United Mortgage Trust (UDMG) 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number: 000-32409

UNITED MORTGAGE TRUST

(Exact name of registrant as specified in its charter)

Maryland	75-6493585
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1702 N. Collins Blvd, Suite 100

Richardson, Texas 75080

(Address of principal executive offices)(Zip Code)

(214) 237-9305

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer___ Accelerated filer____ Non-accelerated filer X  (Do not check if a smaller reporting company)

____Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YesNo X  

The number of shares outstanding of the Registrant’s shares of beneficial interest, par value $0.01 per share, as of the close of business on April 15, 2008 was 6,594,457.

UNITED MORTGAGE TRUST

INDEX

PART I - FINANCIAL INFORMATION

		Page
ITEM 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007	3
	Consolidated Statements of Income for the three months ended March 31, 2008 and 2007 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	21
ITEM 4.	Controls and Procedures	21
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	23
ITEM 1A.	Risk Factors	23
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 3.	Defaults Upon Senior Securities	23
ITEM 4.	Submission of Matters to a Vote of Security Holders	23
ITEM 5.	Other Information	23
ITEM 6.	Exhibits	24

UNITED MORTGAGE TRUST

CONSOLIDATED BALANCE SHEETS

	March 31, 2008		December 31, 2007
		(unaudited)		(audited)
Assets
Cash and cash equivalents	$	102,138	$	1,597,883
Mortgage investments:
Investment in trust receivable		5,810,203		5,428,453
Interim mortgages, affiliates		43,838,982		41,641,334
Interim mortgages		11,004,911		12,251,098
Allowance for loan losses		(2,419,263)		(2,343,163)
Total mortgage investments		58,234,833		56,977,722
Line of credit receivable, affiliate		21,904,948		25,083,216
Accrued interest receivable		1,134,893		715,806
Accrued interest receivable, affiliate		5,735,657		4,822,377
Recourse obligations, affiliates		16,484,828		16,035,790
Residential mortgages and contracts for deed foreclosed		252,689		274,064
Interim mortgages foreclosed		602,396		234,155
Deficiency note		1,725,754		1,725,754
Deficiency note, affiliate		2,230,558		1,848,355
Other assets		126,783		364,574
Total assets	$	108,535,477	$	109,679,696
Liabilities and Shareholders’ Equity
Liabilities:
Dividend payable	$	820,935	$	827,670
Accounts payable and accrued liabilities		30,538		50,815
Total liabilities		851,473		878,485
Commitments and contingencies		--		--
Shareholders' equity:
Shares of beneficial interest; $.01 par value; 100,000,000 shares authorized; 8,141,691 and 8,110,684 shares issued, respectively; and 6,594,457 and 6,649,916 outstanding, respectively		81,417		81,107
Additional paid-in capital		143,907,490		143,287,664
Advisor's reimbursement		397,588		397,588
Cumulative distributions in excess of earnings		(6,579,629)		(6,530,813)
		137,806,866		137,235,546
Less treasury stock of 1,547,234 and 1,460,768 shares, respectively, at cost		(30,122,862)		(28,434,335)
Total shareholders' equity		107,684,004		108,801,211
Total liabilities and shareholders' equity	$	108,535,477	$	109,679,696

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended March 31,
	2008		2007
Revenues:
Interest income derived from affiliates	$	2,506,694	$	3,752,865
Interest income		677,167		762,478
		3,183,861		4,515,343
Expenses:
Trust administration fee		272,979		182,451
Loan servicing fee		1,213		2,925
General and administrative		234,316		202,438
Provision for loan losses		255,000		207,311
Interest expense		--		409,994
		763,508		1,005,119
Net income	$	2,420,353	$	3,510,224
Net income per share of beneficial interest	$	0.37	$	0.51
Weighted average shares outstanding		6,597,822		6,891,364
Distributions per weighted share outstanding	$	0.37	$	0.36

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended March 31,
	2008			2007
Operating Activities
Net income	$	2,420,353		$	3,510,224
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses		255,000			207,311
Depreciation and amortization		345			934
Changes in assets and liabilities:
Accrued interest receivable		(1,258,742	)		(866,695	)
Other assets		27,222			70,088
Accounts payable and accrued liabilities		(27,011	)		113,595
Net cash provided by operating activities		1,417,167			3,035,457
Investing Activities
Investment in trust receivable		(116	)		--
Principal receipts on trust receivable		3,331			--
Investment in interim mortgages		(291,148	)		(2,165,040	)
Principal receipts on interim mortgages		824,300			3,267,902
Investments in interim mortgages, affiliates		(3,355,417	)		(21,056,369	)
Principal receipts on interim mortgages, affiliates		114,566			17,149,813
Investments in residential mortgages and contracts for deed, foreclosed		--			(563,422	)
Principal receipts on residential mortgages and contracts for deed		98,984			2,507
Line of credit receivable, affiliate, net		3,178,268			(1,050,000	)
Receivable from affiliate		--			94,250
Principal receipts on recourse obligations		51,880			238,703
Net cash provided by (used in) investing activities		624,648			(4,081,656)
Financing Activities
Proceeds from issuance of shares of beneficial interest		620,136			620,982
Net borrowings on line of credit		--			245,981
Purchase of treasury stock		(1,688,527	)		(935,288	)
Dividends		(2,469,169	)		(2,441,511	)
Net cash used in financing activities		(3,537,560	)		(2,509,836	)
Net decrease in cash and cash equivalents		(1,495,745	)		(3,556,035	)
Cash and cash equivalents at beginning of period		1,597,883			3,661,724
Cash and cash equivalents at end of period	$	102,138		$	105,689
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	--		$	409,994
Transfers of affiliate and non-affiliate loans to foreclosed properties or recourse obligations, affiliates	$	2,380,159		$	884,124

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Business

United Mortgage Trust (the “Company”) is a Maryland real estate investment trust that qualifies as a real estate investment trust (a “REIT”) under federal income tax laws. The Company  invests exclusively in: (i) first lien secured mortgage loans with initial terms of 12 months or less for the acquisition and renovation of single family homes, which we refer to as “interim loans”; (ii) lines of credit and secured loans for the acquisition and development of single-family home lots, referred to as “land development loans”; (iii) lines of credit and loans secured by developed single-family lots, referred to as “finished lot loans”; (iv) lines of credit and loans secured by completed model homes, referred to as “model home loans”; and, formerly we invested in (v) first lien secured construction loans for the acquisition of lots and construction of single-family homes, which we refer to as “construction loans”; and (vi) first lien, fixed rate mortgages secured by single-family residential property, which we refer to as “residential mortgages”. Additionally, our portfolio includes obligations of affiliates of our Advisor, which we refer to as “recourse loans.”  Loans are originated by others to the Company’s specifications or to specifications approved by the Company.  Most, if not all, of such loans are not insured or guaranteed by a federally owned or guaranteed mortgage agency.

