----

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|   | Quarterly 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 |
|--------|------------------------------------------------------------------------------------------|

| Commission File Number: 1-9819 |
|--------------------------------|

| 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                         | 23060-9245          |
| (Address of principal executive offices)                                       | (Zip Code)          |
|                                                                           |                |
| (804) 217-5800(Registrant’s telephone number, including area code)  |

| 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   |
|------------|-----------------------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART I.    | FINANCIAL INFORMATION |                                                                                                                                      |
|       |                  |                                                                                                                                      |   |
|       | Item 1.               | Financial Statements                                                                                                                      |   |
|       |                  |                                                                                                                                      |   |
|       |                  | Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009                                                    | 1      |
|       |                  |                                                                                                                                      |   |
|       |                  | Consolidated Statements of Income for the three and nine months ended September 30, 2010 and September 30, 2009 (unaudited)               | 2      |
|       |                  |                                                                                                                                      |   |
|       |                  | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2010 and September 30, 2009 (unaudited) | 3      |
|       |                  |                                                                                                                                      |   |
|       |                  | Consolidated Statements of Shareholders’ Equity for the nine months endedSeptember 30, 2010 (unaudited)                             | 4      |
|       |                  |                                                                                                                                      |   |
|       |                  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and September 30, 2009 (unaudited)                     | 5      |
|       |                  |                                                                                                                                      |   |
|       |                  | Condensed Notes to Unaudited Consolidated Financial Statements                                                                            | 6      |
|       |                  |                                                                                                                                      |   |
|       | Item 2.               | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                               | 29     |
|       |                  |                                                                                                                                      |   |
|       | Item 3.               | Quantitative and Qualitative Disclosures about Market Risk                                                                                | 54     |
|       |                  |                                                                                                                                      |   |
|       | Item 4.               | Controls and Procedures                                                                                                                   | 61     |
|       |                  |                                                                                                                                      |   |
| PART II.   | OTHER INFORMATION     |                                                                                                                                      |
|       |                  |                                                                                                                                      |   |
|       | Item 1.               | Legal Proceedings                                                                                                                         | 62     |
|       |                  |                                                                                                                                      |   |
|       | Item 1A.              | Risk Factors                                                                                                                              | 63     |
|       |                  |                                                                                                                                      |   |
|       | Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                                                                               | 63     |
|       |                  |                                                                                                                                      |   |
|       | Item 3.               | Defaults Upon Senior Securities                                                                                                           | 63     |
|       |                  |                                                                                                                                      |   |
|       | Item 4.               | (Removed and Reserved)                                                                                                                    | 63     |
|       |                  |                                                                                                                                      |   |
|       | Item 5.               | Other Information                                                                                                                         | 63     |
|       |                  |                                                                                                                                      |   |
|       | Item 6.               | Exhibits                                                                                                                                  | 64     |
|       |                  |                                                                                                                                      |   |
| SIGNATURES | 65                    |

----

|   | PART I.  FINANCIAL INFORMATION |
|--------|------------------------------------------|

|   | Item  1.Financial Statements |
|--------|----------------------------------------|

|                                                                                                                                        |   | September 30, 2010 |       |   | December 31, 2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                                                                                                                                        |   | (unaudited)        |       |   |              |   |
| ASSETS                                                                                                                                      |   |               |       |   |              |   |
| Agency MBS (including pledged of $601,559 and $575,386,  respectively)                                                            |   | $                  | 676,843    |   |              | $      | 594,120 |   |
| Non-Agency MBS (including pledged of $197,093 and $82,770, respectively)                                                                    |   |               | 225,371    |   |              |   | 109,110 |   |
| Securitized mortgage loans, net                                                                                                             |   |               | 160,895    |   |              |   | 212,471 |   |
| Other investments, net                                                                                                                      |   |               | 1,437      |   |              |   | 2,280 |   |
|                                                                                                                                        |   |               | 1,064,546  |   |              |   | 917,981 |   |
|                                                                                                                                        |   |               |       |   |              |   |   |   |
| Cash and cash equivalents                                                                                                                   |   |               | 17,194     |   |              |   | 30,173 |   |
| Derivative assets                                                                                                                           |   |               | –    |   |              |   | 1,008 |   |
| Accrued interest receivable                                                                                                                 |   |               | 4,132      |   |              |   | 4,583 |   |
| Other assets, net                                                                                                                           |   |               | 5,963      |   |              |   | 4,317 |   |
| Total assets                                                                                                                                |   | $                  | 1,091,835  |   |              | $      | 958,062 |   |
|                                                                                                                                        |   |               |       |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                  |   |               |       |   |              |   |   |   |
|                                                                                                                                        |   |               |       |   |              |   |   |   |
| Liabilities:                                                                                                                                |   |               |       |   |              |   |   |   |
| Repurchase agreements                                                                                                                       |   | $                  | 745,147    |   |              | $      | 638,329 |   |
| Non-recourse collateralized financing                                                                                                       |   |               | 108,027    |   |              |   | 143,081 |   |
| Derivative liabilities                                                                                                                      |   |               | 4,889      |   |              |   | – |   |
| Accrued interest payable                                                                                                                    |   |               | 790        |   |              |   | 1,208 |   |
| Other liabilities                                                                                                                           |   |               | 7,508      |   |              |   | 6,691 |   |
|                                                                                                                                        |   |               | 866,361    |   |              |   | 789,309 |   |
| Commitments and Contingencies (Note 13)                                                                                                     |   |               |       |   |              |   |   |   |
|                                                                                                                                        |   |               |       |   |              |   |   |   |
| Shareholders’ equity:                                                                                                                 |   |               |       |   |              |   |   |   |
| Preferred stock, par value $.01 per share, 50,000,000 shares                                                                                |   |               |       |   |              |   |   |   |
| authorized; 9.5% Cumulative Convertible Series D, 4,221,387 shares                                                                          |   |               |       |   |              |   |   |   |
| issued and outstanding ($43,269 aggregate liquidation preference)                                                                           |   |               | 41,748     |   |              |   | 41,749 |   |
| Common stock, par value $.01 per share, 100,000,000 sharesauthorized; 18,709,394 and 13,931,512 shares issued and outstanding, respectively |   |               |   187 |   |              |   |   139 |   |
| Additional paid-in capital                                                                                                                  |   |               | 423,700    |   |              |   | 379,717 |   |
| Accumulated other comprehensive income                                                                                                      |   |               | 17,600     |   |              |   | 10,061 |   |
| Accumulated deficit                                                                                                                         |   |               | (257,761   | )      |              |   | (262,913 | ) |
|                                                                                                                                        |   |               | 225,474    |   |              |   | 168,753 |   |
|  Total liabilities and shareholders’ equity                                                                                      |   | $                  | 1,091,835  |   |              | $      | 958,062 |   |

