Welcome to the quarter one 2008 Anworth Mortgage Asset earnings conference call. (Operator Instructions) Before we begin the call, I will make a brief introductory statement. Statements made at this earning call may contain forward-looking statements within the meaning of the Safe Harbor Provision of the Private Security 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 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 rates, and assumptions regarding prepayment rates on the mortgage loans securing 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 qualifications as 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. I would now like to introduce Mr. Lloyd McAdams, Chairman, President, and Chief Executive Officer of Anworth Mortgage.

During the first quarter of 2008, Anworth earned net loss to common stockholders of $15.1 million dollars or $.21 cents per share based on a weighted average of 72.6 million fully diluted shares outstanding during the quarter. This consists of income from continuing operations of $16.5 million and $1.5 million of dividends paid to our preferred shareholders. Information about our balance sheet, Anworth’s portfolio of agency mortgage-backed securities at quarter end was approximately $5.7 billion and our portfolio of non-agency mortgage-backed securities at quarter end was approximately $26 million. A stockholders equity available to common stockholders of Anworth at the quarter end was approximately $461.9 million or $6.03 per share based on 76.6 million shares of common stock outstanding at quarter end. The $461.9 million equals total stockholder equity of $510.8 million less Series A preferred stock liquidating value of $46.9 million and less the difference between the Series B preferred stock liquidating value of $30.1 million and the proceeds from its sale of $28.1 million. The book value per share of $6.03 also includes an adjustment of minus $1.33 per share, which reflects the company’s net unrealized loss on its mortgage assets and if and when added back to common stockholders equity and a book value of $7.36 per share. A bit of information about our agency and non-agency portfolio. The agency and non-agency assets were ten times stockholders equity allocated to these portfolios. Agency and non-agency assets at quarter end were comprised of four categories. The one-year agency adjustable rate MBS which was 17% of the total less agency mortgage-backed securities, coupon will contractually reset in the next 12 months. Hybrid agency adjustable rate mortgage-backed securities was 64% of our portfolio, meaning those with coupon will contractually reset between one year and five years. Fixed rate agency mortgage-backed…

(Operator instructions) Your first question comes from Mike Widner - Stifel Nicolaus.

On the liability duration of 529 days looks like you put on a lot of swaps in the quarter. I just wondered if you could give us some basic statistics on that swaps portfolio.

The mix of swaps is fairly similar to what we’ve had in the past, an average fixed period of approximately two and a half years. The overall swap balance did drift up a little bit relative to our overall repo exposure, primarily because the majority of the assets, actually all of the assets, that were acquired during the first quarter relative to the reinvestment of principle as well as the proceeds of our secondary offering where of either 51 hybrids and some fixed rates. So they were a mix of assets that we tend to have a little more of a swap balance on relative to some of the other shorter duration assets.

The duration came in a little longer than I would have projected, but I guess that makes sense. Two other quick ones on a couple of the line items. On the compensation benefit expense, that was up significantly for the quarter. I was just wondering if you could comment on that and then the one other one, there was an other income item under the interest of 402,000. Just wondering if you could comment on each of those two.

The principle reason the compensation expense was up in the first quarter is there was no incentive compensation or additional compensation paid in the prior comparable quarter. I think that is the principle difference between 2007 and 2008. There were some basic salary adjustments took place at the beginning of 2008, but the main reason is that 2007 did not include any additional or incentive compensation paid to the management or any bonuses paid to the management. Your next question was about the, I’m sorry you’ll have to say it again. I apologize.

It was the other income line, 402,000.

I think what that’s related to is as we post relative to our interest rate swap division, historically the way it is operated is that we have bilateral margin calls, meaning when the positions have a positive value to us, we make margin calls to our counterparties. They typically meet those margin calls with cash, although they could deliver us treasury securities for other agency mortgage-backed securities and vice versa as we see in recent quarters when that value has gone negative from our perspective, we post collateral to those counterparties. Historically, we have posted cash collateral and the interest that we are credited on that cash has shown up in the other income items with a substantially larger amount of collateral that we were having to post during the first quarter as rates came down and I think that’s why we’ve seen a significantly larger number in the past. During the quarter and moving into the second quarter, we have been transitioning for making those collateral calls with cash to mortgage-backed securities to increase the amount of income we earn on that collateral. So I think that’s the major component of that line item.

