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|   | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|------------------------------------------------------------------------------------------------|

|   | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|----------------------------------------------------------------------------------------------------|

| Virginia                                                                           | 52-1549373                                     |
|------------------------------------------------------------------------------------|------------------------------------------------|
| (State      or other jurisdiction of                                               | (I.R.S.      Employer                          |
| incorporation      or organization)                                                | Identification      No.)                       |
|                                                                               |                                           |
| 4991      Lake Brook Drive, Suite 100, Glen Allen, Virginia                        | 23060                                          |
| (Address      of principal executive offices)                                      | (Zip      Code)                                |
|                                                                               |                                           |
| (804)      217-5800(Registrant’s      telephone number, including area code) |
|                                                                               |
| Securities      registered pursuant to Section 12(b) of the Act:                   |
| Title of each class                                                                | Name of each exchange on which      registered |
| Common      Stock, $.01 par value                                                  | New      York Stock Exchange                   |
| Series      D 9.50% Cumulative ConvertiblePreferred      Stock, $.01 par value     |  New      York Stock Exchange             |
|                                                                               |                                           |
| Securities      registered pursuant to Section 12(g) of the Act: None              |

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| Large      accelerated filer | o                                                               | Accelerated    filer           | þ |
|------------------------------|-----------------------------------------------------------------|--------------------------------|--------|
| Non-accelerated      filer   | o  (Do      not check if a smaller reporting company) | Smaller reporting      company | o      |

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|           |          |                                                                                                                         | Page      Number |
|----------------|---------------|------------------------------------------------------------------------------------------------------------------------------|------------------|
| PART      I.   |          |                                                                                                                         |             |
|           | Item      1.  | Business                                                                                                                     | 1                |
|           | Item      1A. | Risk      Factors                                                                                                            | 7                |
|           | Item      1B. | Unresolved      Staff Comments                                                                                               | 23               |
|           | Item      2.  | Properties                                                                                                                   | 23               |
|           | Item      3.  | Legal      Proceedings                                                                                                       | 23               |
|           | Item      4.  | Reserved                                                                                                                     | 24               |
|           |          |                                                                                                                         |             |
| PART      II.  |          |                                                                                                                         |             |
|           | Item      5.  | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities | 25               |
|           | Item      6.  | Selected      Financial Data                                                                                                 | 27               |
|           | Item      7.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        | 27               |
|           | Item      7A. | Quantitative      and Qualitative Disclosures About Market Risk                                                              | 54               |
|           | Item      8.  | Financial      Statements and Supplementary Data                                                                             | 61               |
|           | Item      9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                               | 61               |
|           | Item      9A. | Controls      and Procedures                                                                                                 | 61               |
|           | Item      9B. | Other      Information                                                                                                       | 62               |
|           |          |                                                                                                                         |             |
| PART      III. | Item      10. | Directors,      Executive Officers and Corporate Governance                                                                  | 63               |
|           | Item      11. | Executive      Compensation                                                                                                  | 63               |
|           | Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     | 63               |
|           | Item      13. | Certain      Relationships and Related Transactions, and Director      Independence                                          | 63               |
|           | Item      14. | Principal      Accountant Fees and Services                                                                                  | 64               |
|           |          |                                                                                                                         |             |
| PART      IV.  | Item      15. | Exhibits,      Financial Statement Schedules                                                                                 | 65               |
|           |          |                                                                                                                         |             |
| SIGNATURES     |          | 68                                                                                                                           |
|           |          |                                                                                                                         |

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| ITEM      1. | BUSINESS |
|--------------|----------|

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| Name      (Age)                | Current      Title                                                                      | Business      Experience                                                                                                                                                                                                                                |
|--------------------------------|-----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Thomas      B. Akin (58)       | Chairman      of the Board and Chief Executive Officer                             | Chief      Executive Officer since February 2008; Chairman of the Board since 2003;      managing general partner of Talkot Capital, LLC since 1995.                                                                                               |
| Stephen      J. Benedetti (47) | Executive      Vice President, Chief Operating Officer and Chief Financial      Officer | Executive      Vice President and Chief Operating Officer since November 2005; Executive      Vice President and Chief Financial Officer from September 2001 to November      2005 and beginning again in February 2008.                           |
| Byron      L. Boston (51)      | Chief      Investment Officer                                                           | Chief      Investment Officer since April 2008; President of Boston Consulting Group      from November 2006 to April 2008; Vice Chairman and Executive Vice      President of Sunset Financial Resources, Inc. from January 2004 to October      2006. |

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| ITEM      1A. | RISK      FACTORS |
|---------------|-------------------|

|                                                    | Page      Number |
|---------------------------------------------------------|------------------|
| Risks      Related to Access to Credit Markets          | 7                |
| Risks      Related to Our Business                      | 8                |
| Risks      Related to Regulatory and Legal Requirements | 19               |
| Risks      Related to Owning Our Stock                  | 21               |

| -   | General      market and economic conditions; |
|---------------|----------------------------------------------|

| -   | The      actual or perceived financial condition of credit market participants      including banks, broker-dealers, hedge funds, and money-market funds,      among others; |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| -   | The      impact of governmental policies and/or regulations on institutions with      respect to activities in the creditmarkets; |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------|

| -   | Market      perception of asset quality and liquidity of securities in which we      invest; and |
|---------------|--------------------------------------------------------------------------------------------------|

| -   | Market      perception of our financial strength, our growth potential and the quality      of our assets. |
|---------------|------------------------------------------------------------------------------------------------------------|

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| ·   | interest      rate hedging can be expensive, particularly during periods of rising and      volatile interest rates; |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | available      interest rate hedges may not correspond directly with the interest rate      risk for which we seek protection; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      duration of the hedge may not match the duration of the related      liability; |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | the      amount of income that a REIT may earn from hedging transactions (other      than through taxable REIT subsidiaries) to offset interest rate losses may      be limited by U.S. federal income tax provisions governing      REITs; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      credit quality of the party owing money on the hedge may be downgraded to      such an extent that it impairs our ability to sell or assign our side of      the hedging transaction; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      party owing money in the hedging transaction may default on its obligation      to pay; |
|--------------------|--------------------------------------------------------------------------------------------------|

| ·   | the      value of derivatives used for hedging may be adjusted from time to time in      accordance with GAAP to reflect changes in fair value.  Downward      adjustments, or “mark-to-market losses,” would reduce our shareholders’      equity and book value; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | hedge      accounting under GAAP is extremely complex and any ineffectiveness of our      hedges under GAAP will impact our statement of  operations. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | If      we make frequent asset sales from our REIT entities to persons deemed      customers, we could be viewed as a “dealer,” and thus subject to 100%      prohibited transaction taxes or other entity level taxes on income from      such transactions. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Compliance      with the REIT income and asset rules may limit the type or extent of      hedging that we can undertake. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      ability to own non-real estate related assets and earn non-real estate      related income is limited.  Our ability to own equity interests      in other entities is limited.  If we fail to comply with these      limits, we may be forced to liquidate attractive assets on short notice on      unfavorable terms in order to maintain our REIT  status. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      ability to invest in taxable subsidiaries is limited under the REIT      rules.  Maintaining compliance with this limitation could      require us to constrain the growth of future taxable REIT      affiliates. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Notwithstanding      our NOL carryforwards, meeting minimum REIT dividend distribution      requirements could reduce our liquidity.  Earning non-cash REIT      taxable income could necessitate our selling assets, incurring debt, or      raising new equity in order to fund dividend  distributions. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Stock      ownership tests may limit our ability to raise significant amounts of      equity capital from one source. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

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| ITEM      1B. | UNRESOLVED      STAFF COMMENTS |
|---------------|--------------------------------|

| ITEM      2. | PROPERTIES |
|--------------|------------|

| ITEM      3. | LEGAL      PROCEEDINGS |
|--------------|------------------------|

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| ITEM      4. | RESERVED |
|--------------|----------|

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| ITEM      5. | MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER      PURCHASES OF EQUITY SECURITIES |
|--------------|------------------------------------------------------------------------------------------------------------------------------|

|                |   | High   |   |   | Low    |   |   | Dividends      Declared |   |
|---------------------|--------|--------|--------|--------|--------|--------|--------|-------------------------|--------|
| 2009:               |   |   |   |   |   |   |   |                    |   |
| First      quarter  |   | $      | 7.47   |   |   | $      | 6.30   |                    |   | $ | 0.23 |   |
| Second      quarter |   | $      | 8.70   |   |   | $      | 6.75   |                    |   | $ | 0.23 |   |
| Third      quarter  |   | $      | 8.92   |   |   | $      | 7.82   |                    |   | $ | 0.23 |   |
| Fourth      quarter |   | $      | 9.33   |   |   | $      | 7.80   |                    |   | $ | 0.23 |   |
|                |   |   |   |   |   |   |   |                    |   |   |   |   |
| 2008:               |   |   |   |   |   |   |   |                    |   |   |   |   |
| First      quarter  |   | $      | 9.90   |   |   | $      | 8.23   |                    |   | $ | 0.10 |   |
| Second      quarter |   | $      | 9.99   |   |   | $      | 8.50   |                    |   | $ | 0.15 |   |
| Third      quarter  |   | $      | 9.23   |   |   | $      | 6.52   |                    |   | $ | 0.23 |   |
| Fourth      quarter |   | $      | 8.00   |   |   | $      | 5.79   |                    |   | $ | 0.23 |   |

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|                                   |   | Cumulative      Total Stockholder Returns as of December 31, |   |
|----------------------------------------|--------|--------------------------------------------------------------|--------|
| Index                                  |   | 2004                                                         |   |   | 2005 |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
| Dynex      Capital, Inc.               |   | $                                                            | 100.00 |   |   | $ | 88.24 |   |   | $ | 90.67 |   |   | $ | 113.43 |   |   | $ | 91.43 |   |   | $ | 136.37 |   |
| S&P      500 (1)                   |   | $                                                            | 100.00 |   |   | $ | 104.21 |   |   | $ | 121.48 |   |   | $ | 128.14 |   |   | $ | 80.73 |   |   | $ | 102.10 |   |
| Bloomberg      Mortgage REIT Index (1) |   | $                                                            | 100.00 |   |   | $ | 83.56 |   |   | $ | 100.36 |   |   | $ | 54.42 |   |   | $ | 31.97 |   |   | $ | 40.63 |   |

| (1) | Cumulative      total return assumes reinvestment of dividends.  The source of      this information is Bloomberg and Standard & Poor’s, which management      believes to be reliable sources. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ITEM      6. | SELECTED      FINANCIAL DATA |
|--------------|------------------------------|

| Years      ended December 31,                                                           |   | 2009   |    |   | 2008   |   |    | 2007   |   |   | 2006    |   |   | 2005   |    |
|-----------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|
| (amounts      in thousands except share and per share data)                             |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |
| Net      interest income                                                                |   | $      | 24,565  |   |   | $      | 10,547  |   |   | $      | 10,683  |   |   | $      | 11,087  |   |   | $ | 11,889 |   |
| Net      interest income after (provision for) recapture of  loan      losses |   |   | 23,783  |   |   |   | 9,556   |   |   |   | 11,964  |   |   |   | 11,102  |   |   |   | 6,109 |   |
| Equity      in income (loss) of joint venture                                           |   |   | 2,400   |   |   |   | (5,733  | )      |   |   | 709     |   |   |   | (852    | ) |   |   | – |   |
| Loss      on capitalization of joint venture                                            |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (1,194  | ) |   |   | – |   |
| Gain      (loss) on sale of investments                                                 |   |   | 171     |   |   |   | 2,316   |   |   |   | 755     |   |   |   | (183    | ) |   |   | 9,609 |   |
| Impairment      charges                                                                 |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (2,474 | ) |
| Fair      value adjustments, net                                                        |   |   | 205     |   |   |   | 7,147   |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Other      (expense) income                                                             |   |   | (2,262  | )      |   |   | 7,467   |   |   |   | (533    | )      |   |   | 557     |   |   |   | 2,022 |   |
| General      and administrative expenses                                                |   |   | (6,716  | )      |   |   | (5,632  | )      |   |   | (3,996  | )      |   |   | (4,521  | ) |   |   | (5,681 | ) |
| Net      income                                                                         |   | $      | 17,581  |   |   | $      | 15,121  |   |   | $      | 8,899   |   |   | $      | 4,909   |   |   | $ | 9,585 |   |
| Net      income to common shareholders                                                  |   | $      | 13,571  |   |   | $      | 11,111  |   |   | $      | 4,889   |   |   | $      | 865     |   |   | $ | 4,238 |   |
| Net      income per common share:                                                       |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Basic                                                                                   |   | $      | 1.04    |   |   | $      | 0.91    |   |   | $      | 0.40    |   |   | $      | 0.07    |   |   | $ | 0.35 |   |
| Diluted                                                                                 |   | $      | 1.02    |   |   | $      | 0.91    |   |   | $      | 0.40    |   |   | $      | 0.07    |   |   | $ | 0.35 |   |
| Dividends      declared per share:                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Common                                                                                  |   | $      | 0.92    |   |   | $      | 0.71    |   |   | $      | – |   |   | $      | – |   |   | $ | – |   |
| Series D    Preferred                                                                   |   | $      | 0.95    |   |   | $      | 0.95    |   |   | $      | 0.95    |   |   | $      | 0.95    |   |   | $ | 0.95 |   |

|  As      of December 31,    |   | 2009   |       |   | 2008   |   |       | 2007   |   |   | 2006       |   |   | 2005   |       |
|----------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|------------|
| Investments                      |   | $      | 917,981    |   |   | $      | 572,255    |   |   | $      | 331,795    |   |   | $      | 401,186    |   |   | $ | 751,294 |   |
| Total      assets                |   |   | 958,062    |   |   |   | 607,191    |   |   |   | 374,758    |   |   |   | 466,557    |   |   |   | 805,976 |   |
| Repurchase      agreements       |   |   | 638,329    |   |   |   | 274,217    |   |   |   | 4,612      |   |   |   | 95,978     |   |   |   | 133,315 |   |
| Securitization      financing    |   |   | 143,081    |   |   |   | 177,157    |   |   |   | 203,199    |   |   |   | 210,135    |   |   |   | 513,140 |   |
| Total      liabilities           |   |   | 789,309    |   |   |   | 466,782    |   |   |   | 232,822    |   |   |   | 330,019    |   |   |   | 656,642 |   |
| Shareholders’      equity  |   |   | 168,753    |   |   |   | 140,409    |   |   |   | 141,936    |   |   |   | 136,538    |   |   |   | 149,334 |   |
| Common      shares outstanding   |   |   | 13,931,512 |   |   |   | 12,169,762 |   |   |   | 12,136,262 |   |   |   | 12,131,262 |   |   |   | 12,163,391 |   |
| Book      value per common share |   | $      | 9.08       |   |   | $      | 8.07       |   |   | $      | 8.22       |   |   | $      | 7.78       |   |   | $ | 7.65 |   |

| ITEM      7. | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS |
|--------------|-------------------------------------------------------------------------------------------------------|

