage loans held for investment of approximately $735.3 million on which the accrual of interest had been discontinued. If these mortgage loans had been current pursuant to their terms, interest income would have increased by approximately $6.6 million for the three months ended March 31, 2006.

The following table presents a summary of the activity for the allowance for losses on mortgage loans held for investment for the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended
		March 31,
		2006				2005
Balance, beginning of period		$	198,131				90,227
Additions			27,825				30,238
Charge-offs, net			(16,152	)			(2,970	)
Balance, end of period		$	209,804				117,495

4. Residual Interests in Securitizations

Residual interests in securitizations consisted of the following components at March 31, 2006 and December 31, 2005 (dollars in thousands):

		March 31,				December 31,
		2006				2005
Over-collateralization account		$	349,174				350,785
Net interest receivable (NIR)			(140,383	)			(115,855	)
		$	208,791				234,930

Residual interests in securitizations are recorded at estimated fair value, which is based on estimated discounted cash flows. The over-collateralization account, or OC, in the table above represents the current, un-discounted balance of the OC accounts at period end. The net interest receivable, or NIR, balance represents the difference between the estimated discounted cash flows less the un-discounted value of the OC accounts.

The following table summarizes the activity in the OC accounts for the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended
		March 31,
		2006				2005
Balance, beginning of period		$	350,785				158,755
Additional deposits to OC accounts			766				914
Release of cash from OC accounts			(2,377	)			(3,946	)
Balance, end of period		$	349,174				155,723

The following table summarizes activity in the NIR accounts for the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended
		March 31,
		2006				2005
Balance, beginning of period		$	(115,855	)			(10,734	)
Cash received from NIRs			243				(3,755	)
Accretion of NIRs			7,307				4,024
Fair value adjustment			(32,078	)			(1,330	)
Balance, end of period		$	(140,383	)			(11,795	)

Purchasers of securitization bonds and certificates have no recourse against the other assets of the Company, other than the assets of the trust. The value of the Company’s retained interests is subject to credit, prepayment and interest rate risk on the transferred financial assets. During the quarter ended March 31, 2006, the Company increased its prepayment rate assumptions based upon actual and estimated performance and made minor adjustments to certain other assumptions, resulting in a $32.1 million decrease in the fair value for the quarter that is recorded as a reduction to gain on sale of mortgage loans. During the quarter ended March 31, 2005, the Company increased its prepayment assumptions and recorded a $1.3 million decrease in the fair value of its residual assets.

5. Mortgage Servicing Assets

The following table summarizes activity in the Company’s mortgage servicing assets for the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended
		March 31,
		2006				2005
Balance, beginning of period		$	69,315				8,249
Additions			—				8,120
Sales of servicing rights			(24,516	)			—
Amortization			(4,240	)			(1,921	)
Balance, end of period		$	40,559				14,448

The Company records mortgage servicing assets when it sells loans on a servicing-retained basis and when it sells loans through whole loan sales to an investor in the current period and sells the servicing rights to a third party in a subsequent period.

The $24.5 million sales of servicing rights reflected in the table above relates to the two securitizations structured as sales completed in December 2005 that were sold during the three months ended March 31, 2006. The addition of $8.1 million for the three months ended March 31, 2005 represents the value of servicing rights retained by the Company in certain of its whole loan sales. There were no such additions during the three months ended March 31, 2006.

6. Goodwill

Goodwill is recorded in connection with the acquisition of new subsidiaries or net assets. As of March 31, 2006 and December 31, 2005, the Company had goodwill of $95.8 million and $93.0 million, respectively. No impairment was recognized during the three months ended March 31, 2006.

On February 3, 2006, one of the Company’s indirect subsidiaries, New Century Warehouse Corporation, completed the purchase of Access Lending Corporation’s platform that provides warehouse lending services to middle-market residential-mortgage bankers. The purchase price for the net assets was $9.8 million, and was accounted for using the purchase method. The fair value of the assets acquired was $94.3 million and the fair value of the liabilities assumed was $87.7 million. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed was allocated to and recorded as goodwill. Additionally, pursuant to the terms of the purchase and assumption agreement governing the transaction, Access Lending is entitled to receive additional payments for two years, based upon profitability. The results of operations for the platform acquired have been included in the Company’s condensed consolidated financial statements since the date of acquisition.