I was wondering if you could give any sort of thoughts and color on current leverage and where you think that might be heading.

I think as we’ve talked about in the past and we definitely talked about it on the last call that we have historically operated with a leverage of approximately 8 to 10 and what we think of the appropriate denominator for that is to be the total capital of the company. Our common stock, our preferred stock, as well as the $37 million of trust preferred that we had outstanding as well. Also we’ve seen that leverage drift up some during the first quarter as rates came down in agency mortgage-backed securities. While they weren’t going down in price, they were certainly dramatically underperforming slop rates and treasury rates and other high quality rates. So we see that leverage move around based on the market value of our portfolio as well. Using that denominator, the total capital of Anworth, as of March 31, you take our $5.1 billion dollar repo balance and you come up with I think 8.8 times leverage. Subsequent to the end of the quarter, we have raised additional equity capital through our continuous equity offering program. We have at least last month utilized the principle and interest payment off our portfolio to pay down some of our repo balance and we’ve seen a fairly significant reversal in the decline in the value of our swap positions as rates have come back up. So taking all those three components into account, I would say that as of today our leverage would be approximately seven and a half times and I think that’s a level of around eight times leverage. It’s certainly where we feel comfortable in the current market environment.

Your next question comes from Douglas Harder - Credit Suites. Douglas Harder – Credit Suites: I was wondering if you could talk about the timing at which you added the assets during the quarter, you know, if that had any impact on the average balance and how the end of period balance was compared to the average balance.

Sure. The timing was that we did make a choice to not move terribly quickly in investing the new proceeds. Mortgage spreads were moving a little wider during this period of February. The deal had closed in late January, early February. So most of the capital that was deployed was done so during the month of February. Once we got into late February and we discussed in some detail as well on last quarter’s conference call, which was relatively late in the quarter. We invested the proceeds of a new offering up to the point that we felt we had approximately eight times leverage, given some of the increasing liquidity, difficulties that we were seeing starting to develop in late February led us to decide sub-limit the continued leveraging up of the proceeds of that deal. So most all of the investing took place, while some of it might not have settled until March, most of it was transacted in spread environment and marketplace of February. So the average assets of the quarter I think moved up fairly much in line with the average equity for the quarter as well. So I think it is correct to say that we’ll receive a little more of the benefit of the attractive spreads that we got from that investing during that period of time. We’ll continue to flow through into second quarter. There was not a significant amount of investing activity that took place late in the quarter or early into the second quarter.

Your next question comes from Bose George - KBW.

Can you discuss where spreads are in the market and what kinds of opportunities you see there.

Spreads certainly move wider, significantly wider, late into March and there was a tremendous premium for liquidity. There were very few cash buyers of the agency mortgage-backed securities and the good news was spread wide. I think the bad news is there weren’t many investors in the market and were concluded who were looking to increase their leverage or deploy a lot of additional capital during that period of time around when Bear Stearns had their troubles. As the fed has come in and has worked in fairly definitive fashion to provide additional liquidity and provide the structure for a lot of the liquidity to return to the market. That’s been good for Anworth. It’s been good for the liquidity of the market. It’s also been good for the price of the mortgage-backed securities. So we have seen spreads come back down. I think they’re still wider than they were early in the first quarter. When we look at our deployment of the proceeds of that offering in the first quarter, we have said at the time that we thought we had spreads of roughly 140 basis points that we realized from investing those proceeds. Shore rates have come down a little bit since then, so maybe it’ll turn out that our realized spread going forward could be closer to 175 basis points or so on those investments, but when we look in the market today, we see a spread environment that’s similar to a little higher. So I would say a spread in the range of 175 basis points to 200 basis points, depending on the mix and tender of liabilities that you use to hedge those purchases would be something that would be attainable with a mix of assets similar to what we’ve invested in the past.

Switching to the liability side, can you just discuss it looks like things are stabilizing quite a bit. Can you just provide a little color on that?

