Summary of WALTER INVESTMENT MANAGEMENT CORP

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2008. Historical results and trends which might appear should not be taken as indicative of future operations, particularly in light of the completion of our merger with Walter Investment Management LLC ("Spinco") following the end of the reporting period. See "Subsequent Events" beginning on page 34 of this Report on Form 10-Q. Our results of operations and financial condition, as reflected in the accompanying statements and related footnotes, are subject to management's evaluation and interpretation of business conditions, changing capital market conditions, and other factors.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Certain statements in this report, including, without limitation, matters discussed under this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," should be read in conjunction with the financial statements, related notes, and other detailed information included elsewhere in this Quarterly Report on Form 10-Q. We are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 and in our other securities filings with the Securities and Exchange Commission. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties. The forward-looking statements contained in this report are made only as of the date hereof. We undertake no obligation to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The Company
Hanover Capital Mortgage Holdings, Inc. (effective April 17, 2009, known as Walter Investment Management Corp.) ("We" or "the Company") conducts its operations as a real estate investment trust, or REIT, for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). At March 31, 2009, we have one primary subsidiary, Hanover Capital Partners 2, Ltd. ("HCP-2"). We are attempting to grow service fee income through HCP-2 by rendering valuations, loan sale advisory, and other related services to private companies and government agencies. We are maintaining our REIT business structure in order to complete the pending merger. We do not have the financial resources to conduct business as in the past nor, until resolution of the pending merger, do we expect to undertake any of our traditional investing activities in mortgage loans and subordinate mortgage-backed securities ("Subordinate MBS") except to maintain the mortgage loans that collateralize our sponsored collateralized mortgage obligations ("CMO") and make limited investments in agency mortgage-backed securities (whole pool Fannie Mae and Freddie Mac mortgage-backed securities ("Agency MBS")). Since August 2008, minimal investments in whole-pool agency securities have been made in order to maintain the Company's REIT status and its exemption as a regulated investment company under the Investment Company Act of 1940 ("40 Act"). Such agency investments have been facilitated in part by financing from an affiliate of the pending merger partner. After the pending merger, our business will be directed by the new management team which may include some or all of our traditional business activities.
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. Due to unprecedented turmoil in the mortgage and capital markets during 2007 and 2008, we incurred a significant loss of liquidity over a short period of time. We have experienced significant losses, our Stockholders' equity is a deficit, interest on $40 million of liabilities due to subsidiary trusts issuing preferred and capital securities has been deferred for over a year and is due and payable subject to exchange agreements with the securities holders entered into as part of the pending merger and, our current operations are not cash flow positive. Additional sources of capital are required for us to generate positive cash flow and continue operations beyond the middle of 2009. These events

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create substantial doubt about our ability to continue as a going concern. Management believes completion of the pending merger will remove these doubts about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Pending Merger
As previously disclosed, on February 6, 2009, the Company, Walter Industries, Inc. ("Walter"), Spinco and JWH Holding Company, LLC ("JWHHC") entered into a Second Amended and Restated Agreement and Plan of Merger (as amended on February 17, 2009, the "Merger Agreement").
The Company held its special meeting of stockholders on April 15, 2009 to approve the merger and certain other transactions described in the proxy statement/prospectus. The Company's stockholders approved all proposals set forth at the special meeting.
Following these approvals, on April 17, 2009, the Company and the other parties to the Merger Agreement completed the transactions contemplated by the Merger Agreement, which included the spin-off by Walter of Spinco, the payment of a taxable dividend by Spinco to holders of its limited liability company interests, and the subsequent merger of Spinco into the Company. At the closing of the merger, the Company changed its name to Walter Investment Management Corp. Prior to and as a condition to the closing of the merger, the Company also completed the transactions contemplated by (i) the Exchange Agreement, dated September 30, 2008, with Taberna Preferred Funding I, Ltd ("Taberna"), as amended on February 6, 2009 (the " Taberna Exchange Agreement "), and (ii) the Exchange Agreement, dated September 30, 2008, with Amster Trading Company and Ramat Securities, LTD (the "Amster Parties"), as amended on February 6, 2009 (the "Amster Exchange Agreement" and, together with the Taberna Exchange Agreement, the "Exchange Agreements").
The merger will be accounted for as a "reverse acquisition" for accounting purposes and JWHHC will be considered the accounting acquirer. As a result, the fair value of the Company's common stock issued and outstanding as of April 17, 2009, will be allocated to the underlying assets and liabilities of the Company based on their respective fair market values with any excess going to goodwill. The pre-acquisition financial statements of JWHHC will be treated as the historical financial statements of Walter Investment Management Corp. going forward.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers
Upon the effective date of the Articles of Merger filed with the Maryland State Department of Assessments and Taxation at 7 p.m. on April 17, 2009, the following changes to directors and officers became immediately effective by operation of law and pursuant to the terms of the Merger Agreement:
• Removal of Directors. Messrs. James F. Stone, John N. Rees and John A. Clymer, each a member of the Audit Committee, and Ms. Irma N. Tavares were removed from the board of directors of the Company.