The following table presents changes in the carrying amount of goodwill as of March 31, 2006 (dollars in thousands):

Balance at January 1, 2005		$	92,980
Acquisition of Access Lending operating platform			3,200
Purchase price allocation adjustment on acquisition of RBC Mortgage origination platform			(339	)
Balance at March 31, 2006		$	95,841

7. Credit Facilities and Other Short-Term Borrowings

Credit facilities and other short-term borrowings consist of the following at March 31, 2006 and December 31, 2005 (dollars in thousands):

		March 31,				December 31,
		2006				2005
A $2.0 billion asset-backed commercial paper facility for Von Karman Funding Trust, a wholly-owned subsidiary of New Century Mortgage expiring in February 2009, secured by mortgage loans held for sale and cash, bearing interest based on a margin over one-month LIBOR.		$	1,081,736				—
A $2.0 billion master repurchase agreement ($1 billion of which is uncommitted) among New Century Mortgage, NC Capital, NC Asset Holding, L.P. (formerly known as NC Residual II Corporation) (“NC Asset Holding”), New Century Credit and Bank of America, N.A. expiring in September 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			367,631				916,714
A $1.0 billion master repurchase agreement among New Century Mortgage, Home 123 and Bank of America, N.A. expiring in September 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			146,718				277,484
A $1.0 billion master repurchase agreement among New Century Credit, NC Asset Holding, New Century Mortgage, NC Capital and Barclays Bank PLC expiring in March 2007, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			1,304				821,856

		March 31,				December 31,
		2006				2005
An $800 million uncommitted master repurchase agreement among NC Capital NC Asset Holding, New Century Credit and Bear Stearns Mortgage Capital expiring in November 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			296,787				610,365
A $150 million master repurchase agreement between New Century Funding SB-1, a Delaware business trust and wholly-owned subsidiary of New Century Mortgage, and Citigroup Global Markets Realty Corp., successor to Salomon Brothers Realty Corp. expiring in June 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR. The Company expects to either renew or extend this facility before its expiration.			—				—
A $650 million master repurchase agreement among New Century Credit, NC Capital and Citigroup Global Markets Reality Corp., successor to Salomon Brothers, expiring in June 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR. The Company has the ability to increase the size of this facility to $800 million provided that the value of the loans outstanding at any one time under this facility and the $150 million facility set forth immediately above may not exceed $800 million in the aggregate. The Company expects to either renew or extend this facility prior to its expiration.			109,467				276,816
A $150 million master repurchase agreement among New Century Mortgage, NC Capital, New Century and Citigroup Global Markets Realty Corp., successor to Salomon Brothers Realty Corp., expiring in June 2006, secured by delinquent loans and REO properties, bearing interest based on a margin over one-month LIBOR. The Company expects to either renew or extend this facility prior to its expiration.			70,191				109,076
A $1.5 billion master repurchase agreement ($500 million of which is uncommitted) among New Century Credit, New Century Mortgage, NC Capital, Home123 and Credit Suisse First Boston Mortgage Capital LLC expiring in December 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			686,655				452,239
A $1.0 billion master repurchase agreement among New Century Credit, New Century Mortgage, NC Capital, Home123 and Deutsche Bank expiring in September 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			423,082				441,227
An $850 million master repurchase agreement ($150 million of which is uncommitted) among New Century Credit, New Century Mortgage, NC Capital, NC Asset Holding, Home123, and IXIS Real Estate Capital Inc. expiring in October 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			321,293				404,696
A $3.0 billion master repurchase agreement among New Century Credit, New Century Mortgage, NC Capital, NC Asset Holding, Morgan Stanley Bank, and Morgan Stanley Mortgage Capital Inc. expiring in February 2007, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			1,381,398				1,469,860
A $2.0 billion asset-backed note purchase and security agreement ($500 million of which is uncommitted) between New Century Funding I, a special-purpose vehicle established as a Delaware statutory trust, which is a wholly-owned subsidiary of New Century Mortgage, and UBS Real Estate Securities Inc., expiring in June 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR. The Company expects to renew or extend this facility prior to its expiration.			1,178,408				1,673,225
A $450 million master repurchase agreement ($250 million of which is uncommitted) among New Century Warehouse, New Century Mortgage, New Century, and Goldman Sachs Mortgage Company expiring in February 2007, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			23,025				—

		March 31,				December 31,
		2006				2005
A $55 million master repurchase agreement among New Century, New Century Warehouse, Access Investments II L.L.C Access Lending, Galleon Capital Corporation, State Street Capital Markets, LLC and State Street Bank and Trust Company expiring in August 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month commercial paper rate.			27,128				—
A $125 million master repurchase agreement among New Century Warehouse and Guaranty Bank expiring in February 2007, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR.			54,405				—
A $70 million master repurchase agreement among Access Lending, Colonial Bank, and First Collateral Services, Inc. that expired in April 2006, secured by mortgage loans held for sale, bearing interest based on a margin over one-month LIBOR. The Company did not renew or extend this facility prior to its expiration.			49				—
Less: Credit facility amounts reclassified to financing on mortgage loans held for investment.			(83	)			(13,873	)
		$	6,169,194				7,439,685

The various credit facilities contain certain restrictive financial and other covenants that require the Company to, among other things, restrict dividends, maintain certain levels of net worth, liquidity, available borrowing capacity and debt-to-net worth ratios and comply with regulatory and investor requirements. The Company was in compliance with these covenants at March 31, 2006.