The Company has no employees. The Company pays a monthly trust administration fee to UMTH General Services, L.P. (“UMTHGS” or “Advisor”), a subsidiary of UMT Holdings, L.P. (“UMTH”), a Delaware real estate finance company and affiliate, for the services relating to its daily operations.  The Company’s offices are located in Richardson, Texas.

2. Basis of Presentation

These financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the year ended December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

3. Impact of Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however the application of this statement may change current practice. The requirements of SFAS 157 are first effective for the Company for the fiscal year beginning January 1, 2008. However, in February 2008 the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until the subsequent year.  Accordingly, the Company’s adoption of this standard on January 1, 2008 is limited to financial assets and liabilities. The Company’s adoption of SFAS 157 has not had a material impact on the financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“SFAS 159”). The fair value option permits entities to choose to measure eligible financial instruments at fair value at specified election dates. The entity will report unrealized gains and losses on the items on which it has elected the fair value option in earnings. The Company’s adoption of SFAS 159 has not had a material impact on the Company’s results of operations or financial condition.

4.       Related Party Transactions

The Company relies on affiliates of its Advisor for the sourcing and origination of a majority of its Mortgage Investments.

1) UMT Holdings, L.P. (“UMTH”) is a Delaware limited partnership which is in the real estate finance business. UMTH holds a 99.9% limited partnership interest in UMTH Lending Company, L.P., which originates interim loans that the Company is assigned, UMTH Land Development, L.P., which holds a 50% profit interest in United Development Funding, LP (“UDF”) and acts as UDF's asset manager, and Prospect Service Corp. (“PSC”), which services the Company’s residential mortgages and contracts for deed and manages the Company’s REO. In addition, UMTH has a limited guarantee of the obligations of Capital Reserve Group (“CRG”), Ready America Funding Corporation (“RAFC”) and South Central Mortgage, Inc. (“SCMI”) under the Recourse Obligations - Affiliates.  United Development Funding III, L.P., (“UDF III”) which is managed by UMTH Land Development, L.P., has provided a limited guarantee of the UDF line of credit. The Company’s President, Christine “Cricket” Griffin, is a partner of UMTH.

2) UMTH Lending Company, L.P. (“UMTHLC”) is a Delaware limited partnership, and subsidiary of UMTH.  The Company has loaned and will continue to loan money to UMTHLC so it can make interim loans to its borrowers. The interim loans are collaterally assigned to the Company, as security for the promissory note between UMTHLC and the Company. The unpaid principal balance of the loans at March 31, 2008 and 2007 was approximately $21,821,000 and $44,383,000, respectively.

3) Capital Reserve Group, Inc. (“CRG”) is a Texas corporation that is 50% owned by Todd Etter and William Lowe, partners of UMTH, which owns the Advisor.  CRG was in the business of financing home purchases and renovations by real estate investors. The Company loaned money to CRG to make loans to other borrowers. During 2006, the Company took direct assignment of the remaining loans from CRG with full recourse. The unpaid principal balance of the loans at March 31, 2008 and 2007 was approximately $0 and $837,000, respectively.

4) Ready America Funding (“RAFC”) is a Texas corporation that is 50% owned by SCMI, which is owned by Todd Etter. RAFC is in the business of financing interim loans for the purchase of land and the construction of modular and manufactured single-family homes placed on the land by real estate investors. The Company continues to directly fund obligations under one existing RAFC loan, which was collaterally assigned to the Company, but does not fund new originations. The unpaid principal balance of the loans at March 31, 2008 and 2007 was approximately $22,017,000 and $23,570,000, respectively.

5) Wonder Funding, LP (“Wonder”) is a Delaware limited partnership that is owned by Ready Mortgage Corp. (“RMC”). RMC is beneficially owned by Craig Pettit.  Wonder is in the business of financing interim loans for the purchase of land and the construction of single family homes.  The Company has ceased funding any new originations.  As of December 31, 2007, all remaining obligations owed by Wonder to the Company are included in the recourse obligations discussed below.

6) Recourse Obligations. The Company has made recourse loans to (a) CRG, which is owned by Todd Etter and William Lowe, (b) RAFC, which is owned by SCMI and two companies owned by Craig Pettit, Eastern Intercorp, Inc. and RMC, and (c) SCMI, which is owned by Todd Etter, (these companies are referred to as the "Originating Companies").  In addition to the Originating Companies discussed above, the Company made loans with recourse to Wonder.  Each of these entities used the proceeds from such loans to originate loans, that are referred to as "Underlying Loans," that are pledged to the Company as security for such Originating Company's obligations to the Company.  When principal and interest on an Underlying Loan are due in full, at maturity or otherwise, the corresponding obligation owed by the Originating Company to the Company is also due in full.

In addition, some of the originating companies have sold loans to the Company, referred to as the "Purchased Loans," and entered into recourse agreements under which the originating company agreed to repay certain losses the Company incurred with respect to Purchased Loans.

If the originating company forecloses on property securing an Underlying Loan, or the Company forecloses on property securing a Purchased Loan, and the proceeds from the sale are insufficient to pay the loan in full, the originating company has the option of (1) repaying the outstanding balance owed to the Company associated with the Underlying Loan or Purchased Loan, as the case may be, or (2) delivering an unsecured deficiency note in the amount of the deficiency to the Company.

On March 30, 2006, but effective December 31, 2005, the Company and each originating company agreed to consolidate (1) all outstanding amounts owed by such originating company to the Company under the loans made by the Company to the originating company and under the deficiency notes described above and (2) the estimated maximum future liability to the Company under the recourse arrangements described above, into secured promissory notes.  Each originating company issued to the Company a secured variable amount promissory note dated December 31, 2005 (the “Secured Notes”) in the principal amounts shown below, which amounts represent all principal and accrued interest owed as of such date. The initial principal amounts are subject to increase up to the maximum amounts shown below if the Company incurs losses upon the foreclosure of loans covered by recourse arrangements with the originating company.  The Secured Notes (including related guaranties discussed below) are secured by an assignment of the distributions on the Class C units, Class D units and Class EIA units of limited partnership interest of UMTH held by each originating company.

Name	Initial principal amount	Balance at March 31, 2008	Promissory Note principal amount (2)	Units pledged as security	Units distributed during 2007	C Units remaining	Nominal Collateral Value (3)
CRG	$2,725,442	$4,486,652	$4,300,000	4,984 Class C	616	3,957 Class C	$3,957,000
RAFC	$3,243,369	$6,569,847	$7,100,000	6,739  Class C  & All EIA	444	5,394 Class C & all EIA	$5,394,000
SCMI	$3,295,422	$3,485,326	$3,448,643	4,000 Class C	907	2,690 Class C	$2,690,000
RAF / Wonder(1)	$1,348,464	$1,943,003	$1,400,000	3,870 Class C	-	3,870 Class C	$3,870,000
Wonder Indemnification (1)	n/a	n/a	n/a	$1,134,000	$115,000	n/a	$1,019,000
EIA Units	n/a	n/a	n/a	n/a	n/a	n/a	$1,066,000
Totals	$10,612,697	$16,484,828	$16,248,643				$17,996,000

(1) Wonder is collateralized by an indemnification agreement from RMC in the amount of $1,134,000, which includes the pledge of 3,870 C Units.