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| ·   | Level      1 — Inputs are unadjusted, quoted prices in active markets for identical      assets or liabilities at the measurement date.  Our investments      included in Level 1 fair value generally are equity securities listed in      active markets. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 — Inputs (other than quoted prices included in Level 1) are either      directly or indirectly observable for the asset or liability through      correlation with market data at the measurement date and for the duration      of the instrument’s anticipated life.  Fair valued assets and      liabilities that are generally included in this category are Agency MBS,      which are valued based on the average of multiple dealer quotes that are      active in the Agency MBS market, and interest rate swaps, which are valued      using a third-party pricing service, and the valuations are tested with      internally developed models that apply readily observable market      variables. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      3 — Inputs reflect management’s best estimate of what market participants      would use in pricing the asset or liability at the measurement      date.  Consideration is given to the risk inherent in the      valuation technique and the risk inherent in the inputs to the      model.  Generally, assets and liabilities carried at fair value      and included in this category are non-Agency mortgage-backed securities,      delinquent property tax receivables and the obligation under payment      agreement liability. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (amounts      in thousands) |   | December      31, 2009 |    |   | December      31, 2008 |   |
|-----------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Agency      MBS:            |   |                   |    |   |                   |   |
| Hybrid ARMs                 |   | $                      | 293,428 |   |                   | $      | 217,800 |   |
| ARMs                        |   |                   | 297,002 |   |                   |   | 92,626 |   |
|                        |   |                   | 590,430 |   |                   |   | 310,426 |   |
| Fixed-rate                  |   |                   | 131     |   |                   |   | 194 |   |
|                        |   |                   | 590,561 |   |                   |   | 310,620 |   |
| Principal      receivable   |   |                   | 3,559   |   |                   |   | 956 |   |
|                        |   | $                      | 594,120 |   |                   | $      | 311,576 |   |

| (amounts      in thousands)           |   | December      31, 2009 |    |   | December      31, 2008 |   |
|---------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans, net: |   |                   |    |   |                   |   |
| Commercial                            |   | $                      | 150,371 |   |                   | $      | 170,806 |   |
| Single-family                         |   |                   | 62,100  |   |                   |   | 71,483 |   |
|                                  |   | $                      | 212,471 |   |                   | $      | 242,289 |   |

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|                                    |   | December      31, 2009    |    |   | December      31, 2008                  |   |
|-----------------------------------------|--------|---------------------------|---------|--------|-----------------------------------------|--------|
| (amounts      in thousands)             |   | Repurchase      agreement |    |   | Estimated      fair value of collateral |   |   | Repurchase      agreement |   |   | Estimated      fair value of collateral |   |
| Collateral      type:                   |   |                      |    |   |                                    |   |   |   |   |   |   |   |
| Agency MBS                              |   | $                         | 540,586 |   |                                    | $      | 575,386 |   |   | $ | 274,217 |   |   | $ | 300,277 |   |
| Non-Agency securities -      CMBS       |   |                      | 73,338  |   |                                    |   | 82,770 |   |   | ─ |   |   | ─ |   |
| Securitization financing bonds      (1) |   |                      | 24,405  |   |                                    |   | 34,431 |   |   | ─ |   |   | ─ |   |
|                                    |   | $                         | 638,329 |   |                                    | $      | 692,587 |   |   | $ | 274,217 |   |   | $ | 300,277 |   |

| (1) | The      securities collateralizing these repurchase agreements are two      securitization financing bonds, which were issued by trusts that we      consolidate and which were redeemed by us. Although these securities      remain outstanding, which enables us to finance them with repurchase      agreements, because we consolidate the trusts that issued these bonds,      they are eliminated in our consolidated financial    statements. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                | December      31, 2009                                      | December      31, 2008 |
|-------------------------------------|-------------------------------------------------------------|------------------------|
| (amounts      in thousands)         | Weighted      average original maturity (in      days) | Interest      rate     | Weighted      average original maturity (in      days) | Interest      rate |
| Collateral      type:               |                                                        |                   |   |   |
| Agency MBS                          | 64                                                          | 0.60%                  | 41 | 2.70% |
| Non-Agency securities -      CMBS   | 33                                                          | 1.73%                  | ─ | ─ |
| Securitization financing      bonds | 33                                                          | 1.59%                  | ─ | ─ |

| (amounts      in thousands)                            |   | December      31, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Securitization      financing bonds:                   |   |                   |    |   |                   |   |
| Fixed, secured by commercial      mortgage loans       |   | $                      | 119,713 |   |                   | $      | 149,584 |   |
| Variable, secured by single-family      mortgage loans |   |                   | 23,368  |   |                   |   | 27,573 |   |
|                                                   |   | $                      | 143,081 |   |                   | $      | 177,157 |   |

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|                                                 |   | December      31, 2009(amounts      in thousands) |    |
|------------------------------------------------------|--------|---------------------------------------------------|---------|
| Investment                                           |   | Investment      basis                             |    |   | Financing      (1) |   |   | Net invested      capital |   |   | Estimated      fair value of net invested capital |   |
| Agency      MBS (2)                                  |   | $                                                 | 594,120 |   |   | $ | 540,586 |   |   | $ | 53,534 |   |   | $ | 53,534 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized      mortgage loans: (3)            |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family      mortgage loans – 2002 Trust |   |                                              | 62,100  |   |   |   | 41,716 |   |   |   | 20,384 |   |   |   | 13,911 |   |
| Commercial      mortgage loans – 1993 Trust    |   |                                              | 11,574  |   |   |   | 6,057 |   |   |   | 5,517 |   |   |   | 5,762 |   |
| Commercial      mortgage loans – 1997 Trust    |   |                                              | 138,797 |   |   |   | 119,713 |   |   |   | 19,084 |   |   |   | 10,235 |   |
|                                                 |   |                                              | 212,471 |   |   |   | 167,486 |   |   |   | 44,985 |   |   |   | 29,908 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities  (4)            |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                                 |   |                                              | 103,203 |   |   |   | 73,338 |   |   |   | 29,865 |   |   |   | 29,865 |   |
| RMBS                                                 |   |                                              | 5,907   |   |   | ─ |   |   |   | 5,907 |   |   |   | 5,907 |   |
|                                                 |   |                                              | 109,110 |   |   |   | 73,338 |   |   |   | 35,772 |   |   |   | 35,772 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      investments                               |   |                                              | 2,280   |   |   | ─ |   |   |   | 2,280 |   |   |   | 2,079 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                |   | $                                                 | 917,981 |   |   | $ | 781,410 |   |   | $ | 136,571 |   |   | $ | 121,293 |   |

| (1) | Financing      includes repurchase agreements and securitization financing issued to      third parties. |
|-----|----------------------------------------------------------------------------------------------------------|

| (2) | Estimated      fair values are based on a third-party pricing service and dealer      quotes.  Net invested capital excludes cash maintained to      support investment in Agency MBS financed with repurchase agreement      borrowings. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Estimated      fair values are based on discounted cash flows using assumptions set forth      in the table below, inclusive of amounts invested in unredeemed      securitization financing bonds. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Estimated      fair values are calculated as the net present value of expected future      cash flows. |
|-----|--------------------------------------------------------------------------------------------------------|

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|                                                 | Fair      Value Assumptions                                 |
|------------------------------------------------------|-------------------------------------------------------------|
| Investment      type                                 | Approximate      year of investment origination or issuance | Weighted-average      prepayment speeds(1) | Projected      annual losses (2) | Weighted-averagediscount      rate(3) |
|                                                 |                                                        |   |   |   |
| Single-family      mortgage loans – 2002 Trust | 1994                                                        | 15%      CPR | 0.2% | 11% |
| Commercial      mortgage loans – 1993 Trust    | 1993                                                        | 0%      CPR | 0.8% | 11% |
| Commercial      mortgage loans – 1997 Trust    | 1997                                                        | 20%      CPY(4) | 1.5% | 21% |
|                                                 |                                                        |   |   |   |
| Non-Agency      CMBS                                 | 1998                                                        | 20%      CPY(4) | 0.0% | 6% |
|                                                 |                                                        |   |   |   |

| (1) | Assumed      CPR speeds generally are governed by underlying pool      characteristics.  Loans currently delinquent in excess of 30      days are assumed to be liquidated in six months at a loss amount that is      calculated for each loan based on its specific  facts. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Management’s      estimate of losses that would be used by a third party in valuing these or      similar assets. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

| (3) | Represents      management’s estimate of the market discount rate that would be used by a      third party in valuing these or similarassets. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | CPR      with yield maintenance provision.  20% CPY assumes a CPR of 20%      per annum on the pool upon expiration of the prepayment lock-out      period. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | December      31, 2008(amounts      in thousands) |    |
|------------------------------------------------------|--------|---------------------------------------------------|---------|
| Investment                                           |   | Investment      basis                             |    |   | Financing(1) |   |   | Net      invested capital |   |   | Estimated      fair value of net invested capital |   |
| Agency      MBS (2)                                  |   | $                                                 | 311,576 |   |   | $ | 274,217 |   |   | $ | 37,359 |   |   | $ | 37,359 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized      mortgage loans: (3)            |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family      mortgage loans – 2002 Trust |   |                                              | 71,483  |   |   |   | 27,573 |   |   |   | 43,910 |   |   |   | 35,594 |   |
| Commercial      mortgage loans – 1993 Trust    |   |                                              | 21,314  |   |   |   | 18,218 |   |   |   | 3,096 |   |   |   | 3,307 |   |
| Commercial      mortgage loans – 1997 Trust    |   |                                              | 149,492 |   |   |   | 139,900 |   |   |   | 9,592 |   |   | ─ |   |
|                                                 |   |                                              | 242,289 |   |   |   | 185,691 |   |   |   | 56,598 |   |   |   | 38,901 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities  (4)            |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                                 |   | ─                                           |    |   | ─ |   |   | ─ |   |   | ─ |   |
| RMBS                                                 |   |                                              | 6,259   |   |   | ─ |   |   |   | 6,259 |   |   |   | 6,259 |   |
|                                                 |   |                                              | 6,259   |   |   | ─ |   |   |   | 6,259 |   |   |   | 6,259 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      in joint venture (5)                 |   |                                              | 5,655   |   |   | ─ |   |   |   | 5,655 |   |   |   | 5,595 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      investments                               |   |                                              | 6,476   |   |   | ─ |   |   |   | 6,476 |   |   |   | 6,099 |   |
|                                                 |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                |   | $                                                 | 572,255 |   |   | $ | 459,908 |   |   | $ | 112,347 |   |   | $ | 94,213 |   |

| (1) | Financing      includes repurchase agreements and securitization financing issued to      third parties.  Financing for the 1997 Trust also includes our      obligation under payment agreement, which at December 31, 2008 had a      balance of $8,534. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Estimated      fair values are based on a third-party pricing service and dealer      quotes. |
|-----|-----------------------------------------------------------------------------------------------|

| (3) | Estimated      fair values are based on discounted cash flows and are inclusive of      amounts invested in unredeemed securitization financing    bonds. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Estimated      fair values are calculated as the net present value of expected future      cash flows. |
|-----|--------------------------------------------------------------------------------------------------------|

| (5) | Estimated      fair values for investment in joint venture represents our share of the      estimated fair value of the joint venture’s  assets. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (amounts      in thousands)                |   | December      31, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Investments      by rating classification: |   |                   |    |   |                   |   |
| Agency      MBS                            |   | $                      | 53,534  |   |                   | $      | 37,359 |   |
| AAA      rated non-Agency securities       |   |                   | 42,793  |   |                   |   | 40,622 |   |
| AA      and A rated non-Agency securities  |   |                   | 355     |   |                   |   | 337 |   |
| Securitization      overcollateralization  |   |                   | 33,116  |   |                   |   | 21,457 |   |
| Unrated      and non-investment grade      |   |                   | 6,773   |   |                   |   | 6,917 |   |
| Investment      in joint venture           |   | ─                |    |   |                   | 5,655  |   |
| Net      invested capital                  |   | $                      | 136,571 |   |                   | $      | 112,347 |   |

| (amounts      in thousands)            |   | December      31, 2009 |    |   | December      31, 2008 |    |
|----------------------------------------|--------|------------------------|---------|--------|------------------------|---------|
| Net      invested capital              |   | $                      | 136,571 |   |                   | $       | 112,347 |   |
| Cash      and cash equivalents         |   |                   | 30,173  |   |                   |    | 27,309 |   |
| Derivative      assets                 |   |                   | 1,008   |   |                   | ─ |   |
| Accrued      interest, net             |   |                   | 3,375   |   |                   |    | 1,559 |   |
| Other      assets and liabilities, net |   |                   | (2,374  | )      |                   |    | (806 | ) |
| Shareholders’      equity        |   | $                      | 168,753 |   |                   | $       | 140,409 |   |

|                                |   | Year      Ended December 31, |   |
|-------------------------------------|--------|------------------------------|--------|
| (amounts      in thousands)         |   | 2009                         |   |   | 2008 |   |
| Interest      income - Investments: |   |                         |   |   |   |   |
| Agency MBS                          |   | $                            | 20,962 |   |   | $ | 6,731 |   |
| Securitized mortgage      loans     |   |                         | 17,169 |   |   |   | 20,886 |   |
| Non-Agency      securities          |   |                         | 863    |   |   |   | 709 |   |
| Other    investments                |   |                         | 226    |   |   |   | 642 |   |
| Cash and cash      equivalents      |   |                         | 16     |   |   |   | 685 |   |
|                                |   | $                            | 39,236 |   |   | $ | 29,653 |   |

----

|                             |   | Year      Ended December 31, |   |
|----------------------------------|--------|------------------------------|--------|
|                             |   | 2009                         |   |   | 2008 |   |
| (amounts      in thousands)      |   | Interest      Income         |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Securitized      mortgage loans: |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                       |   | $                            | 13,506 |   |   | $ | (32 | ) |   | $ | 13,474 |   |   | $ | 15,282 |   |   | $ | 409 |   |   | $ | 15,691 |   |
| Single-family                    |   |                         | 3,710  |   |   |   | (15 | ) |   |   | 3,695 |   |   |   | 5,474 |   |   |   | (279 | ) |   |   | 5,195 |   |
|                             |   | $                            | 17,216 |   |   | $ | (47 | ) |   | $ | 17,169 |   |   | $ | 20,756 |   |   | $ | 130 |   |   | $ | 20,886 |   |