8. Financing on Mortgage Loans Held for Investment

When the Company sells loans through securitizations structured as financings, the related bonds are added to its balance sheet. As of March 31, 2006 and December 31, 2005, the financing on mortgage loans held for investment consisted of the following (dollars in thousands):

		March 31,				December 31,
		2006				2005
Securitized bonds		$	15,989,493				16,071,460
Short-term financing on retained bonds			—				1,903
2005-NC3 NIM bond			23,098				21,405
Debt issuance costs			(63,801	)			(63,182	)
Credit facility amounts reclassified from warehouse credit facilities			83				13,873
Total financing on mortgage loans held for investment		$	15,948,873				16,045,459

The Company’s maturity of financing on mortgage loans held for investment is based on certain prepayment assumptions. The Company estimates the average life of its various securitized loan pools to be between 1.7 and 3.8 years. The following table reflects the estimated maturity of the financing on mortgage loans held for investment as of March 31, 2006 (dollars in thousands):

Due in less than 1 year		$	6,538,651
Due in 2 years			3,540,821
Due in 3 years			1,565,596
Thereafter			4,303,805
		$	15,948,873

9. Convertible Senior Notes

On July 8, 2003, New Century TRS closed a private offering of $210.0 million of 3.50% convertible senior notes, including the over-allotment option, due July 3, 2008 pursuant to Rule 144A under the Securities Act of 1933. On March 17, 2004, the convertible senior notes became convertible into New Century TRS common stock at a conversion price of $34.80 per share. As a result of the Merger, the convertible senior notes became convertible into shares of New Century common stock. In December 2004 and June 2005, through a series of transactions, all but $5,000,000 of the original outstanding principal balance of the convertible senior notes were converted into

common stock of New Century. On February 17, 2006, the holder of the remaining $5,000,000 aggregate principal amount of convertible senior notes elected to convert the convertible senior notes into 165,815 shares of New Century’s common stock.

10. Series A Cumulative Redeemable Preferred Stock

In June 2005, the Company sold 4,500,000 shares of its Series A Cumulative Redeemable Preferred Stock, or Series A Preferred Stock, including 300,000 shares to cover overallotments. The offering provided $108.7 million in net proceeds. The shares have a liquidation value of $25.00 per share, pay an annual coupon of 9.125% and are not convertible into any other securities. The Company may, at its option, redeem the Series A Preferred Stock, in the aggregate or in part, at any time on or after June 21, 2010. As such, this stock is not considered mandatorily or contingently redeemable under the provisions of Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Investments with Characteristics of both Liabilities and Equity,” or SFAS 150, and is therefore classified as a component of equity. The Company paid preferred stock dividends of $2.6 million for the first quarter of 2006 on March 31, 2006, and, as a result, accrued preferred stock dividends were zero as of March 31, 2006.

11. Interest Income

The following table presents the components of interest income for the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended
		March 31,
		2006				2005
Interest on mortgage loans held for investment		$	289,632				247,660
Interest on mortgage loans held for sale			164,212				76,199
Residual interest income			7,307				4,024
Other interest income			1,851				3,188
		$	463,002				331,071

12. Interest Expense

The following table presents the components of interest expense for the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended
		March 31,
		2006				2005
Interest on financing on mortgage loans held for investment		$	169,154				117,720
Interest on credit facilities and other short-term borrowings			107,374				42,206
Interest on convertible senior notes			59				63
Other interest expense			6,626				2,092
		$	283,213				162,081

13. Hedging Activities

In connection with the Company’s strategy to mitigate interest rate risk on its financing on mortgage loans held for sale, mortgage loans held for investment and its residual assets, the Company uses derivative financial instruments such as Euro Dollar futures, interest rate cap contracts, interest rate swap contracts, and interest rate lock and forward sale commitments. It is not the Company’s policy to use derivatives to speculate on interest rates. These derivative instruments are intended to provide income and cash flow to offset potential reduced interest income and cash flow under certain interest rate environments. In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activity,” or SFAS 133, the derivative financial instruments and any related margin accounts are reported on the condensed consolidated balance sheets at their fair value.

In 2003, the Company began applying hedge accounting as defined by SFAS 133 for certain derivative financial instruments used to hedge cash flows related to its financing on mortgage loans held for investment. In June 2004, the Company began applying hedge accounting for certain derivative financial instruments to hedge the fair value of certain of its mortgage loans held for sale. The Company designates certain derivative financial instruments, such as Euro Dollar futures and interest rate cap contracts, as hedge instruments under SFAS 133, and, at trade date, these instruments and their hedging relationship are identified, designated and documented. The Company may designate interest rate swap contracts as hedge instruments in the future.

The Company documents the relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. This process includes linking derivatives to specific assets and liabilities on the condensed consolidated balance sheet. The Company also assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of the hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company will discontinue hedge accounting prospectively.