(2) The CRG, Wonder, and SCMI balances at March 31, 2008 exceeded the stated principal amount per their variable Secured Notes by approximately $187,000, $543,000, and $36,000, respectively.  Per the terms of the Secured Notes, the unpaid principal balance may be greater or less than the initial principal amount of the note and is not considered an event of default.  The rapid rate of liquidation of the remaining portfolio of properties caused a more rapid increase in the Unpaid Principal Balance (“UPB”) than the Company originally anticipated and out paced the minimum principal reductions scheduled for the loans.

(3) Nominal collateral value does not reflect pledge of D units of limited partnership interest of UMTH held by WLL, Ltd. and RAFC.

Through September 2007, the Secured Notes incurred interest at a rate of 10% per annum. The CRG and RAFC Secured Notes amortize over 15 years. The SCMI Secured Note amortizes over approximately 22 years, which was the initial amortization of the deficiency notes from SCMI that were consolidated. The Secured Notes required the originating company to make monthly payments equal to the greater of (1) principal and interest amortized over 180 months and 264 months, respectively, or (2) the amount of any distributions paid to the originating company with respect to the pledged Class C and EIA units.  Effective, October, 2007, the recourse loans were modified to accommodate the anticipated increases in principal balances throughout the remaining liquidation periods of the underlying assets, suspend the principal component of the amortized loans for the period of July 2007 through June 2009, and reduce the interest rate from 10% to 6%.

The Secured Notes have also been guaranteed by the following entities under the arrangements described below, all of which are dated effective December 31, 2005:

-   UMT Holdings. This guaranty is limited to a maximum of $10,582,336 due under all of the Secured Notes and is unsecured.

-   WLL, Ltd., an affiliate of CRG. This guaranty is of all amounts due under the Secured Note from CRG is non-recourse and is secured by an assignment of 2,492 Class C Units and 732 Class D units of limited partnership interest of UMT Holdings held by WLL, Ltd.

-   RMC. This guaranty is non-recourse, is limited to 50% of all amounts due under the Secured Note from RAFC and is secured by an assignment of 3,870 Class C units of limited partnership interest of UMT Holdings.

-   Wonder.  Wonder Funding obligations are evidenced by a note from RAFC (“RAFC Wonder Note”) and are secured by a pledge of a certain Indemnification Agreement given by UMTH to RAFC and assigned to UMT in the amount of $1,134,000, which amount is included in the UMTH limited guarantee referenced above.

In addition, WLL, Ltd. has obligations to UMT Holdings under an indemnification agreement between UMT Holdings, WLL, Ltd. and William Lowe, under which UMT Holdings is indemnified for certain losses on loans and advances made to William Lowe by UMT Holdings. That indemnification agreement allows UMT Holdings to offset any amounts subject to indemnification against distributions made to WLL, Ltd. with respect to the Class C and Class D units of limited partnership interest held by WLL, Ltd. Because WLL, Ltd. has pledged these Class C and Class D units to the Company to secure its guaranty of Capital Reserve Corp.'s obligations under its Secured Note, UMT Holdings and the Company entered into an Intercreditor and Subordination Agreement under which UMT Holdings has agreed to subordinate its rights to offset amounts owed to it by WLL, Ltd. to the Company’s lien on such units.

7) On June 20, 2006, the Company entered into a Second Amended and Restated Secured Line of Credit Promissory Note (the "Amendment") with UDF, a Nevada limited partnership that is affiliated with the Company's Advisor, UMTHGS.  The Amendment increased an existing revolving line of credit facility ("Loan") to $45 million. The Loan matures on December 31, 2009.  The purpose of the Loan is to finance UDF's loans and investments in real estate development projects.

The Loan is secured by the pledge of all of UDF's land development loans and equity investments.  Those UDF loans may be first lien loans or subordinate loans.

Prior to December 31, 2007, the Loan interest rate was the lower of 15% or the highest rate allowed by law, further adjusted with the addition of a credit enhancement to a minimum of 14%.  Effective January 1, 2008, UDF negotiated for the release of the credit enhancement associated with the Company’s affiliate line of credit and reducing the effective interest rate to 14%.

UDF may use the Loan proceeds to finance indebtedness associated with the acquisition of any assets to seek income that qualifies under the Real Estate Investment Trust provisions of the Internal Revenue Code to the extent such indebtedness, including indebtedness financed by funds advanced under the Loan and indebtedness financed by funds advanced from any other source, including Senior Debt, is no more than 85% of 80% (68%) of the appraised value of all subordinate loans and equity interests for land development and/or land acquisition owned by UDF and 75% for first lien secured loans for land development and/or acquisitions owned by UDF.

As a condition of the Amendment, UDF III, a newly formed public limited partnership that is affiliated with UDF and with the Company’s Advisor, has provided a guarantee of payment and performance of the Loan up to $30 million.  The UDF III guarantee was released effective January 1, 2008.

The Loan is subordinate to UDF Senior Debt, which is defined as all indebtedness due and owing by UDF pursuant to (i) that certain loan guaranty to Colonial Bank in the amount of $8,750,000, (ii) that certain loan to OU Land Acquisition, L.P. in the principal amount of $25,000,000, (iii) a line of credit provided by Textron Financial Corporation in the amount of $30,000,000, and (iv) all other indebtedness of UDF to any national or state chartered banking association or other institutional lender that is approved by Lender in writing.

8) Until July 31, 2006 the Company’s Advisor was UMTA. As of August 1, 2006, (now subject to an Advisory Agreement effective January 1, 2008) the Company entered into an Advisory Agreement with UMTHGS. Under the terms of the agreement, UMTHGS is paid a monthly trust administration fee. The fee is calculated monthly depending on the Company’s annual distribution rate, ranging from 1/12th of 1% up to 1/12th of 2% of the amount of average invested assets per month.  During the period ended March 31, 2008 and 2007, the net fees paid to the Company’s Advisors were approximately $273,000, and $261,000, respectively.  Upon entering into the Advisory Agreement with UMTHGS, they agreed to pay the Company $500,000 and assume the $377,000 due from the previous advisor over a period of 12 months. During 2007, approximately $300,000 of the consideration fee was received by the Company and netted against trust administration fees, while $200,000 of the assumed debt was paid in 2007.  Both the assumed debt and the agreed fee have been paid in full.

The agreement also provides for a subordinated incentive fee equal to 25% of the amount by which the Company’s net income for a year exceeds a 10% per annum non-compounded cumulative return on its adjusted contributions. No incentive fee was paid during 2008 or 2007. In addition, for each year in which it receives a subordinated incentive fee, the Advisor will receive a 5-year option to purchase 10,000 shares of the company at a price of $20.00 per share (not to exceed 50,000 shares). As of March 31, 2008, the Advisor has not received options to purchase shares under this arrangement.

