1040719--3/2/2010--WALTER_INVESTMENT_MANAGEMENT

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Risks Associated With Recent Adverse Developments in the Mortgage Finance and Credit Markets Difficult conditions in the mortgage and real estate markets, financial markets and the economy generally may cause us to incur losses on our portfolio or otherwise be unsuccessful in our business strategies. A prolonged economic slowdown, recession or period of declining real estate values could materially and adversely affect us. Continued weakness in the mortgage and residential real estate markets may hinder our ability to acquire assets and implement our growth plans and could negatively affect our results of operations and financial condition, including causing credit and market value losses related to our holdings which could cause us to take charges and/or add to our allowance for loan losses in amounts which may be material. Risks Related to Our Business We have limited experience operating as a stand-alone publicly traded REIT and therefore may have difficulty in successfully and profitably operating our business and complying with regulatory requirements applicable to public companies. In addition, we are dependent on key members of our senior management team that have limited experience operating as a REIT. We cannot assure you that we will be successful in identifying and consummating investments in residential loans on attractive terms, or at all. We may not be successful in achieving our growth objectives. There may be risks associated with the growth of our business, including risks that third parties with which we contract may not perform as expected. We may not realize the growth opportunities expected from our Merger and the integration of Hanover s business with our business could prove difficult. Failure to procure adequate capital and funding on favorable terms, or at all, would adversely affect our results and may, in turn, negatively affect the market price of shares of our common stock and our ability to distribute dividends to stockholders. We operate in a highly competitive market for investment opportunities and more established competitors may be able to compete more effectively for investment opportunities than we can. We may leverage our investments, which may adversely affect our return on our investments and may reduce cash available for distribution to stockholders. Certain of our existing financing facilities contain covenants that restrict our operations and may inhibit our ability to grow our business and increase revenues. The repurchase agreements, warehouse facilities, credit facilities (including term loans and revolving facilities), structured financing arrangements, securitizations, term CMOs and other forms of term debt, in addition to transaction or asset-specific financing arrangements that we may use to finance our investments, may contain restrictions, covenants, and representations and warranties that restrict our operations or may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired. Our current and possible future use of term CMO and securitization financings with over-collateralization requirements may have a negative impact on our cash flow. Our existing securitization trusts contain servicer triggers that, if exceeded, could result in a significant reduction in cash flows to us. Our failure to effectively service our portfolio of residential loans would materially and adversely affect us. Residential loans are subject to risks, including borrower defaults or bankruptcies, special hazard losses, declines in real estate values, delinquencies and fraud. The lack of liquidity in our portfolio may adversely affect our business. We are highly dependent on information systems and third parties, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends to stockholders. Economic conditions in Texas, Louisiana, Mississippi, Alabama and Florida may have a material impact on our profitability because we conduct a significant portion of our business in these markets. Natural disasters and adverse weather conditions could disrupt our business and adversely affect our results of operations, including those of our insurance business. We may be subject to liability for potential violations of predatory lending and/or servicing laws, which could adversely impact our results of operations, financial condition and business. The expanding body of federal, state and local regulations and/or the licensing of loan servicing, collections or other aspects of our business may increase the cost of compliance and the risks of noncompliance. The Financial Reform Plan could have an adverse effect on our operations. There can be no assurance that the actions of the U.S. government, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies for the purpose of stabilizing the financial markets, including the establishment of the TALF and the PPIP, or market response to those actions, will achieve the intended effect, and our business may not benefit from these actions; further government actions or the cessation or curtailment of current U.S. government programs and/or participation in the mortgage and securities markets could adversely impact us. If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could harm our business and the market value of our common shares. We will utilize analytical models and data in connection with the valuation of our future investments, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks. Our success will depend, in part, on our ability to attract and retain qualified personnel. While we expand our business, we may not be successful in conveying the knowledge of our long-serving personnel to newly hired personnel and retaining our internal culture. We may change our investment and operational policies without stockholder consent, which may adversely affect the market value of our common stock and our ability to make distributions to our stockholders. Risks Related To Our Investments We invest in subprime, non-conforming and other credit-challenged residential loans, which are subject to increased risks relative to performing loans. We may not realize expected income from our portfolio. Increases in interest rates could negatively affect the value of our portfolio, which could result in reduced earnings or losses and negatively affect the cash available for distribution to stockholders. Accounting rules for certain of our transactions continue to evolve, are highly complex, and involve significant judgments and assumptions. Changes in accounting interpretations or assumptions could impact our financial statements. A prolonged economic slowdown, a recession or declining real estate values could impair our portfolio and harm our operating results. Failure to hedge effectively against interest rate changes may adversely affect results of operations. Changes in prepayment rates could negatively affect the value of our residential loan portfolio, which could result in reduced earnings or losses and negatively affect the cash available for distribution to stockholders. A decrease in prepayment rates may adversely affect our profitability. The residential loans we invest in are subject to delinquency, foreclosure and loss, which could result in losses to us. Our real estate investments are subject to risks particular to real property. Insurance on residential loans and their collateral may not cover all losses. We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties. Risks Related To The Funds Obtained in Our 2009 Secondary Offering and Our Common Stock We may allocate the net proceeds from the offering to investments with which you may not agree. There is a risk that you may not receive distributions or that distributions may not grow over time. Market interest rates may have an effect on the trading value of our shares. Investing in our shares may involve a high degree of risk. Broad market fluctuations could negatively impact the market price of our common stock. Our existing portfolio of residential loans was primarily purchased from and originated by Walter Energy s homebuilding affiliate, JWH, and we may not be successful in identifying and consummating suitable investment opportunities independent of this origination platform, which may impede our growth and negatively affect our results of operations. Risks Related to Our Organization and Structure Certain provisions of Maryland law could inhibit a change in our control. Our authorized but unissued shares of common and preferred stock may prevent a change in our control. Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act of 1940. In seeking to qualify for an exemption from registration under the Investment Company Act, our ability to make certain investments will be limited, which also may reduce our returns. Rapid changes in the values of our residential loans and other real estate-related assets may make it more difficult for us to maintain our qualification as a REIT or exclusion from the Investment Company Act. Risks Relating to Our Relationship with Walter Energy We may have substantial additional liability for U.S. federal income tax allegedly owed by Walter Energy. The tax separation agreement between us and Walter Energy allocates to us certain tax risks associated with the spin-off of the financing division and the Merger and imposes other obligations that may affect our business. Summary of U.S. federal income tax risks. Complying with REIT requirements may cause us to forego otherwise attractive opportunities. Complying with REIT requirements may force us to liquidate otherwise attractive investments. Failure to qualify as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the cash available for distribution to our stockholders. Classification of a securitization or financing arrangement we enter into as a taxable mortgage pool could subject us or certain of our stockholders to increased taxation. REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt or sell assets to make such distributions. The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing residential loans, that would be treated as sales for U.S. federal income tax purposes. We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow. The failure of mortgage loans subject to a repurchase agreement to qualify as a real estate asset would adversely affect our ability to qualify as a REIT. We may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive. The percentage of our assets represented by TRSs and the amount of our income that we can receive in the form of TRS dividends are subject to statutory limitations that could jeopardize our REIT qualification. Despite our qualification as a REIT, a significant portion of our income may be earned through TRSs that are subject to U.S. federal income taxation. Complying with REIT requirements may limit our ability to hedge effectively. We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.

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1040719--3/2/2010--WALTER_INVESTMENT_MANAGEMENT_CORP