Good day ladies and gentleman, and welcome to your Q4 2007 Anworth Mortgage Earnings Conference Call. (Operator Instructions) At this time, before we begin the call, I will make a brief introductory statement. Statements made at this Earnings Call may contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “will,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” or other similar expressions. You should not rely on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties, and other unpredictable factors, many of which are beyond our control. Statements regarding the following subjects are forward-looking statements by their nature, our business and investment strategy, market trends and risks, assumptions regarding interest rates, and assumptions regarding prepayment rates on the mortgage loans securing our mortgage-backed securities. These forward-looking statements are subject to various risks and uncertainties including those relating to increases in the prepayment rates on the mortgage loans, securing our mortgage-backed securities, our ability to use borrowing to finance our assets and the extent of our leverage, risks associated with investing in mortgage-related assets including changes in business conditions, and the general economy, our ability to maintain our qualification as a real estate investment trust under the Internal Revenue Code, and management’s ability to manage our growth and planned expansion. Other risks, uncertainties, and factors including those discussed under the heading 'Risk Factors' in our annual report on Form 10-K and other reports that we file from time to time with the Securities and Exchange Commission could cause our actual results to differ materially and adversely from those projected in any forward-looking statements we make. We are not obligated to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements that may be made today or that reflect any change in our expectations or any change in events, conditions, or circumstances based on which any such statements are made. Thank you. I would now like to introduce Mr. Lloyd McAdams, Chairman, President, and Chief Executive Officer of Anworth Mortgage. Please go ahead sir.

Good afternoon, Ladies and Gentlemen. I am Lloyd McAdams, Chairman and CEO of Anworth, and I want to welcome you to this conference call today where we will discuss the company’s recent activities. As you probably are aware, we recently filed our Form 10-K this morning. During the fourth quarter of 2007, Anworth posted a net loss to common stockholders of $7.3 million or 15 cents per share based on a weighted average 48.9 million fully diluted shares outstanding during the quarter. This amount consists of income from continuing operations which was $9.4 million; $1.5 million is dividends paid to our preferred shareholders and $15.2 million is the loss from continued operations which is Belvedere Trust. This $15.2 million loss consists of the remaining $7.2 million write-off of Anworth’s investment in Belvedere Trust and approximately $8 million in 3 claims against Belvedere Trust which Belvedere Trust has contested relating to the purchase agreement transactions. Relative to these contested claims, we believe that there will be an increase to Anworth’s earnings after the dissolution of Belvedere Trust, although there can be no assurances as to the timing of such dissolution. I will reminding you that Anworth is neither a co-party to nor a guarantor of Belvedere Trust repurchase agreements or any claims against Belvedere Trust. I would like to spend a moment talking about the balance sheet information about Anworth at December 31, 2007. Our agency portfolio at year end was approximately $4.7 billion and our portfolio of non-agency mortgage-backed securities was approximately $43 million. Stockholders’ equity available to common stockholders of Anworth at the year end was approximately $352.5 million or $6.15 per share based on 57 million shares of common stock outstanding at quarter end. The $352.5 million equals total stockholder equity of $401.4 million less our Series A…

(Operator Instructions) Our first question comes from the line of Steve DeLaney with JMP Securities. Please proceed. Steven DeLaney – JMP Securities: Good afternoon everyone. Lloyd and Joe, I think this is on everybody’s mind obviously more so than 4Q results with the current market conditions, and I was wondering if you could share with us any thoughts you have currently as to plans to sell any assets to de-lever a bit and if you discussed any new range for target leverage to help us as far as modeling if you think we should assume lower leverage than the 9.1 times that you are reporting here at the end of the year. Thank you.

I would be happy to address your question. Maybe to take a little bit of a step back from it, I guess, the basic idea of what’s the appropriate leverage range and is there a new or different range that we should think about going forward, I think that has been a topic that has been in the market because of discussions about haircuts on agency mortgage-backed security and non-agency mortgage-backed security repurchase agreements as well as some of the price volatility and declines in values that we have seen for some of the same source of relatively high-quality and in the case of agency a very high-quality mortgage-backed securities. Maybe I could could take a second before I get to the leverage question, from our perspective what we see related to those aspects of the market we deal in. Steven DeLaney – JMP Securities: That would be great.