When hedge accounting is discontinued because the Company determines that the derivative no longer qualifies as an effective hedge, the derivative will continue to be recorded on the condensed consolidated balance sheet at its fair value. Any change in the fair value of a derivative no longer qualifying as an effective hedge is recognized in current period earnings. When a derivative is terminated, it is derecognized at the time of termination. For terminated cash flow hedges or cash flow hedges that no longer qualify as effective, the effective position previously recorded is recorded in earnings when the hedged item affects earnings.

Cash Flow Hedge Instruments — For derivative financial instruments designated as cash flow hedge instruments, the Company evaluates the effectiveness of these hedges against the variable-rate interest payments related to its financing on mortgage loans held for investment being hedged to ensure that there remains a highly effective correlation in the hedge relationship. To hedge the adverse effect of interest rate changes on the cash flows as a result of changes in the benchmark LIBOR interest rate, which affect the interest payments related to its financing on mortgage loans held for investment (variable-rate debt) being hedged, the Company uses derivatives classified as cash flow hedges under SFAS 133. Once the hedge relationship is established, for those derivative instruments designated as qualifying cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income during the current period, and reclassified into earnings as part of interest expense in the period(s) during which the hedged transaction affects earnings pursuant to SFAS 133. The ineffective portion and/or remaining gain or loss on the derivative instrument is recognized in earnings in the current period and is included in other income. During the three months ended March 31, 2006, the Company recognized a gain of $4.9 million from the ineffective portion of these hedges. There was no ineffective portion of these hedges during the three months ended March 31, 2005. An additional $7.5 million of income was recorded during the first quarter of 2006 as the Company determined that certain of the contracts no longer qualified as hedges under SFAS 133.

As of March 31, 2006, the Company had open Euro Dollar futures contracts that are designated as hedging the variability in expected cash flows from the variable-rate debt related to its financing on mortgage loans held for investment. The fair value of these contracts at March 31, 2006 and 2005 was a $86.7 million and a $101.3 million asset, respectively, and is included in prepaid expenses and other assets. For the three months ended March 31, 2006 and 2005, the Company recognized a gain of $40.7 million and $6.7 million, respectively, attributable to cash flow hedges, which has been recorded as a reduction of interest expense related to the Company’s financing on mortgage loans held for investment. At March 31, 2006, the Company recorded deferred gain of $9.7 million, also attributable to cash flow hedges relating to its financing on mortgage loans held for investment, which will be recognized in the second quarter of 2006 due to the timing of related expired Euro Dollar futures contracts, which hedge three months forward. As of March 31, 2006, the balance of other comprehensive income, or OCI, was $67.0 million, which relates to the fair value of cash flow hedges. The Company expects to reclassify $40.7 million from OCI into earnings during the remainder of 2006. The remaining OCI will be reclassified into earnings by March 2008. Additionally, certain Euro Dollar futures contracts were terminated during the fourth quarter of 2004 in connection with the transfer of certain assets from New Century TRS to New Century. The fair value of the contracts at the termination date of ($30.9) million is being amortized from other comprehensive income over the original hedge period, as the hedged transaction affects future earnings. Amortization of $2.2 million and $3.0 million for the three months ended March 31, 2006 and 2005, respectively, have been recorded as an increase in interest expense related to the Company’s financing on mortgage loans held for investment. An additional $2.8 million of expense was recorded during the first quarter of 2006 as a reduction of other income as the Company determined that certain of the contracts no longer qualified as hedges under SFAS 133. As of March 31, 2006, the related other comprehensive income balance was ($13.8) million.

Fair Value Hedge Instruments — For derivative financial instruments designated as fair value hedge instruments, the Company evaluates the effectiveness of these hedges against the fair value of the asset being hedged to ensure that there remains a highly effective correlation in the hedge relationship. To hedge the adverse effect of interest rate changes on the fair value of the hedged assets as a result of changes in the benchmark LIBOR interest rate, the Company uses derivatives classified as fair value hedges under SFAS 133. Once the hedge relationship is established, for those derivative instruments designated as qualifying fair value hedges, changes in the fair value of the derivative instruments and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded in current earnings pursuant to SFAS 133. For the three months ended March 31, 2006 and 2005, the Company recognized a loss of $1.7 million and a gain of $8.6 million, respectively, which were substantially offset by changes in the fair value of the hedged assets. The gain (loss) has been included as a component of gain on sale of mortgage loans. At March 31, 2006, these contracts were settled, and as such there were no fair value hedges outstanding as of that date.