I think we’ve seen that while there’s a lot of when we go back into the fourth quarter, we look at the counterparties that we deal with. We’ve always tried to focus on having a good group of counterparties that we have a good relationship with and we have a lot of confidence in knowing where they stand. We have been operating between 12 and 15 counterparties that we have transactions on with at any given point in time over the past few quarters and we’re not necessarily looking to expand that number dramatically, because we like to continue to focus on doing business with the folks that we have the most confidence in and I think that we have continued to see that market firm up. We still aren’t in a position where we see a lot of term repo transactions beyond 90 days being done. We certainly like to see that return to the market. As we have in the past, continue to push to do 90% or more of our repose that we’ve been entering into have been 90-day repose that’s given us a good degree of comfort that we have individual counterparty exposure not only diversified across counterparties, but also spread out over a period of a quarter. So if another episode were to arise, we would not have a terribly large concentration due with any one counterparty or a group of counterparties within a short period of time. The rates that we continue to do repose on have continued to be good. I think we look back historically and we’ve seen our barley cost of libel at minus five or minus ten. At the same time, libel historically has been in the 10 to 20 basis points over fed funds and what we’ve seen in…

Two little things. One is just the book value, the 603. That includes the $8 million at Belvedere, so I guess we should look at your book value as really 603 plus the $8 million number.

That’s correct. The $8 million is included in that number. As we mentioned on a prior question, there has been a very significant decrease in the negative value of our interest rate swap position subsequent to the end of the quarter. We talked about the leverage now would be approximately seven and three quarters times. That reflects a pretty significant increase in the value of our net portfolio. So I would estimate that our book value today, given the means we see in the market subsequent to quarter end, and taking into account the declaration of the dividends would be in the neighborhood of 6.5.

You mentioned on the non-agency MBS that the fair value is 26, the principle is $47.5 million. So just wondering, does that mean you’re carrying those at $.55 cents?

That’s correct. The securities that we have remaining in our non-agency portfolio, the fair value that we receive from independent brokers and I think those are values that have at least during the first quarter were in line where some trades did take place during that period of time, are very low in these types of securities. I think we talked about them some in the past. These are AAA rated securities. They’re still rated AAA. They’ve had almost no losses on the underlying collateral to date, but they are collateralized by option arm mortgages and these are mortgages that have seen delinquencies continue to rise over the past few quarters. I think that certainly our expectation of the underlying mortgage pool will take a larger amount of losses than would have been initially anticipated when these loans were originated and when the transaction was rated. That said, we feel that the amount of support that these securities that we own have in the transaction lead us to believe that we do not expect that we will take any realized losses relative to those positions. So that change between value which is our cost basis and the fair value which is approximately $.55 cents on a dollar is registered in book value and in OCI.

Your next question comes from Jason Stankowski - Castle Peak.

I wondered if you had heard anything or understand what’s going on with the short position in your name if you keep track of that and have any idea if there are arbiters in the name or it’s just an anomaly?

We’re aware of the short interest position that’s published I think bi-monthly. It certainly strikes us as being fairly high to have to pay out such a high dividend yield to stay short of stock in a period of time when the yield card is getting steeper. Joe just got through explaining that our estimate for book value today is around $6.50. So we’re talking about a stock that’s barely trading about its book value of an agency portfolio. So yes, obviously someone has a much more doomsday scenario about Fannie Mae and Freddie Mac than I guess most other people do and they’re reflecting it by taking a short position.

Along those lines, have you guys ever done anything in the Ginnie market and is that big enough to participate in and what has your thinking been with regard to that paper relative to Fannie as those spreads have widened on I guess fears of at least some turmoil in the Fannie Freddie space at some point, either bigger or differently we’ve already had here through March.

We have some Ginnie Mae securities. We have not typically been large investors. Our main concern with investing in Ginnie Mae securities is that they tend to have more features that are sort of friendly to the homeowner as opposed to friendly to the security investor. They typically have substantially lower interest rate caps. The amount that the arms can adjust at any given period is usually no more than 1% and even though there are, you know, an increase in market in Ginnie Mae hybrids, they typically have at the end of three or five years only a 2% cap. So we prefer to stick with the Fannie and Freddie securities that tend to have more of a true adjustment feature as opposed to having a relatively narrow cap, but we’re certainly open to the sector and Ginnie Mae’s have not widened out as much as Fannie and Freddies have over this period. So I guess you could say incrementally their spread is as attractive here, but it certainly is effective and we do consider and the other point that you brought up is it is not as large or as liquid effect either.