Historically, we have used relatively longer term repos to finance our own portfolio. We would routinely have 6 months or 12 months, even up to 2-year term repos in the past. In the summer of last year in 2007, when we had the real liquidity crunch in the market, most of our counter parties stopped doing longer term repos, and in fact for a brief period of time, it was difficult to get a repo beyond a term of 1 month. We have been pushing since then in the fourth quarter of 2007 and into 2008 to do longer term repos. Just about all the repos we have done over the past several months at the backend of 2007 have been typically 90-day repos, so we have paid a slightly higher haircut over the past several months because they were a little longer term repos. So our average haircut back in the summer of last year was approximately 4% on our overall portfolio, which again is 99% plus agency mortgage-backed securities and agency mortgage pools. Given the developments in the third quarter and fourth quarter of last year, that average haircut moved up to approximately 4.5% as of the end of the year. We are aware that haircuts on different types of securities particularly non-agency securities and agency CMO floaters have been increasing, and it is our expectation that we will see some additional increases in the haircuts on agency MBS. Given that we already have been operating a little bit of a higher end of the range for haircuts, given our current understanding talking to our repo counterparties, we don’t expect the vast majority of those counterparties to move haircuts outside of what has historically been in the 3% to 5% range. Again, we have been operating towards the…

Again, it is a very fluid market, but I think we understand the position we are in. Given what’s happened in the market, we certainly have been in contact with our lenders. We understand that the haircuts for our agency MBS portfolio may increase slightly, but I believe we have ourselves positioned towards the conservative end of our historic leverage range, I think appropriately so, so we could handle this sort of volatility. Steven DeLaney – JMP Securities: Okay. Very helpful, thank you so much Joe.

Thank you.

The next question comes from the line of Mike Widner with Stifel, Nicolaus & Company. Please proceed.

Good afternoon guys, thanks for taking the call and solid 4Q. Hopefully, we will see reversal of the issues with Belvedere sometime in the future. Steve covered most of my questions; I just had two quick follow-ups. You guys regularly give an indication in your reporting here of the unpledged collateral at fair value. I was wondering if you could give us a guess on where that stands today, and then the second question is, I am wondering if you have had any repo lenders that have either to date decided not to continue relationships with you or any indication that there are others that may not roll, and I was thinking about that specifically related to the suit with Belvedere and whether there are specific counterparties there that you may not be pleased with, however, those suits turnout. Stifel, Nicolaus & Company: Good afternoon guys, thanks for taking the call and solid 4Q. Hopefully, we will see reversal of the issues with Belvedere sometime in the future. Steve covered most of my questions; I just had two quick follow-ups. You guys regularly give an indication in your reporting here of the unpledged collateral at fair value. I was wondering if you could give us a guess on where that stands today, and then the second question is, I am wondering if you have had any repo lenders that have either to date decided not to continue relationships with you or any indication that there are others that may not roll, and I was thinking about that specifically related to the suit with Belvedere and whether there are specific counterparties there that you may not be pleased with, however, those suits turnout.

Sure. We have had repo borrowings outstanding with between 13 to 15 different repo lenders fairly continuously over the past 5 or 6 months since the problem late last summer. We have historically had executed repo agreements with about a half dozen more counterparties than that. Several have left the business—some permanently, some temporarily; nothing specifically related to Anworth. Several were counterparties that we have not typically had a lot of borrowing or in many cases no borrowing outstanding in the summertime and have been reluctant to increase their repo lines with a number of our counterparties. So while there is a smaller pool of repo lenders that are active in the marketplace, I think we have relationships that I feel are fairly strong in all of the major currently active agency repo lenders. It is a slightly smaller pool than historically. We are still comfortable with the depth of having that number of counterparties, and it has not been our impression that any of the changes in that roster of counterparties was the direct relationship of anything that transpired with Belvedere. Because we have relationships with all of the major repo lenders, all of Belvedere’s lenders were Anworth’s lenders as well, and the ones that are still active in the agency market, we are continuing to still do business with as well.

Great, thanks, and just maybe an update on the unpledged collateral, a best guess of current market fair value. Stifel, Nicolaus & Company: Great, thanks, and just maybe an update on the unpledged collateral, a best guess of current market fair value.