----

|                                    |   | Year      Ended December 31, |   |
|-----------------------------------------|--------|------------------------------|--------|
| (amounts      in thousands)             |   | 2009                         |   |   | 2008 |   |
| Interest      expense:                  |   |                         |   |   |   |   |
| Securitization      financing           |   | $                            | 9,801  |   |   | $ | 13,416 |   |
| Repurchase      agreements              |   |                         | 3,288  |   |   |   | 4,079 |   |
| Obligation under payment      agreement |   |                         | 1,589  |   |   |   | 1,608 |   |
| Other                                   |   |                         | (7     | ) |   |   | 3 |   |
|                                    |   | $                            | 14,671 |   |   | $ | 19,106 |   |

|                           |   | Year      Ended December 31, |   |
|--------------------------------|--------|------------------------------|--------|
|                           |   | 2009                         |   |   | 2008 |   |
| (amounts      in thousands)    |   | Interest      Expense        |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Securitization      financing: |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                     |   | $                            | 10,797 |   |   | $ | (1,472 | ) |   | $ | 9,325 |   |   | $ | 12,903 |   |   | $ | (995 | ) |   | $ | 11,908 |   |
| Single-family                  |   |                         | 171    |   |   |   | 128 |   |   |   | 299 |   |   |   | 995 |   |   |   | 155 |   |   |   | 1,150 |   |
| Other bond related      costs  |   |                         | 177    |   |   |   | – |   |   |   | 177 |   |   |   | 358 |   |   |   | – |   |   |   | 358 |   |
|                           |   | $                            | 11,145 |   |   | $ | (1,344 | ) |   | $ | 9,801 |   |   | $ | 14,256 |   |   | $ | (840 | ) |   | $ | 13,416 |   |

----

|                                                                        |   | Year      Ended December 31, |   |
|-----------------------------------------------------------------------------|--------|------------------------------|--------|
| (amounts      in thousands)                                                 |   | 2009                         |   |   | 2008 |   |
| Interest      expense:                                                      |   |                         |   |   |   |   |
| Repurchase agreements      collateralized by Agency MBS                     |   | $                            | 2,847  |   |   | $ | 3,978 |   |
| Repurchase agreements      collateralized by securitization financing bonds |   |                         | 409    |   |   |   | 101 |   |
| Repurchase agreements      collateralized by CMBS                           |   |                         | 32     |   |   |   | – |   |
|                                                                        |   | $                            | 3,288  |   |   | $ | 4,079 |   |

----

|                                |   | Year      Ended December 31, |   |
|-------------------------------------|--------|------------------------------|--------|
| (amounts      in thousands)         |   | 2008                         |   |   | 2007 |   |
| Interest      income - Investments: |   |                         |   |   |   |   |
| Agency MBS                          |   | $                            | 6,731  |   |   | $ | 110 |   |
| Securitized mortgage      loans     |   |                         | 20,886 |   |   |   | 26,424 |   |
| Other    investments                |   |                         | 1,351  |   |   |   | 1,633 |   |
| Cash and cash      equivalents      |   |                         | 685    |   |   |   | 2,611 |   |
|                                |   | $                            | 29,653 |   |   | $ | 30,778 |   |

----

|                             |   | Year      Ended December 31, |   |
|----------------------------------|--------|------------------------------|--------|
|                             |   | 2008                         |   |   | 2007 |   |
| (amounts      in thousands)      |   | Interest      Income         |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Securitized      mortgage loans: |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                       |   | $                            | 15,282 |   |   | $ | 409 |   |   | $ | 15,691 |   |   | $ | 18,114 |   |   | $ | 485 |   |   | $ | 18,599 |   |
| Single-family                    |   |                         | 5,474  |   |   |   | (279 | ) |   |   | 5,195 |   |   |   | 7,887 |   |   |   | (62 | ) |   |   | 7,825 |   |
|                             |   | $                            | 20,756 |   |   | $ | 130 |   |   | $ | 20,886 |   |   | $ | 26,001 |   |   | $ | 423 |   |   | $ | 26,424 |   |

|                                    |   | Year      Ended December 31, |   |
|-----------------------------------------|--------|------------------------------|--------|
| (amounts      in thousands)             |   | 2008                         |   |   | 2007 |   |
| Interest      expense:                  |   |                         |   |   |   |   |
| Securitization      financing           |   | $                            | 13,416 |   |   | $ | 14,999 |   |
| Repurchase      agreements              |   |                         | 4,079  |   |   |   | 3,546 |   |
| Obligation under payment      agreement |   |                         | 1,608  |   |   |   | 1,525 |   |
| Other                                   |   |                         | 3      |   |   |   | 25 |   |
|                                    |   | $                            | 19,106 |   |   | $ | 20,095 |   |

----

|                           |   | Year      Ended December 31, |   |
|--------------------------------|--------|------------------------------|--------|
|                           |   | 2008                         |   |   | 2007 |   |
| (amounts      in thousands)    |   | Interest      Expense        |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Securitization      financing: |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                     |   | $                            | 12,903 |   |   | $ | (995 | ) |   | $ | 11,908 |   |   | $ | 15,856 |   |   | $ | (1,831 | ) |   | $ | 14,025 |   |
| Single-family                  |   |                         | 995    |   |   |   | 155 |   |   |   | 1,150 |   |   |   | 387 |   |   |   | 62 |   |   |   | 449 |   |
| Other bond related      costs  |   |                         | 358    |   |   |   | – |   |   |   | 358 |   |   |   | 525 |   |   |   | – |   |   |   | 525 |   |
|                           |   | $                            | 14,256 |   |   | $ | (840 | ) |   | $ | 13,416 |   |   | $ | 16,768 |   |   | $ | (1,769 | ) |   | $ | 14,999 |   |

----

----

|                                                  |   | Year      ended December 31, |    |
|-------------------------------------------------------|--------|------------------------------|---------|
| (amounts      in thousands)                           |   | 2009                         |    |   | 2008 |   |   | 2007 |   |
|                                                  |   | AverageBalance(1)(2)         |    |   | EffectiveRate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveRate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveRate(3) |   |
| Agency MBS                                            |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency MBS                                            |   | $                            | 492,900 |   |   |   | 4.25 | % |   | $ | 149,229 |   |   |   | 4.51 | % |   | $ | 1,214 |   |   |   | 9.03 | % |
| Repurchase      agreements                            |   |                         | 448,279 |   |   |   | 0.63 | % |   |   | 134,252 |   |   |   | 2.96 | % |   |   | – |   |   |   | – | % |
| Net interest    spread                                |   |                         |    |   |   |   | 3.62 | % |   |   |   |   |   |   | 1.55 | % |   |   |   |   |   |   | 9.03 | % |
|                                                  |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                            |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                       |   | $                            | 233,120 |   |   |   | 7.36 | % |   | $ | 262,482 |   |   |   | 7.95 | % |   | $ | 315,962 |   |   |   | 8.35 | % |
| Securitization financing      (4)                     |   |                         | 156,891 |   |   |   | 6.13 | % |   |   | 190,234 |   |   |   | 6.86 | % |   |   | 201,148 |   |   |   | 7.19 | % |
| Repurchase      agreements                            |   |                         | 20,869  |   |   |   | 1.96 | % |   |   | 3,201 |   |   |   | 3.15 | % |   |   | 64,231 |   |   |   | 5.45 | % |
| Net interest    spread                                |   |                         |    |   |   |   | 1.71 | % |   |   |   |   |   |   | 1.15 | % |   |   |   |   |   |   | 1.56 | % |
|                                                  |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency Securities and Other Investments,      Net |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| All other investments(5)                              |   | $                            | 14,620  |   |   |   | 7.45 | % |   | $ | 12,203 |   |   |   | 11.07 | % |   | $ | 15,908 |   |   |   | 10.26 | % |
| Repurchase      agreements                            |   |                         | 1,808   |   |   |   | 1.75 | % |   | –    |   |   | ─% |   |   | ─    |   |   | ─% |   |
| Net interest    spread                                |   |                         |    |   |   |   | 5.70 | % |   |   |   |   |   |   | 11.07 | % |   |   |   |   |   |   | 10.26 | % |
|                                                  |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                 |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning      assets                          |   | $                            | 740,640 |   |   |   | 5.29 | % |   | $ | 423,914 |   |   |   | 6.83 | % |   | $ | 333,084 |   |   |   | 8.45 | % |
| Interest-bearing      liabilities                     |   |                         | 627,848 |   |   |   | 2.05 | % |   |   | 327,687 |   |   |   | 5.23 | % |   |   | 265,379 |   |   |   | 6.77 | % |
| Net interest    spread                                |   |                         |    |   |   |   | 3.24 | % |   |   |   |   |   |   | 1.60 | % |   |   |   |   |   |   | 1.68 | % |
|                                                  |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1)   | Average      balances are calculated as a simple average of the daily balances and      exclude unrealized gains and losses on available-for-sale      securities. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Average      balances exclude funds held by trustees except defeased funds held by      trustees. |
|-----------------|---------------------------------------------------------------------------------------------------|

| (3)   | Certain      income and expense items of a one-time nature are not annualized for the      calculation of effective rates.  Examples of such one-time items      include retrospective adjustments of discount and premium amortization      arising from adjustments of effective interest  rates. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Effective      rates are calculated excluding non-interest related securitization      financing expenses. |
|-----------------|------------------------------------------------------------------------------------------------------------|

| (5)   | Because      the majority of non-Agency securities outstanding as of December 31, 2009      were not acquired until December 2009, average balances are combined with      “Other investments, net”. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| (amounts      in thousands)                |   | Payments      due by period |    |
|--------------------------------------------|--------|-----------------------------|---------|
| Contractual Obligations:      (1)          |   | Total                       |    |   | <      1 year |   |   | 1-3      years |   |   | 3-5      years |   |   | >      5 years |   |
|                                       |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitization      financing (2)      (3) |   | $                           | 180,729 |   |   | $ | 30,669 |   |   | $ | 81,989 |   |   | $ | 62,038 |   |   | $ | 6,033 |   |
| Repurchase      agreements (2)             |   |                        | 638,329 |   |   |   | 638,329 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Operating      lease obligations           |   |                        | 625     |   |   |   | 150 |   |   |   | 475 |   |   |   | – |   |   |   | – |   |
| Total                                      |   | $                           | 819,683 |   |   | $ | 669,148 |   |   | $ | 82,464 |   |   | $ | 62,038 |   |   | $ | 6,033 |   |

| (1) | As      the master servicer for certain of the series of non-recourse      securitization financing securities which we have issued, and certain      loans which have been securitized but for which we are not the master      servicer, we have an obligation to advance scheduled principal and      interest on delinquent loans in accordance with the underlying servicing      agreements should the primary servicer of the loan fail to make such      advance.  Such advance amounts are generally repaid in the same      month as they are made or shortly thereafter, and so the contractual      obligation with respect to these advances is excluded from the above      table.  During 2009, our average monthly servicing advance was      $0.3 million compared to $0.2 million for2008. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Amounts      presented include estimated principal and interest on the related      obligations. |
|-----|--------------------------------------------------------------------------------------------------|

| (3) | Securitization      financing is non-recourse to us as the bonds are payable solely from loans      and securities pledged as securitized mortgage loans.  Payments      due by period were estimated based on the principal repayments forecast      for the underlying loans, substantially all of which is used to repay the      associated securitization financingoutstanding. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| ·   | The      success of our business is predicated on our access to the credit      markets.  Failure to access credit markets on reasonable terms,      or at all, could adversely affect our profitability and may, in turn,      negatively affect the market price of shares of our common      stock. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      invest in securities where the timely receipt of principal and interest is      guaranteed by Fannie Mae and Freddie Mac.  Both Fannie Mae and      Freddie Mac are currently under federal conservatorship, and the Treasury      has committed to purchasing preferred stock from each of these entities in      order to ensure their adequate capitalization.  Efforts made to      stabilize Fannie Mae and Freddie Mac may prove unsuccessful, which may      impact their ability to perform under the guaranty.  If Fannie      Mae and Freddie Mac are unable to perform on their guaranty, we are likely      to incur losses on our investments in Agency  MBS. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      federal conservatorship of Fannie Mae and Freddie Mac may lead to      structural changes in Agency MBS and/or Fannie Mae and Freddie Mac which      may adversely affect our business. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Attempts      to stabilize the housing and mortgage market have resulted in the Treasury      and Federal Reserve buying fixed-rate Agency MBS in an effort to lower      overall mortgage rates.   During 2009, the Treasury and the      Federal Reserve purchased approximately $1.3 trillion in Agency MBS, or      81%, of the estimated $1.6 trillion of Agency MBS issued during      2009.  When the Treasury and the Federal Reserve discontinue      their purchases of Agency MBS, this may result in an increase in mortgage      rates and substantial volatility in Agency MBS  prices. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Mortgage      loan modification programs and future legislative action may adversely      affect the value of and the return on the single-family loans and      securities in which we invest. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Changes      in prepayment rates on the mortgage loans underlying our investments may      adversely affect our profitability and subject us to reinvestment      risk. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Fannie      Mae and Freddie Mac have recently announced a change in their policy of      purchasing delinquent loans included in Agency MBS pools, which could      increase prepayment rates on Agency MBS we currently  own. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A      flat or inverted yield curve may adversely affect prepayment rates and      supply of Hybrid ARMs and ARMs. |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | A      decrease or lack of liquidity in our investments may adversely affect our      business, including our ability to value and sell our    assets. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Changes      to the availability and terms of leverage used to finance our business may      adversely affect our profitability and result in losses and/or reduced      cash available for distribution to our  shareholders. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | If      a lender to us in a repurchase transaction defaults on its obligation to      resell the underlying security back to us at the end of the transaction      term, or if we default on our obligations under a repurchase agreement, we      will incur losses. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A      decline in the market value of our assets may cause our book value to      decline and may result in margin calls that may force us to sell assets      under adverse market conditions. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Adverse      developments involving major financial institutions or one of our lenders      could also result in a rapid reduction in our ability to borrow and      adversely affect our business andprofitability. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      ownership of securitized mortgage loans subjects us to credit risk and,      although we provide for an allowance for loan losses on these loans as      required under GAAP, the loss reserves are based on      estimates.  As a result, actual losses incurred may be larger      than our reserves, requiring us to provide additional reserves, which will      impact our financial position and results of  operations. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      efforts to manage credit risk may not be successful in limiting      delinquencies and defaults in underlying loans or losses on our      investments. If we experience higher than anticipated delinquencies and      defaults, our earnings and our cash flow may be negatively      impacted. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      invest in commercial mortgage loans and CMBS collateralized by commercial      mortgage loans which are secured by income producing      properties.  Such loans are typically made to single-asset      entities and the repayment of the loan is dependent principally on the      performance and value of the underlying property.  The      volatility of certain mortgaged property values may adversely affect our      CMBS. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Certain      investments employ internal structural leverage as a result of the      securitization process and are in the most subordinate position in the      capital structure, which magnifies the potential impact of adverse events      on our cash flows. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Guarantors      may fail to perform on their obligations to our securitization trusts,      which could result in additional losses to our  Company. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      may be subject to the risks associated with inadequate or untimely      services from third-party service providers, which may harm our results of      operations. We also rely on corporate trustees to act on behalf of us and      other holders of securities in enforcing our  rights. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Credit      ratings assigned to debt securities by the credit rating agencies may not      accurately reflect the risks associated with those      securities.   Changes in credit ratings for securities we      own or for similar securities might negatively impact the market value of      these securities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Fluctuations      in interest rates may have various negative effects on us and could lead      to reduced profitability and a lower bookvalue. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Interest      rate caps on the adjustable rate mortgage loans collateralizing our      investments may adversely affect our profitability if interest rates      increase. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      use of hedging strategies to mitigate our interest rate exposure may not      be effective, may adversely affect our income, may expose us to      counterparty risks, and may increase our contingent      liabilities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      may change our investment strategy, operating policies, dividend policy      and/or asset allocations without shareholder  consent. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Competition      may prevent us from acquiring new investments at favorable yields, and we      may not be able to achieve our investment objectives which may potentially      have a negative impact on ourprofitability. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | New      assets we acquire may not generate yields as attractive as yields on our      current assets, resulting in a decline in our earnings per share over      time. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Loss      of key management could result in material adverse effects on our      business. |
|--------------------|--------------------------------------------------------------------------------------------|