----

|                                                |   | Three Months Ended |    |   | Nine Months Ended |   |
|-----------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                                |   | September 30,      |    |   | September 30,     |   |
|                                                |   | 2010               |    |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Interest income:                                    |   |               |    |   |              |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                  | 5,607   |   |              | $      | 5,413 |   |   | $ | 15,085 |   |   | $ | 14,943 |   |
| Non-Agency MBS                                      |   |               | 3,345   |   |              |   | 154 |   |   |   | 9,586 |   |   |   | 470 |   |
| Securitized mortgage loans                          |   |               | 2,748   |   |              |   | 3,832 |   |   |   | 9,726 |   |   |   | 13,138 |   |
| Other investments                                   |   |               | 30      |   |              |   | 49 |   |   |   | 94 |   |   |   | 184 |   |
| Cash and cash equivalents                           |   |               | 4       |   |              |   | 4 |   |   |   | 9 |   |   |   | 13 |   |
|                                                |   |               | 11,734  |   |              |   | 9,452 |   |   |   | 34,500 |   |   |   | 28,748 |   |
| Interest expense:                                   |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase agreements                               |   |               | (1,672  | )      |              |   | (668 | ) |   |   | (4,297 | ) |   |   | (2,561 | ) |
| Non-recourse collateralized financing               |   |               | (1,661  | )      |              |   | (1,769 | ) |   |   | (6,674 | ) |   |   | (7,455 | ) |
| Other interest expense                              |   |               | – |   |              |   | (418 | ) |   |   | – |   |   |   | (1,210 | ) |
|                                                |   |               | (3,333  | )      |              |   | (2,855 | ) |   |   | (10,971 | ) |   |   | (11,226 | ) |
|                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                 |   |               | 8,401   |   |              |   | 6,597 |   |   |   | 23,529 |   |   |   | 17,522 |   |
| Provision for loan losses                           |   |               | (211    | )      |              |   | (248 | ) |   |   | (770 | ) |   |   | (566 | ) |
| Net interest income after provision for loan losses |   |               | 8,190   |   |              |   | 6,349 |   |   |   | 22,759 |   |   |   | 16,956 |   |
|                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Gain on sale of investments, net                    |   |               | – |   |              |   | – |   |   |   | 794 |   |   |   | 220 |   |
| Fair value adjustments, net                         |   |               | 77      |   |              |   | (457 | ) |   |   | 230 |   |   |   | (319 | ) |
| Other income, net                                   |   |               | 726     |   |              |   | 29 |   |   |   | 1,950 |   |   |   | 193 |   |
| Equity in income of joint venture, net              |   |               | – |   |              |   | 1,620 |   |   |   | – |   |   |   | 1,476 |   |
| General and administrative expenses:                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and benefits                           |   |               | (1,191  | )      |              |   | (824 | ) |   |   | (3,033 | ) |   |   | (2,776 | ) |
| Other general and administrative expenses           |   |               | (780    | )      |              |   | (715 | ) |   |   | (2,874 | ) |   |   | (2,245 | ) |
|                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                          |   |               | 7,022   |   |              |   | 6,002 |   |   |   | 19,826 |   |   |   | 13,505 |   |
| Preferred stock dividends                           |   |               | (1,056  | )      |              |   | (1,003 | ) |   |   | (3,061 | ) |   |   | (3,008 | ) |
|                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net income to common shareholders                   |   | $                  | 5,966   |   |              | $      | 4,999 |   |   | $ | 16,765 |   |   | $ | 10,497 |   |
|                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares:                     |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                               |   |               | 17,230  |   |              |   | 13,552 |   |   |   | 15,532 |   |   |   | 12,908 |   |
| Diluted                                             |   |               | 21,457  |   |              |   | 17,776 |   |   |   | 19,757 |   |   |   | 17,131 |   |
| Net income per common share:                        |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                               |   | $                  | 0.35    |   |              | $      | 0.37 |   |   | $ | 1.08 |   |   | $ | 0.81 |   |
| Diluted                                             |   | $                  | 0.33    |   |              | $      | 0.34 |   |   | $ | 1.00 |   |   | $ | 0.79 |   |
|                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Dividends declared per common share                 |   | $                  | 0.25    |   |              | $      | 0.23 |   |   | $ | 0.94 |   |   | $ | 0.69 |   |

----

|                                                                                                |   | Three Months Ended |    |   | Nine Months Ended |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                                                                                |   | September 30,      |    |   | September 30,     |   |
|                                                                                                |   | 2010               |    |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Net income                                                                                          |   | $                  | 7,022   |   |              | $      | 6,002 |   |   | $ | 19,826 |   |   | $ | 13,505 |   |
| Other comprehensive income:                                                                         |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale securities:                                                                      |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Change in market value                                                                              |   |               | 2,212   |   |              |   | 4,030 |   |   |   | 14,199 |   |   |   | 11,461 |   |
| Reclassification adjustment for net gain on sale of investments                                     |   |               | – |   |              |   | 1 |   |   |   | (779 | ) |   |   | (220 | ) |
| Reclassification adjustment for equity in the joint venture’s other-than-temporary impairment |   |               | – |   |              |   | – |   |   |   | – |   |   |   | 707 |   |
| Net unrealized loss on cash flow hedging instruments                                                |   |               | (2,048  | )      |              |   | – |   |   |   | (5,881 | ) |   |   | – |   |
| Other comprehensive income                                                                          |   |               | 164     |   |              |   | 4,031 |   |   |   | 7,539 |   |   |   | 11,948 |   |
|                                                                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                                |   |               | 7,186   |   |              |   | 10,033 |   |   |   | 27,365 |   |   |   | 25,453 |   |
| Dividends declared on preferred stock                                                               |   |               | (1,056  | )      |              |   | (1,003 | ) |   |   | (3,061 | ) |   |   | (3,008 | ) |
| Comprehensive income to common shareholders                                                         |   | $                  | 6,130   |   |              | $      | 9,030 |   |   | $ | 24,304 |   |   | $ | 22,445 |   |
|                                                                                                |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                     |   | PreferredStock |    |   | CommonStock |   |    | AdditionalPaid-inCapital |   |   | Accumulated OtherCompre­hensiveIncome |   |   | AccumulatedDeficit |    |   | Total  |   |
|----------------------------------------------------------|--------|----------------|---------|--------|-------------|--------|---------|--------------------------|--------|--------|--------------------------------------------|--------|--------|--------------------|---------|--------|--------|--------|
| Balance as of December 31, 2009                          |   | $              | 41,749  |   |        | $      | 139     |                     |   | $      | 379,717                                    |   |   | $                  | 10,061  |   |   | $      | (262,913 | ) |   | $ | 168,753 |   |
| Common stock issuance                                    |   |           | – |   |        |   | 47      |                     |   |   | 43,963                                     |   |   |               | – |   |   |   | – |   |   |   | 44,010 |   |
| Restricted stock vesting                                 |   |           | – |   |        |   | – |                     |   |   | 20                                         |   |   |               | – |   |   |   | – |   |   |   | 20 |   |
| Conversion of preferred shares to common shares          |   |           | (1      | )      |        |   | 1       |                     |   |   | –                                    |   |   |               | – |   |   |   | – |   |   |   | – |   |
| Cumulative effect of adoption ofnew accounting principle |   |           | – |   |        |   | – |                     |   |   | –                                    |   |   |               | – |   |   |   | 12 |   |   |   | 12 |   |
| Net income                                               |   |           | – |   |        |   | – |                     |   |   | –                                    |   |   |               | – |   |   |   | 19,826 |   |   |   | 19,826 |   |
| Dividends on preferred stock                             |   |           | – |   |        |   | – |                     |   |   | –                                    |   |   |               | – |   |   |   | (3,061 | ) |   |   | (3,061 | ) |
| Dividends on common stock                                |   |           | – |   |        |   | – |                     |   |   | –                                    |   |   |               | – |   |   |   | (11,625 | ) |   |   | (11,625 | ) |
| Other comprehensive income                               |   |           | – |   |        |   | – |                     |   |   | –                                    |   |   |               | 7,539   |   |   |   | – |   |   |   | 7,539 |   |
| Balance as of September 30, 2010                         |   | $              | 41,748  |   |        | $      | 187     |                     |   | $      | 423,700                                    |   |   | $                  | 17,600  |   |   | $      | (257,761 | ) |   | $ | 225,474 |   |

