1297178--3/16/2006--Accredited_Mortgage_Loan_REIT

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Risk Factors and Accredited s Guarantee of Our Series A Preferred Shares The distributions to be received by us with respect to our securitized mortgage pools are uncertain. The distributions to be received by us with respect to the securitized mortgage pools are subordinated in right of payment to the securitization noteholders and to other fees and expenses of the underlying securitization trust. The rate of prepayments and defaults on the mortgage loans in a mortgage pool will affect the timing and amount of cash flow that we will receive. The securitized mortgage loans may include mortgage loans with LTVs in excess of 80%, which may present a greater risk of loss. The over-collateralization requirement of each securitization trust will affect the rate and timing of distributions to be received by us. Our hedging strategies may not be successful in mitigating our risks associated with interest rates. The distributions to us may be subject to basis risk in the difference between One-Month LIBOR and Six-Month LIBOR. The geographic concentration of the mortgaged properties securing our securitized mortgage loans may create risks of greater losses associated with adverse conditions that may arise in areas of concentration. Our securitized mortgage loans are underwritten to standards that generally do not conform to the credit criteria required by Fannie Mae and Freddie Mac, and therefore may experience higher levels of delinquencies and losses. The diversification of the properties securing our interest in mortgage loans is limited, and the liquidation of a mortgage pool after the occurrence of an event of default could greatly reduce or even eliminate the amount distributable to us. We may be adversely affected by litigations to which we or Accredited may become a party. If we fail to maintain our status as a real estate investment trust, we will be subject to federal or state income tax on taxable income at regular corporate rates. Our shareholders may be adversely affected by our ownership of residual interests in taxable mortgage pools. The early termination of an underlying securitization trust could substantially reduce or even eliminate the amount of distributions that would otherwise be received by us. The timing and amount of contributions of additional assets to us by our parent are uncertain, and our existing assets may not generate sufficient funds to pay the preferred dividend. The Series A Preferred Shares rank subordinate to claims of our creditors and equally with any other parity shares we may issue, and the Series A Preferred Shareholders ability to receive dividends or the liquidation preference is therefore limited. The guarantee of the Series A Preferred Shares is subordinate to claims of Accredited s creditors and effectively subordinated to the creditors of Accredited s subsidiaries. Holders of our Series A Preferred Shares have very limited voting rights and, except in limited circumstances, will not be able to elect trustees or influence other matters submitted to a vote of our shareholders. There may be adverse effects from Accredited s ownership of all of our common shares. We are economically and operationally dependent on AHL. We may fail to qualify as a real estate investment trust, which would permit us to redeem the Series A Preferred Shares under certain circumstances. We may redeem our Series A Preferred Shares upon the occurrence of a tax event or an investment company event, subject to additional conditions. The ownership limitations and restrictions on transfer relating to the Series A Preferred Shares could have adverse consequences to us. Our warehouse credit facilities contain covenants that restrict our operations and may inhibit our ability to grow our business and increase revenues.

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1297178--3/16/2006--Accredited_Mortgage_Loan_REIT_Trust