----

| ·   | Our      Chairman and Chief Executive Officer devotes a portion of his time to      another company in a capacity that could create conflicts of interest that      may harm our investment opportunities; this lack of a full-time commitment      could also harm our operatingresults. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Qualifying      as a REIT involves highly technical and complex provisions of the Code,      and a technical or inadvertent violation could jeopardize our REIT      qualification.  Maintaining our REIT status may reduce our      flexibility to manage ouroperations. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | If      we do not qualify as a REIT or fail to remain qualified as a REIT, we may      be subject to tax as a regular corporation and could face a tax liability,      which would reduce the amount of cash available for distribution to our      stockholders. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      failure of investments subject to repurchase agreements to qualify as real      estate assets could adversely affect our ability to qualify as a      REIT. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Even      if we remain qualified as a REIT, we may face other tax liabilities that      reduce our cash flow and ourprofitability. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

| ·   | If      we fail to maintain our REIT status, our ability to utilize repurchase      agreements as a source of financing may be  impacted. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Certain      of our securitization trusts, which qualify as “taxable mortgage pools,”      require us to maintain equity interests in the securitization      trusts.  If we do not, our profitability and cash flow may be      reduced. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      reported income depends on GAAP and conventions in applying GAAP which are      subject to change in the future and which may not have a favorable impact      on our reported income. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Estimates      are inherent in the process of applying GAAP, and management may not      always be able to make estimates which accurately reflect actual results,      which may lead to adverse changes in our reported GAAP      results. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In      the event of bankruptcy either by ourselves or one or more of our third      party lenders, assets pledged as collateral under repurchase agreements      may not be recoverable by us.  We may incur losses equal to the      excess of the collateral pledged over the amount of the associated      repurchase agreement borrowing. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | If      we fail to properly conduct our operations we could become subject to      regulation under the Investment Company Act of 1940. Conducting our      business in a manner so that we are exempt from registration under and      compliance with the Investment Company Act of 1940 may reduce our      flexibility and could limit our ability to pursue certain      opportunities. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      stock ownership limit imposed by the Code for REITs and our Articles of      Incorporation may restrict our business combination opportunities. The      stock ownership limitation may also result in reduced liquidity in our      stock and may result in losses to an acquiring  shareholder. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Dividends      payable by REITs do not qualify for the reduced tax rates available for      some dividends. |
|--------------------|-------------------------------------------------------------------------------------------------------------|

| ·   | Recognition      of excess inclusion income by us could have adverse consequences to us or      our shareholders. |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ITEM      7A. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK |
|---------------|----------------------------------------------------------------|

----

----

|                                  |   | December      31, 2009    |    |
|---------------------------------------|--------|---------------------------|---------|
| Investment(amounts      in thousands) |   | Amortized      Cost Basis |    |   | Amount      of Guaranty |   | Guarantor |   | Average      Credit Rating of Guarantor (1) |   |
| With      Guaranty of Payment         |   |                      |    |   |   |   |   |   |   |   |
| Agency MBS                            |   | $                         | 594,120 |   |   | $ | 566,656 |   | Fannie      Mae/Freddie Mac |   | AAA |   |
| Securitized mortgage      loans:      |   |                      |    |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                      | 59,684  |   |   |   | 6,359 |   | American      International Group |   |  A3 |   |
| Single-family                         |   |                      | 20,369  |   |   |   | 20,029 |   | PMI/GEMICO |   | Caa2 |   |
| Defeased loans                        |   |                      | 17,492  |   |   |   | 17,588 |   | Fully      secured with cash |   |   |   |   |
|                                  |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Without      Guaranty of Payment      |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans:      |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                      | 77,130  |   |   |   | – |   |   |   |   |   |   |
| Single-family                         |   |                      | 42,008  |   |   |   | – |   |   |   |   |   |   |
| Non-Agency      securities            |   |                      | 109,110 |   |   |   | – |   |   |   |   |   |   |
| Otherinvestments                      |   |                      | 2,376   |   |   |   | – |   |   |   |   |   |   |
|                                  |   |                      | 922,289 |   |   |   | 610,632 |   |   |   |   |   |   |
|                                  |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses        |   |                      | (4,308  | ) |   |   | – |   |   |   |   |   |   |
|                                  |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Totalinvestments                      |   | $                         | 917,981 |   |   | $ | 610,632 |   |   |   |   |   |   |

|                                  |   | December      31, 2008    |    |
|---------------------------------------|--------|---------------------------|---------|
| Investment(amounts      in thousands) |   | Amortized      Cost Basis |    |   | Amount      of Guaranty |   | Guarantor |   | Average      Credit Rating of Guarantor (1) |   |
| With      Guaranty of Payment         |   |                      |    |   |   |   |   |   |   |   |
| Agency MBS                            |   | $                         | 311,576 |   |   | $ | 306,592 |   | Fannie      Mae/Freddie Mac |   | AAA |   |
| Securitized mortgage      loans:      |   |                      |    |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                      | 65,067  |   |   |   | 6,935 |   | American      International Group |   |  A3 |   |
| Single-family                         |   |                      | 22,959  |   |   |   | 22,621 |   | PMI/GEMICO |   | B3/Baa1 |   |
| Defeased loans                        |   |                      | 11,072  |   |   |   | 11,118 |   | Fully      secured with cash |   |   |   |   |
|                                  |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Without      Guaranty of Payment      |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans:      |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                      | 98,194  |   |   |   | – |   |   |   |   |   |   |
| Single-family                         |   |                      | 48,704  |   |   |   | – |   |   |   |   |   |   |
| Investment in joint      venture      |   |                      | 5,655   |   |   |   | – |   |   |   |   |   |   |
| Non-Agency      securities            |   |                      | 6,259   |   |   |   | – |   |   |   |   |   |   |
| Otherinvestments                      |   |                      | 6,476   |   |   |   | – |   |   |   |   |   |   |
|                                  |   |                      | 575,962 |   |   |   | 347,266 |   |   |   |   |   |   |
|                                  |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses        |   |                      | (3,707  | ) |   |   | – |   |   |   |   |   |   |
|                                  |   |                      |    |   |   |   |   |   |   |   |   |   |   |
| Totalinvestments                      |   | $                         | 572,255 |   |   | $ | 347,266 |   |   |   |   |   |   |

| (1) | Reflects      lowest rating of the three nationally-recognized ratings agencies for the      senior unsecured debt of theguarantor. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------|

----

|                                  |   | As      of December 31, 2009       |    |
|---------------------------------------|--------|------------------------------------|---------|
| Investment(amounts      in thousands) |   | Amortized      Cost Basis of loans |    |   | Average      Seasoning (in      years) |   |   | Current      Loan-to-Value based on Original Appraised Value |   |   | Amortized      Cost Basis of Delinquent Loans(1) |   |   | Delinquency      % |   |
| Commercial      mortgage loans        |   | $                                  | 150,017 |   |   |   | 13 |   |   |   | 47 | % |   | $ | 15,165 |   |   |   | 9.77 | % |
| Single-family      mortgage loans     |   |                               | 62,100  |   |   |   | 15 |   |   |   | 50 | % |   |   | 6,284 | (2) |   |   | 9.96 | % |

|                                  |   | As      of December 31, 2008       |    |
|---------------------------------------|--------|------------------------------------|---------|
| Investment(amounts      in thousands) |   | Amortized      Cost Basis of loans |    |   | Average      Seasoning (in      years) |   |   | Current      Loan-to-Value based on Original Appraised Value |   |   | Amortized      Cost Basis of Delinquent Loans(1) |   |   | Delinquency      % |   |
| Commercial      mortgage loans        |   | $                                  | 174,185 |   |   |   | 13 |   |   |   | 50 | % |   | $ | 3,080 |   |   |   | 1.77 | % |
| Single-family      mortgage loans     |   |                               | 71,663  |   |   |   | 15 |   |   |   | 53 | % |   |   | 6,068 | (2) |   |   | 8.47 | % |

| (1) | Loans      contractually delinquent by 30 or more days, which included loans on      non-accrual status. |
|-----|----------------------------------------------------------------------------------------------------------|

| (2) | As      of December 31, 2009, approximately $1.9 million of the delinquent      single-family loans are pool insured and, of the remaining $4.4 million,      $1.9 million of the loans made a payment within the 90 days prior to      December 31, 2009. As of December 31, 2008, approximately $1.9 million of      the delinquent single-family loans were pool insured and, of the remaining      $4.2 million, $3.6 million of the loans made a payment within the 90 days      prior to December 31, 2008. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Months      remaining to end of compliance period |   | December      31, 2009 |   |   | December      31, 2008 |   |
|---------------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
| Compliance      period already exceeded           |   |                   | 38.5   | %      |                   |   | 25.9 | % |
| Up      to one year remaining                     |   |                   | 37.1   |   |                   |   | 21.2 |   |
| Between      one and three years remaining        |   |                   | 24.4   |   |                   |   | 52.0 |   |
| Between      four and six years remaining         |   |                   | 0.0    |   |                   |   | 0.9 |   |
| Total                                             |   |                   | 100.0  | %      |                   |   | 100.0 | % |

----

|                                            |   | Investments      |    |   | Borrowings |   |
|-------------------------------------------------|--------|------------------|---------|--------|------------|--------|
| (amounts      in thousands)                     |   | Amounts      (1) |    |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate      Investments/Obligations         |   | $                | 273,921 |   |       |   | 29.7 | % |   | $ | 119,713 |   |   |   | 15.3 | % |
|                                            |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate      Investments/Obligations:   |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3    months                           |   |             | 58,581  |   |       |   | 6.3 |   |   |   | 556,697 |   |   |   | 71.2 |   |
| Greater than 3 months and less      than 1 year |   |             | 294,056 |   |       |   | 31.9 |   |   |   | – |   |   |   | – |   |
| Greater than 1 year and less      than 2 years  |   |             | 66,726  |   |       |   | 7.2 |   |   |   | 25,000 |   |   |   | 3.2 |   |
| Greater than 2 years and less      than 3 years |   |             | 149,099 |   |       |   | 16.2 |   |   |   | 50,000 |   |   |   | 6.4 |   |
| Greater than 3 years and less      than 5 years |   |             | 79,906  |   |       |   | 8.7 |   |   |   | 30,000 |   |   |   | 3.9 |   |
| Total                                           |   | $                | 922,289 |   |       |   | 100.0 | % |   | $ | 781,410 |   |   |   | 100.0 | % |

| (1) | The      investment amount represents the fair value of the related securities and      amortized cost basis of the related loans, excluding any related allowance      for loan losses. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                            |   | Investments      |    |   | Borrowings |   |
|-------------------------------------------------|--------|------------------|---------|--------|------------|--------|
| (amounts      in thousands)                     |   | Amounts      (1) |    |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate      Investments/Obligations         |   | $                | 184,877 |   |       |   | 33.0 | % |   | $ | 159,121 |   |   |   | 34.5 | % |
|                                            |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate      Investments/Obligations:   |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3    months                           |   |             | – |   |       |   | – |   |   |   | 301,795 |   |   |   | 65.5 |   |
| Greater than 3 months and less      than 1 year |   |             | 156,279 |   |       |   | 28.0 |   |   |   | – |   |   |   | – |   |
| Greater than 1 year and less      than 2 years  |   |             | 116,304 |   |       |   | 20.8 |   |   |   | – |   |   |   | – |   |
| Greater than 2 years and less      than 3 years |   |             | 68,246  |   |       |   | 12.2 |   |   |   | – |   |   |   | – |   |
| Greater than 3 years and less      than 5 years |   |             | 33,404  |   |       |   | 6.0 |   |   |   | – |   |   |   | – |   |
| Total                                           |   | $                | 559,110 |   |       |   | 100.0 | % |   | $ | 460,916 |   |   |   | 100.0 | % |

| (1) | The      investment amount represents the fair value of the related securities and      amortized cost basis of the related loans, excluding any related allowance      for loan losses. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Lifetime      Interest Rate Caps on ARM MBS |            | Interim      Interest Rate Caps on ARM MBS |
|---------------------------------------------|-----------------|--------------------------------------------|
|                                        | %      of Total |                                       |   | %      of Total |
| 9.0%      to 10.0%                          | 37.54%          |                                       | 1.0% | 1.23% |
| >10.0%      to 11.0%                     | 48.55%          |                                       | 2.0% | 33.17% |
| >11.0%      to 12.0%                     | 13.91%          |                                       | 5.0% | 65.60% |
|                                        | 100.00%         |                                       |   | 100.00% |

----

| Basis      Point Change inInterest      Rates |   | Percentage      change in projected net interest income |   | Percentage      change in projected market value |   |
|-----------------------------------------------|--------|---------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                          |   |                                                    |   |                                             |   |
| +200                                          |   | (16.1)%                                                 |   | (1.8)%                                           |   |
| +100                                          |   | (6.4)%                                                  |   | (0.8)%                                           |   |
| 0                                             |   | –                                                 |   | –                                          |   |
| -100                                          |   | (3.3)%                                                  |   | 0.5%                                             |   |
| -200                                          |   | (15.8)%                                                 |   | 0.7%                                             |   |