----

|                                                                          |   | Nine Months Ended September 30, |     |
|-------------------------------------------------------------------------------|--------|---------------------------------|----------|
|                                                                          |   | 2010                            |     |   | 2009 |   |
| Operating activities:                                                         |   |                            |     |   |   |   |
| Net income                                                                    |   | $                               | 19,826   |   |   | $ | 13,505 |   |
| Adjustments to reconcile net income to cash provided by operating activities: |   |                            |     |   |   |   |   |   |
| Decrease (increase) in accrued interest receivable                            |   |                            | 451      |   |   |   | (1,016 | ) |
| Decrease in accrued interest payable                                          |   |                            | (418     | ) |   |   | (600 | ) |
| Provision for loan losses                                                     |   |                            | 769      |   |   |   | 566 |   |
| Gain on sale of investments, net                                              |   |                            | (794     | ) |   |   | (220 | ) |
| Gain on redemption of securitization financing bonds                          |   |                            | (561     | ) |   |   | – |   |
| Fair value adjustments, net                                                   |   |                            | (230     | ) |   |   | 319 |   |
| Equity in income of joint venture, net                                        |   |                            | –  |   |   |   | (1,476 | ) |
| Amortization and depreciation                                                 |   |                            | 4,266    |   |   |   | 1,812 |   |
| Stock based compensation expense                                              |   |                            | 558      |   |   |   | 426 |   |
| Net change in other assets and other liabilities                              |   |                            | (3,301   | ) |   |   | (980 | ) |
| Net cash and cash equivalents provided by operating activities                |   |                            | 20,566   |   |   |   | 12,336 |   |
|                                                                          |   |                            |     |   |   |   |   |   |
| Investing activities:                                                         |   |                            |     |   |   |   |   |   |
| Purchase of investments                                                       |   |                            | (432,182 | ) |   |   | (364,575 | ) |
| Principal payments received on investments                                    |   |                            | 207,485  |   |   |   | 86,448 |   |
| Change in principal payment receivable on investments                         |   |                            | 168      |   |   |   | (1,833 | ) |
| Proceeds from sales of investments                                            |   |                            | 50,882   |   |   |   | 3,699 |   |
| Principal payments received on securitized mortgage loans                     |   |                            | 51,109   |   |   |   | 17,130 |   |
| Other investing activities                                                    |   |                            | (295     | ) |   |   | 190 |   |
| Net cash and cash equivalents used in investing activities                    |   |                            | (122,833 | ) |   |   | (258,941 | ) |
|                                                                          |   |                            |     |   |   |   |   |   |
| Financing activities:                                                         |   |                            |     |   |   |   |   |   |
| Borrowings under repurchase agreements, net                                   |   |                            | 106,818  |   |   |   | 271,544 |   |
| Borrowings under non-recourse collateralized financing                        |   |                            | 50,678   |   |   |   | – |   |
| Principal payments on non-recourse collateralized financing                   |   |                            | (42,652  | ) |   |   | (13,256 | ) |
| Redemption of securitization financing                                        |   |                            | (56,406  | ) |   |   | (15,493 | ) |
| Decrease in restricted cash                                                   |   |                            | –  |   |   |   | 2,974 |   |
| Proceeds from issuance of common stock                                        |   |                            | 44,010   |   |   |   | 9,884 |   |
| Dividends paid                                                                |   |                            | (13,160  | ) |   |   | (11,634 | ) |
| Net cash and cash equivalents provided by financing activities                |   |                            | 89,288   |   |   |   | 244,019 |   |
|                                                                          |   |                            |     |   |   |   |   |   |
| Net decrease in cash and cash equivalents                                     |   |                            | (12,979  | ) |   |   | (2,586 | ) |
| Cash and cash equivalents at beginning of period                              |   |                            | 30,173   |   |   |   | 24,335 |   |
| Cash and cash equivalents at end of period                                    |   | $                               | 17,194   |   |   | $ | 21,749 |   |
|                                                                          |   |                            |     |   |   |   |   |   |
| Supplemental Non-Cash Investing and Financing Activities:                     |   |                            |     |   |   |   |   |   |
| Common dividends declared but not paid                                        |   | $                               | 4,677    |   |   | $ | 3,121 |   |
| Preferred dividends declared but not paid                                     |   | $                               | 1,055    |   |   | $ | 1,003 |   |
|                                                                          |   |                            |     |   |   |   |   |   |

----

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|                              |   | Three Months Ended September 30, |    |
|-----------------------------------|--------|----------------------------------|---------|
|                              |   | 2010                             |    |   | 2009 |   |
|                              |   |  Income                     |    |   | Weighted-Average Common Shares |   |   |  Income |   |   | Weighted-AverageCommonShares |   |
| Net income                        |   | $                                | 7,022   |   |   |   |   |   | $ | 6,002 |   |   |   |   |
| Preferred stock dividends         |   |                             | (1,056  | ) |   |   |   |   |   | (1,003 | ) |   |   |   |
| Net income to common shareholders |   |                             | 5,966   |   |   |   | 17,230,410 |   |   |   | 4,999 |   |   |   | 13,551,994 |   |
| Effect of dilutive items          |   |                             | 1,056   |   |   |   | 4,226,862 |   |   |   | 1,003 |   |   |   | 4,224,346 |   |
| Diluted                           |   | $                                | 7,022   |   |   |   | 21,457,272 |   |   | $ | 6,002 |   |   |   | 17,776,340 |   |
|                              |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income per common share:      |   |
| Basic                             |   |                             |    |   |   | $ | 0.35 |   |   |   |   |   |   | $ | 0.37 |   |
| Diluted                           |   |                             |    |   |   | $ | 0.33 |   |   |   |   |   |   | $ | 0.34 |   |
|                              |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components of dilutive items:     |   |                             |    |
| Convertible preferred stock       |   | $                                | 1,056   |   |   |   | 4,221,387 |   |   | $ | 1,003 |   |   |   | 4,221,539 |   |
| Stock options                     |   |                             | – |   |   |   | 5,475 |   |   |   | – |   |   |   | 2,807 |   |
|                              |   | $                                | 1,056   |   |   |   | 4,226,862 |   |   | $ | 1,003 |   |   |   | 4,224,346 |   |

----

|                              |   | Nine Months Ended September 30, |    |
|-----------------------------------|--------|---------------------------------|---------|
|                              |   | 2010                            |    |   | 2009 |   |
|                              |   |  Income                    |    |   | Weighted-Average Common Shares |   |   |  Income |   |   | Weighted-AverageCommonShares |   |
| Net income                        |   | $                               | 19,826  |   |   |   |   |   | $ | 13,505 |   |   |   |   |
| Preferred stock dividends         |   |                            | (3,061  | ) |   |   |   |   |   | (3,008 | ) |   |   |   |
| Net income to common shareholders |   |                            | 16,765  |   |   |   | 15,531,847 |   |   |   | 10,497 |   |   |   | 12,908,243 |   |
| Effect of dilutive items          |   |                            | 3,061   |   |   |   | 4,225,145 |   |   |   | 3,008 |   |   |   | 4,222,306 |   |
| Diluted                           |   | $                               | 19,826  |   |   |   | 19,756,992 |   |   | $ | 13,505 |   |   |   | 17,130,549 |   |
|                              |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income per common share:      |   |
| Basic                             |   |                            |    |   |   | $ | 1.08 |   |   |   |   |   |   | $ | 0.81 |   |
| Diluted                           |   |                            |    |   |   | $ | 1.00 |   |   |   |   |   |   | $ | 0.79 |   |
|                              |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components of dilutive items:     |   |                            |    |
| Convertible preferred stock       |   | $                               | 3,061   |   |   |   | 4,221,387 |   |   | $ | 3,008 |   |   |   | 4,221,539 |   |
| Stock options                     |   |                            | – |   |   |   | 3,758 |   |   |   | – |   |   |   | 767 |   |
|                              |   | $                               | 3,061   |   |   |   | 4,225,145 |   |   | $ | 3,008 |   |   |   | 4,222,306 |   |

|                    |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                    |   | CMBS               |    |   | RMBS              |   |   | TOTAL |   |   | CMBS |   |   | RMBS |   |   | TOTAL |   |
| Principal/par value     |   | $                  | 95,862  |   |              | $      | 541,275 |   |   | $ | 637,137 |   |   | $ | – |   |   | $ | 570,215 |   |   | $ | 570,215 |   |
| Premiums                |   |               | 9,709   |   |              |   | 18,909 |   |   |   | 28,618 |   |   |   | – |   |   |   | 12,991 |   |   |   | 12,991 |   |
| Discounts               |   |               | – |   |              |   | (37 | ) |   |   | (37 | ) |   |   | – |   |   |   | (44 | ) |   |   | (44 | ) |
| Amortized cost          |   |               | 105,571 |   |              |   | 560,147 |   |   |   | 665,718 |   |   |   | – |   |   |   | 583,162 |   |   |   | 583,162 |   |
| Gross unrealized gains  |   |               | 2,515   |   |              |   | 9,712 |   |   |   | 12,227 |   |   |   | – |   |   |   | 11,261 |   |   |   | 11,261 |   |
| Gross unrealized losses |   |               | (51     | )      |              |   | (1,051 | ) |   |   | (1,102 | ) |   |   | – |   |   |   | (303 | ) |   |   | (303 | ) |
| Fair value              |   | $                  | 108,035 |   |              | $      | 568,808 |   |   | $ | 676,843 |   |   | $ | – |   |   | $ | 594,120 |   |   | $ | 594,120 |   |
|                    |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average coupon |   |               | 5.63    | %      |              |   | 4.23 | % |   |   | 4.46 | % |   |   | n/a |   |   |   | 4.76 | % |   |   | 4.76 | % |

