1040719--4/2/2008--HANOVER_CAPITAL_MORTGAGE_HOLDINGS

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{investment, property, distribution}

{tax, income, asset}

{provision, law, control}

{loss, insurance, financial}

{interest, director, officer}

{loan, real, estate}

{regulation, change, law}

{capital, credit, financial}

{condition, economic, financial}

{cost, operation, labor}

{system, service, information}

{debt, indebtedness, cash}

{personnel, key, retain}

{stock, price, operating}

Deteriorating debt and secondary mortgage market conditions have had and may continue to have a material adverse impact on our earnings and financial condition. Our current financial condition and negative cashflows from operations have raised substantial doubt about our ability to continue as a going concern We may be unable to renew our borrowings at favorable rates or maintain longer-term financing, which may affect our profitability. Our profitability depends on the availability and prices of mortgage assets that meet our investment criteria. We are subject to various obligations related to our use of, and dependence on, debt. Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or they file for bankruptcy. We may engage in hedging transactions, which can limit our gains and increase exposure to losses. Interest rate fluctuations may adversely affect our net income. The loss of any of our executive officers could adversely affect our operating performance. Further reductions in our workforce could adversely affect our operating performance and/or our ability to generate and issue timely financial information. We may hold title to real property, which could cause us to incur costly liabilities. Our business could be adversely affected if we are unable to safeguard the security and privacy of the personal financial information of borrowers to which we have access. Risks Related to Our Status as a REIT and Our Investment Company Act Exemption If we do not maintain our status as a REIT, we will be subject to tax as a regular corporation and face substantial tax liability. If we fail to comply with rules governing our ownership interests in taxable REIT subsidiaries, we will lose our REIT qualification. Complying with REIT requirements may limit our ability to hedge effectively. REIT requirements may force us to forgo or liquidate otherwise attractive investments. Complying with REIT requirements may force us to borrow or liquidate assets to make distributions to stockholders. Regulation as an investment company could materially and adversely affect our business; efforts to avoid regulation as an investment company could limit our operations. We may be unable to maintain a sufficient amount of Agency MBS to remain exempt under the Investment Company Act of 1940, which could materially and adversely affect our financial condition and results of operations. If certain tax positions we intend to take regarding the Repurchase Transaction with Ramius are challenged by the Internal Revenue Service, it could result in adverse tax consequences to us and could affect our status as a REIT. Risks Related to Our Corporate Organization and Structure Our charter limits ownership of our capital stock and attempts to acquire our capital stock. Provisions of our charter which inhibit changes in control, could prevent stockholders from obtaining a premium price for our common stock.

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1040719--4/2/2008--HANOVER_CAPITAL_MORTGAGE_HOLDINGS_INC