• Appointment of Directors. Messrs. Denmar J. Dixon, William J. Meurer, Mark J. O'Brien, Shannon E. Smith and Michael T. Tokarz and Ms. Ellyn L. Brown were appointed to the board of directors of Walter Investment. Mr. O'Brien was appointed chairman of the board.

• Removal of Officers. Mr. John A. Burchett was removed as President and Chief Executive Officer, Ms. Irma N. Tavares was removed as Chief Operating Officer, Mr. Harold H. McElraft was removed as Chief Financial Officer and Treasurer, Ms. Suzette N. Berrios was removed as Vice President, General Counsel and Secretary and Mr. James C. Strickler was removed as Managing Director.

• Appointment of Officers. Mr. Mark J. O'Brien was appointed Chief Executive Officer, Mr. Charles E. Cauthen was appointed President and Chief Operating Officer and Ms. Kimberly Perez was appointed Vice President and Chief Financial Officer and Treasurer.

On April 20, 2009, the board of directors of Walter Investment designated Messrs. Meurer, Smith, Tokarz and Dixon and Ms. Brown as independent directors. The board appointed Messrs. Meurer, Smith and Dixon to the audit committee, designating Mr. Meurer committee chairman, which designation was confirmed at the committee's first meeting on April 28, 2009. The board also appointed Messrs. Dixon and Smith and Ms. Brown to the compensation committee and designated

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Mr. Dixon as the chairman of the committee. Finally, the board appointed Messrs. Tokarz and Dixon and Ms. Brown to the governance committee and designated Mr. Tokarz as chairman.
On April 20, 2009, the board of Walter Investment removed all prior officers of the company and formally appointed the following officers of Walter Investment (which appointments were in addition to the appointments of Messrs. O'Brien and Cauthen and Ms. Perez as a result of the Merger):

Kimberly Perez            Vice President, Chief Financial Officer and Treasurer
John A. Burchett          Vice President, Advisory Services and President, Hanover
                          Division
Irma N. Tavares           Vice President, Hanover Division
Stuart Boyd               Vice President, General Counsel and Secretary
Joseph Kelly, Jr.         Vice President, Servicing
Del Pulido                Vice President, Human Resources
Ty Witherington           Vice President, Operations

See "Subsequent Events" beginning on page 34 of this Report on Form 10-Q for a complete description of the merger, the Exchange Agreements, the retirement of the Company's trust preferred securities, and the consummation of certain transactions contemplated by and the termination of certain agreements according to, the terms of the merger.
Critical Accounting Estimates
The significant accounting policies used in preparation of our Consolidated Financial Statements are described in Note 2 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. Certain critical accounting policies are complex and involve significant judgment by our management, including the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. As a result, changes in these estimates and assumptions could significantly affect our financial position or our results of operations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Deferred Income
The company and JWHHC entered into an agreement for the sale of software owned by the Company for $1 million. The sales price was estimated to be a fair value and the exchange of money and the software between the parties was done in January 2009, pursuant to the agreement. Because of the relationship of the companies as parties in the pending merger and the existence of other facilitating transactions between the parties, recognition of a sale and revenue in the Company's financial statements for this exchange has been deferred and is shown as deferred income in the Company's balance sheet. Upon consummation of the pending merger, the Software License Agreement effectively terminated.