Interest Rate Cap Contracts — Certain of the Company’s securitizations structured as financings are subject to interest rate cap contracts, or caplets, designated and documented as cash flow hedges used to mitigate interest rate risk. The change in the fair value of these interest rate cap contracts is recorded in OCI each period. Amounts are reclassified out of OCI as the hedged transactions impact earnings. For the three months ended March 31, 2006 and 2005, the Company recorded $0.7 million and $2.3 million, respectively, as an offset to interest expense related to the effective portion of the caplets. The related net change to OCI due to the earnings reclassification discussed above and the change in fair value of the caplets was $0.8 million and $0.2 million for March 31, 2006 and 2005, respectively. The fair value of these caplets at March 31, 2006 and 2005 was $0.7 million and $6.1 million, respectively, and is included in prepaid expenses and other assets.

Non-designated Hedge Instruments — As of March 31, 2006, the Company had certain open Euro Dollar futures contracts that hedges the variability in expected cash flows from the variable-rate debt related to its financing on mortgage loans held for investment, that are not designated as hedges. The fair value of these contracts at March 31, 2006 was $7.5 million. In addition, the change in the fair value of Euro Dollar futures contracts not designated and documented as hedges, used to hedge the fair value of the Company’s residual interests in securitizations, is recorded through earnings each period and is included as a component of gain on sale of mortgage loans. For the three months ended March 31, 2006 and 2005, the Company recognized gains of $9.9 million and $0.4 million, respectively, related to the change in fair value of these contracts. The fair value of these contracts at March 31, 2006 was an $8.8 million asset and is included in prepaid expenses and other assets. At March 31, 2005, there were no Euro Dollar futures contracts not designated and documented as hedges outstanding.

Free-standing derivatives (Interest Rate Locks, Forward Sale Commitments and Interest Rate Swaps) – The Company is exposed to interest rate risk from the time an interest rate lock commitment, or IRLC, is made to a residential mortgage applicant to the time the related mortgage loan is sold. During this period, the Company is exposed to losses if the mortgage interest rates rise, because the value of the IRLC or mortgage loan declines. IRLCs are derivative instruments under SFAS 133 and are recorded at fair value with the changes in the fair value recognized in current period earnings as a component of gain on sale of mortgage loans. To manage this interest rate risk, the Company utilizes primarily forward sales commitments. The forward sales commitments are derivatives under SFAS 133 and recorded at fair value with the changes in fair value recognized in current period earnings as a component of gain on sale of mortgage loans. Also included in free-standing derivatives as of March 31, 2006, were certain interest rate swap contracts and options on Euro Dollar futures contracts related to the Company’s financing on mortgage loans held for investment. The aggregate fair value of free-standing derivatives on the condensed consolidated balance sheet was a $17.3 million asset at March 31, 2006, and is included in prepaid expenses and other assets. The change in fair value relating to IRLCs and forward sales commitments that was recognized in earnings during the three months ended March 31, 2006 was a gain of $13.0 million, and is included as a component of gain on sale of mortgage loans. The change in fair value relating to interest rate swaps and options on Euro Dollar futures that was recognized in earnings during the three months ended March 31, 2006 was $1.7 million, and is included in other income. There were no free-standing derivatives for the three months ended March 31, 2005.

		For the Three Months Ended
		March 31, 2006
		TRS				REIT				Total
Earnings before income taxes		$	32,369				83,306			$	115,675
Adjustment to GAAP earnings:
Reverse intercompany eliminations			(5,275	)			5,275
Net decrease to taxable income from intercompany loan sales, hedging income temporary differences and other permanent differences			3,107				(4,892	)
Taxable income reconciling items (REIT only):
Add back provision for loan losses			—				29,025
Deduct actual loan losses			—				(9,653	)
Taxable income before dividend paid deduction			30,201				103,061
Deduct dividend paid deduction			N/A				(103,061	)
Taxable income this period			30,201				—
Provision for income taxes - 40%		$	(11,940	)			—				(11,940	)
Net income										$	103,735

		For the Three Months Ended
		March 31, 2005
		TRS				REIT				Total
Earnings before income taxes		$	11,545				79,619			$	91,164
Adjustment to GAAP earnings:
Net decrease to taxable income from intercompany loan sales, hedging income temporary differences and other permanent differences			2,251				(19,867	)
Taxable income reconciling items (REIT only):
Add back provision for loan losses			—				29,151
Deduct actual loan losses							(672	)
Taxable income before dividend paid deduction			13,796				88,231
Deduct dividend paid deduction			N/A				(86,408	)
Taxable income this period		$	13,796				1,823
Provision for income taxes - 41%		$	(5,657	)			(747	)			(6,404	)
Net income										$	84,760

For the year ended December 31, 2005, the Company’s estimated taxable REIT income exceeded its dividends paid for that same year by approximately $104 million. To secure the dividend paid deduction for 2005 for those estimated taxable earnings in excess of the 2005 dividend paid to holders of New Century’s common stock and Series A Preferred Stock, New Century elected to carry forward the estimated excess amount into 2006. Therefore, pursuant to that election, 100% of the regular dividend paid to holders of New Century’s common stock and Series A Preferred Stock for the first quarter of 2006, amounting to approximately $100 million, was applied to the 2005 year.