The Advisor and its affiliates are also entitled to reimbursement of costs of goods, materials and services obtained from unaffiliated third parties for the Company’s benefit, except for note servicing and for travel and expenses incurred in connection with efforts to acquire investments for the Company or to dispose of any of its investments.  For the periods ended March 31, 2008 and 2007, the Company paid the Advisor approximately $19,000 and $6,000, respectively, as reimbursement for costs associated with providing shareholder relations activities.

The Advisory Agreement provides for the Advisor to pay all of the Company’s expenses and for the Company to reimburse the Advisor for any third-party expenses that should have been paid by the Company but which were instead paid by the Advisor.  However, the Advisor remains obligated to pay: (1) the employment expenses of its employees, (2) its rent, utilities and other office expenses and (3) the cost of other items that are part of the Advisor's overhead that is directly related to the performance of services for which it otherwise receives fees from the Company.

The Advisor Agreement also provides for the Company to pay to the Advisor a debt placement fee.  The Company may engage the Advisor, or an Affiliate of the Advisor, to negotiate lines of credit on behalf of the Company.  UMT shall pay a negotiated fee, not to exceed 1% of the amount of the line of credit secured, upon successful placement of the line of credit.

9) The Company pays loan servicing fees to PSC, a subsidiary of UMTH, under the terms of a Mortgage Servicing Agreement. The Company paid loan servicing fees of approximately $1,000, and $3,000 during the periods ended March 31, 2008 and 2007, respectively.

10) RMC, a Texas based real estate finance company, is owned by Craig Pettit, who is a limited partner of UMTH.  The Company loaned money to RMC to make loans to its borrowers.  The loans were collaterally assigned to the Company as security for the promissory note between RMC and the Company.  There were no outstanding borrowings owed to the Company from RMC as of December 31, 2007.

11) REOPC was a Texas limited partnership owned by UMTH.  Its mission was to manage and sell REO properties, including the Company’s, for which it received a fee.  The Company loaned money to REOPC to acquire foreclosed properties from CRG and UMTHLC.  There were no unpaid principal balances owed to the Company as of March 31, 2008.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, our ability to find suitable mortgage investments, the difficulties of the real estate industry generally in response to the “sub-prime crisis,” changes in the overall economic environment and the requirement to maintain qualification as a real estate investment trust. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore we cannot give assurance that such statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or by any other person that the results or conditions described in such statements or in our objectives and plans will be realized.  Readers should carefully review our financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2007, as well as those statements contained in this report, and in our other filings with the Securities and Exchange Commission.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q may not occur. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

General Investment Information

United Mortgage Trust (the “Company”) is a Maryland real estate investment trust that qualifies as a real estate investment trust (a “REIT”) under federal income tax laws. The Company  invests exclusively in:  (i) first lien secured mortgage loans with initial terms of 12 months or less for the acquisition and renovation of single family homes, which we refer to as “interim loans”; (ii) lines of credit and secured loans for the acquisition and development of single-family home lots, referred to as “land development loans”; (iii) lines of credit and loans secured by developed single-family lots, referred to as “finished lot loans”; (iv) lines of credit and loans secured by completed model homes, referred to as “model home loans”; and, formerly we invested in (v) first lien secured construction loans for the acquisition of lots and construction of single-family homes, which we refer to as “construction loans”; and (vi) first lien, fixed rate mortgages secured by single-family residential property, which we refer to as “residential mortgages”.  Additionally, our portfolio includes obligations of affiliates of our Advisor, which we refer to as “recourse loans.”  Loans are originated by others to the Company’s specifications or to specifications approved by the Company.  Most, if not all, of such loans are not insured or guaranteed by a federally owned or guaranteed mortgage agency.

Material Trends Affecting Our Business

Nationally, the number of new single-family residential homes sold has been declining, and average and median sales prices have been falling.  The sales of new single-family residential homes in December 2007 were at a seasonally adjusted annual rate of 605,000 units, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is approximately 41% below the December 2006 estimate of 1,019,000 units.  According to the same sources, the average sales price of new houses sold in December 2007 was $267,300; the median sales price was $219,200. This is approximately 14.2% below the December 2006 average sales price of $311,600 and approximately 11% below the December 2006 median sales price of $246,900.  The seasonally adjusted estimate of new houses for sale at the end of December 2007 was 493,000, which represents a supply of 9.5 months at the December 2007 sales rate.  The seasonally adjusted estimate of new houses for sale at the end of December 2006 was 535,000, which represents a supply of 6.2 months at the December 2006 sales rate.

According to the same sources, new single-family residential home permits and starts have also declined nationally, as a result and in anticipation of a rising supply of new single-family residential homes and a declining demand for new single-family residential homes.  Single-family homes authorized by building permits in December 2007 were at a seasonally adjusted annual rate of 702,000 units.  This is 26.5% below the December 2006 estimate of 1,181,000 units.   Single-family home starts at December 2007 were at a seasonally adjusted annual rate of 784,000 units.  This is 36.8% below the December 2006 estimate of 1,241,000 units.

Housing markets generally remain difficult and generally are declining on a national basis with those declines and difficulties most pronounced in those markets that had experienced rapid growth, steep increases in property values and speculation, such as in California, Florida, Arizona and Nevada.  However, a few markets, such as Texas, are continuing to remain fairly healthy, compared to what has been occurring nationally.  The table below illustrates the recent declines in home price appreciation nationally, as well as in California and Florida, while showing that Texas has not experienced such declines.

10 Year Home Price Appreciation

Source: Office of Federal Housing Enterprise Oversight and Real Estate Center at Texas A&M University

As of March 31, 2008, the great majority of our loans are secured by assets located in Texas.  While housing woes beleaguer the national economy, Texas housing markets have held up as some of the best in the country.  We believe the Texas markets have remained fairly healthy due to strong demographics, economies and housing affordability ratios.  The National Association of Homebuilders estimates that the median new home prices for 2007 in the metropolitan areas of Austin, Houston, Dallas, San Antonio and Lubbock are $188,025, $204,895, $207,076, $160,764 and $97,199, respectively.  These amounts are below the December 2007 national median sales price of new homes sold of $219,500.  Using the Department of Housing and Urban Development’s estimated 2007 median family income for the respective metropolitan areas of Austin, Houston, Dallas, San Antonio and Lubbock, the median income earner in those areas has 1.32 times, 1.00 times, 1.08 times, 1.20 times and 1.80 times the income required to qualify for a mortgage to purchase the median priced new home in the respective metropolitan area.  Using the U.S. Census Bureau’s income data to project estimated median income for the United States for 2007 of $59,000 and the December 2007 national median sales prices of new homes sold of $219,500, we conclude that the national median income earner has 0.97 times the income required to qualify for a mortgage loan to purchase the median priced new home in the United States.  We further conclude that the aforementioned Texas metropolitan areas have new home housing affordability ratios that are 1.03 to 1.86 times the national new home housing affordability ratio.  The above housing affordability is determined as the ratio of median family income to the income required to qualify for a 90 percent, 30-year fixed-rate mortgage to purchase the median-priced new home, assuming an annual mortgage insurance premium of 50 basis points for private mortgage insurance and a cost that includes estimated property taxes and insurance for the home.