----

| ITEM      8. | FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA |
|--------------|--------------------------------------------------|

| ITEM      9. | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE |
|--------------|------------------------------------------------------------------------------------------------|

| ITEM      9A. | CONTROLS      AND PROCEDURES |
|---------------|------------------------------|

----

| ITEM      9B. | OTHER      INFORMATION |
|---------------|------------------------|

----

| ITEM      10. | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE |
|---------------|------------------------------------------------------------|

| ITEM      11. | EXECUTIVE      COMPENSATION |
|---------------|-----------------------------|

| ITEM      12. | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS |
|---------------|----------------------------------------------------------------------------------------------------------|

| Plan      Category                                                        |   | Number      of Securities to Be Issued upon Exercise of Outstanding Options, Warrants      and Rights (1) |    |   | Weighted-AverageExercise      Price of Outstanding Options, Warrants and Rights |   |    | Number      of Securities Remaining Available for Future Issuance Under Equity      Compensation Plans(2) |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|---------|--------|---------------------------------------------------------------------------------|--------|---------|-----------------------------------------------------------------------------------------------------------|--------|
| Equity      Compensation Plans Approved by Shareholders:                  |   |                                                                                                      |    |   |                                                                            |   |    |                                                                                                      |   |
| 2004      Stock Incentive Plan                                            |   |                                                                                                      | 95,000  |   |                                                                            | $      | 8.59    |                                                                                                      |   |   | – |   |
| 2009      Stock and Incentive Plan                                        |   |                                                                                                      | – |   |                                                                            |   | – |                                                                                                      |   |   | 2,490,000 |   |
| Equity      Compensation Plans Not Approved by  Shareholders(3) |   |                                                                                                      | – |   |                                                                            |   | – |                                                                                                      |   |   | – |   |
| Total                                                                     |   |                                                                                                      | 95,000  |   |                                                                            | $      | 8.59    |                                                                                                      |   |   | 2,490,000 |   |

| (1) | Amount      includes all outstanding stock option awards, but excludes all outstanding      stock appreciation rights, which can only be settled for    cash. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Reflects      shares available to be granted under the 2009 Stock and Incentive Plan in      the form of stock options, stock appreciation rights, stock awards,      dividend equivalent rights, performance share awards, stock units and      incentive awards. No new awards may be issued under the 2004 Stock      Incentive Plan on or after May 13,2009. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The      Company does not have any equity compensation plans that have not been      approved by shareholders. |
|-----|----------------------------------------------------------------------------------------------------------------|

| ITEM      13. | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE |
|---------------|-------------------------------------------------------------------------------------|

----

| ITEM      14. | PRINCIPAL      ACCOUNTANT FEES AND SERVICES |
|---------------|---------------------------------------------|

----

| ITEM      15. | EXHIBITS,      FINANCIAL STATEMENT SCHEDULES |
|---------------|----------------------------------------------|

| 1.      and 2. | Financial      Statements and SchedulesThe      information required by this section of Item 15 is set forth in the      Consolidated Financial Statements and Reports of Independent Registered      Public Accounting Firm beginning at page F-1 of this Annual Report on Form      10-K.  The index to the Financial Statements is set forth at      page F-2 of thisAnnual      Report on Form 10-K.  |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Exhibits  |
|----|----------------|

| Number  | Exhibit                                                                                                                                                                                                                                                                                    |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1     | Restated      Articles of Incorporation, effective July 9, 2008 (incorporated herein by      reference to Exhibit 3.1 to Dynex’s Current Report on Form 8-K filed July      11, 2008).                                                                                          |
| 3.2     | Amended      and Restated Bylaws, effective March 26, 2008 (incorporated herein by      reference to Exhibit 3.2 to Dynex’s Current Report on Form 8-K filed April      1, 2008).                                                                                               |
| 8.1     | Opinion      of Troutman Sanders, LLP (incorporated herein by reference to Exhibit 8.1      to Dynex’s Annual Report on Form 10-K for the year ended December 31,      2008).                                                                                                   |
| 10.1*   | Dynex      Capital, Inc. 2004 Stock Incentive Plan (incorporated herein by reference      to Exhibit 10.1 to Dynex’s Annual Report on Form 10-K for the year ended      December 31, 2004).                                                                                     |
| 10.1.1* | 409A      Amendment to Dynex Capital, Inc. 2004 Stock Incentive Plan, dated December      31, 2008 (incorporated herein by reference to Exhibit 10.1.1 to Dynex’s      Annual Report on Form 10-K for the year ended December 31,      2008).                                   |
| 10.2*   | Form      of Stock Option Agreement for Non-Employee Directors under the Dynex      Capital, Inc. 2004 Stock Incentive Plan (incorporated herein by reference      to Exhibit 10.2 to Dynex’s Quarterly Report on Form 10-Q for the quarter      ended June 30, 2005).          |
| 10.3*   | Form      of Stock Appreciation Rights Agreement for Senior Executives under the      Dynex Capital, Inc. 2004 Stock Incentive Plan (incorporated herein by      reference to Exhibit 10.3 to Dynex’s Quarterly Report on Form 10-Q for the      quarter ended June 30, 2005).  |

----

| Number  | Exhibit                                                                                                                                                                                                                                                                                                               |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5*   | Severance      Agreement between Dynex Capital, Inc. and Stephen J. Benedetti dated June      11, 2004 (incorporated herein by reference to Exhibit 10.5 to Dynex’s      Annual Report on Form 10-K for the year ended December 31,      2007).                                                            |
| 10.5.1* | 409A      Amendment to Severance Agreement between Dynex Capital, Inc. and Stephen      J. Benedetti, dated December 31, 2008 (incorporated herein by reference to      Exhibit 10.1.1 to Dynex’s Annual Report on form 10-K for the year ended      December 31, 2008).                                   |
| 10.6*   | Employment      Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and      Thomas B. Akin (incorporated herein by reference to Exhibit 10.6 to      Dynex’s Quarterly Report on 10-Q for the quarter ended September 30,      2009).                                                       |
| 10.7*   | Dynex      Capital, Inc. 401(k) Overflow Plan, effective July 1, 1997 (incorporated      herein by reference to Exhibit 10.7 to Dynex’s Quarterly Report on Form      10-Q for the quarter ended March 31, 2008).                                                                                          |
| 10.8    | Sales      Agreement, dated as of March 16, 2009, between Dynex Capital, Inc. and      Cantor Fitzgerald & Co. (incorporated herein by reference to Exhibit      10.8 to Dynex’s Annual Report on Form 10-K for the year ended December 31,      2008).                                                |
| 10.9*   | Dynex      Capital, Inc. ROAE Bonus Program, as amended October 8, 2009 (incorporated      herein by reference to Exhibit 10.9 to Dynex’s Quarterly Report on Form      10-Q for the quarter ended September 30, 2009).                                                                                    |
| 10.10*  | Dynex      Capital, Inc. 2009 Capital Bonus Pool (incorporated herein by reference to      Exhibit 10.10 to Dynex’s Quarterly Report on Form 10-Q for the quarter      ended March 31, 2009).                                                                                                              |
| 10.11*  | Dynex      Capital, Inc. 2009 Stock and Incentive Plan, effective as of May 13, 2009      (incorporated herein by reference to Appendix A to Dynex’s Proxy Statement      filed April 3, 2009).                                                                                                            |
| 10.12*  | Employment      Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and      Byron L. Boston (incorporated herein by reference to Exhibit 10.12 to      Dynex’s Quarterly Report on Form 10-Q for the quarter ended September 30,      2009).                                                |
| 10.13   | Assignment      and Transfer of Interest in Copperhead Ventures, LLC, dated as of November      20, 2009, between DBAH Capital, LLC, and Issued Holdings Capital      Corporation (incorporated herein by reference to Exhibit 10.13 to Dynex’s      Current Report on Form 8-K filed November 24, 2009).  |
| 21.1    | List      of consolidated entities of Dynex (filed herewith).                                                                                                                                                                                                                                                    |
| 23.1    | Consent      of BDO Seidman, LLP (filed herewith).                                                                                                                                                                                                                                                               |
| 31.1    | Certification      of principal executive officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                               |
| 31.2    | Certification      of principal financial officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                               |

----

| Number | Exhibit                                                                                                                                                                       |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1   | Certification      of principal executive officer and principal financial officer pursuant to      Section 906 of the Sarbanes-Oxley Act of 2002 (filed      herewith).  |
| 99.1   | Financial      Statements of Copperhead Ventures, LLC (filed herewith).                                                                                                  |

----

|               | DYNEX CAPITAL, INC.                                                                                           |   |
|--------------------|---------------------------------------------------------------------------------------------------------------|--------|
|               | (Registrant)                                                                                                  |   |
|               |                                                                                                          |   |
|               |                                                                                                          |   |
| March      8, 2010 | /s/      Stephen J. Benedetti                                                                                 |   |
|               | Stephen      J. Benedetti, Executive Vice President, Chief Operating Officer and Chief      Financial Officer |   |
|               |                                                                                                          |   |

| Signature                     | Title                                                     | Date               |
|-------------------------------|-----------------------------------------------------------|--------------------|
|                          |                                                      |               |
| /s/      Thomas B. Akin       |        Chairman and Chief Executive Officer          | March      8, 2010 |
| Thomas      B. Akin           |        and Director                                  |               |
|                          |        (Principal Executive Officer)                 |               |
|                          |                                                      |               |
| /s/      Stephen J. Benedetti |        Executive Vice President, Chief               | March      8, 2010 |
| Stephen      J. Benedetti     |        Operating Officer and Chief Financial Officer |               |
|                          |        (Principal Financial Officer)                 |               |
|                          |                                                      |               |
| /s/      Jeffrey L. Childress |        Vice President and Controller                 | March      8, 2010 |
| Jeffrey      L. Childress     |        (Principal Accounting Officer)                |               |
|                          |                                                      |               |
|                          |                                                      |               |
| /s/      Leon A. Felman       |        Director                                      | March      8, 2010 |
| Leon      A. Felman           |                                                      |               |
|                          |                                                      |               |
|                          |                                                      |               |
| /s/      Barry Igdaloff       |        Director                                      | March      8, 2010 |
| Barry      Igdaloff           |                                                      |               |
|                          |                                                      |               |
|                          |                                                      |               |
| /s/      Daniel K. Osborne    |        Director                                      | March      8, 2010 |
| Daniel      K. Osborne        |                                                      |               |
|                          |                                                      |               |
|                          |                                                      |               |
| /s/      James C. Wheat, III  |        Director                                      | March      8, 2010 |
| James      C. Wheat, III      |                                                      |               |
|                          |                                                      |               |

----

----

|   |                                                                                                                 | Page   |
|--------|----------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                 |   |
|   | Reports      of Independent Registered Public Accounting Firm                                                        | F-3    |
|   | Consolidated      Balance Sheets – As of December 31, 2009 and 2008                                            | F-5    |
|   | Consolidated      Statements of Income – Years ended December 31, 2009, 2008 and      2007                     | F-6    |
|   | Consolidated      Statements of Shareholders’ Equity – Years ended December 31, 2009, 2008      and 2007 | F-7    |
|   | Consolidated      Statements of Cash Flows – Years ended December 31, 2009, 2008 and      2007                 | F-8    |
|   | Notes      to Consolidated Financial Statements                                                                      | F-9    |

----

----

----

|                                                                                                                                                                                                      |   | December      31, 2009 |       |   | December      31, 2008 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|--------|------------------------|--------|
| ASSETS                                                                                                                                                                                                    |   |                   |       |   |                   |   |
| Agency      MBS (including pledged Agency MBS of $575,386 and $300,277 at December 31,      2009 and 2008, respectively)                                                                                  |   | $                      | 594,120    |   |                   | $      | 311,576 |   |
| Securitized      mortgage loans, net                                                                                                                                                                      |   |                   | 212,471    |   |                   |   | 242,289 |   |
| Non-Agency      securities (including pledged non-Agency securities of $82,770 and none at      December 31, 2009 and 2008, respectively)                                                                 |   |                   | 109,110    |   |                   |   | 6,259 |   |
| Other      investments, net                                                                                                                                                                               |   |                   | 2,280      |   |                   |   | 6,476 |   |
| Investment      in joint venture                                                                                                                                                                          |   |                   | –    |   |                   |   | 5,655 |   |
|                                                                                                                                                                                                      |   |                   | 917,981    |   |                   |   | 572,255 |   |
|                                                                                                                                                                                                      |   |                   |       |   |                   |   |   |   |
| Cash      and cash equivalents                                                                                                                                                                            |   |                   | 30,173     |   |                   |   | 24,335 |   |
| Restricted      cash                                                                                                                                                                                      |   |                   | –    |   |                   |   | 2,974 |   |
| Derivative      assets                                                                                                                                                                                    |   |                   | 1,008      |   |                   |   | – |   |
| Accrued      interest receivable                                                                                                                                                                          |   |                   | 4,583      |   |                   |   | 3,215 |   |
| Other      assets, net                                                                                                                                                                                    |   |                   | 4,317      |   |                   |   | 4,412 |   |
|                                                                                                                                                                                                      |   | $                      | 958,062    |   |                   | $      | 607,191 |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                           |   |                   |       |   |                   |   |   |   |
|                                                                                                                                                                                                      |   |                   |       |   |                   |   |   |   |
| Liabilities:                                                                                                                                                                                              |   |                   |       |   |                   |   |   |   |
| Repurchase      agreements                                                                                                                                                                                |   | $                      | 638,329    |   |                   | $      | 274,217 |   |
| Securitization      financing                                                                                                                                                                             |   |                   | 143,081    |   |                   |   | 177,157 |   |
| Obligation      under payment agreement                                                                                                                                                                   |   |                   | –    |   |                   |   | 8,534 |   |
| Accrued      interest payable                                                                                                                                                                             |   |                   | 1,208      |   |                   |   | 1,656 |   |
| Other      liabilities                                                                                                                                                                                    |   |                   | 6,691      |   |                   |   | 5,218 |   |
|                                                                                                                                                                                                      |   |                   | 789,309    |   |                   |   | 466,782 |   |
|                                                                                                                                                                                                      |   |                   |       |   |                   |   |   |   |
| Commitments      and Contingencies (Note 16)                                                                                                                                                              |   |                   |       |   |                   |   |   |   |
|                                                                                                                                                                                                      |   |                   |       |   |                   |   |   |   |
| Shareholders’      equity:                                                                                                                                                                          |   |                   |       |   |                   |   |   |   |
| Preferred      stock, par value $.01 per share, 50,000,000 shares                                                                                                                                         |   |                   |       |   |                   |   |   |   |
| authorized;      9.5% Cumulative Convertible Series D, 4,221,539 shares                                                                                                                                   |   |                   |       |   |                   |   |   |   |
| issued      and outstanding ($43,218 aggregate liquidation preference)                                                                                                                                    |   |                   | 41,749     |   |                   |   | 41,749 |   |
| Common      stock, par value $.01 per share, 100,000,000 sharesauthorized;      13,931,512 and 12,169,762 shares issued and      outstanding,        respectively |   |                   |   139 |   |                   |   |   122 |   |
| Additional      paid-in capital                                                                                                                                                                           |   |                   | 379,717    |   |                   |   | 366,817 |   |
| Accumulated      other comprehensive income (loss)                                                                                                                                                        |   |                   | 10,061     |   |                   |   | (3,949 | ) |
| Accumulated      deficit                                                                                                                                                                                  |   |                   | (262,913   | )      |                   |   | (264,330 | ) |
|                                                                                                                                                                                                      |   |                   | 168,753    |   |                   |   | 140,409 |   |
|                                                                                                                                                                                                      |   | $                      | 958,062    |   |                   | $      | 607,191 |   |