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Financial Condition
   The schedule below summarizes the changes in our balance sheet from
December 31, 2008 to March 31, 2009 (dollars in thousands):

                                                                                                      change
                                                           March 31,          December 31,           increase
                                                             2009                 2008              (decrease)
                      Assets
Cash and cash equivalents                                 $     507          $        501          $        6
Accrued interest receivable                                      49                    62                 (13 )
Mortgage Loans
Collateral for CMOs                                           4,601                 4,778                (177 )
Mortgage Securities
Trading                                                       3,950                 4,656                (706 )
Available for sale                                                -                     -                   -
Other subordinate security, available for sale                1,601                 1,585                  16
Equity investments in unconsolidated affiliates                 175                   175                   -
Other assets                                                  1,464                   647                 817

                    Liabilities
Note Payable                                                  2,300                 2,300                   -
Collateralized mortgage obligations                           2,778                 2,904                (126 )
Accounts payable, accrued expenses and other
liabilities                                                   1,159                 1,191                 (32 )
Payable to pending merger partner                             1,600                     -               1,600
Deferred income from sale of software to pending
merger partner                                                1,000                     -               1,000
Obligation assumed under guarantee of lease in
default by subtenant                                            727                   831                (104 )
Deferred interest payable on liability to
subsidiary trusts                                             5,607                 4,597               1,010
Liability to subsidiary trusts issuing preferred
and capital securities                                       41,239                41,239                   -

          Stockholders' Equity (Deficit)
Total Stockholders' Equity (deficit)                        (44,063 )             (40,658 )            (3,405 )

Significant changes in our financial position as of March 31, 2009 from December 31, 2008, are primarily due to increases in liabilities due to funds borrowed from an affiliate of our merger partner as well as an increase in the interest payable to holders of subsidiary trust securities. Increases in other assets are due to deferral of the premiums on insurance being amortized over the period of coverage.
Changes in Mortgage Securities - Trading are due to net sales/purchases of Agency MBS. The Agency MBS classified as trading are held primarily to satisfy certain exemptive provisions of the 40 Act. These securities are highly liquid assets.
Our book value (deficit) per common share as of March 31, 2009 was $(5.09) compared to $(4.70) as of December 31, 2008. The decrease in book value is primarily attributable to our net loss of $(3.4) million.

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Results of Operations
Revenue
                           Revenue by Portfolio Type
                             (dollars in thousands)

                                                             Three Months Ended                 2008
                                                                 March 31,                    Favorable
                                                           2009             2008            (Unfavorable)
Mortgage Loans including CMO Collateral
Interest income                                          $      58        $     111        $           (53 )
Interest expense                                               (49 )            (73 )                   24

Net interest income                                              9               38                    (29 )
Other                                                            9               14                     (5 )

Total                                                           18               52                    (34 )

Subordinate MBS
Interest income                                                  -            4,542                 (4,542 )
Interest expense                                                 -           (4,734 )                4,734

Net interest income                                              -             (192 )                  192
Mark to market                                                   -          (21,167 )               21,167

Total                                                            -          (21,359 )               21,359

Agency MBS
Interest income                                                 60              287                   (227 )
Interest expense                                               (23 )           (191 )                  168

Net interest income                                             37               96                    (59 )
Gains (losses) on sales                                         56              479                   (423 )
Mark to market                                                  (7 )           (318 )                  311
Freestanding derivatives                                         -              (98 )                   98

Total                                                           86              159                    (73 )

Other
Interest income                                                 92              130                    (38 )
Interest expense                                            (1,011 )           (929 )                  (82 )

Net interest income                                           (919 )           (799 )                 (120 )
Technology and loan brokering and advisory services            113              225                   (112 )
Other                                                            -            1,615                 (1,615 )

Total                                                         (806 )          1,041                 (1,847 )

Total revenues                                           $    (702 )      $ (20,107 )      $        19,405

Both interest income and interest expense for our Mortgage Loan portfolio for the three months ended March 31, 2009 decreased compared to the same period of 2008 due to decreases in the level of collateral for CMOs as a result of principal payment and payoffs on the mortgage loans.
Our Subordinate MBS portfolio was surrendered to the holder of the financing for the portfolio in August 2008 in accordance with terms of the borrowings. We have not invested in Subordinate MBS since that time and we are financially unable to do so as of March 31, 2009.
Traditionally, our Agency MBS portfolio classified as trading is financed with repurchase agreements and is hedged through forward sales of similar securities. The size of the portfolio is much smaller because our needs for such investments in order to maintain certain exemptions under the 40 Act are less. A portion of the portfolio is financed with a facility provided by JWHHC. None of the portfolio is hedged because, given the small size of the portfolio, hedging would not be cost effective. With only partial financing, interest expense is lower in relation to interest income.
Other interest income includes interest earned from the other subordinate security and cash. Other interest expense is interest incurred on the subordinated debt issued to our subsidiary trusts, HST-I and HST-II.