----

|                    |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                    |   | CMBS               |    |   | RMBS              |   |   | TOTAL |   |   | CMBS |   |   | RMBS |   |   | TOTAL |   |
| Principal/par value     |   | $                  | 205,531 |   |              | $      | 17,446 |   |   | $ | 222,977 |   |   | $ | 114,103 |   |   | $ | 7,705 |   |   | $ | 121,808 |   |
| Premiums                |   |               | 3,273   |   |              |   | 154 |   |   |   | 3,427 |   |   |   | 4,177 |   |   |   | – |   |   |   | 4,177 |   |
| Discounts               |   |               | (11,234 | )      |              |   | (1,148 | ) |   |   | (12,382 | ) |   |   | (13,727 | ) |   |   | (1,243 | ) |   |   | (14,970 | ) |
| Amortized cost          |   |               | 197,570 |   |              |   | 16,452 |   |   |   | 214,022 |   |   |   | 104,553 |   |   |   | 6,462 |   |   |   | 111,015 |   |
| Gross unrealized gains  |   |               | 11,210  |   |              |   | 593 |   |   |   | 11,803 |   |   |   | 2,795 |   |   |   | 416 |   |   |   | 3,211 |   |
| Gross unrealized losses |   |               | – |   |              |   | (454 | ) |   |   | (454 | ) |   |   | (4,145 | ) |   |   | (971 | ) |   |   | (5,116 | ) |
| Fair value              |   | $                  | 208,780 |   |              | $      | 16,591 |   |   | $ | 225,371 |   |   | $ | 103,203 |   |   | $ | 5,907 |   |   | $ | 109,110 |   |
|                    |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average coupon |   |               | 6.95    | %      |              |   | 5.10 | % |   |   | 6.81 | % |   |   | 7.96 | % |   |   | 7.93 | % |   |   | 7.96 | % |

|                                                        |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Securitized mortgage loans:                                 |   |               |    |   |              |   |
| Commercial, unpaid principal balance                        |   | $                  | 104,418 |   |              | $      | 137,567 |   |
| Single-family, unpaid principal balance                     |   |               | 56,518  |   |              |   | 61,336 |   |
|                                                        |   |               | 160,936 |   |              |   | 198,903 |   |
| Funds held by trustees, including funds held for defeasance |   |               | 3,499   |   |              |   | 17,737 |   |
| Unamortized discounts and premiums, net                     |   |               | 322     |   |              |   | 43 |   |
| Loans, at amortized cost                                    |   |               | 164,757 |   |              |   | 216,683 |   |
| Allowance for loan losses                                   |   |               | (3,862  | )      |              |   | (4,212 | ) |
|                                                        |   | $                  | 160,895 |   |              | $      | 212,471 |   |

----

|                                     |   | September 30, 2010 |    |   | December 31, 2009 |   |
|------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Securitized commercial mortgage loans    |   | $                  | 3,593   |   |              | $      | 3,935 |   |
| Securitized single-family mortgage loans |   |               | 269     |   |              |   | 277 |   |
|                                     |   |               | 3,862   |   |              |   | 4,212 |   |
| Other investments                        |   |               | – |   |              |   | 96 |   |
|                                     |   | $                  | 3,862   |   |              | $      | 4,308 |   |

|                                                      |   | September 30, 2010 |   |   | December 31, 2009 |   |
|-----------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                                      |   | Commercial         |   |   | Single-family     |   |   | Commercial |   |   | Single-family |   |
| Investment in impaired loans, including basis adjustments |   | $                  | 12,421 |   |              | $      | 3,892 |   |   | $ | 20,465 |   |   | $ | 4,152 |   |
| Allowance for loan losses                                 |   |               | (3,593 | )      |              |   | (269 | ) |   |   | (3,935 | ) |   |   | (277 | ) |
| Investment in excess of allowance                         |   | $                  | 8,828  |   |              | $      | 3,623 |   |   | $ | 16,530 |   |   | $ | 3,875 |   |

|                             |   | Three Months Ended September 30, (1) |   |
|----------------------------------|--------|--------------------------------------|--------|
|                             |   | 2010                                 |   |   | 2009 |   |
|                             |   | Commercial                           |   |   | Singe-family |   |   | Commercial |   |   | Singe-family |   |
| Allowance at beginning of period |   | $                                    | 3,709  |   |   | $ | 271 |   |   | $ | 3,660 |   |   | $ | 261 |   |
| Provision for loan losses        |   |                                 | 194    |   |   |   | – |   |   |   | 150 |   |   |   | 98 |   |
| Credit losses, net of recoveries |   |                                 | (310   | ) |   |   | (2 | ) |   |   | (25 | ) |   |   | (113 | ) |
| Allowance at end of period       |   | $                                    | 3,593  |   |   | $ | 269 |   |   | $ | 3,785 |   |   | $ | 246 |   |

| (1) | Activity shown excludes provision of $16 and credit losses of $(281) for the three months ended September 30, 2010 related to the Company’s unsecuritized mortgage loan portfolio.  There was no activity related to the allowance for loan losses for the Company’s unsecuritized mortgage loan portfolio for the three months ended September 30, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                             |   | Nine Months Ended September 30, (1) |   |
|----------------------------------|--------|-------------------------------------|--------|
|                             |   | 2010                                |   |   | 2009 |   |
|                             |   | Commercial                          |   |   | Singe-family |   |   | Commercial |   |   | Singe-family |   |
| Allowance at beginning of period |   | $                                   | 3,935  |   |   | $ | 277 |   |   | $ | 3,527 |   |   | $ | 180 |   |
| Provision for loan losses        |   |                                | 584    |   |   |   | – |   |   |   | 283 |   |   |   | 187 |   |
| Credit losses, net of recoveries |   |                                | (926   | ) |   |   | (8 | ) |   |   | (25 | ) |   |   | (121 | ) |
| Allowance at end of period       |   | $                                   | 3,593  |   |   | $ | 269 |   |   | $ | 3,785 |   |   | $ | 246 |   |

| (1) | Activity shown excludes provision of $185 and credit losses of $(281) for the nine months ended September 30, 2010 and provision of $95 for the nine months ended September 30, 2009 related to the Company’s unsecuritized mortgage loan portfolio. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Type of Derivative                          | Balance Sheet Location                         |   | Gross Fair ValueAs ofSeptember 30, 2010 |    |   | Gross Fair ValueAs ofDecember 31, 2009 |   |
|---------------------------------------------|------------------------------------------------|--------|-----------------------------------------|---------|--------|----------------------------------------|--------|
|     Interest rate swaps |     Derivative assets      |   | $                                       | – |   |                                   | $      | 1,008 |   |
|     Interest rate swaps |     Derivative liabilities |   |                                    | (4,889  | )      |                                   |   | – |   |
|                                        |                                           | $      | (4,889                                  | )       |   | $                                      | 1,008  |   |

| Maturity Date                             | Effective Date                            |   | Notional Amount |    |   | Fixed Rate Swapped |   |
|-------------------------------------------|-------------------------------------------|--------|-----------------|---------|--------|--------------------|--------|
|     November 24, 2011 |     November 24, 2009 |   | $               | 25,000  |   |               |   | 0.96 | % |
|     February 8, 2012  |     February 8, 2010  |   |            | 75,000  |   |               |   | 1.03 | % |
|     November 24, 2012 |     November 24, 2009 |   |            | 50,000  |   |               |   | 1.53 | % |
|     May 8, 2014       |     May 10, 2010      |   |            | 35,000  |   |               |   | 1.93 | % |
|     December 24, 2014 |     December 24, 2009 |   |            | 30,000  |   |               |   | 2.50 | % |
|                                      |                                      |   | $               | 215,000 |   |               |   |   |   |