----

|                                                                       |   | Year      Ended December 31, |   |
|----------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                       |   | 2009                         |   |   | 2008 |   |   | 2007 |   |
| Interest      income:                                                      |   |                         |   |   |   |   |   |   |   |
| Agency      MBS                                                            |   | $                            | 20,962 |   |   | $ | 6,731 |   |   | $ | 110 |   |
| Securitized      mortgage loans                                            |   |                         | 17,169 |   |   |   | 20,886 |   |   |   | 26,424 |   |
| Non-Agency      securities                                                 |   |                         | 863    |   |   |   | 709 |   |   |   | 945 |   |
| Other      investments                                                     |   |                         | 226    |   |   |   | 642 |   |   |   | 688 |   |
| Cash      and cash equivalents                                             |   |                         | 16     |   |   |   | 685 |   |   |   | 2,611 |   |
|                                                                       |   |                         | 39,236 |   |   |   | 29,653 |   |   |   | 30,778 |   |
| Interest      expense:                                                     |   |                         |   |   |   |   |   |   |   |   |   |   |
| Securitization      financing                                              |   |                         | 9,801  |   |   |   | 13,416 |   |   |   | 14,999 |   |
| Repurchase      agreements                                                 |   |                         | 3,288  |   |   |   | 4,079 |   |   |   | 3,546 |   |
| Obligation      under payment agreement                                    |   |                         | 1,589  |   |   |   | 1,608 |   |   |   | 1,525 |   |
| Other      interest (income) expense                                       |   |                         | (7     | ) |   |   | 3 |   |   |   | 25 |   |
|                                                                       |   |                         | 14,671 |   |   |   | 19,106 |   |   |   | 20,095 |   |
|                                                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                   |   |                         | 24,565 |   |   |   | 10,547 |   |   |   | 10,683 |   |
| (Provision      for) recapture of loan losses                              |   |                         | (782   | ) |   |   | (991 | ) |   |   | 1,281 |   |
| Net      interest income after (provision for) recapture of loan    losses |   |                         | 23,783 |   |   |   | 9,556 |   |   |   | 11,964 |   |
|                                                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Equity      in income (loss) of joint venture, net                         |   |                         | 2,400  |   |   |   | (5,733 | ) |   |   | 709 |   |
| Gain      on sale of investments, net                                      |   |                         | 171    |   |   |   | 2,316 |   |   |   | 755 |   |
| Fair      value adjustments, net                                           |   |                         | 205    |   |   |   | 7,147 |   |   |   | – |   |
| Other      (expense) income                                                |   |                         | (2,262 | ) |   |   | 7,467 |   |   |   | (533 | ) |
| General      and administrative expenses:                                  |   |                         |   |   |   |   |   |   |   |   |   |   |
| Compensation      and benefits                                             |   |                         | (3,626 | ) |   |   | (2,341 | ) |   |   | (1,921 | ) |
| Other      general and administrative expenses                             |   |                         | (3,090 | ) |   |   | (3,291 | ) |   |   | (2,075 | ) |
|                                                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                            |   |                         | 17,581 |   |   |   | 15,121 |   |   |   | 8,899 |   |
| Preferred      stock dividends                                             |   |                         | (4,010 | ) |   |   | (4,010 | ) |   |   | (4,010 | ) |
|                                                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      income to common shareholders                                     |   | $                            | 13,571 |   |   | $ | 11,111 |   |   | $ | 4,889 |   |
|                                                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares:                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                      |   |                         | 13,088 |   |   |   | 12,167 |   |   |   | 12,135 |   |
| Diluted                                                                    |   |                         | 17,311 |   |   |   | 12,170 |   |   |   | 12,138 |   |
| Net      income per common share:                                          |   |                         |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                      |   | $                            | 1.04   |   |   | $ | 0.91 |   |   | $ | 0.40 |   |
| Diluted                                                                    |   | $                            | 1.02   |   |   | $ | 0.91 |   |   | $ | 0.40 |   |
|                                                                       |   |                         |   |   |   |   |   |   |   |   |   |   |
| Dividends      declared per common share                                   |   | $                            | 0.92   |   |   | $ | 0.71 |   |   | $ | – |   |

----

|                                                                                       |   | PreferredStock |    |   | CommonStock |   |    | AdditionalPaid-inCapital |   |   | Accumulated      OtherCompre­hen­sive(Loss)      Income |   |   | AccumulatedDeficit |    |   | Total  |   |
|--------------------------------------------------------------------------------------------|--------|----------------|---------|--------|-------------|--------|---------|--------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|--------------------|---------|--------|--------|--------|
| Balance      as of January 1, 2007                                                         |   | $              | 41,749  |   |        | $      | 121     |                     |   | $      | 366,637                                                           |   |   | $                  | 663     |   |   | $      | (272,632 | ) |   | $ | 136,538 |   |
| Dividends      on preferred stock                                                          |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (4,010 | ) |   |   | (4,010 | ) |
| Stock      option exercise                                                                 |   |           | – |   |        |   | – |                     |   |   | 37                                                                |   |   |               | – |   |   |   | – |   |   |   | 37 |   |
| Stock      option issuance                                                                 |   |           | – |   |        |   | – |                     |   |   | 42                                                                |   |   |               | – |   |   |   | – |   |   |   | 42 |   |
| Comprehensive      income:                                                                 |   |           |    |
| Net      income                                                                            |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 8,899 |   |   |   | 8,899 |   |
| Other      comprehensive income:                                                           |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   |   |   |
| Change      in market value of available-for-sale securities                               |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 1,256   |   |   |   | – |   |   |   | 1,256 |   |
| Reclassification      adjustment for net gain on sale of investments                       |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (826    | )      |   |   | – |   |   |   | (826 | ) |
| Total      comprehensive income:                                                           |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   | 9,329 |   |
| Balance      as of December 31, 2007                                                       |   |           | 41,749  |   |        |   | 121     |                     |   |   | 366,716                                                           |   |   |               | 1,093   |   |   |   | (267,743 | ) |   |   | 141,936 |   |
| Dividends      on preferred stock                                                          |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (4,010 | ) |   |   | (4,010 | ) |
| Dividends      on common stock                                                             |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (8,641 | ) |   |   | (8,641 | ) |
| Stock      option issuance                                                                 |   |           | – |   |        |   | – |                     |   |   | 13                                                                |   |   |               | – |   |   |   | – |   |   |   | 13 |   |
| Vesting      of restricted stock                                                           |   |           | – |   |        |   | 1       |                     |   |   | 88                                                                |   |   |               | – |   |   |   | – |   |   |   | 89 |   |
| Cumulative      effect of adoption of SFAS 159                                             |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 943 |   |   |   | 943 |   |
| Comprehensive      income:                                                                 |   |           |    |
| Net      income                                                                            |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 15,121 |   |   |   | 15,121 |   |
| Other      comprehensive income:                                                           |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   |   |   |
| Change      in market value of available-for-sale securities                               |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (2,725  | )      |   |   | – |   |   |   | (2,725 | ) |
| Reclassification      adjustment for net gain on sale of investments                       |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (2,317  | )      |   |   | – |   |   |   | (2,317 | ) |
| Total      comprehensive income:                                                           |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   | 10,079 |   |
| Balance      as of December 31, 2008                                                       |   |           | 41,749  |   |        |   | 122     |                     |   |   | 366,817                                                           |   |   |               | (3,949  | )      |   |   | (264,330 | ) |   |   | 140,409 |   |
| Dividends      on preferred stock                                                          |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (4,010 | ) |   |   | (4,010 | ) |
| Dividends      on common stock                                                             |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (12,154 | ) |   |   | (12,154 | ) |
| Common      stock issuance                                                                 |   |           | – |   |        |   | 17      |                     |   |   | 12,782                                                            |   |   |               | – |   |   |   | – |   |   |   | 12,799 |   |
| Grant      and vesting of restricted stock                                                 |   |           | – |   |        |   | – |                     |   |   | 118                                                               |   |   |               | – |   |   |   | – |   |   |   | 118 |   |
| Comprehensive      income:                                                                 |   |           |    |
| Net      income                                                                            |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 17,581 |   |   |   | 17,581 |   |
| Other      comprehensive income:                                                           |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   |   |   |
| Net      unrealized gain on cash flow hedge assets                                         |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 1,008   |   |   |   | – |   |   |   | 1,008 |   |
| Available-for-sale      securities:                                                        |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   |   |   |
| Change in market    value                                                                  |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 9,976   |   |   |   | – |   |   |   | 9,976 |   |
| Reclassification adjustment for      net gain on sale of investments                       |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (171    | )      |   |   | – |   |   |   | (171 | ) |
| Reclassification adjustment for      loss on acquisition of joint venture                  |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               | 2,490   |   |   |   |   |   |   |   | 2,490 |   |
| Reclassification adjustment for      joint venture’s other-than-temporary impairment |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 707     |   |   |   | – |   |   |   | 707 |   |
| Total      comprehensive income:                                                           |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   | 31,591 |   |
| Balance      as of December 31, 2009                                                       |   | $              | 41,749  |   |        | $      | 139     |                     |   | $      | 379,717                                                           |   |   | $                  | 10,061  |   |   | $      | (262,913 | ) |   | $ | 168,753 |   |

----

|                                                                                 |   | Year      Ended December 31, |     |
|--------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                 |   | 2009                         |     |   | 2008 |   |   | 2007 |   |
| Operating      activities:                                                           |   |                         |     |   |   |   |   |   |   |
| Net      income                                                                      |   | $                            | 17,581   |   |   | $ | 15,121 |   |   | $ | 8,899 |   |
| Adjustments      to reconcile net income to cash provided byoperating    activities: |   |                         |     |   |   |   |   |   |   |   |   |   |
| Equity in (income) loss of      joint venture                                        |   |                         | (2,400   | ) |   |   | 5,733 |   |   |   | (709 | ) |
| Distribution of joint venture      earnings                                          |   |                         | –  |   |   |   | – |   |   |   | 1,125 |   |
| Loss on acquisition of      controlling interest in joint venture                    |   |                         | 2,490    |   |   |   | – |   |   |   | – |   |
| (Increase) decrease in accrued      interest receivable                              |   |                         | (1,368   | ) |   |   | (1,015 | ) |   |   | 228 |   |
| (Decrease) increase in accrued      interest payable                                 |   |                         | (448     | ) |   |   | 462 |   |   |   | (292 | ) |
| Provision for (recapture of)      loan loss                                          |   |                         | 782      |   |   |   | 991 |   |   |   | (1,281 | ) |
| Gain on sale of investments,      net                                                |   |                         | (171     | ) |   |   | (2,316 | ) |   |   | (755 | ) |
| Amortization and      depreciation                                                   |   |                         | 2,470    |   |   |   | (1,585 | ) |   |   | (583 | ) |
| Fair value adjustments,      net                                                     |   |                         | (205     | ) |   |   | (7,147 | ) |   |   | – |   |
| Stock based compensation      expense (benefit)                                      |   |                         | 527      |   |   |   | (271 | ) |   |   | 306 |   |
| Net change in other assets and      other liabilities                                |   |                         | 373      |   |   |   | (3,321 | ) |   |   | 1,285 |   |
| Net      cash and cash equivalents provided by operating activities                  |   |                         | 19,631   |   |   |   | 6,652 |   |   |   | 8,223 |   |
|                                                                                 |   |                         |     |   |   |   |   |   |   |   |   |   |
| Investing      activities:                                                           |   |                         |     |   |   |   |   |   |   |   |   |   |
| Principal      payments received on securitized mortgage loans                       |   |                         | 29,084   |   |   |   | 33,575 |   |   |   | 68,787 |   |
| Purchase      of investments                                                         |   |                         | (500,864 | ) |   |   | (375,425 | ) |   |   | (27,882 | ) |
| Payments      received on investments                                                |   |                         | 117,675  |   |   |   | 36,548 |   |   |   | 9,871 |   |
| Proceeds      from sales of investments                                              |   |                         | 18,707   |   |   |   | 51,423 |   |   |   | 3,762 |   |
| Distributions      received from joint venture                                       |   |                         | –  |   |   |   | 4,183 |   |   |   | 17,095 |   |
| Purchase      of controlling interest in joint venture                               |   |                         | (7,245   | ) |   |   | – |   |   |   | – |   |
| Other                                                                                |   |                         | (2,586   | ) |   |   | (638 | ) |   |   | 837 |   |
| Net      cash and cash equivalents (used in) provided by investing      activities   |   |                         | (345,229 | ) |   |   | (250,334 | ) |   |   | 72,470 |   |
|                                                                                 |   |                         |     |   |   |   |   |   |   |   |   |   |
| Financing      activities:                                                           |   |                         |     |   |   |   |   |   |   |   |   |   |
| Principal      payments on securitization financing                                  |   |                         | (17,271  | ) |   |   | (24,114 | ) |   |   | (40,547 | ) |
| Redemption      of securitization financing                                          |   |                         | (15,493  | ) |   |   | – |   |   |   | – |   |
| Proceeds      from sale of securitization financing bonds                            |   |                         | –  |   |   |   | – |   |   |   | 35,289 |   |
| Borrowings      under (repayment of) repurchase agreements, net                      |   |                         | 364,112  |   |   |   | 269,605 |   |   |   | (92,990 | ) |
| Decrease      (increase) in restricted cash                                          |   |                         | 2,974    |   |   |   | (2,974 | ) |   |   | – |   |
| Proceeds      from issuance of common stock                                          |   |                         | 12,873   |   |   |   | – |   |   |   | 37 |   |
| Dividends      paid                                                                  |   |                         | (15,759  | ) |   |   | (9,852 | ) |   |   | (4,010 | ) |
| Net      cash and cash equivalents provided by (used in) financing      activities   |   |                         | 331,436  |   |   |   | 232,665 |   |   |   | (102,221 | ) |
|                                                                                 |   |                         |     |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                            |   |                         | 5,838    |   |   |   | (11,017 | ) |   |   | (21,528 | ) |
| Cash      and cash equivalents at beginning of year                                  |   |                         | 24,335   |   |   |   | 35,352 |   |   |   | 56,880 |   |
| Cash      and cash equivalents at end of year                                        |   | $                            | 30,173   |   |   | $ | 24,335 |   |   | $ | 35,352 |   |

----

----

----

----

----

----

----

|                                  |   | December      31, 2009 |    |   | December      31, 2008 |   |
|---------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Principal/par      value              |   | $                      | 570,215 |   |                   | $      | 307,548 |   |
| Purchase      premiums                |   |                   | 12,991  |   |                   |   | 3,585 |   |
| Purchase      discounts               |   |                   | (44     | )      |                   |   | (59 | ) |
| Amortized cost                        |   |                   | 583,162 |   |                   |   | 311,074 |   |
| Gross      unrealized gains           |   |                   | 11,261  |   |                   |   | 1,355 |   |
| Gross      unrealized losses          |   |                   | (303    | )      |                   |   | (853 | ) |
| Fair value                            |   | $                      | 594,120 |   |                   | $      | 311,576 |   |
|                                  |   |                   |    |   |                   |   |   |   |
| Weighted      average coupon          |   |                   | 4.76    | %      |                   |   | 5.06 | % |
| Weighted      average months to reset |   | 20      months         |    |   | 21      months         |   |