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Other income (expense) for the three months ended March 31, 2009 decreased compared to the same period in 2008 due to the reversal in the three months ended March 31, 2008, of a $1.6 million reserve for the estimated cost of closing a contemplated warehouse facility as the contingency for that expense was removed by the sponsor of the facility.
Loan sale advisory and technology revenue decreased due to the suspension of the loan sale advisory activities in May 2006, the termination of technology services by several of our clients in 2006 and early 2007, and the cessation of our marketing activities for our technology solutions in 2006. The current income is from residual business.
Other freestanding derivatives represent the mark to market of our interest rate caps used to hedge the financing costs of our portfolio. The current interest rates have been substantially at or below the strike rate of the interest rate caps and our interest rates caps were all allowed to expire as of March 31, 2009.
Operating Expenses
The following table details operating expenses for the Company on a consolidated basis (dollars in thousands):

                                              Three months Ended March 31,
                                                                        Increase
                                          2009             2008        (Decrease)
       Personnel                       $      945       $    1,108     $      (163 )
       Legal and professional                 619              364             255
       General and administrative             795              201             594
       Depreciation and amortization           13              154            (141 )
       Occupancy                               56               78             (22 )
       Technology                              11              125            (114 )
       Financing                                -              896            (896 )
       Other                                  304              343             (39 )

       Total expenses                  $    2,743       $    3,269     $      (526 )

Operating expenses for the three months ended March 31, 2009, decreased $0.5 million from the same period in 2008. The major changes within operating expenses were in financing, legal and professional, general and administrative expense:
• Personnel costs have declined primarily due to decreases in staffing levels.

• Legal and professional fees increased due to higher legal fees associated with our pending merger.

• General and administrative expenses increased due to a payment made to a holder of our trust preferred securities in the amount of $600,000 in connection with signing an amendment to the holder's exchange agreement.

• Technology costs decreased due to the overall decrease in technology related activities.

• Financing costs decreased in 2009 compared to the same period in 2008 due to the write-off of deferred financing costs upon the termination of the Company's borrowing facilities in the first quarter of 2008. No similar costs were incurred in 2009.

• Other expenses decreased due to decreases in insurance premiums paid in 2009 compared to the same period in 2008.

Additional Analysis of REIT Investment Portfolio Investment Portfolio Assets and Related Liabilities The following table reflects the average balances for each major category of our investment portfolio as well as associated liabilities with the corresponding effective yields and rates of interest (dollars in thousands):

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                                                               Three Months Ended March 31,
                                                         2009                                2008
                                              Average          Effective          Average          Effective
                                              Balance            Rate             Balance            Rate
Investment portfolio assets:
Held for sale                                 $      -                  -        $       -                  -
Collateral for CMO                               4,779               4.84 %          6,120               7.25 %
Agency MBS                                       4,395               5.48 %         19,860               5.78 %
Subordinate MBS                                      -               0.00 %         82,592              22.00 %
Other subordinate security                       1,601              23.00 %          1,482              25.10 %

                                                10,775               7.80 %        110,054              18.29 %


Investment portfolio liabilities:
CMO borrowing                                    2,826               6.92 %          3,846               6.86 %
Repurchase agreements on:
Collateral for CMO                                   -               0.00 %            490               5.71 %
Agency MBS                                       2,300               4.00 %         17,780               4.30 %
Subordinate MBS                                      -               0.00 %         84,931              22.30 %

                                                 5,126               5.60 %        107,047              18.68 %

Net investment portfolio assets               $  5,649                           $   3,007

Net interest spread                                                  2.20 %                             (0.39 )%

Yield on net portfolio assets (1) (2)                                9.77 %                              4.66 %

(1) Yield on net portfolio assets is computed by dividing the applicable net interest income by the average daily balance of net portfolio assets.

(2) The yields on net portfolio assets do not include the hedging cost on the Agency MBS portfolio. There are no hedging costs in 2009.

The yield on net portfolio assets increased for the three months ended March 31, 2009, compared to the same period in 2008. This increase in yield is . . .