The Code allows a REIT to carry over excess earnings into the next tax year to be reported on a basis more consistent with net income reported pursuant to Generally Accepted Accounting Principles, or “GAAP,” and to provide for a more ratable distribution of dividends. These elections generally allow a REIT to carry over taxable earnings from one year into the next with no adverse tax consequences. Accordingly, the Company has accrued no taxes for the REIT at March 31, 2006 for cumulative estimated undistributed taxable REIT income of approximately $106 million that has been carried into the second quarter of 2006 and is available for the payment of dividends in future periods.

15. Earnings per Share

The following table illustrates the computation of basic and diluted earnings per share for the periods indicated (dollars in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2006				2005
Basic:
Net earnings		$	103,735				84,760
Less: Preferred stock dividends			2,566				—
Net earnings available to common stockholders		$	101,169				84,760
Weighted average common shares outstanding			55,520				54,779
Earnings per share		$	1.82				1.55
Diluted:
Net earnings available to common stockholders		$	101,169				84,760
Add: Interest and amortization of debt issuance costs on convertible senior notes, net of tax			58				18
Diluted net earnings		$	101,227				84,778
Weighted average number of common shares outstanding			55,520				54,779
Effect of dilutive securities:
Restricted stock awards			106				158
Stock options			986				2,167
Convertible senior notes			81				162
Directors’ deferred compensation plan awards			2				1
			56,695				57,267
Earnings per share		$	1.79				1.48

For the three months ended March 31, 2006, the Company included in its calculation of diluted earnings per share an effect of approximately 80,000 shares of common stock, representing shares issuable upon conversion of its convertible senior notes, weighted for the portion of the quarter prior to the actual conversion of the remaining convertible senior notes. For the three months ended March 31, 2005, the Company included the effect of approximately 160,000 shares of common stock issuable upon conversion of its convertible senior notes in the computation of diluted earnings per share. Diluted earnings have been adjusted to add the interest expense and amortization of debt issuance costs recorded related to the convertible senior notes, net of the applicable income tax effect.

For the three months ended March 31, 2006 and 2005, options to purchase 1,900,000 and 78,000 shares, respectively, of the Company’s common stock were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

16. Stock-Based Compensation

Through December 31, 2005, the Company historically accounted for stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and, accordingly, recognized no compensation expense related to stock options and employee stock purchases. For grants of restricted stock, the fair value of the shares at the date of grant was amortized to compensation expense over the award’s vesting period. The Company has historically reported pro forma results under the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“FAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure.

On December 16, 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS 123R”). FAS 123R is a revision of FAS 123, supersedes APB 25 and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. FAS 123R is similar to FAS 123, however, FAS 123R requires all stock-based payments to employees, including grants of employee stock options and discounts associated with employee stock purchases, to be recognized as compensation expense in the income statement based on their fair values. Pro forma disclosure of compensation expense is no longer an alternative. Additionally, excess tax benefits, which result from actual tax benefits exceeding deferred tax benefits previously recognized based on grant date fair value, are recognized as additional paid-in-capital and are classified as financing cash flows in the consolidated statement of cash flows.

The Company adopted FAS 123R on January 1, 2006, using the modified prospective transition method. Under the modified prospective transition method, fair value accounting and recognition provisions of FAS 123R are applied to stock-based awards granted on or modified subsequent to the date of adoption and prior periods presented are not restated. In addition, for awards granted prior to the effective date, the unvested portion of the awards are recognized in periods subsequent to the adoption based on the grant date fair value determined for pro forma disclosure purposes under FAS 123.

In 2004, the Company adopted and received stockholders’ approval of the qualified 2004 Performance Incentive Plan pursuant to which the Company’s board of directors may grant equity awards, including stock options and other forms of awards, to officers and key employees. The Plan authorizes grants of equity awards, including stock options.

Stock options are granted for a fixed number of shares with an exercise price at least equal to the market value of the shares at the grant date. Stock options generally vest over a period of three to five years. Certain of the stock options granted during 2005 and the first quarter of 2006 contain cliff vesting provisions, with vesting acceleration conditions. Such conditions provide for varying degrees of partial vesting in the event that certain market prices are maintained for ten consecutive trading days. Stock options granted have contractual terms of ten years.

Restricted stock awards are issued at the fair value of the stock on the grant date. The restrictions generally lapse over a period of three to seven years. During 2005, the Company began granting certain restricted stock awards containing financial performance conditions, which, if met, result in partial acceleration of the lapse of the award’s restrictions. Prior to the adoption of FAS 123R, unearned compensation for grants of restricted stock equivalent to the fair value of the shares at the date of grant was recorded as a separate component of stockholders’ equity and subsequently amortized to compensation expense over the award’s vesting period. In accordance with FAS 123R, stockholders’ equity is credited commensurate with the recognition of compensation expense. All deferred compensation at January 1, 2006 was reclassified to additional paid-in-capital.