Sure. It's going to be an estimate obviously—the effort to give you a real time estimate given that most of what has caused the volatility in the market has really transpired in the last week or so. I would just take a step back when we think about our capital that’s allocated to our portfolio of agency mortgage-backed securities, we consider several sources of capital, not only our common stock, our two issues of Series A and Series B Preferred Stock as well as approximately $37 million of a trust preferred issue that shows up on the liability side of the balance sheet, so as of December 31, 2007, that number would be approximately $467 million. Subsequent to December 31, 2007, we raised additional common equity of approximately $150 million, so proforma just simply adjusting the December 31, 2007, balance sheet by the amount of equity that was raised during the first quarter, that would move us to approximately $615 to $620 million in capital even beyond shareholder equity. We posted margin overcollateralization, haircut amounts, as we mentioned approximately 4.5% of the value of our repos. I think I discussed on Steve’s question that we have been operating with about 8 times leverage before this period of time, so close to a little less than half of that equity would have been overcollateralization in the form of haircuts that we would have had with the various counterparties, and that would have left something in the area of $380 to $390 million of unpledged assets over and above those haircuts. As you may be aware on the fifth business day of the month, the factor changes come out for the Fannie Mae and Freddie Mac securities. We get margin calls based on that decline in principal values, although a few weeks…

Great, thank you, that’s a very thorough answer, and I think I can triangulate everything out I was looking for there, but one other thing that you didn’t really talk about is also one of the things I had in mind when asking the question. Just trying to back into where the portfolio stands today in terms of total assets, so we could do some price sensitivity changes and swap value changes from there and kind of triangulate to the same number I think. Stifel, Nicolaus & Company: Great, thank you, that’s a very thorough answer, and I think I can triangulate everything out I was looking for there, but one other thing that you didn’t really talk about is also one of the things I had in mind when asking the question. Just trying to back into where the portfolio stands today in terms of total assets, so we could do some price sensitivity changes and swap value changes from there and kind of triangulate to the same number I think.

Okay, I think I will give you the approximate number. I believe the number of assets are approximately $5.7 billion subsequent to the deployment of the capital that was raised during the quarter.

Okay, and your total notional swaps is about 2.74 today, is that about right? Stifel, Nicolaus & Company: Okay, and your total notional swaps is about 2.74 today, is that about right?

That’s correct, I think it is 2.78. I do not believe we had any swaps mature during the quarter, and I think it is disclosed in the 10-K that we entered into a notional $740 million of additional swaps, so the sort of ratio of notional swap balance to overall portfolio balance is up a little bit I think from about 50% to about 55%, but again, our expectation is to keep it generally in the same area.

Great, thank you very much guys. I appreciate all the commentary. Stifel, Nicolaus & Company: Great, thank you very much guys. I appreciate all the commentary.

Thank you.

The next question comes from the line of Bose George with KBW. Please proceed.

Good afternoon, this is Bose George from KBW. Actually a couple of things; one, just wanted to confirm the breakdown between agency pass-throughs and CMOs. I think it’s a very small number for the CMOs, but I just wanted to see what that was.

We do have some positions in agency CMO floaters that were purchased a number of years ago that are paid down. I believe the total is approximately $10 million.

Okay, great, and actually just wanted to confirm your book value for this quarter, I should just add back that $7 million from the discontinued operations to get the book value, is that reasonable?

Technically, the $8 million.

Okay, so it’s roughly $6.30 book value something like that?

As we discussed in the remarks, that amount will flow through to earnings and book value upon the dissolution of Belvedere Trust. Again, the timing of that may or may not be within the first quarter.

Great, thanks a lot.

.:

Hi, I am just trying to understand this a little bit more clearly. Obviously agency securities are very safe securities. How much mark-to-market losses could you take on your entire book before you would really be in trouble from in terms of not being able to meet margin requirements from your repo counterparties? You have this unencumbered collateral, and you have some cash coming in, but what’s really your margin for error there in terms of taking marks on these securities because of just irrational panic out there in the agency market?

Sure, if we had started at a point where we have debt the capital of approximately 8 times that would mean one-ninth of our investment in the securities would be with our own capital, and that would be our investment in the portfolio, so approximately 10% to 11% of the value of the security. We have to post haircuts, and if the value were to decline, we would be fced with margin calls to maintain that amount of overcollateralization. That’s currently in the 4.5% range; it seems like it might head up to 5%, so of that 11% portion of the portfolio that is not financed is funded with our investment capital, approximately 5% of that is tied up in this overcollateralization, so you would have a 6-percentage point move in the net value of our portfolio before you would say we don’t have any additional collateral, cash, etc., to meet margin calls, we only have 5% overcollateralization now. So that’s the magnitude of move in the market, approximately 6 points. Again, what we have seen with the entire episode that has happened, again predominantly in the last week or so, has been that we have seen a decline in the value of our portfolio that has been less than a point, but because we do hedge our portfolio with interest rate swaps to isolate against changes in the overall level of interest rates, we have also seen a decline in the value of that swap portfolio that is sort of equivalent of approximately a point or so of the value of that portfolio, so I guess you could say absent anything else going on, the 6-point cushion that we had has declined by a percentage point and a half to a percentage point and quarter over this episode we…

Right now, your typical repo agreement, you said you have about 3 months to meet margin calls or is it 1 month to meet margin calls if it were to happen?