----

|                                                             |   | December      31, 2009 |    |   | December      31, 2008 |   |
|------------------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans:                                 |   |                   |    |   |                   |   |
| Commercial                                                       |   | $                      | 137,567 |   |                   | $      | 164,032 |   |
| Single-family                                                    |   |                   | 61,336  |   |                   |   | 70,607 |   |
|                                                             |   |                   | 198,903 |   |                   |   | 234,639 |   |
| Funds      held by trustees, including funds held for defeasance |   |                   | 17,737  |   |                   |   | 11,267 |   |
| Unamortized      discounts and premiums, net                     |   |                   | 43      |   |                   |   | 90 |   |
| Loans,      at amortized cost                                    |   |                   | 216,683 |   |                   |   | 245,996 |   |
| Allowance      for loan losses                                   |   |                   | (4,212  | )      |                   |   | (3,707 | ) |
|                                                             |   | $                      | 212,471 |   |                   | $      | 242,289 |   |

|                                          |   | December      31, 2009 |   |   | December      31, 2008 |   |   | December      31, 2007 |   |
|-----------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
| Allowance      at beginning of year           |   | $                      | 3,707  |   |                   | $      | 2,721  |                   |   | $ | 4,495 |   |
| Provision      for (recapture of) loan losses |   |                   | 782    |   |                   |   | 991    |                   |   |   | (1,281 | ) |
| Credit      losses, net of recoveries         |   |                   | (181   | )      |                   |   | (5     | )                      |   |   | (493 | ) |
| Allowance      at end of year                 |   | $                      | 4,308  |   |                   | $      | 3,707  |                   |   | $ | 2,721 |   |

----

|                                          |   | December      31, 2009 |   |   | December      31, 2008 |    |
|-----------------------------------------------|--------|------------------------|--------|--------|------------------------|---------|
| Securitized      commercial mortgage loans    |   | $                      | 3,935  |   |                   | $       | 3,527 |   |
| Securitized      single-family mortgage loans |   |                   | 277    |   |                   |    | 180 |   |
|                                          |   |                   | 4,212  |   |                   |    | 3,707 |   |
| Other      investments                        |   |                   | 96     |   |                   | ─ |   |
|                                          |   | $                      | 4,308  |   |                   | $       | 3,707 |   |

|                                   |   | December      31, 2009 |   |   | December      31, 2008 |   |
|----------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | Commercial             |   |   | Single-family          |   |   | Commercial |   |   | Single-family |   |
| Investment      in impaired loans      |   | $                      | 20,465 |   |                   | $      | 4,152 |   |   | $ | 17,253 |   |   | $ | 3,501 |   |
| Allowance      for loan losses         |   |                   | 3,935  |   |                   |   | 277 |   |   |   | 3,527 |   |   |   | 180 |   |
| Investment      in excess of allowance |   | $                      | 16,530 |   |                   | $      | 3,875 |   |   | $ | 13,726 |   |   | $ | 3,321 |   |

|                         |   | December      31, 2009 |    |   | December      31, 2008      |   |
|------------------------------|--------|------------------------|---------|--------|-----------------------------|--------|
|                         |   | CarryingValue          |    |   | Weighted      Average Yield |   |   | CarryingValue |   |   | Weighted      Average Yield |   |
| CMBS                         |   | $                      | 104,553 |   |                        |   | 4.23 | % |   | $ ─ |   |   | ─ |   |
| RMBS                         |   |                   | 6,462   |   |                        |   | 7.93 | % |   |   | 6,959 |   |   |   | 8.02 | % |
|                         |   |                   | 111,015 |   |                        |   |   |   |   |   | 6,959 |   |   |   |   |   |
| Gross      unrealized gains  |   |                   | 3,211   |   |                        |   |   |   |   |   | 593 |   |   |   |   |   |
| Gross      unrealized losses |   |                   | (5,116  | )      |                        |   |   |   |   |   | (1,293 | ) |   |   |   |   |
|                         |   | $                      | 109,110 |   |                        |   |   |   |   | $ | 6,259 |   |   |   |   |   |

----

| Condensed      Statement of Operations  |   | 2009   |   |   | 2008   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|
| Interest      income                    |   | $      | 2,359  |   |   | $      | 3,956 |   |
| Impairment                              |   |   | (1,417 | )      |   |   | (7,278 | ) |
| Fair      value adjustments, net        |   |   | 4,017  |   |   |   | (7,391 | ) |
| General      and administrative expense |   |   | (25    | )      |   |   | (59 | ) |
| Net      income (loss)                  |   | $      | 4,934  |   |   | $      | (10,772 | ) |

| Condensed      Balance Sheet |   | 2008   |   |
|------------------------------|--------|--------|--------|
| Total      assets            |   | $      | 11,240 |   |
| Total      liabilities       |   |   | 21     |   |
| Total      equity            |   | $      | 11,219 |   |

----

|                                                                     |   | At      acquisition: |   |
|--------------------------------------------------------------------------|--------|----------------------|--------|
| Consideration      paid:                                                 |   | $                    | 9,548  |   |
| Fair      value of Company’s equity interest prior to acquisition: |   |                 | 9,500  |   |
|                                                                     |   | $                    | 19,048 |   |
|                                                                     |   |                 |   |   |
| Assets      acquired:                                                    |   |                 |   |   |
| CMBS                                                                     |   | $                    | 4,082  |   |
| Payment      agreement                                                   |   |                 | 10,557 |   |
| Cash      and other assets                                               |   |                 | 4,430  |   |
|                                                                     |   |                 |   |   |
| Liabilities      assumed:                                                |   |                 |   |   |
| Other      liabilities                                                   |   |                 | (21    | ) |
|                                                                     |   |                 |   |   |
| Net      assets acquired:                                                |   | $                    | 19,048 |   |

|                                              |   | December      31, 2009 |    |
|---------------------------------------------------|--------|------------------------|---------|
| Collateral      Type                              |   | Balance                |    |   | Weighted      Average Rate |   |   | Fair      Value of Collateral |   |
| Agency      MBS                                   |   | $                      | 540,586 |   |   |   | 0.60 | % |   | $ | 575,386 |   |
| Non-Agency      securities                        |   |                   | 73,338  |   |   |   | 1.73 | % |   |   | 82,770 |   |
| Securitization      financing bonds (see Note 10) |   |                   | 24,405  |   |   |   | 1.59 | % |   |   | 34,431 |   |
|                                              |   | $                      | 638,329 |   |   |   | 0.76 | % |   | $ | 692,587 |   |

|                                              |   | December      31, 2008 |    |
|---------------------------------------------------|--------|------------------------|---------|
| Collateral      Type                              |   | Balance                |    |   | Weighted      Average Rate |   |   | Fair      Value of Collateral |   |
| Agency      MBS                                   |   | $                      | 274,217 |   |   |   | 2.70 | % |   | $ | 300,277 |   |
| Non-Agency      securities                        |   |                   | – |   |   |   | – |   |   |   | – |   |
| Securitization      financing bonds (see Note 10) |   |                   | – |   |   |   | – |   |   |   | – |   |
|                                              |   | $                      | 274,217 |   |   |   | 2.70 | % |   | $ | 300,277 |   |

----

| Original      Maturity    |   | December      31, 2009 |    |   | December      31, 2008 |   |
|---------------------------|--------|------------------------|---------|--------|------------------------|--------|
| 30      days or less      |   | $                      | 69,576  |   |                   | $      | 38,617 |   |
| 31      to 60 days        |   |                   | 300,413 |   |                   |   | 187,960 |   |
| 61      to 90 days        |   |                   | 180,643 |   |                   |   | 47,640 |   |
| Greater      than 90 days |   |                   | 87,697  |   |                   |   | – |   |
|                      |   | $                      | 638,329 |   |                   | $      | 274,217 |   |

| Counterparty                         |   | Repurchase      agreements |    |   | Fair      Value of Collateral |   |    | Equity      at Risk |   | Weighted      Average Original Maturity |
|--------------------------------------|--------|----------------------------|---------|--------|-------------------------------|--------|---------|---------------------|--------|-----------------------------------------|
| Bank      of America Securities, LLC |   | $                          | 178,522 |   |                          | $      | 195,820 |                |   | $                                       | 17,298 |   | 91      days |
| All      other                       |   |                       | 459,807 |   |                          |   | 496,767 |                |   |                                    | 36,960 |   | 47      days |
|                                 |   | $                          | 638,329 |   |                          | $      | 692,587 |                |   | $                                       | 54,258 |   | 59      days |

----

|                                                 |   | December      31, 2009 |      |   | December      31, 2008           |   |
|------------------------------------------------------|--------|------------------------|-----------|--------|----------------------------------|--------|
|                                                 |   | Bonds      Outstanding |      |   | Range      ofInterest      Rates |   |   | Bonds      Outstanding |   |   | Range      of Interest      Rates |   |
| Fixed      rate classes                              |   | $                      | 121,168   |   |                             |   | 6.7%      - 7.1 | % |   | $ | 149,598 |   |   |   | 6.6%      - 8.8 | % |
| Variable      rate class                             |   |                   | 23,852    |   |                             |   | 0.5 | % |   |   | 28,186 |   |   |   | 1.7 | % |
| Unamortized      net bond premium and deferred costs |   |                   | (1,939    | )      |                             |   |   |   |   |   | (627 | ) |   |   |   |   |
|                                                 |   | $                      | 143,081   |   |                             |   |   |   |   | $ | 177,157 |   |   |   |   |   |
|                                                 |   |                   |      |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Range      of stated maturities                      |   |                   | 2024-2027 |   |                             |   |   |   |   |   | 2024-2027 |   |   |   |   |   |
| Estimated      weighted average life                 |   | 3.0      years         |      |   |                             |   |   |   | 2.6      years |   |   |   |   |   |
| Number      of series                                |   |                   | 2         |   |                             |   |   |   |   |   | 3 |   |   |   |   |   |

| Effective      Date    | Maturity      Date     |   | Notional      Amount |   |   | Fixed      Rate Swapped |   |
|------------------------|------------------------|--------|----------------------|--------|--------|-------------------------|--------|
|                   |                   |   |                 |   |   |                    |   |
| November      24, 2009 | November      24, 2011 |   | $                    | 25,000 |   |                    |   | 0.96 | % |
| November      24, 2009 | November      24, 2012 |   | $                    | 50,000 |   |                    |   | 1.53 | % |
| December      24, 2009 | December      24, 2014 |   | $                    | 30,000 |   |                    |   | 2.50 | % |

----

| ·   | Level      1 — Inputs are unadjusted, quoted prices in active markets for identical      assets or liabilities at the measurement date.  The Company’s      investments included in Level 1 fair value generally are equity securities      listed in active markets. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 — Inputs (other than quoted prices included in Level 1) are either      directly or indirectly observable for the asset or liability through      correlation with market data at the measurement date and for the duration      of the instrument’s anticipated life.  The Company’s fair valued      assets and liabilities that are generally included in this category are      Agency MBS, which are valued based on the average of multiple dealer      quotes that are active in the Agency MBS market, and its      derivatives. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      3 — Inputs reflect management’s best estimate of what market participants      would use in pricing the asset or liability at the measurement      date.  Consideration is given to the risk inherent in the      valuation technique and the risk inherent in the inputs to the      model.  Generally, the Company’s assets and liabilities carried      at fair value and included in this category are non-Agency securities and      delinquent property taxreceivables. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                    |   |            |    |   | Fair      Value Measurements |   |
|-----------------------------------------|--------|-----------------|---------|--------|------------------------------|--------|
|                                    |   | Fair      Value |    |   | Level      1                 |   |   | Level      2 |   |   | Level      3 |   |
| Assets:                                 |   |            |    |   |                         |   |   |   |   |   |   |   |
| Agency MBS                              |   | $               | 594,120 |   |                         | $      | – |   |   | $ | 594,120 |   |   | $ | – |   |
| Non-Agency    securities                |   |            | 109,110 |   |                         |   | – |   |   |   | – |   |   |   | 109,110 |   |
| Derivative assets                       |   |            | 1,008   |   |                         |   | – |   |   |   | 1,008 |   |   |   | – |   |
| Other                                   |   |            | 131     |   |                         |   | – |   |   |   | – |   |   |   | 131 |   |
| Total assets carried at fair      value |   | $               | 704,369 |   |                         | $      | – |   |   | $ | 595,128 |   |   | $ | 109,241 |   |
|                                    |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |

|                                                        |   | Level      3 Fair Values   |    |
|-------------------------------------------------------------|--------|----------------------------|---------|
|                                                        |   | Non-Agency      securities |    |   | Corporate      debt securities |   |   | Other |   |   | Total      assets |   |   | Obligation      under payment agreement |   |
| Balance      as of January 1, 2008                          |   | $                          | 7,726   |   |   | $ | 4,347 |   |   | $ | 2,127 |   |   | $ | 14,200 |   |   | $ | (15,473 | ) |
| Total      realized and unrealized gains (losses)           |   |                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included      in the statement of operations                |   |                       | – |   |   |   | (187 | ) |   |   | (9 | ) |   |   | (196 | ) |   |   | 6,939 |   |
| Included      in other comprehensive income (loss)          |   |                       | (742    | ) |   |   | 375 |   |   |   | 15 |   |   |   | (352 | ) |   |   | – |   |
| Purchases,      sales, issuances and other settlements, net |   |                       | (725    | ) |   |   | (4,535 | ) |   |   | (1,922 | ) |   |   | (7,182 | ) |   |   | – |   |
| Transfers      in and/or out of Level 3                     |   |                       | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      at December 31, 2008                           |   | $                          | 6,259   |   |   | $ | – |   |   | $ | 211 |   |   | $ | 6,470 |   |   | $ | (8,534 | ) |
| Total      realized and unrealized gains (losses)           |   |                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included      in statement of operations                    |   |                       | (47     | ) |   |   | – |   |   |   | (2 | ) |   |   | (49 | ) |   |   | (2,023 | ) |
| Included      in other comprehensive income (loss)          |   |                       | (1,206  | ) |   |   | – |   |   |   | (16 | ) |   |   | (1,222 | ) |   |   | – |   |
| Purchases,      sales, issuances and othersettlements,net   |   |                       | 104,104 |   |   |   | – |   |   |   | (62 | ) |   |   | 104,042 |   |   |   | 10,557 |   |
| Transfers      in and/or out of Level 3                     |   |                       | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      as of December 31, 2009                        |   | $                          | 109,110 |   |   | $ | – |   |   | $ | 131 |   |   | $ | 109,241 |   |   | $ | – |   |