The Company’s Employee Stock Purchase Plan defines purchase price per share as 90% of the fair value of a share of common stock on the last trading day of the plan quarter.

In the first quarter of 2006 and 2005, the Company recognized stock-based compensation expense of $7.8 million and $2.9 million, respectively, as well as related tax benefits of $0.8 million and $0.5 million, respectively, associated with the Company’s stock-based awards. As a result of the adoption of FAS 123R effective January 1, 2006, the Company’s income before taxes and net income for the three months ended March 31, 2006 were $6.3 million and $6.0 million lower, respectively, than if the Company had continued to account for the stock-based compensation programs under APB 25.

FAS 123R requires the disclosure of pro-forma information for periods prior to adoption. The following table illustrates the effect on net income and earnings per share for the three months ended March 31, 2005 if the Company had recognized compensation expense for all stock-based payments to employees based on their fair values (dollars in thousands, except per share amounts):

Basic earnings available to common stockholders:
As reported		$	84,760
Compensation expense, net of related tax effects			(1,525	)
Pro forma		$	83,235
Diluted earnings available to common stockholders:
As reported		$	84,778
Compensation expense, net of related tax effects			(1,525	)
Pro forma		$	83,253
Basic earnings per share:
As reported		$	1.55
Pro forma			1.52
Diluted earnings per share:
As reported		$	1.48
Pro forma			1.47
Basic weighted average shares outstanding:
As reported			54,779
Pro forma			54,779
Diluted weighted average shares outstanding:
As reported			57,267
Pro forma			56,646

The Company historically used a Black-Scholes option pricing model to estimate the fair value of stock options. The inputs for volatility and expected term of the options were primarily based on historical information. As of January 1, 2006, the Company switched from the Black-Scholes pricing model to a lattice model to estimate fair value at grant date for future option grants. The lattice model is believed to provide a more accurate estimate of the fair values of employee stock options as it incorporates the impact of employee exercise behavior and allows for the input of a range of assumptions. Expected volatility assumptions used in the models are based on an analysis of implied volatilities of publicly traded options on the Company’s common stock and historical volatility of the Company’s stock price. The range of risk-free interest rates is based on a yield curve of interest rates at the time of the grant based on the contractual life of the option. The expected term of the options was derived from the outputs of the lattice model, which incorporates post-vesting forfeiture assumptions based on an analysis of historical data. The dividend yield was based on the Company’s estimate of future dividend yields. Similar groups of employees that have dissimilar exercise behavior are considered separately for valuation purposes.

The following weighted-average assumptions were used to estimate the fair values of options granted during the three months ended March 31, 2006 and 2005:

		Three Months Ended March 31,
		2006				2005
Fair value		$	6.11			$	9.24
Expected life (years)			4.1				4.5
Risk-free interest rate			4.3 - 4.6	%			4.2	%
Volatility			41.0	%			60.6	%
Expected annual dividend yield			11.1	%			13.7	%
Expected annual forfeiture rate			10.8	%			—

Stock option activity during the three months ended March 31, 2006 was as follows:

						Weighted
						Average
		Number of				Exercise
		Shares				Price
Balance at December 31, 2005			3,819,533			$	27.29
Granted			345,585				38.99
Exercised			(239,882	)			13.47
Canceled			(91,459	)			36.43
Balance at March 31, 2006			3,833,777				28.99

At March 31, 2006, the range of exercise prices, the number outstanding, weighted average remaining term and weighted average exercise price of options outstanding and the number exercisable and weighted average price of options currently exercisable were as follows:

				Outstanding												Excercisable
								Average				Weighted								Weighted
								Remaining				Average								Average
Range of Exercise				Number of				Term				Exercise				Number of				Exercise
Prices				Stock Options				(in years)				Price				Stock Options				Price
$       0.33–5.59					95,089				1.66			$	5.26				95,089			$	5.26
6.00–6.79					414,863				5.41				6.65				340,500				6.65
7.33–9.27					275,633				4.46				8.45				125,486				7.97
10.47-12.17					246,831				5.86				10.49				179,331				10.49
14.43-17.83					268,525				6.47				15.10				102,325				15.40
18.65-18.66					370,723				6.70				18.66				157,067				18.66
19.47-26.97					272,143				7.21				26.38				93,093				26.70
35.74-39.10					396,086				9.53				38.32				22,705				38.03
42.20-44.06					455,164				8.97				44.02				24,620				44.01
45.04-45.96					362,334				7.84				45.86				255,876				45.87
46.02-46.78					372,775				8.54				46.62				220,337				46.63
47.26-49.27					189,275				8.85				49.04				13,652				47.60
51.20-60.47					114,336				8.49				55.21				81,667				56.60
					3,833,777												1,711,748

At March 31, 2006, the total intrinsic value of stock options outstanding and exercisable was $65.3 million and $36.9 million, respectively.