----

| Type of Derivative Designated as Cash Flow Hedge | Amount of Loss Recognized in OCI (Effective Portion) | Location of Loss Reclassified from OCI into Statement of Income (Effective Portion) | Amount of Loss Reclassified from OCI into Statement of Income (Effective Portion) | Location of Loss Recognized in Statement of Income (Ineffective Portion) | Amount of Loss Recognized in Statement of Income (Ineffective Portion) |
|--------------------------------------------------|------------------------------------------------------|-------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|--------------------------------------------------------------------------|------------------------------------------------------------------------|
| Interest rate swaps                              | $2,699                                               | Interest expense                                                                    |  $651                                                                        | Other income, net                                                        |  $6                                                               |

| Type of Derivative Designated as Cash Flow Hedge | Amount of Loss Recognized in OCI (Effective Portion) | Location of Loss Reclassified from OCI into Statement of Income (Effective Portion) | Amount of Loss Reclassified from OCI into Statement of Income (Effective Portion) | Location of Loss Recognized in Statement of Income (Ineffective Portion) | Amount of Loss Recognized in Statement of Income (Ineffective Portion) |
|--------------------------------------------------|------------------------------------------------------|-------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|--------------------------------------------------------------------------|------------------------------------------------------------------------|
| Interest rate swaps                              | $7,587                                               | Interest expense                                                                    |  $1,706                                                                      | Other income, net                                                        |  $15                                                              |

|                                                                        |   | Three Months Ended |   |   | Nine Months Ended  |   |
|-----------------------------------------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|                                                                        |   | September 30, 2010 |   |   | September 30, 2010 |   |
| Balance at beginning of period                                              |   | $                  | (2,825 | )      |               | $      | 1,008 |   |
| Change in fair value of interest rate swaps                                 |   |               | (2,699 | )      |               |   | (7,587 | ) |
| Reclassification adjustment for amounts included in statement of operations |   |               | 651    |   |               |   | 1,706 |   |
| Balance at end of  period                                         |   | $                  | (4,873 | )      |               | $      | (4,873 | ) |

----

|                                        |   | September 30, 2010 |    |
|---------------------------------------------|--------|--------------------|---------|
| Collateral Type                             |   | Balance            |    |   | Weighted Average Rate |   |   | Fair Value of Collateral Pledged |   |
| Agency MBS                                  |   | $                  | 561,217 |   |   |   | 0.29 | % |   | $ | 588,327 |   |
| Non-Agency CMBS                             |   |               | 100,108 |   |   |   | 1.67 | % |   |   | 117,450 |   |
| Non-Agency RMBS                             |   |               | 13,027  |   |   |   | 1.39 | % |   |   | 14,614 |   |
| Securitization financing bonds (see Note 9) |   |               | 70,795  |   |   |   | 1.30 | % |   |   | 84,849 |   |
|                                        |   | $                  | 745,147 |   |   |   | 0.59 | % |   | $ | 805,240 |   |

|                                        |   | December 31, 2009 |    |
|---------------------------------------------|--------|-------------------|---------|
| Collateral Type                             |   | Balance           |    |   | Weighted Average Rate |   |   | Fair Value of Collateral Pledged |   |
| Agency MBS                                  |   | $                 | 540,586 |   |   |   | 0.60 | % |   | $ | 575,386 |   |
| Non-Agency MBS                              |   |              | 73,338  |   |   |   | 1.73 | % |   |   | 82,770 |   |
| Securitization financing bonds (see Note 9) |   |              | 24,405  |   |   |   | 1.59 | % |   |   | 34,431 |   |
|                                        |   | $                 | 638,329 |   |   |   | 0.76 | % |   | $ | 692,587 |   |

| Original Maturity    |   | September 30, 2010 |    |   | December 31, 2009 |   |
|----------------------|--------|--------------------|---------|--------|-------------------|--------|
| 30 days or less      |   | $                  | 373,864 |   |              | $      | 69,576 |   |
| 31 to 60 days        |   |               | 110,705 |   |              |   | 300,413 |   |
| 61 to 90 days        |   |               | 87,445  |   |              |   | 180,643 |   |
| Greater than 90 days |   |               | 173,133 |   |              |   | 87,697 |   |
|                 |   | $                  | 745,147 |   |              | $      | 638,329 |   |

----

|                                            |   | September 30, 2010 |              |   | December 31, 2009      |   |
|-------------------------------------------------|--------|--------------------|-------------------|--------|------------------------|--------|
|                                            |   | Bonds Outstanding  |              |   | Range ofInterest Rates |   |   | Bonds Outstanding |   |   | Range of Interest Rates |   |
| Fixed rate classes                              |   | $                  | 38,669            |   |                   |   | 6.2% – 7.2 | % |   | $ | 121,168 |   |   |   | 6.7% - 7.2 | % |
| Variable rate class                             |   |               | 22,360            |   |                   |   | 0.6 | % |   |   | 23,852 |   |   |   | 0.5 | % |
| Unamortized net bond premium and deferred costs |   |               | (3,633            | )      |                   |   |   |   |   |   | (1,939 | ) |   |   |   |   |
|                                            |   | $                  | 57,396            |   |                   |   |   |   |   | $ | 143,081 |   |   |   |   |   |
|                                            |   |               |              |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average coupon                         |   |               | 4.5               | %      |                   |   |   |   |   |   | 5.9 | % |   |   |   |   |
| Range of stated maturities                      |   |               | 2016 – 2027 |   |                   |   |   |   |   |   | 2024 – 2027 |   |   |   |   |   |
| Estimated weighted average life                 |   | 3.7 years          |              |   |                   |   |   |   | 3.0 years |   |   |   |   |   |

----

|  Portion ofSeries Redeemed |   Collateral Type  |   | Par Value Outstanding |   |   |  Fair Value |   |   | Repurchase Agreement Balance |   |
|---------------------------------|------------------------------|--------|-----------------------|--------|--------|------------------|--------|--------|------------------------------|--------|
| 1993 Trust                      | Commercial mortgage loans    |   | $                     | 3,781  |   |             | $      | 3,781  |                         |   | $ | 3,067 |   |
| 2002 Trust                      | Single-family mortgage loans |   |                  | 26,901 |   |             |   | 24,043 |                         |   |   | 21,909 |   |
| 1997 Trust                      | Commercial mortgage loans    |   |                  | 55,854 |   |             |   | 57,025 |                         |   |   | 45,819 |   |
|                            |                         |   | $                     | 86,536 |   |             | $      | 84,849 |                         |   | $ | 70,795 |   |

| ·   | Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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, certain non-Agency CMBS, 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 MBS and delinquent property tax receivables. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                    |   |       |    |   | Fair Value Measurements |   |
|-----------------------------------------|--------|------------|---------|--------|-------------------------|--------|
|                                    |   | Fair Value |    |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |
| Assets:                                 |   |       |    |   |                    |   |   |   |   |   |   |   |
| Agency MBS                              |   | $          | 676,843 |   |                    | $      | – |   |   | $ | 676,843 |   |   | $ | – |   |
| Non-Agency MBS:                         |   |       |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                    |   |       | 208,780 |   |                    |   | – |   |   |   | 65,029 |   |   |   | 143,751 |   |
| RMBS                                    |   |       | 16,591  |   |                    |   | – |   |   |   | – |   |   |   | 16,591 |   |
| Other investments                       |   |       | 132     |   |                    |   | – |   |   |   | – |   |   |   | 132 |   |
| Total assets carried at fair value      |   | $          | 902,346 |   |                    | $      | – |   |   | $ | 741,872 |   |   | $ | 160,474 |   |
|                                    |   |       |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                            |   |       |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Derivative liabilities                  |   | $          | 4,889   |   |                    | $      | – |   |   | $ | 4,889 |   |   | $ | – |   |
| Total liabilities carried at fair value |   | $          | 4,889   |   |                    | $      | – |   |   | $ | 4,889 |   |   | $ | – |   |