The United States Department of Labor reports that as of December 2007, Texas led the nation with the largest job gains over the past twelve months with 218,600 new jobs created.  This is over 2.5 times greater than the number of jobs created during this period in the nation’s second largest state for job growth, Florida, and more than 2.75 times the jobs created during this period in the nation’s third largest state for job growth, California.  The United States Department of Labor reports that the largest over-the-year percentage increases in employment in the country’s large metropolitan areas were recorded in the four top metropolitan areas of Texas: Austin-Round Rock (+4.2%), Houston-Sugar Land-Baytown, (+3.9%), San Antonio (+3.0%), and Dallas-Fort Worth-Arlington, (+2.9%), The Texas metropolitan areas of Austin, Houston, Dallas, San Antonio and Lubbock experienced, during the last twelve months, the creation of 22,700, 94,200, 66,500, 18,800 and 3,800 new jobs, respectively.

The United States Census Bureau reported in its 2007 Estimate of Population Change July 1, 2006 to July 1, 2007 that Texas led the country in population growth during that period.  The estimate concluded that Texas grew by 496,751 people, or 2.12%, a number which was 1.6 times greater than the next closest state in terms of raw population growth, California, and more than 2.5 times the second closest state in terms of raw population growth, Georgia.  The United States Census Bureau also reported that among the 10 counties that added the largest number of residents between July 1, 2006 and July 1, 2007, half were in Texas (Harris (Houston), Tarrant (Fort Worth), Bexar (San Antonio), Collin (North Dallas) and Travis (Austin).  On June 28, 2007, the United States Census Bureau reported that Texas’ five major cities – Austin, Houston, San Antonio, Dallas and Fort Worth – were among the top ten in the nation for population growth from 2005 to 2006.  San Antonio was second in the nation with a population change of 33,084 from July 1, 2005 to July 1, 2006, Fort Worth was third in the nation with a population change of 30,201 during that period, Houston was fourth in the nation with a population change of 26,554 during that period, Austin was sixth in the nation with population change of 18,630 during that period, and Dallas was eighth in the nation with a population change of 16,676 during that period.

The Winter 2008 U.S. Market Risk Index, a study prepared by PMI Mortgage Insurance Co., the U.S. subsidiary of The PMI Group, Inc., which ranks the nation’s 50 largest metropolitan areas according to the likelihood that home prices will be lower in two years, reported that Texas cities lead the nation in home price stability.  The San Francisco-based company recently analyzed housing price trends in 50 U.S. metropolitan areas for its quarterly report, released January 15, 2008.  The index also considers the impact of foreclosure rates and excess housing supply and the consequential impact on home prices.  The study predicts there is less than a 1% chance that the Dallas/Fort Worth-area, Houston area, San Antonio, and Austin area home prices will fall during the next two years.  All Texas metropolitan areas included in the report are in the Top 10 least likely areas to experience a decline in home prices in two years of the nation’s 50 largest metropolitan areas.  Fort Worth-Arlington, Texas is the nation’s least likely metropolitan area included in the study to see a price decline in the next two years, Dallas-Plano-Irving, Texas is second-least likely, Houston-Sugar Land-Baytown, Texas is fourth-least likely, San Antonio, Texas is fifth-least likely and Austin, Texas is ninth-least likely.

In Texas markets, home builders and developers remain disciplined on new home construction and project development.  New home starts have been declining year-on-year and are outpaced by new home sales in all of our Texas markets where such data is readily available.  Inventories of finished new homes and finished lot supplies are healthy, with the exception of Dallas-Fort Worth, where homebuilders have slowed housing starts as the market had become slightly oversupplied with finished new homes and finished lot supplies.  Management anticipates the annual new home start pace will decline another 10% to 20% from 2007 levels in Texas markets as the Texas economy reverts to more moderate economic growth.  The Federal Reserve Bank Dallas has stated that although the Texas economy has weakened in the fourth quarter of 2007, the Texas economy “is still quite healthy and stronger than the national economy.”

Austin continues to be one of the strongest homebuilding markets in the country. Annual new home sales outpace starts 14,810 versus 13,896.  Finished housing inventory and finished lot supplies remain at healthy levels of 2.5 months and 22 months, respectively.  San Antonio is also a strong homebuilding market, with annual new home sales outpacing starts 15,564 versus 12,625.  Finished housing inventory and finished lot supplies remain at healthy levels of 2.3 months and 26.1 months, respectively.  Houston is also a healthy homebuilding market with annual new home sales outpacing starts 42,960 versus 38,117.  Finished housing inventory has been increasing to a 2.8 month supply, slightly above the considered equilibrium of 2 to 2.5 months supply.  Finished lot supplies remain at very healthy levels of 22.3 months.  All numbers are as publicly released by Metrostudy, a leading provider of primary and secondary market information.

The Real Estate Center at Texas A&M University has reported that the sales of existing homes remain healthy in our Texas markets, as well.  The number of months of home inventory for sale in Austin, San Antonio, Houston, Dallas, Fort Worth and Lubbock is 4.2 months, 6.0 months, 6.0 months, 5.8 months, 5.8 months, and 5.4 months, respectively.  A 6-month supply of inventory is considered a balanced market with more than 6 months of inventory generally being considered a buyer’s market and less than 6 months of inventory generally being considered a seller’s market. As of December 2007, the number of existing homes sold year-to-date in (a) Austin is 27,974, down 7.6% year-on-year; (b) San Antonio is 23,820, down 9% year-on-year; (c) Houston is 77,581, down 4.2% year-on-year, (d) Dallas is 57,332, down 7.5% year-on-year, (e) Fort Worth is 11,415, down 4.6% year-on-year, and (f) Lubbock is 3,485, up 4.5% year-on-year. 

The Office of Federal Housing Enterprise Oversight (“OFHEO”) reports that Texas had healthy existing home price appreciation between the fourth quarter of 2006 and the fourth quarter of 2007 of 5.21%.  That same report provides that existing home price appreciation between the fourth quarter of 2006 and the fourth quarter of 2007 for (a) Austin is 7.95%, (b) San Antonio is 8.25%, (c) Houston is 4.79%, (d) Dallas is 2.95%, (e) Fort Worth is 2.89%, and (f) Lubbock is 0.34%.  The OFHEO tracks average house price changes in repeat sales or refinancings of the same single-family properties utilizing conventional, conforming mortgage transactions.

In managing and understanding the markets and submarkets in which we purchase, we monitor the fundamentals of supply and demand.  We monitor the economic fundamentals in each of the markets in which we purchase loans, analyzing demographics, household formation, population growth, job growth, migration, immigration and housing affordability.  We also monitor movements in home prices and the presence of market disruption activity, such as investor or speculator activity that can create false demand and an oversupply of homes in a market.  Further, we study new home starts, new home closings, finished home inventories, finished lot inventories, existing home sales, existing home prices, foreclosures, absorption, prices with respect to new and existing home sales, finished lots and land, and the presence of sales incentives, discounts, or both, in a market.