What is your view of what’s going on with Fannie and Freddie right now in terms of the cap. Is your fundamental view that regardless of what happens to their kind of heavily leveraged structures that the explicit guarantee at Ginnie is ultimately going to be the same as the implicit guarantee on the other two agencies?

It’s sort of like the government is drafting Fannie Mae and Freddie Mac to fight a war for us. I mean the government wants you and they’re asking Fannie Mae and Freddie Mac to come in and help out. As soon as you start and for those people in the regulatory office who no more than six months ago were trying to curtail the growth of Fannie Mae and Freddie Mac don’t know how they feel having to come and ask Fannie Mae and Freddie Mac to help them out, but clearly Fannie and Freddie are gaining a massive amount of political capital to work with. They are the ones who are helping the congress out and helping the government out and solve the problem and you could say it’s the stockholders of the company who are helping solve the problem. I certainly don’t think there will ever be any attempt by the government to save the stockholders of Fannie Mae and Freddie Mac, but the one thing we’ve always observed is if you go to the New York repo window, they’ve always taken mortgage-backed securities and they’ve always taken agency securities and when sorting things out in August, it was very clear that we weren’t sure if private originating mortgage-backed securities would be salvaged, but there was a very obvious attempt and quite successful to save Fannie and Freddie and create liquidity in that market where they have not created liquidity in the AAA rated mortgage-backed security market. So all in all, Fannie Mae and Freddie Mac are destined to play a very, very important role in the political and economic activities of this country for the next three to four years. There’s not a whole lot of precedent for this. Back in ’91 and ’92, some savings and…

Lastly, on the book value pickup, you mentioned it was a net pickup, so I assume the portfolio went up and your swaps contributed. The relative contribution was it sort of a 50% from the swaps and the balance from the portfolio?

What we saw during the first quarter was with rates rallying as significantly as they did. Agency mortgage-back securities literally didn’t go up all that much in value. They were still going up in price, but the spread between the yield on a mortgage-backed security and a swap rate or a treasury yield was widening out dramatically. So most of the change in AOCI, the change in our book value, in the first quarter came from the fact that our interest rate swap position were declining in value by substantially more than our mortgage portfolio was increasing. What we’ve seen since the end of the quarter is certainly not a complete reversal, but a fairly substantial move back in the opposite direction where in general yields have drifted up. Mortgage-backed securities have performed very well, so their yield hasn’t gone up by much. Their prices are down a little bit, but not a whole lot from where they were at the end of the quarter, but because swap yields have risen fairly substantial we’ve seen a good reversal in that negative value. So I think most of the decrease in book value during the first quarter was led from our swap position and most of the increase subsequent has been led by the swap position as well.

I do think the reference call that the offering took place when you’re looking at book value was in the mid-30 cent per share accretive. So what the book value was at 12-31, you got it as a 35 odd cents to add into it, which is why it was as easy as it was to get up to the 6.5.

Your next question comes from Steven Laws - Deutsche Bank. Steven Laws – Deutsche Bank: I wanted to touch base, you’ve taken a lot of the questions, but kind of how you’re going to weight I guess the combination of leverage versus raising new capital here near term and talk about capacity on your repo counterparties. Are there are any limits that prevents you from aggressively raising capital, especially given the cost advantage you have over a lot of comparable companies looking to come out here with the next management structure and deploy capital in the asset class.

Sure. I guess maybe take a step back when you think about the decision to raise capital. You’re correct. We’ve talked about this from different angles on the previous questions. We do see it being a very attractive opportunity for spreads. Spreads have been 175 to 200 basis point range. That said, we also expect our existing portfolio to have significant pickups in spread as well moving forward. If you look at where we stood at March 31, the average repo cost before taking swaps into account was 3.3% and during repo today at 2.2%. So we have significant increase in earning capacity on our existing portfolio. So we’re certainly excited about the prospects of where the net interest margin should continue to increase as we move into the second quarter and the earnings should continue to increase. That said, 175 to 200 basis point spread is still going to be an attractive spread versus our existing portfolio when we look out later on in the quarter. So number one we’re in an environment where we have attractive income opportunity. Number two, we are not trading at a substantially large premium to book at this point, although a very small premium to book. So you always weight those two factors together. The third point that you mentioned was capacity and I think we have certainly seen through the process we went through in the first quarter, our ability to increase our repo balance across our counterparties and facilitate a larger balance sheet and if anything I think that process is maybe a little smoother this time than the time before. As you mentioned, we have seen some other mortgage rates come over the first time and they’ve seen the move through the process of getting repo lines and levering up their balance sheet. They’ve managed to navigate that during this period as well. So I think the ability to take on more assets to increase the size of the balance sheet is certainly there for us as well. Steven Laws – Deutsche Bank: If we do see a significant uptick in refinance activity of what is called the jumbo conforming market from the increased conforming limits in certain geographies around the country and we see those securities come out from Fannie and Freddie. Will those do you think end up with a higher coupon or higher yield and if so is that something you’d look to invest in?