----

|                                          |   | Level 3 Fair Values |    |
|-----------------------------------------------|--------|---------------------|---------|
|                                          |   | Non-Agency CMBS     |    |   | Non-Agency RMBS |   |   | Other |   |   | Total assets |   |
| Balance as of June 30, 2010                   |   | $                   | 111,530 |   |   | $ | 5,330 |   |   | $ | 131 |   |   | $ | 116,991 |   |
| Total realized and unrealized gains (losses): |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included in the statement of operations       |   |                | – |   |   |   | – |   |   |   | 1 |   |   |   | 1 |   |
| Included in other comprehensive income        |   |                | 756     |   |   |   | 53 |   |   |   | – |   |   |   | 809 |   |
| Purchases                                     |   |                | 43,367  |   |   |   | 11,671 |   |   |   | – |   |   |   | 55,038 |   |
| Principal payments                            |   |                | (11,535 | ) |   |   | (484 | ) |   |   | – |   |   |   | (12,019 | ) |
| (Amortization) accretion                      |   |                | (367    | ) |   |   | 21 |   |   |   | – |   |   |   | (346 | ) |
| Transfers in and/or out of Level 3            |   |                | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance as of September 30, 2010              |   | $                   | 143,751 |   |   | $ | 16,591 |   |   | $ | 132 |   |   | $ | 160,474 |   |

|                                                     |   | Level 3 Fair Values |    |
|----------------------------------------------------------|--------|---------------------|---------|
|                                                     |   | Non-Agency CMBS     |    |   | Non-Agency RMBS |   |   | Other |   |   | Total assets |   |
| Balance as of December 31, 2009                          |   | $                   | 103,203 |   |   | $ | 5,907 |   |   | $ | 131 |   |   | $ | 109,241 |   |
| Cumulative effect of adoption of newaccounting principle |   |                | 14,924  |   |   |   | – |   |   |   | – |   |   |   | 14,924 |   |
| Balance as of January 1, 2010                            |   |                | 118,127 |   |   |   | 5,907 |   |   |   | 131 |   |   |   | 124,165 |   |
| Total realized and unrealized gains (losses):            |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included in the statement of operations                  |   |                | (77     | ) |   |   | – |   |   |   | – |   |   |   | (77 | ) |
| Included in other comprehensive income                   |   |                | 8,690   |   |   |   | 695 |   |   |   | – |   |   |   | 9,385 |   |
| Purchases                                                |   |                | 74,695  |   |   |   | 11,671 |   |   |   | 11 |   |   |   | 86,377 |   |
| Sales                                                    |   |                | (31,328 | ) |   |   | – |   |   |   | – |   |   |   | (31,328 | ) |
| Principal payments                                       |   |                | (25,394 | ) |   |   | (1,711 | ) |   |   | (10 | ) |   |   | (27,115 | ) |
| (Amortization) accretion                                 |   |                | (962    | ) |   |   | 29 |   |   |   | – |   |   |   | (933 | ) |
| Transfers in and/or out of Level 3                       |   |                | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance as of September 30, 2010                         |   | $                   | 143,751 |   |   | $ | 16,591 |   |   | $ | 132 |   |   | $ | 160,474 |   |

----

|                                  |   | September 30, 2010 |    |   | December 31, 2009 |   |
|---------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                  |   | RecordedBasis      |    |   | FairValue         |   |   | RecordedBasis |   |   | FairValue |   |
| Assets:                               |   |               |    |   |              |   |   |   |   |   |   |   |
| Agency MBS                            |   | $                  | 676,843 |   |              | $      | 676,843 |   |   | $ | 594,120 |   |   | $ | 594,120 |   |
| Non-Agency CMBS                       |   |               | 208,780 |   |              |   | 208,780 |   |   |   | 103,203 |   |   |   | 103,203 |   |
| Non-Agency RMBS                       |   |               | 16,591  |   |              |   | 16,591 |   |   |   | 5,907 |   |   |   | 5,907 |   |
| Securitized mortgage loans, net       |   |               | 160,895 |   |              |   | 148,230 |   |   |   | 212,471 |   |   |   | 186,547 |   |
| Other investments                     |   |               | 1,437   |   |              |   | 1,303 |   |   |   | 2,280 |   |   |   | 2,079 |   |
| Derivative assets                     |   |               | – |   |              |   | – |   |   |   | 1,008 |   |   |   | 1,008 |   |
|                                  |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                          |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase agreements                 |   |               | 745,147 |   |              |   | 745,147 |   |   |   | 638,329 |   |   |   | 638,329 |   |
| Non-recourse collateralized financing |   |               | 108,027 |   |              |   | 107,182 |   |   |   | 143,081 |   |   |   | 132,234 |   |
| Derivative liabilities                |   |               | 4,889   |   |              |   | 4,889 |   |   |   | – |   |   |   | – |   |

|                          |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                          |   | Fair Value         |    |   | Unrealized Loss   |   |   | Fair Value |   |   | Unrealized Loss |   |
| Unrealized loss position for: |   |               |    |   |              |   |   |   |   |   |   |   |
| Less than one year:           |   |               |    |   |              |   |   |   |   |   |   |   |
| Agency MBS                    |   | $                  | 137,712 |   |              | $      | 1,102 |   |   | $ | 73,288 |   |   | $ | 302 |   |
| Non-Agency MBS                |   |               | 11,388  |   |              |   | 87 |   |   |   | 92,438 |   |   |   | 4,145 |   |
| One year or more:             |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                |   |               | 3,638   |   |              |   | 366 |   |   |   | 4,087 |   |   |   | 971 |   |
|                          |   | $                  | 152,738 |   |              | $      | 1,555 |   |   | $ | 169,813 |   |   | $ | 5,418 |   |

----

|                                                      |   | Preferred Stock Series D |      |   | Common Stock |   |
|-----------------------------------------------------------|--------|--------------------------|-----------|--------|--------------|--------|
| Balance as of December 31, 2009                           |   |                     | 4,221,539 |   |         |   | 13,931,512 |   |
| Common stock issued under EPP                             |   |                     | -         |   |         |   | 4,680,700 |   |
| Common stock redeemed under 2004 Stock and Incentive Plan |   |                     | -         |   |         |   | 50,000 |   |
| Common stock issued under 2009 Stock and Incentive Plan   |   |                     | -         |   |         |   | 47,030 |   |
| Voluntary conversion of preferred shares to common shares |   |                     | (152      | )      |         |   | 152 |   |
| Balance as of September 30, 2010                          |   |                     | 4,221,387 |   |         |   | 18,709,394 |   |

----

|                            |   | September 30, 2010 |       |   | December 31, 2009 |   |
|---------------------------------|--------|--------------------|------------|--------|-------------------|--------|
| Expected volatility             |   |               | 18.2%-23.6 | %      |              |   | 25.4%-30.9 | % |
| Weighted-average volatility     |   |               | 20.7       | %      |              |   | 29.4 | % |
| Expected dividends              |   |               | 9.5%-9.7   | %      |              |   | 10.4 | % |
| Expected term (in months)       |   |               | 14         |   |              |   | 18 |   |
| Weighted-average risk-free rate |   |               | 0.67       | %      |              |   | 1.87 | % |
| Range of risk-free rates        |   |               | 0.4%-1.0   | %      |              |   | 1.44%-2.42 | % |

|                                    |   | Three Months Ended September 30, |     |
|-----------------------------------------|--------|----------------------------------|----------|
|                                    |   | 2010                             |     |   | 2009 |   |
|                                    |   | Number of Shares                 |     |   | Weighted-Average Exercise Price |   |   | Number of Shares |   |   | Weighted-Average Exercise Price |   |
| SARs outstanding at beginning of period |   |                             | 278,146  |   |   | $ | 7.27 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs granted                            |   |                             | –  |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs forfeited                          |   |                             | –  |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs exercised                          |   |                             | (141,271 | ) |   |   | 7.24 |   |   |   | – |   |   |   | – |   |
| SARs outstanding at end of period       |   |                             | 136,875  |   |   | $ | 7.31 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs vested and exercisable             |   |                             | 116,875  |   |   | $ | 7.35 |   |   |   | 219,396 |   |   | $ | 7.37 |   |

|                                    |   | Nine Months Ended September 30, |     |
|-----------------------------------------|--------|---------------------------------|----------|
|                                    |   | 2010                            |     |   | 2009 |   |
|                                    |   | Number of Shares                |     |   | Weighted-Average Exercise Price |   |   | Number of Shares |   |   | Weighted-AverageExercise Price |   |
| SARs outstanding at beginning of period |   |                            | 278,146  |   |   | $ | 7.27 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs granted                            |   |                            | –  |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs forfeited                          |   |                            | –  |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs exercised                          |   |                            | (141,271 | ) |   |   | 7.24 |   |   |   | – |   |   |   | – |   |
| SARs outstanding at end of period       |   |                            | 136,875  |   |   | $ | 7.31 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs vested and exercisable             |   |                            | 116,875  |   |   | $ | 7.35 |   |   |   | 219,396 |   |   | $ | 7.37 |   |