The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions, such as levels of employment, consumer confidence and income, availability of financing for acquisition, construction and permanent mortgages, interest rate levels and demand for housing.  Sales of new homes are also affected by the condition of the resale market for used homes, including foreclosed homes.  Housing demand is, in general, adversely affected by increases in interest rates, housing costs and unemployment and by decreases in the availability of mortgage financing.

Outlook

We expect the difficulties and challenges to the housing and mortgage lending marketplace to continue over the next few years. Those conditions could increase delinquencies and credit losses for us above those we have experienced on a historical basis.  However, we believe we have established appropriate reserves for such potential increased losses, and we anticipate that our assets will overall produce positive returns. We believe that United Mortgage Trust has been active in monitoring the current crisis and in implementing various measures to manage our risk and protect our return on our investments by shifting our portfolio to investments that are less directly sensitive to the adverse market conditions and that produce higher yields and by aggressively liquidating non-performing loans.  Based on that assessment, we do not anticipate a significant disruption to our normal business operations nor on our ability to continue making distributions to our shareholders consistent with our historical dividend policy and record.  Nevertheless, our assessments inherently involve predicting future events and we cannot be sure of the length or extent of the current sub-prime crisis and if it continues over an extended period of time, or if its severity increases, its impact on the economy as a whole and on the housing and mortgage lending market could cause us to suffer a higher level of delinquencies and losses than we are currently predicting and result in a material adverse impact on our business.

Loan Portfolio Overview

The deterioration in residential mortgage market, specifically the discontinuation of sub-prime and Alt – A products, referred to herein as the credit crisis, and the continued slow down in new home sales are directly and indirectly affecting the ability of our borrowers to sell the assets securing their loans, pay interest due us and repay the loans when due.  New and existing home financing solutions are being introduced by both the private and public sectors.  Housing inventories are slowly beginning to reduce to sustainable levels.  However, consumer confidence remains low.   Industry-wide lenders are reevaluating and restructuring credits affected by residential mortgage markets and the housing sales decline.  Overall recovery of the single family housing industry is likely to be prolonged.  We believe that a pragmatic and pro-active approach to managing our credits will allow us to maximize repayments and properly report asset values.  In consideration of the above, we are:

· reducing our investment in interim loans dependent on sub-prime and Alt-A mortgage products for repayment of our loan.   We funded 84% fewer loans in the three-months ended March 31, 2008, compared to the same period in 2007.  Interim loan payoffs as a percentage of loans originated during the three-month periods in 2008 and 2007 were 25% and 92%, respectively.

· accepting a secured note for shortfalls from foreclosed properties to enable UMTHLC to efficiently manage past due and foreclosed accounts throughout the duration of the credit crisis.

· increasing loss reserves for non-recourse interim and construction loans where full collection of the indebtedness is not assured.

· re-evaluating collateral value on specific loans deemed to be affected by current mortgage and housing environments and reserving for unsecured deficiencies.

Portfolio Mix

Our portfolio concentrations have shifted during the past decade of investing, and particularly since 2000, as we have sought adequate supplies of suitable loans in a changing real estate finance market. The chart below demonstrates the transition from a portfolio with a concentration on long term, 1st lien single family loans to one comprised primarily of first lien interim loans of 12 months or less in term for the purchase and renovation of single family homes and loans secured by 1st lien and subordinate single family lot development loans. We intend to continue to adapt to changes in the real estate finance market and thus the composition of our loan portfolio is likely to continue to evolve over time based on factors such as interest rates paid under various types of real estate loans, our assessment of the level of risk of the different types of loans, availability of loans, regulatory considerations and other factors.

Mortgage Activity

The following table summarizes our investment portfolio activity for the three months ended March 31, 2008, and 2007:

	2008	2007
Interim Mortgages
Interims funded with affiliates	$ 3,355,000	$ 21,056,000
Interims funded with others	$ 291,000	$ 2,165,000
Number of loans funded with affiliates	44	274
Number of loans funded with others	--	5
Total number funded	44	279
Affiliate interims paid off	$ 115,000	$ 17,150,000
Other interims paid off	$ 824,000	$ 4,123,000
Number of affiliated interims paid off	3	205
Number of other interims paid off	9	37
Total number paid off	12	242
Average interim mortgage loan funded during year	$83,000	$ 75,000
Remaining term in months: less than	12 months	12 months
Yield on investments	13.49%	12.98%
Investment-to-value ratio	60.79%	52.19%
Line of Credit, Affiliate
Draws funded	--	$ 1,750,000
Paid down	$ 4,750,000	$ 700,000
Term remaining	33 months	3 years
Yield on investments	13.79%	13.91%
Lot Banking Transactions (1)
Draws funded	$ 1,862,000	--
Paid down	$ 291,000	--
Original terms	2 years	--
Yield on investments	12.61%	--
Residential Mortgages and Contracts for Deed
UPB of new loans acquired	$ 610,000	$ 563,000
Number purchased from other sources	--	11
Number reclassified/refinanced/carried back when selling REO (2)	7	--
Aggregate principal balance	$ 610,000	$ 563,000
Average principal balance	$ 87,000	$ 51,000
Remaining term in months	227	245
Current yield	11.75%	11.70%
Investment-to-value	69.83%	86.36%

(1) These transactions are included in Lines of Credit Receivable, Affiliate in the accompanying financial statements

(2) These loans were a result of the reclassification of interim mortgages, refinancing of contracts for deed or a note carried back from the sale of REO.  In the case of interim mortgages, we took direct assignment of three notes and one contract for deed that were in place on the underlying collateral of four interim mortgages. Two contracts for deed were refinanced and are now notes and deeds of trust. The balance of the activity represents secured 2nd lien notes secured by properties that were security for construction loans. Management encouraged one of the Company’s unaffiliated borrowers to refinance their maturing construction loans. In doing so, management agreed to subordinate the Company’s 1st lien to other institutions. In addition, borrower was required to execute a 2nd lien note on the portion of UMT’s 1st lien that the other institution did not finance. Principal and interest payments are required monthly under the terms of the 2nd lien notes.