You have one day to meet a margin call. The issue would be if there are concerns going forward just what we have heard about in the non-agency market or even some areas of agency CMO market that the haircut requirements have moved up fairly dramatically, maybe 10%, maybe 20%, or more for non-agency securities, even AAA rated non-agency securities and north of 5% and more in the 7% to 10% range for agency CMO, so when those changes take place, that obviously changes the dynamics of your equity cushion because your initial investment, a higher percentage of it is now going to be taken up by the overcollateralization requirement. Those changes work their way in only with new borrowing, so given that our current repo balance will be maturing in a fairly even fashion over the next 3 months, if there were to be changes above and beyond what we are aware of and what we anticipate, it would not be the haircut issue, it is not going to be an overnight change that dramatically shifts the amount of excess capital that our business would have.

How much spare repo capacity do you have right now? You probably borrowing maybe $5.5 billion, but how much more do you have if one of your repo counterparties decides not to renew, how much more do you have in terms of negotiated agreements with other people who are willing to repo with you?

None of our lines are committed repo lines. They are uncommitted lines. We have credit limits that are based on our counterparty’s assessment of our financial condition. We have a number of counterparties whose credit limit is greater than our outstanding balance, but I would hesitate to rely too much upon that because our experience during the summer and early fall of last year was that if there were to be a liquidity event, something similar to what we saw last year where lenders were really reluctant to continue to extend credit either to each other or to the agency repo market, it might very well be that there is very little willingness for counterparties to take on additional borrowings during a period of time like that, so we have the ability to move repo balances from one counterparty to the other. We have that ability currently; we have been if it comes down an issue of where there is a more attractive rate and where there is more attractive finance terms able to move repo trades from one counterparty to the other as they mature, but when it comes to thinking about whether your options during a liquidity scenario, I think it’s generally a fairly safe assumption that if there were counterparties that were looking to exit the business and not rollover repos, there would be some difficulty in placing those borrowings with other counterparties. When times are good, it's very easy to move those repos around; when times get more difficult, it becomes more difficult, and those are kind of scenarios that might lead to a situation where securities might need to be liquidated to pay off certain repo balances.

I see, and what’s your policy right now in terms of cash coming in the door? Are you planning to redeploy that back into mortgage to buy new agency mortgage-backed securities and maintain your current leverage targets or will you just maybe wait for a time when maybe the repo market is a little bit more settled down before you really go out and deploy that capital back into the market?

I think what we are doing currently and what we have done this quarter is to use the paydowns off our portfolio as well as the deployment of the new capital that was raised during the quarter to buy new securities, but to do so in a fashion that took our portfolio leverage toward the low end of our historic range. My expectation is that as we move forward we will certainly be very cautious in taking the additional cash flows and invest them in new securities until we feel that our level of leverage is appropriate relative to the temperament of the financing market at that time. I think as of today our position is that we would like to keep our leverage near the low end of the range, and I would expect that in the near term, we would probably earmark some of the paydowns off the portfolio to build up some additional overcollateralization or pay off some of the repo, but again, as we move forward, those decisions will be based on our outlook for the market.

Thanks guys, I appreciate the high level of transparency.

The next question comes from line of Hemanth Hirani of Litchfield Capital. Please proceed. Hemanth Hirani – Litchfield Capital: Hi guys, many of my questions have been answered, but one, could you give any update on what kind of spreads we should expect for the first quarter of 2008 which is compatible to 56 basis in the fourth quarter?

Sure Hemanth, I think the piece of information that I think would be missing in that equation would be that we did raise additional capital during the quarter and the deployment of that capital was what we feel are in the long run very attractive spread. I think in late January, we had estimated as the treasury market rallied that spreads in the low 100s area were obtainable in the market at that time. We did move fairly cautiously in investing the proceeds of that transaction, wanting to minimize the premium we paid as well as the fact that the mortgage-backed security spreads begin to widen in February as well, so by our estimation, given our expectations for prepayment, it’s our belief that deployment of the new capital and the new investments made so far during the first quarter should have spreads of approximately 140 basis points. Relative to the existing portfolio, we are sort of beyond the point where there is a significant change in the coupon of that portfolio, so the major changes we should see in the spread on our legacy portfolio should come through the financing side, and we have seen LIBOR come down during the quarter. I think if you look at the average LIBOR rate for the quarter, I think you would expect to see that you have a decline of over 100 basis points in short-term LIBOR rate on the quarter, and as we have discussed, we have a swap balance that has an offsetting payment in the swap to offset decline in rates, so about half of the balance of our legacy portfolio has an interest rate relatively fixed, so the idea that you could see a 50 basis point or so decline in our cost of funds given in excess of 100 basis point decline the benchmark rate during the quarter, I think is sort of a good ballpark for where the legacy spread should be going during the first quarter. Hemanth Hirani – Litchfield Capital: Okay, thank you very much.