----

|                                                             |   | Three Months Ended September 30, |    |
|------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                             |   | 2010                             |    |   | 2009 |   |
|                                                             |   | Number of Shares                 |    |   | Weighted-Average Exercise Price |   |   | Number of Shares |   |   | Weighted-Average Exercise Price |   |
| Options outstanding at beginning of period                       |   |                             | 45,000  |   |   | $ | 8.75 |   |   |   | 95,000 |   |   | $ | 8.59 |   |
| Options granted                                                  |   |                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options forfeited                                                |   |                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options exercised                                                |   |                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options outstanding at end of period(all vested and exercisable) |   |                             | 45,000  |   |   | $ | 8.75 |   |   |   | 95,000 |   |   | $ | 8.59 |   |

|                                                             |   | Nine Months Ended September 30, |    |
|------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                             |   | 2010                            |    |   | 2009 |   |
|                                                             |   | Number of Shares                |    |   | Weighted-Average Exercise Price |   |   | Number of Shares |   |   | Weighted-Average Exercise Price |   |
| Options outstanding at beginning of period                       |   |                            | 95,000  |   |   | $ | 8.59 |   |   |   | 110,000 |   |   | $ | 8.55 |   |
| Options granted                                                  |   |                            | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options forfeited                                                |   |                            | – |   |   |   | – |   |   |   | (15,000 | ) |   | $ | 8.30 |   |
| Options exercised                                                |   |                            | (50,000 | ) |   | $ | 8.45 |   |   |   | – |   |   |   | – |   |
| Options outstanding at end of period(all vested and exercisable) |   |                            | 45,000  |   |   | $ | 8.75 |   |   |   | 95,000 |   |   | $ | 8.59 |   |

|                                          |   | Three Months Ended September 30, |    |
|-----------------------------------------------|--------|----------------------------------|---------|
|                                          |   | 2010                             |    |   | 2009 |   |
| Restricted stock at beginning of period       |   |                             | 25,000  |   |   |   | 32,500 |   |
| Restricted stock granted                      |   |                             | – |   |   |   | – |   |
| Restricted stock forfeited                    |   |                             | – |   |   |   | – |   |
| Restricted stock vested                       |   |                             | – |   |   |   | – |   |
| Restricted stock outstanding at end of period |   |                             | 25,000  |   |   |   | 32,500 |   |

|                                          |   | Nine Months Ended September 30, |    |
|-----------------------------------------------|--------|---------------------------------|---------|
|                                          |   | 2010                            |    |   | 2009 |   |
| Restricted stock at beginning of period       |   |                            | 32,500  |   |   |   | 30,000 |   |
| Restricted stock granted                      |   |                            | 10,000  |   |   |   | 10,000 |   |
| Restricted stock forfeited                    |   |                            | – |   |   |   | – |   |
| Restricted stock vested                       |   |                            | (17,500 | ) |   |   | (7,500 | ) |
| Restricted stock outstanding at end of period |   |                            | 25,000  |   |   |   | 32,500 |   |

----

----

|                                   |   | September 30, 2010 |    |   | December 31, 2009 |   |
|----------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Available for sale investments:        |   |               |    |   |              |   |
| Unrealized gains                       |   | $                  | 24,029  |   |              | $      | 14,472 |   |
| Unrealized losses                      |   |               | (1,556  | )      |              |   | (5,419 | ) |
|                                   |   |               | 22,473  |   |              |   | 9,053 |   |
| Hedging instruments:                   |   |               |    |   |              |   |   |   |
| Unrealized gains                       |   |               | – |   |              |   | 1,008 |   |
| Unrealized losses                      |   |               | (4,873  | )      |              |   | – |   |
|                                   |   |               | (4,873  | )      |              |   | 1,008 |   |
|                                   |   |               |    |   |              |   |   |   |
| Accumulated other comprehensive income |   | $                  | 17,600  |   |              | $      | 10,061 |   |

----

----

| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|---------|---------------------------------------------------------------------------------------------|

----

----

----

----

|                       |   | Nine Months EndedSeptember 30, 2010 |    |   | Year EndedDecember 31, 2009 |   |
|----------------------------|--------|-------------------------------------|---------|--------|-----------------------------|--------|
| (amounts in thousands)     |   | CMBS                                |    |   | RMBS                        |   |   | Total |   |   | CMBS |   |   | RMBS |   |   | Total |   |
| Beginning balance          |   | $                                   | – |   |                        | $      | 594,120 |   |   | $ | 594,120 |   |   | $ | – |   |   | $ | 311,576 |   |   | $ | 311,576 |   |
| Purchases                  |   |                                | 106,343 |   |                        |   | 177,722 |   |   |   | 284,065 |   |   |   | – |   |   |   | 389,220 |   |   |   | 389,220 |   |
| Principal payments         |   |                                | (502    | )      |                        |   | (178,760 | ) |   |   | (179,262 | ) |   |   | – |   |   |   | (116,705 | ) |   |   | (116,705 | ) |
| Sales                      |   |                                | – |   |                        |   | (18,762 | ) |   |   | (18,762 | ) |   |   | – |   |   |   | – |   |   |   | – |   |
| Net unrealized gain (loss) |   |                                | 2,464   |   |                        |   | (2,298 | ) |   |   | 166 |   |   |   | – |   |   |   | 10,457 |   |   |   | 10,457 |   |
| Net amortization and other |   |                                | (270    | )      |                        |   | (3,214 | ) |   |   | (3,484 | ) |   |   | – |   |   |   | (428 | ) |   |   | (428 | ) |
| Ending balance             |   | $                                   | 108,035 |   |                        | $      | 568,808 |   |   | $ | 676,843 |   |   | $ | – |   |   | $ | 594,120 |   |   | $ | 594,120 |   |
|                       |   |                                |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                   |   | September 30, 2010 |    |   | December 31, 2009 |   |
|------------------------|--------|--------------------|---------|--------|-------------------|--------|
| (amounts in thousands) |   | Fannie Mae         |    |   | Freddie Mac       |   |   | Total |   |   | Fannie Mae |   |   | Freddie Mac |   |   | Total |   |
| Hybrid ARMs            |   | $                  | 247,141 |   |              | $      | 97,751 |   |   | $ | 344,892 |   |   | $ | 165,893 |   |   | $ | 129,837 |   |   | $ | 295,730 |   |
| ARMs                   |   |               | 195,696 |   |              |   | 28,144 |   |   |   | 223,840 |   |   |   | 246,823 |   |   |   | 51,436 |   |   |   | 298,259 |   |
| Fixed rate             |   |               | 107,242 |   |              |   | 869 |   |   |   | 108,111 |   |   |   | 131 |   |   | ─ |   |   |   | 131 |   |
|                   |   | $                  | 550,079 |   |              | $      | 126,764 |   |   | $ | 676,843 |   |   | $ | 412,847 |   |   | $ | 181,273 |   |   | $ | 594,120 |   |

----

|                                   |   | September 30, 2010 |    |   | December 31, 2009 |    |
|----------------------------------------|--------|--------------------|---------|--------|-------------------|---------|
| (amounts in thousands)                 |   | CMBS               |    |   | RMBS              |    |   | Total |   |   | CMBS |   |   | RMBS |   |   | Total |   |
| Beginning balance (1)                  |   | $                  | 118,127 |   |              | $       | 5,907 |   |   | $ | 124,034 |   |   | $ ─ |   |   | $ | 6,259 |   |   | $ | 6,259 |   |
| Purchases                              |   |               | 136,445 |   |              |    | 11,671 |   |   |   | 148,116 |   |   |   | 114,836 |   |   | ─ |   |   |   | 114,836 |   |
| Principal payments                     |   |               | (25,393 | )      |              |    | (1,711 | ) |   |   | (27,104 | ) |   | ─ |   |   |   | (511 | ) |   |   | (511 | ) |
| Sales                                  |   |               | (31,328 | )      |              | ─ |   |   |   | (31,328 | ) |   |   | (15,047 | ) |   | ─ |   |   |   | (15,047 | ) |
| Net unrealized gain (loss)             |   |               | 11,990  |   |              |    | 695 |   |   |   | 12,685 |   |   |   | (1,349 | ) |   |   | 144 |   |   |   | (1,205 | ) |
| Net (accretion) amortization and other |   |               | (1,061  | )      |              |    | 29 |   |   |   | (1,032 | ) |   |   | 4,763 |   |   |   | 15 |   |   |   | 4,778 |   |
| Ending balance                         |   | $                  | 208,780 |   |              | $       | 16,591 |   |   | $ | 225,371 |   |   | $ | 103,203 |   |   | $ | 5,907 |   |   | $ | 109,110 |   |
|                                   |   |               |    |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (amounts in thousands) |   | CMBS   |    |   | RMBS   |   |   | Total  |   |
|------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| AAA                    |   | $      | 160,054 |   |   | $      | 10,043 |   |   | $ | 170,097 |   |
| AA                     |   |   | ─ |   |   |   | 234    |   |   |   | 234 |   |
|   A          |   |   | 43,765  |   |   |   | 6,098  |   |   |   | 49,863 |   |
| Below A/Not rated      |   |   | 4,961   |   |   |   | 216    |   |   |   | 5,177 |   |
|                   |   | $      | 208,780 |   |   | $      | 16,591 |   |   | $ | 225,371 |   |