The following table summarizes our mortgage portfolio as of March 31, 2008 and 2007:

	2008	2007
Interim Mortgages
Affiliates unpaid principal balance	$ 43,839,000	$ 68,790,000
Unpaid principal balance others	$ 11,005,000	$ 16,227,000
Total	$ 54,844,000	$ 85,017,000
Interim mortgages, foreclosed	$ 870,000	$ 771,000
Number of affiliate interim loans	261	922
Number of unaffiliated interim loans	151	205
	412	1,127
Average unpaid principal balance (2)	$64,000	$75,000
Remaining term in months: less than	12	12
Yield on investments	13.49%	13.60%
Line of Credit Receivable, Affiliate	$18,347,000	$ 34,106,000
Term remaining in months	21	39
Yield on investment	13.79%	14.00%
Lot Banking Transactions (1)	$3,558,000	--
Typical terms, in months	24	--
Yield on investment	12.61%	--
Recourse Obligations, Affiliates
Recourse obligations	$16,485,000	$ 12,621,000
Yield on investment	6.06%	10.00%
Residential mortgages and contracts for deed, foreclosed	$ 1,235,000	$ 250,000
Investment in Trust Receivable
Loans owned outright	69	68
Rental properties	6	1
Unpaid principal balance loans/properties owned outright	$2,765,000	$ 2,507,000
Securitized loans B piece balance	$3,045,000	$ 3,511,000
Term remaining in months	227	360
Yield on investments	11.75%	13.37%

(1) These transactions are included in Lines of Credit, Affiliate in the accompanying financial statements

(2) The calculation of average unpaid principal balance is adjusted to reflect the number of additional interim loans associated with the Company’s subordinate investment in UMTHLC loans, whose loan balance is included in the outstanding affiliate unpaid principal balance above.

The following table illustrates percentage of our portfolio dedicated to each loan category as of March 31, 2008 and 2007:

Asset Category:	2008	2007
Interim mortgages with affiliates	45.91%	49.93%
Interim mortgages with others	11.53%	11.78%
UDF lines of credit	19.21%	24.76%
Recourse obligations with affiliates	17.26%	9.16%
Trust receivables – loans owned outright	2.90%	1.82%
Trust receivables – securitized “B” piece	3.19%	2.55%

Results of Operations

Revenues for the three months ended March 31, 2008, were approximately $3,184,000, compared to approximately $4,515,000 for the comparable 2007 period.  The decline was primarily attributable to the reduction in our interim loan portfolio and reduced interest rates on our recourse obligation notes.  Revenues from interim loans accounted for 57% of first quarter 2008 revenues, compared to 62% in the same period in 2007.  Our interim mortgage portfolio decreased primarily as a result of our affiliate obtaining third party financing from another lender in October 2007, proceeds from which were used to reduce our outstanding loan balance by approximately $19 million.  The remaining decline in our interim portfolio was a function of our intention to reduce our investment in interim construction loans and interim loans secured by modular and manufactured homes and related lots.  The recourse obligation notes were modified in October 2007, to accommodate the anticipated increases in principal balances throughout the remaining liquidation periods of the underlying assets, suspend principal payments through June 2009, and reduce the interest rate from 10% to 6%.

Approximately 26% of our revenues were derived from lines of credit and lot banking transactions (these secured loans for the acquisition and development of single-family home lots are referred to as “land development loans” and “lot banking transactions”), during the three months ended March 31, 2008 and 2007.  At March 31, 2008, our investment in the lines of credit to our affiliate, UDF, and lot banking transactions was approximately $21.9 million.  This balance has declined from prior periods, but we anticipate our investment in land development and lot banking loans to increase during 2008, as we negotiate our new bank credit facility to accommodate land development loans as pledged collateral. We intend to use our line of credit to build this portion of our portfolio.

During the three months ended March 31, 2008 and 2007, approximately 8% and 7% of our revenues, respectively, were derived from secured promissory notes issued by affiliates as evidence of their accrued obligations to reimburse UMT for any defaulted loans that we acquire from them, which notes we refer to as “Recourse Obligations.”  As noted above, the Recourse Obligations were modified during October 2007 to reflect current market conditions, such modifications included but were not limited to a reduction in the interest rate on these notes.

The Secured Notes require the originating company to make certain interest and principal payments, as defined by the agreements.  Further, these notes are liquidated by any distributions paid to the originating company with respect to the pledged Class C units of UMTH. UMTH has guaranteed the obligations of CRG, SCMI and RAFC under the Secured Notes up to the maximum loan amount defined in the respective notes.  The sub-prime credit crisis, as well as the decline in new home sales, have indirectly affected the earnings of UMTH which, in turn, is expected to affect the distributions associated with the security pledged on the Recourse Obligations.  The Company monitors the value of the security pledged by the originating companies and will consider further modifications to the Recourse Obligations notes to allow UMTH to structure payments under the Recourse Obligations in relation to its earnings, as impacted by the mortgage market and new home sales environments.

Operating expenses for the three months ended March 31, 2008 and 2007 were approximately $764,000 and $1,005,000, respectively.  The decrease between periods was primarily due to the lack of interest expense in the current year, as a result of the Company’s line of credit being paid in full at its maturity in November 2007.  Other fluctuations in operating expense line items are discussed below:

Trust administration fees - $273,000 and $182,000 (a 50% increase) between the comparable three-month periods ended March 31, 2008 and 2007.  Upon execution of the Company’s advisory agreement in August 2006, the Advisor agreed to pay the Company $500,000 over a twelve-month period as consideration for obtaining the advisory services agreement.  This consideration was recorded as a reduction of trust administration fees when received.  The 2007 expense, as reported, is net of this consideration.

General and administrative expenses - $234,000 and $202,000 (a 16% increase) between the comparable three-month periods ended March 31, 2008 and 2007, respectively. The increase was primarily due to service fees (approximately $6,000 per month) paid to an affiliate to perform investor relations functions on behalf of the Company.  This service agreement was entered into effective March 2007.  Accordingly, 2007 expenses, as reported, included only one month of related expense.

Interest expense - $0 and $410,000 for the three months ended March 31, 2008 and 2007, respectively.  As noted above, the Company’s line of credit matured during November 2007 and was paid in full.  The Company currently does not have any interest bearing debt outstanding.  Management is a currently negotiating with a bank to replace the line of credit with similar or more favorable terms.

We recorded an allowance for loan losses for the quarter ended March 31, 2008 in the amount of approximately $255,000 compared to $207,000 for the 2007 quarter.  We realized loan losses of approximately $130,000 and $710,000 during the comparable three-month periods of 2008 and 2007, respectively.  Loss reserves are estimates of future losses based on historical default rates and estimated loss on sale of real estate owned.  The Company is currently re-evaluating collateral value on specific loans deemed to be affected by current mortgage and housing environments and intends to establish reserves for any expected deficiencies that are not otherwise secured.  From inception through March 31, 2008, we have acquired approximately $717 million of loans.  We have recorded losses approximating 1.3% of those assets to date.  We anticipate loan losses to continue, primarily in our long-term loan portfolio, and therefore continue to assess the adequacy of our loan loss reserve.

Net income was approximately $2,420,000 and $3,510,000 for the three-month periods ended March 31, 2008 and 2007, respectively, or a 31.05% decrease between periods.  Earnings for the three months ended March 31, 2008 were $0.37 per share outstanding compared to $0.51 per share for the same period in 2007.

Distributions to shareholders were $0.37 and $0.36 per share for the first quarter of 2008 and 2007, respectively.