Sure.

The next question comes from line of John Ibis, private investor. Please proceed. John Ibis – Private Investor: Yes, I have two questions; the first is very simple. Do you see anymore writedowns or writeoffs as in the example of this last quarter of $15 million, and the second question is, will a reduced rate by the Feds of the anticipated of at least 0.5% or we think it’s going to be 0.5% from day to day, will that impact our cost of funds significantly, and if so, do you see big contribution by that onto earnings, and if so, how will that work exactly?

Sure, I think I’ll take them all as you asked questions. The amount that we have written off relative to our investment of Belvedere actually exceeds our economic exposure to Belvedere by the $7 or $8 million that we discussed before, so we do not anticipate any additional writedowns relative to Belvedere. John Ibis – Private Investor: But are there any other writedowns coming down the pike that you know of right now?

No, and again, as we mentioned if anything there should be a reversal of that $7 to $8 million writedown upon the dissolution of Belvedere. As for the question of relative to the cost of funds, I think in some ways I think it’s sort of a similar answer to Hemanth’s question and that was we have approximately half; we have the interest rate swap agreements where we pay a fixed rate and receive a floating rate based on where short-term rates are. That has the effect of offsetting the effect of changes in interest rates on our cost of funds, so in terms of interest rates falling, having the interest rates swap positions on limit the amount that are cost of funds fall. That’s I guess the negative of the interest rate swap; the positive is, if interest rates were to rise, that would offset that as well and during normal times, although the last few weeks have not been normal, that does provide a significant market value offset to the changes in the value of our portfolio, so given that balance of those swaps is approximately half of our repo balance, it’s just been our experience that when there are decreases in short-term funds, that we see about half of that change flow through to our portfolio, and certainly we would expect that to have an impact on the portfolio earnings as well. John Ibis – Private Investor: Thank you for that explanation.

Thank you.

Our next question comes from the line of Jason Stankowski with Castle Peak. Please proceed. Jason Stankowski – Castle Peak: Hi guys, I was just curious if most or all of your repo lenders have access to this new initiative by the treasury, how you are thinking about that in terms of providing a bid such that your paper does not have to be sold. Obviously the haircut issue seems like it would happen over time, and you would have time to react; however, if there was a massive price dislocation, that’s seems to be where the major risk is and just curious what you think of the new program and what you’re thinking about in terms of liquidity because of it.

Sure, I think the biggest benefit to Anworth will be indirect. First answer to your question, all of the repo dealers we deal with would have access to this plan. As best I can understand it, the real benefit will be for repo lenders who have asset that they have taken as collateral for their loans that are outstanding that they have a very difficult time finding financing for elsewhere, they will in effect through this program be able to exchange those securities so long as they are AAA rated or some sort of agency security for treasury bonds which presumably will be much easier to find a counterparty to finance the other side of the trade. They are running a matched book to a large degree where they lend money against collateral from one set of customers and they turn around, they take that collateral, and they lend it out to another set of customers and receive capital back. In cases where they have taken in collateral on existing repos that they have a very difficult time finding other counterparties for or might potentially face a very large haircut to finance that collateral or even a capital charge, I think this will be a benefit to them and make them more willing to hold those kinds of collaterals. I am not really sure, at least in what we have seen in the market so far, that this initiative is really pointed at agency mortgage-backed security pools given that they have continued to have a functioning repo market while prices have certainly had a tremendous amount of volatility relative to what you were seeing, this is in the context of the market where AAA-rated non-agency securities traded in the 90s, 80s, and 70s even and agency CMO floaters traded into…

At this time, I would like to turn the call back to Mr. Lloyd McAdams, Chairman, President, and Chief Executive Officer for closing remarks.

Thank you everyone for joining us today. We hope we have addressed the questions that you had and we hope we addressed them thoroughly and properly, so you can better understand how are dealing with the current marketplace. We thank you again for attending, and we look forward to visiting with you again about this time next quarter. Good day everyone.

Ladies and Gentleman, this does conclude the presentation. You may now disconnect.