It’s certainly something that we’ll look into. The process is moving along fairly slowly and there seems to be a certain amount of pricing and market mechanisms that still seem to be getting established that will allow the originators to be confident in originating large volumes of these sorts of loans knowing there’s going to be a market on the other end of it. So I think initially we will see higher yields to help entice investors to come in for these sorts of securities. I do think they are definitely going to trade as a separate class of securities. It seems likely that they will be able to be sort of co-mingled with traditional conforming loans and given that we are investor who’s not utilizing the TVA market or the roll market, we’re actually taking delivery of the securities. Those are types of securities that typically are a good fit for us. So we certainly expect to be participating in that market assuming that the pricing is attractive.

Your next question comes from Hemanth Hirani – Litchfield Capital.

I think you mentioned on the call, additional capital in April. Can you give some details behind it and how much do you plan to raise?

The amount, it was raised through our continuous offering program. We have issued stock this way in the past. I believe the total amount issued was approximately $35 million dollars worth of stock subsequent to March 31. We are not currently in the market selling stock through the consumer controlled equity offering program and I don’t know if we have discussion of our plans going forward.

What was the average price on number of shares this year?

The document we filed back in the fall, the total amount of shares was 10 million common shares. We reported in the year in the 10K, we reported what we had sold during the third and fourth quarter and I believe we’ll be reporting in the 10Q what we sold in the first quarter and we almost sold the whole 10 million shares.

You mentioned on the call that as of end of April, your leverage was 7.5 times?

I think it was seven and three-quarters, in that area, yes.

On all capital. And generally you are in eight to ten range. Is there any plans to bring it to eight or keep it below eight right now?

I think part of the reason we have moved down to below eight has been the improvement in the value of our portfolio. So not all of the movement has been through paying off repos or raising equity. So a certain amount of this movement in the leverage fluctuates on a day-to-day or week-to-week basis. We have been viewing that given the volatility in the market, given the spreads that we’re able to earn on our portfolio currently, and given the fact that we felt pretty confident. Haircuts, we remain at or below 5%. The eight times leverage was a place we could comfortably operate. So given that we’ve now moved below that, we did use our P&I payment as well as the proceeds of some of the equity that was raised earlier in the second quarter, earlier in April, to pay down repos to reduce our leverage. As we move into May and with our leverage below eight times, we are looking to acquire additional assets and I think we will look to maintain leverage in or around eight times. We did not sell any securities during the first quarter. The value of our portfolio was relatively constant. The size of our portfolio was constant. So necessarily back in the market in April looking to buy securities to replace securities we have sold the month before. So I think we may be coming back to the market a little bit later than some of the other mortgage rates, but I think the main reason for that is that we were not liquidating portions of our portfolio during the first quarter. We were, because of the longer term repo we had on, because of the high quality of our assets, and the strength of our counterparties, we were comfortable in the amount of leverage we had going into that period of time at approximately eight to one. We were comfortable moving through that period of time albeit with a slightly higher level of leverage, but without meeting to liquidate securities in a very difficult market. So I think to answer your question, we are looking to acquire additional assets. I think we are at a point now where we our leverage is slightly below where we’re looking to target it for the foreseeable future and I think if conditions continue to improve, we’ll certainly revisit the idea of whether it would be prudent to start moving our leverage back up to a higher level within that eight to ten times range.

Gentlemen, you have no further questions.

Well, everybody, thank you very much for your attendance today at our conference call and we appreciate your interest. I should also point out that we have our annual stockholders meeting on May 22 in Santa Monica and of course everyone is welcome. So thank you again for your participation. We look forward to visiting with you either in person or again during our conference about the same time next quarter. Thank you very much.