CAPITAL RESOURCES AND LIQUIDITY FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Our sources of funds for liquidity consist of our dividend reinvestment plan, repayments of principal on our loans made to purchase mortgage investments, and bank lines of credit.  The table below summarizes our liquidity sources for the periods ended March 31, 2008 and 2007:

	2008	2007
Shares issued	31,007	31,049
Dividend reinvestment proceeds	$ 620,000	$ 621,000
Number of shares returned to treasury	86,466	50,576
Value of shares repurchased	$ (1,689,000)	$ (935,000)
Principal receipts:
Residential mortgages and contracts for deed	$ 99,000	$ 31,000
Interim loans	$939,000	$ 21,273,000
Net borrowings – line of credit	--	$246,000
Payments under line of credit, affiliate	$ 3,178,000	$1,750,000

We are not currently offering shares in the public markets except to existing shareholders through our dividend reinvestment plan. In July 2006 we registered an additional 1,000,000 shares to be offered through our dividend reinvestment plan.

Shares issued in the aggregate, as of March 31, 2008 and 2007 were 8,141,691 and 8,016,472, respectively. Shares retired to treasury through our share redemption plan in the aggregate were 1,547,234 and 1,120,943 through March 31, 2008 and 2007, respectively. Total shares outstanding were 6,594,457 and 6,895,529, respectively.  As of March 31, 2008, inception to date gross offering proceeds from all public offerings were approximately $162,634,000 and net proceeds after fees, marketing reallowance and commissions were approximately $144,307,000.

Through November 2007, the Company had a line of credit with bank which was collateralized by certain interim mortgages, construction loans and land development loans.  Interest on the outstanding balance accrued at prime plus 0.5% per annum, and allowed for maximum borrowings up to $30 million.  This credit facility expired at its maturity date in November 2007 and was paid in full.  Management is currently negotiating with a bank for a new credit facility at similar or more favorable terms.  There is no assurance that we will be successful in negotiating a renewal and extension of the line of credit.

Critical Accounting Policies and Estimates

We prepare our accounting statements in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to accrual of interest income, loan loss reserves and valuation of foreclosed properties. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Significant accounting policies are described in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007. The following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Interest is accrued monthly on outstanding principal balances. Payments are either received monthly for interest or at payoff. Any deficiencies in unpaid interest are either charged off to the reserve for loan losses or charged against the related recourse obligations.

We maintain a reserve for loan losses for estimated losses resulting from the inability of our borrowers to make required payments resulting in property foreclosure and losses from the sale of foreclosed property.  If the financial condition of our borrowers was to deteriorate, resulting in an impairment of their ability to make payments or, if the market value of the properties securing our loans decreases additional reserves may be required.

We record foreclosed properties at an estimated net realizable value based on our assessment of real estate market conditions and historical discount percentages on the sale of foreclosed properties. Should market conditions deteriorate or loss percentages increase, additional valuation adjustments may be required.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In prior periods, we were exposed to interest rate changes primarily as a result of the method by which our bank credit facility is calculated at 1/2% over bank prime lending rate.  Management anticipates we will have similar interest rate exposure with our new credit facility, when consummated, as it will most likely have a variable interest rate associated with it.

The Company has  no long-term borrowings.

We provide a line of credit to UDF.  UDF is a real estate finance limited partnership which derives a substantial portion of its income by originating, purchasing, participating in and holding for investment mortgage loans made directly by UDF to persons and entities for the acquisition and development of real property as single-family residential lots that will be marketed and sold to home builders. Changes in interest rates may impact both demand for UDF’s real estate finance products and the rate of interest on the loans UDF makes.  In most instances, the loans UDF will make will be junior in the right of repayment to senior lenders who will provide loans representing 70% to 80% of total project costs.  As senior lender interest rates available to our borrowers increase, demand for our mortgage loans may decrease, and vice versa.

Developers to whom UDF makes mortgage loans use the proceeds of such loans to develop raw real estate into residential home lots.  The developers obtain the money to repay these development loans by selling the residential home lots to home builders or individuals who will build single-family residences on the lots, and by obtaining replacement financing from other lenders.  If interest rates increase, the demand for single-family residences may decrease.  Also, if mortgage financing underwriting criteria become more strict, demand for single-family residences may decrease.  In such an interest rate and/or mortgage financing climate, developers may be unable to generate sufficient income from the resale of single-family residential lots to repay loans from UDF, and developers’ costs of funds obtained from lenders in addition to us may increase, as well.  Accordingly, increases in single-family mortgage interest rates or decreases in the availability of mortgage financing could increase the number of defaults on development loans made by UDF, and correspondingly impact UDF’s ability to make payments under its line of credit.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed by the Company’s management, consisting of the individual who serves as our Chief Executive Officer and Chief Financial Officer, of the effectiveness of Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2008.  Based on such evaluation, management has concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

The Company does not control the financial reporting process, and is solely dependent on UMTHGS, its Advisor, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Advisor’s disclosure controls and procedures were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Management’s Report on Internal Control Over Financial Reporting

The management of UMTHGS, the Company’s Advisor, is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

An evaluation was conducted under the supervision of management, and with the participation of the Advisor’s management, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, management concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2008. There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Management of UMTHGS, the Company’s Advisor, is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of March 31, 2008.  The internal control process of UMTHGS, as is applicable to the Company, was designed to provide reasonable assurance to Management regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:

The Company was a “non-accelerated filer” for the 2007 fiscal year.  Accordingly, the Company’s independent registered public accounting firm will be required to issue an initial audit report on the Company’s internal control over financial reporting for the 2008 fiscal year.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the first fiscal quarter of 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes to the risks to our business described in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 31, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There is currently no established public trading market for our shares. As an alternative means of providing limited liquidity for our shareholders, we maintain a share redemption plan (“SRP”).

Under our SRP, shareholders who have held the shares for at least one year are eligible to request that we repurchase their shares. In any consecutive 12 month period we may not repurchase more than 5% of the outstanding shares at the beginning of the 12 month period. The repurchase price is based on the value of our assets less our obligations or a fixed pricing schedule, as determined by the trustees' business judgment based on our book value, operations to date and general market and economic conditions and may not, in any event, exceed any current public offering price. We have also purchased a limited number of shares outside of our SRP from shareholders with special hardship considerations.

Share repurchases have been at prices between NAV, which is calculated and adjusted as necessary on a quarterly basis, and $20 per share. Shares repurchased at the lower price were 1) shares held by shareholders for less than 12 months or 2) shares purchased outside of our SRP.

The following table sets forth information relating to shares of beneficial interest repurchased into treasury during the period covered by this report.

Month	Total number of shares repurchased	Average Purchase Price	Total number of shares purchased as part of a publicly announced plan	Total number of shares purchased outside of plan
January	30,516	$19.36	24,989	5,526
February	40,756	$19.62	36,331	4,426
March	15,194	$19.62	13,558	1,636
Totals	86,466	$19.53	74,878	11,588

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit 31.1  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     

Exhibit 31.2 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

	UNITED MORTGAGE TRUST
Date: May 15, 2008	By	/s/ Christine A. Griffin
		President and Chief Executive Officer