Stock option information related to nonvested shares for the three months ended March 31, 2006 was as follows:

						Weighted
						Average
						Grant
		Number of				Date Fair
		Options				Value
Balance at December 31, 2005			2,075,965			$	11.26
Granted			345,585				6.11
Vested			(229,664	)			11.37
Forfeited			(69,857	)			11.47
Balance at March 31, 2006			2,122,029				10.40

A summary of nonvested restricted stock activity for the three months ended March 31, 2006 is presented below:

						Weighted
						Average
						Grant
		Number of				Date Fair
		Shares				Value
Balance at December 31, 2005			441,630			$	45.03
Granted			217,058				39.02
Vested			(134,715	)			45.68
Forfeited			(4,398	)			38.04
Balance at March 31, 2006			519,575				44.33

The total intrinsic value of stock options exercised during the three months ended March 31, 2006 and 2005 was $7.1 million and $33.1 million, respectively. During the three months ended March 31, 2006 and 2005, the Company received cash of $3.2 million and $8.1 million, respectively, from exercises of stock options and recognized related tax benefits of $1.0 million and $7.2 million, respectively.

During the three months ended March 31, 2006, 48,751 shares of common stock were purchased under the Company’s Employee Stock Purchase Plan resulting in compensation cost of approximately $390,000.

As of March 31, 2006, the total remaining unrecognized cost related to nonvested stock options and restricted stock amounted to $18.3 million and $17.3 million, respectively, which will be amortized over the weighted-average remaining requisite service period of 30 months and 49 months, respectively.

The Company issues new shares to satisfy stock-based awards. At March 31, 2006, there were approximately 380,000 shares available for grant under the 2004 Performance Incentive Plan. As of March 31, 2006, approximately 2.0 million shares were available for issuance under the Company’s Employee Stock Purchase Plan.

17. Segment Reporting

The Company has three operating segments: portfolio, mortgage loan operations and servicing. Management tracks and evaluates these three segments separately in deciding how to allocate resources and assess performance.

The portfolio segment reflects the Company’s investment in its mortgage loan portfolio, which produces net interest income. The mortgage loan operations segment reflects purchases and originations of residential mortgage loans. The mortgage loan operations segment, comprised of the Wholesale and Retail origination divisions, records (i) interest income, interest expense and a provision for mortgage loan losses on the mortgage loans it holds prior to selling its loans to the portfolio segment or in the whole loan market, (ii) interest income, interest expense and a provision for mortgage loan losses on mortgage loans it holds in its portfolio and (iii) gain on sale of mortgage loans. The Company’s recently acquired Access Lending platform is included in the mortgage loan operations segment, although it has not had a material impact on the first quarter of 2006 results of operations or financial position. The servicing segment services loans, seeking to ensure that loans are repaid in accordance with their terms and the Company earns a servicing fee based upon the dollar amount of the servicing portfolio. The elimination column represents: (i) the difference between the segment’s fair value of mortgage loans originated as if they were sold and the actual gain recorded on loans sold by us and (ii) the elimination of inter-company gains.

For its portfolio segment, management evaluates mortgage assets at the segment level. As such, the quarter end balances of these assets are included herein.

For the three months ended March 31, 2006 and 2005 (dollars in thousands):

		Three Months Ended March 31, 2006
		REIT &
		Qualified				Taxable REIT Subsidiary
		REIT								Mortgage Loan Operations
		Subsidiaries																Servicing
		Portfolio				Portfolio				Wholesale				Retail				and Other				Eliminations				Consolidated
Interest income		$	253,956				42,983				140,916				25,147				—				—				463,002
Interest expense			(139,052	)			(30,102	)			(94,859	)			(19,200	)			—				—				(283,213	)
Net interest income			114,904				12,881				46,057				5,947				—				—				179,789
Provision for losses on mortgage loans held for investment			(29,025	)			1,200				—				—				—				—				(27,825	)
Net interest income after provision for losses			85,879				14,081				46,057				5,947				—				—				151,964
Other operating income:
Gain on sale of mortgage loans			—				—				188,517				75,791				—				(134,781	)			129,527
Servicing & other income			8,861				—				(92	)			(800	)			22,304				—				30,273
Total other operating income			8,861				—				188,425				74,991				22,304				(134,781	)			159,800
Operating expenses:			8,635				—				115,664				79,457				(7,667	)			—				196,089
Earnings before income taxes		$	86,105				14,081				118,818				1,481				29,971				(134,781	)			115,675
Funding volume		$	—				—				11,360,623				2,058,469				—				—				13,419,092
Securitizations structured as financings		$	1,678,678				—				—				—				—				—				1,678,678
Total assets at March 31, 2006		$	15,433,734				2,079,402				6,222,014				1,127,387				—				(41,355	)			24,821,182