FIRST QUARTER 2008 SUMMARY

-- The net loss for the quarter totaled $463.6 million, or $8.43 per diluted common share, compared with net income of $22.5 million, or $0.44 per diluted common share in the prior year quarter.

-- The 2008 first quarter loss was primarily due to net losses in the RMBS and interest rate swap portfolios totaling $198.6 million and $219.3 million, respectively.

-- Estimated REIT taxable income, a non-GAAP financial measure, was a loss of $16.4 million, or $0.30 per diluted common share, compared to income of $22.9 million, or $0.44 per share in the first quarter of 2007 (see reconciliation of GAAP loss to estimated REIT taxable loss attached).

-- Book value per share was $3.26 at March 31, 2008, down from $9.07 at the end of the fourth quarter.

-- Economic book value per share, a non-GAAP financial measure, was $3.38 at March 31, 2008 (see Economic Book Value section that follows and reconciliation of book value to economic book value attached).

-- Cash, unencumbered liquid securities and net equity in financed liquid securities totaled approximately $91.6 million at quarter end.

Results of Operations

In December 2007, the company acquired its external manager, Deerfield Capital Management LLC (DCM), a fixed income asset manager with a diversified revenue and fee income stream. In the following discussion, the Agency RMBS and corporate debt businesses are referred to as the Principal Investing segment, and the newly acquired asset management business as the Investment Management segment.

Results for the quarter ended March 31, 2008, were materially impacted by a significant reduction in value of AAA-rated non-Agency and Agency RMBS. The net loss for the quarter totaled $463.6 million, or $8.43 per diluted common share, compared with net income of $22.5 million, or $0.44 per share, for the first quarter of 2007. The decrease reflected realized and unrealized net losses on RMBS, net losses in the interest rate swap trading portfolio (used as an economic hedge of the RMBS portfolio), an accelerated recognition of deferred net losses on interest rate swaps, lower valuations in the loans held-for-sale portfolio, and impairment charges on goodwill and intangible assets. Providing a partial offset were gains on the sale of Agency RMBS and investment advisory fees from the recently acquired investment management business.

Net interest income totaled $13.8 million in the quarter ending March 31, 2008, compared with $23.8 million in the first quarter of 2007. The decrease was largely driven by significantly lower balances in the RMBS portfolio due to sales in the quarter and a full quarter of interest expense on the company's Series A and Series B notes issued in connection with the acquisition of DCM in late 2007.

Investment advisory fees totaled $12.1 million in the quarter reflecting the acquisition of DCM near the end of last year.

The provision for loan losses was $2.2 million, up by $0.4 million from the prior year quarter, reflecting an additional loss provision on a previously identified impaired middle market loan.

Expenses totaled $44.1 million, up by $37.5 million over the prior year quarter. The increase was primarily due to goodwill impairment of $20.0 million, intangible asset impairment of $7.9 million and the inclusion of current period operating expenses incurred by DCM.

Other income and gain (loss) was a net loss of $450.4 million in the quarter, compared with a net gain of $7.5 million in the prior year quarter.

The loss primarily reflected the following:

-- AAA-rated non-Agency RMBS with an amortized cost of $1.6 billion were sold in the first quarter of 2008 to reduce leverage and maintain adequate liquidity, resulting in net realized losses of $193.5 million.

-- The undesignated interest rate swap portfolio, which is used as an economic hedge of the RMBS book, generated losses totaling $127.6 million due to falling swap rates during the quarter.

-- $91.7 million of accelerated recognition of previously deferred net swap losses from designated interest rate swaps that were subsequently terminated or de-designated as a hedge was recognized in the quarter. This write-off did not affect book value since the net losses had been deferred in the accumulated other comprehensive loss category of stockholders' equity as of year end.

-- Unrealized net losses in the RMBS portfolio totaled $29.5 million during the quarter primarily due to wider spreads.

-- A broad-based risk aversion across the credit spectrum pushed down loan prices producing a net unrealized loss of $18.7 million on corporate bank loans held for sale in the Market Square CLO during the quarter.

-- Realized and unrealized losses totaling $3.1 million were recognized on junior participation interests in commercial mortgages in the process of liquidation.

-- Realized net gains of $24.4 million on the sale of Agency RMBS provided a favorable offset.

Estimated REIT taxable income, a non-GAAP financial measure, for the quarter ended March 31, 2008, totaled a loss of $16.4 million, or $0.30 per diluted common share, compared to income of $22.9 million or $0.44 per share in the first quarter of 2007. A reconciliation of GAAP net income to estimated REIT taxable income is attached.

Commenting on first quarter results, Jonathan Trutter, chief executive officer, said, "Our first quarter results reflect the very difficult market conditions for mortgage REITs during this time period. Pricing pressure on financial assets has abated since quarter end, and we have successfully stabilized our capital structure."

Trutter added, "We are now turning our attention to the execution of the strategic rationale for the acquisition of the Investment Management business, which is to grow our fee based revenue streams. We are currently pursuing several investment strategies within our core fixed income competencies, including raising new investment funds and acquiring management contracts for CLO and CDO assets. While the recent period has been challenging, the dislocation in global markets has created tremendous opportunities. Our strong brand combined with the solid skill set embedded in our employee base positions us well to capitalize on those opportunities. The management team is re-energized and enthusiastic about building upon our current book of business." -- Deerfield Capital Corp.