----

|                                    |   | December      31, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                                    |   | RecordedBasis          |    |   | FairValue              |   |   | RecordedBasis |   |   | FairValue |   |
| Assets:                                 |   |                   |    |   |                   |   |   |   |   |   |   |   |
| Agency MBS                              |   | $                      | 594,120 |   |                   | $      | 594,120 |   |   | $ | 311,576 |   |   | $ | 311,576 |   |
| Non-Agency securities and      CMBS     |   |                   | 109,110 |   |                   |   | 109,110 |   |   |   | 6,259 |   |   |   | 6,259 |   |
| Securitized mortgage loans,      net    |   |                   | 212,471 |   |                   |   | 186,547 |   |   |   | 242,289 |   |   |   | 200,699 |   |
| Investment in joint      venture        |   |                   | – |   |                   |   | – |   |   |   | 5,655 |   |   |   | 5,595 |   |
| Otherinvestments                        |   |                   | 2,280   |   |                   |   | 2,079 |   |   |   | 6,476 |   |   |   | 6,099 |   |
|                                    |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                            |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements              |   |                   | 638,329 |   |                   |   | 638,329 |   |   |   | 274,217 |   |   |   | 274,217 |   |
| Securitization      financing           |   |                   | 143,081 |   |                   |   | 132,234 |   |   |   | 177,157 |   |   |   | 153,264 |   |
| Obligation under payment      agreement |   |                   | – |   |                   |   | – |   |   |   | 8,534 |   |   |   | 8,534 |   |

|                               |   | December      31, 2009 |    |   | December      31, 2008 |   |
|------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                               |   | FairValue              |    |   | UnrealizedLoss         |   |   | FairValue |   |   | Unrealized      Loss |   |
| Unrealized      loss position for: |   |                   |    |   |                   |   |   |   |   |   |   |   |
| Less than one    year:             |   |                   |    |   |                   |   |   |   |   |   |   |   |
| Agency MBS                         |   | $                      | 73,288  |   |                   | $      | 302 |   |   | $ | 98,171 |   |   | $ | 853 |   |
| Non-Agency      securities         |   |                   | 92,438  |   |                   |   | 4,145 |   |   |   | 3,719 |   |   |   | 937 |   |
| One year ormore:                   |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities         |   |                   | 4,087   |   |                   |   | 971 |   |   |   | 598 |   |   |   | 355 |   |
|                               |   | $                      | 169,813 |   |                   | $      | 5,418 |   |   | $ | 102,488 |   |   | $ | 2,145 |   |

----

|                                   |   | Year      ended December 31, |    |
|----------------------------------------|--------|------------------------------|---------|
|                                   |   | 2009                         |    |   | 2008 |   |   | 2007 |   |
|                                   |   | Income                       |    |   | Weighted      Average Common Shares |   |   | Income |   |   | Weighted      Average Common Shares |   |   | Income |   |   | Weighted      Average Common Shares |   |
|                                   |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                        |   | $                            | 17,581  |   |   |   |   |   | $ | 15,121 |   |   |   |   |   | $ | 8,899 |   |   |   |   |
| Preferred      stock dividends         |   |                         | (4,010  | ) |   |   |   |   |   | (4,010 | ) |   |   |   |   |   | (4,010 | ) |   |   |   |
| Net      income to common shareholders |   |                         | 13,571  |   |   |   | 13,088,154 |   |   |   | 11,111 |   |   |   | 12,166,558 |   |   |   | 4,889 |   |   |   | 12,135,495 |   |
| Effect      of dilutive items          |   |                         | 4,010   |   |   |   | 4,222,826 |   |   |   | – |   |   |   | 3,053 |   |   |   | – |   |   |   | 2,593 |   |
| Diluted      income                    |   | $                            | 17,581  |   |   |   | 17,310,980 |   |   | $ | 11,111 |   |   |   | 12,169,611 |   |   | $ | 4,889 |   |   |   | 12,138,088 |   |
|                                   |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:      |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                  |   | $                            | 1.04    |   |   |   |   |   |   | $ | 0.91 |   |   |   |   |   |   | $ | 0.40 |   |   |   |   |   |
| Diluted                                |   | $                            | 1.02    |   |   |   |   |   |   | $ | 0.91 |   |   |   |   |   |   | $ | 0.40 |   |   |   |   |   |
|                                   |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of dilutive items:     |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible preferred      stock       |   |                         | 4,010   |   |   |   | 4,221,539 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Stock options                          |   |                         | – |   |   |   | 1,287 |   |   |   | – |   |   |   | 3,053 |   |   |   | – |   |   |   | 2,593 |   |
|                                   |   | $                            | 4,010   |   |   |   | 4,222,826 |   |   | $ | 11,111 |   |   |   | 3,053 |   |   | $ | 4,889 |   |   |   | 2,593 |   |
|                                   |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                           |   | Year      ended December 31, |    |
|------------------------------------------------|--------|------------------------------|---------|
|                                           |   | 2009                         |    |   | 2008 |   |   | 2007 |   |
| Shares      issuable under stock option awards |   |                         | 70,000  |   |   |   | 118,053 |   |   |   | 92,407 |   |
| Convertible      preferred shares              |   |                         | – |   |   |   | 4,221,539 |   |   |   | 4,221,539 |   |

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|                                            |   | Preferred      Stock Series D |      |   | Common      Stock |   |
|-------------------------------------------------|--------|-------------------------------|-----------|--------|-------------------|--------|
| January      1, 2007                            |   |                          | 4,221,539 |   |              |   | 12,131,262 |   |
| Stock      options exercised                    |   |                          | -         |   |              |   | 5,000 |   |
| December      31, 2007                          |   |                          | 4,221,539 |   |              |   | 12,136,262 |   |
| Restricted      shares granted                  |   |                          | -         |   |              |   | 33,500 |   |
| December      31, 2008                          |   |                          | 4,221,539 |   |              |   | 12,169,762 |   |
| Common      stock issued (1,749,250 under CEOP) |   |                          | -         |   |              |   | 1,751,750 |   |
| Restricted      shares granted                  |   |                          | -         |   |              |   | 10,000 |   |
| December      31, 2009                          |   |                          | 4,221,539 |   |              |   | 13,931,512 |   |

|                    |                    |                  |   | Dividend      per Share |   |
|-------------------------|-------------------------|-----------------------|--------|-------------------------|--------|
| Declaration      Date   | Record      Date        | Payment      Date     |   | Common                  |   |   | Preferred |   |
| March      20, 2009     | March      31, 2009     | April      30, 2009   |   | $                       | 0.2300 |   |   | $ | 0.2375 |   |
| June      16, 2009      | June      30, 2009      | July      31, 2009    |   |                    | 0.2300 |   |   |   | 0.2375 |   |
| September      15, 2009 | September      30, 2009 | October      30, 2009 |   |                    | 0.2300 |   |   |   | 0.2375 |   |
| December      9, 2009   | December      31, 2009  | February      1, 2010 |   |                    | 0.2300 |   |   |   | 0.2375 |   |

----

|                                 |   | As      of December 31, |       |
|--------------------------------------|--------|-------------------------|------------|
|                                 |   | 2009                    |       |   | 2008 |   |
| Expected      volatility             |   |                    | 25.4%-30.9 | % |   |   | 21.3%-26.6 | % |
| Weighted-average      volatility     |   |                    | 29.4       | % |   |   | 24.4 | % |
| Expected      dividends              |   |                    | 10.4       | % |   |   | 14.1 | % |
| Expected      term (in months)       |   |                    | 18         |   |   |   | 22 |   |
| Weighted-average      risk-free rate |   |                    | 1.87       | % |   |   | 1.89 | % |
| Range      of risk-free rates        |   |                    | 1.44%-2.42 | % |   |   | 1.73%-2.08 | % |

|                                                     |   | Number      of Shares |    |   | Weighted-AverageExercisePrice |   |
|----------------------------------------------------------|--------|-----------------------|---------|--------|-------------------------------|--------|
| SARs      outstanding as of January 1, 2007              |   |                  | 203,297 |   |                          | $      | 7.36 |   |
| SARs      granted                                        |   |                  | 82,500  |   |                          |   | 7.06 |   |
| SARs      forfeited or redeemed                          |   |                  | (7,651  | )      |                          |   | 7.25 |   |
| SARs      exercised                                      |   |                  | – |   |                          |   | – |   |
| SARs      outstanding as of December 31, 2007            |   |                  | 278,146 |   |                          | $      | 7.27 |   |
| SARs      granted                                        |   |                  | – |   |                          |   | – |   |
| SARs      forfeited, redeemed, or exercised              |   |                  | – |   |                          |   | – |   |
| SARs      outstanding as of December 31, 2008            |   |                  | 278,146 |   |                          | $      | 7.27 |   |
| SARs      granted                                        |   |                  | – |   |                          |   | – |   |
| SARs      forfeited, redeemed, or exercised              |   |                  | – |   |                          |   | – |   |
| SARs      outstanding as of December 31, 2009            |   |                  | 278,146 |   |                          | $      | 7.27 |   |
| SARs      vested and exercisable as of December 31, 2009 |   |                  | 219,396 |   |                          | $      | 7.37 |   |

----

|                                                                               |   | Number      of Shares |    |   | Weighted-AverageExercisePrice |   |
|------------------------------------------------------------------------------------|--------|-----------------------|---------|--------|-------------------------------|--------|
| Options      outstanding as of January 1, 2007                                     |   |                  | 75,000  |   |                          | $      | 7.98 |   |
| Options      granted                                                               |   |                  | 25,000  |   |                          |   | 9.02 |   |
| Options      forfeited                                                             |   |                  | (5,000  | )      |                          |   | 8.46 |   |
| Options      exercised                                                             |   |                  | (5,000  | )      |                          |   | 7.43 |   |
| Options      outstanding as of December 31, 2007 (all vested and      exercisable) |   |                  | 90,000  |   |                          | $      | 8.27 |   |
| Options      granted                                                               |   |                  | 25,000  |   |                          |   | 9.81 |   |
| Options      forfeited                                                             |   |                  | (5,000  | )      |                          |   | 9.81 |   |
| Options      exercised                                                             |   |                  | – |   |                          |   | – |   |
| Options      outstanding as of December 31, 2008 (all vested and      exercisable) |   |                  | 110,000 |   |                          | $      | 8.61 |   |
| Options      granted                                                               |   |                  | – |   |                          |   | – |   |
| Options      forfeited                                                             |   |                  | (15,000 | )      |                          |   | 8.30 |   |
| Options      exercised                                                             |   |                  | – |   |                          |   | – |   |
| Options      outstanding as of December 31, 2009 (all vested and      exercisable) |   |                  | 95,000  |   |                          | $      | 8.59 |   |

|                                                      |   | Number      of Shares of Restricted Stock |    |
|-----------------------------------------------------------|--------|-------------------------------------------|---------|
| Restricted      stock as of January 1, 2008               |   |                                      | – |   |
| Restricted      stock granted                             |   |                                      | 33,500  |   |
| Restricted      stock forfeited                           |   |                                      | – |   |
| Restricted      stock vested                              |   |                                      | (3,500  | ) |
| Restricted      stock outstanding as of December 31, 2008 |   |                                      | 30,000  |   |
| Restricted      stock granted                             |   |                                      | 10,000  |   |
| Restricted      stock forfeited                           |   |                                      | – |   |
| Restricted      stock vested                              |   |                                      | (7,500  | ) |
| Restricted      stock outstanding as of December 31, 2009 |   |                                      | 32,500  |   |

----

| 2010   |   | $      | 149 |   |
|--------|--------|--------|-----|--------|
| 2011   |   |   | 154 |   |
| 2012   |   |   | 159 |   |
| 2013   |   |   | 163 |   |
|   |   | $      | 625 |   |

----

|                                                                         |   | Year      ended December 31, |   |
|------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                         |   | 2009                         |   |   | 2008 |   |   | 2007 |   |
| Supplemental      disclosure of cash activities:                             |   |                         |   |   |   |   |   |   |   |
| Cash paid for    interest                                                    |   | $                            | 36,710 |   |   | $ | 19,817 |   |   | $ | 20,082 |   |
|                                                                         |   |                         |   |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of non-cash investing and financing activities: |   |                         |   |   |   |   |   |   |   |   |   |   |
| Common dividends declared but not      paid                                  |   | $                            | 3,204  |   |   | $ | 2,799 |   |   | $ | – |   |
| Preferred dividends declared but      not paid                               |   | $                            | 1,003  |   |   | $ | 1,003 |   |   | $ | 1,003 |   |

|                                        |   | Available      for sale securities |   |   | Cash      flow hedging |   |    | Total      AOCI |   |
|---------------------------------------------|--------|------------------------------------|--------|--------|------------------------|--------|---------|-----------------|--------|
| Balance      as of December 31, 2008        |   | $                                  | (3,949 | )      |                   | $      | – |            |   | $ | (3,949 | ) |
| Current      period change                  |   |                               | 13,002 |   |                   |   | 1,008   |            |   |   | 14,010 |   |
| Ending      balance as of December 31, 2009 |   | $                                  | 9,053  |   |                   | $      | 1,008   |            |   | $ | 10,061 |   |

----

| Year      Ended December 31, 2009                                          |   | First      Quarter |   |   | Second      Quarter |   |   | Third      Quarter |   |   | Fourth      Quarter |   |
|----------------------------------------------------------------------------|--------|--------------------|--------|--------|---------------------|--------|--------|--------------------|--------|--------|---------------------|--------|
| Operating      results:                                                    |   |               |   |   |                |   |   |               |   |   |                |   |
| Net      interest income                                                   |   | $                  | 5,044  |   |                | $      | 5,881  |               |   | $      | 6,597               |   |   | $ | 7,043 |   |
| Net      interest income after (provision for) recapture of loan    losses |   |               | 4,865  |   |                |   | 5,742  |               |   |   | 6,349               |   |   |   | 6,827 |   |
| Net      income                                                            |   |               | 3,134  |   |                |   | 4,370  |               |   |   | 6,002               |   |   |   | 4,075 |   |
| Basic      net income per common share                                     |   |               | 0.18   |   |                |   | 0.26   |               |   |   | 0.37                |   |   |   | 0.23 |   |
| Diluted      net income per common share                                   |   |               | 0.18   |   |                |   | 0.25   |               |   |   | 0.34                |   |   |   | 0.23 |   |
| Cash      dividends declared per common share                              |   |               | 0.23   |   |                |   | 0.23   |               |   |   | 0.23                |   |   |   | 0.23 |   |

| Year      Ended December 31, 2008                                      |   | FirstQuarter |   |   | SecondQuarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
|------------------------------------------------------------------------|--------|--------------|--------|--------|---------------|--------|--------|--------------|--------|--------|---------------|--------|
| Operating      results:                                                |   |         |   |   |          |   |   |         |   |   |          |   |
| Net      interest income                                               |   | $            | 2,421  |   |          | $      | 2,501  |         |   | $      | 2,787         |   |   | $ | 2,838 |   |
| Net      interest income after (provision for) recapture ofloan losses |   |         | 2,395  |   |          |   | 2,180  |         |   |   | 2,338         |   |   |   | 2,643 |   |
| Net      income (1)                                                    |   |         | 5,319  |   |          |   | 4,296  |         |   |   | 3,045         |   |   |   | 2,461 |   |
| Basic      net income per common share                                 |   |         | 0.36   |   |          |   | 0.27   |         |   |   | 0.17          |   |   |   | 0.12 |   |
| Diluted      net income per common share                               |   |         | 0.32   |   |          |   | 0.26   |         |   |   | 0.17          |   |   |   | 0.12 |   |
| Cash      dividends declared per common share                          |   |         | 0.10   |   |          |   | 0.15   |         |   |   | 0.23          |   |   |   | 0.23 |   |

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