----

| (amounts in thousands) |   | September 30, 2010 |    |   | December 31, 2009 |   |
|------------------------|--------|--------------------|---------|--------|-------------------|--------|
| Commercial             |   | $                  | 103,721 |   |              | $      | 150,371 |   |
| Single-family          |   |               | 57,174  |   |              |   | 62,100 |   |
|                   |   | $                  | 160,895 |   |              | $      | 212,471 |   |

| (amounts in thousands)                            |   | September 30, 2010 |    |   | December 31, 2009 |    |
|---------------------------------------------------|--------|--------------------|---------|--------|-------------------|---------|
| TALF:                                             |   |               |    |   |              |    |
| Fixed, secured by CMBS                            |   | $                  | 50,631  |   |              |  $ | ─ |   |
| Securitization financing bonds:                   |   |               |    |   |              |    |   |   |
| Fixed, secured by commercial mortgage loans       |   |               | 35,451  |   |              |    | 119,713 |   |
| Variable, secured by single-family mortgage loans |   |               | 21,945  |   |              |    | 23,368 |   |
|                                              |   | $                  | 108,027 |   |              | $       | 143,081 |   |

----

| (amounts in thousands)             |   | September 30, 2010 |    |   | December 31, 2009 |    |
|------------------------------------|--------|--------------------|---------|--------|-------------------|---------|
| Beginning balance (1)              |   | $                  | 134,214 |   |              | $       | 149,584 |   |
| Redemption of securitization bonds |   |               | (56,959 | )      |              | ─ |   |
| Principal payments                 |   |               | (41,094 | )      |              |    | (28,430 | ) |
| Net amortization and other         |   |               | (710    | )      |              |    | (1,441 | ) |
| Ending balance                     |   | $                  | 35,451  |   |              | $       | 119,713 |   |
|                               |   |               |    |   |              |    |   |   |

|                                     |   | As of September 30, 2010 |      |
|------------------------------------------|--------|--------------------------|-----------|
|   (amounts in thousands)       |   | AssetCarryingBasis       |      |   | AssociatedFinancing (1) |   |   | AllocatedShareholders’Equity |   |   | % ofShareholders’Equity |   |
| Agency MBS                               |   | $                        | 676,843   |   |   | $ | (561,217 | ) |   | $ | 115,626 |   |   |   | 51.3 | % |
| Non-Agency CMBS                          |   |                     | 208,780   |   |   |   | (165,240 | ) |   |   | 43,540 |   |   |   | 19.3 | % |
| Non-Agency RMBS                          |   |                     | 16,591    |   |   |   | (13,027 | ) |   |   | 3,564 |   |   |   | 1.6 | % |
| Securitized commercial mortgage loans    |   |                     | 103,721   |   |   |   | (69,836 | ) |   |   | 33,885 |   |   |   | 15.0 | % |
| Securitized single-family mortgage loans |   |                     | 57,174    |   |   |   | (43,854 | ) |   |   | 13,320 |   |   |   | 5.9 | % |
| Other investments                        |   |                     | 1,437     |   |   |   | – |   |   |   | 1,437 |   |   |   | 0.6 | % |
| Hedging instruments                      |   |                     | –   |   |   |   | (4,889 | ) |   |   | (4,889 | ) |   |   | (2.1 | %) |
| Cash and cash equivalents                |   |                     | 17,194    |   |   |   | – |   |   |   | 17,194 |   |   |   | 7.6 | % |
| Other assets/other liabilities           |   |                     | 10,095    |   |   |   | (8,298 | ) |   |   | 1,797 |   |   |   | 0.8 | % |
|                                     |   | $                        | 1,091,835 |   |   | $ | (866,361 | ) |   | $ | 225,474 |   |   |   | 100.0 | % |

----

|                                     |   | As of December 31, 2009 |    |
|------------------------------------------|--------|-------------------------|---------|
|   (amounts in thousands)       |   | AssetCarryingBasis      |    |   | AssociatedFinancing (1) |   |   | AllocatedShareholders’Equity |   |   | % ofShareholders’Equity |   |
| Agency MBS                               |   | $                       | 594,120 |   |   | $ | (540,586 | ) |   | $ | 53,534 |   |   |   | 31.7 | % |
| Non-Agency CMBS                          |   |                    | 103,203 |   |   |   | (73,338 | ) |   |   | 29,865 |   |   |   | 17.7 | % |
| Non-Agency RMBS                          |   |                    | 5,907   |   |   |   | – |   |   |   | 5,907 |   |   |   | 3.5 | % |
| Securitized commercial mortgage loans    |   |                    | 150,371 |   |   |   | (125,770 | ) |   |   | 24,601 |   |   |   | 14.6 | % |
| Securitized single-family mortgage loans |   |                    | 62,100  |   |   |   | (41,716 | ) |   |   | 20,384 |   |   |   | 12.1 | % |
| Other investments                        |   |                    | 2,280   |   |   |   | – |   |   |   | 2,280 |   |   |   | 1.3 | % |
| Hedging instruments                      |   |                    | 1,008   |   |   |   | – |   |   |   | 1,008 |   |   |   | 0.6 | % |
| Cash and cash equivalents                |   |                    | 30,173  |   |   |   | – |   |   |   | 30,173 |   |   |   | 17.9 | % |
| Other assets/other liabilities           |   |                    | 8,900   |   |   |   | (7,899 | ) |   |   | 1,001 |   |   |   | 0.6 | % |
|                                     |   | $                       | 958,062 |   |   | $ | (789,309 | ) |   | $ | 168,753 |   |   |   | 100.0 | % |

| (1)   | Associated financing includes repurchase agreements, securitization financing issued to third parties and TALF financing (the latter two of which are presented on the Company’s balance sheet as “non-recourse collateralized financing”). |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | Three Months Ended               |   |   | Nine Months Ended                |   |
|---------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|
|                                        |   | September 30,                    |   |   | September 30,                    |   |
|                                        |   | 2010                             |   |   | 2009                             |   |   | 2010 |   |   | 2009 |   |
|   (amounts in thousands)          |   | Net Interest Income Contribution |   |   | Net Interest Income Contribution |   |   | Net Interest Income Contribution |   |   | Net Interest Income Contribution |   |
| Agency MBS                                  |   | $                                | 5,224  |   |                             | $      | 4,882 |   |   | $ | 14,005 |   |   | $ | 12,684 |   |
| Non-Agency CMBS                             |   |                             | 2,067  |   |                             |   | – |   |   |   | 6,469 |   |   |   | – |   |
| Non-Agency RMBS                             |   |                             | 163    |   |                             |   | 154 |   |   |   | 390 |   |   |   | 469 |   |
| Securitized commercial mortgage loans(1)    |   |                             | 926    |   |                             |   | 715 |   |   |   | 2,235 |   |   |   | 1,453 |   |
| Securitized single-family mortgage loans(1) |   |                             | 438    |   |                             |   | 539 |   |   |   | 1,422 |   |   |   | 2,229 |   |
| Other investments(1)                        |   |                             | 13     |   |                             |   | 49 |   |   |   | (92 | ) |   |   | 88 |   |
| Hedging instruments                         |   |                             | (651   | )      |                             |   | – |   |   |   | (1,698 | ) |   |   | – |   |
| Cash and cash equivalents                   |   |                             | 4      |   |                             |   | 4 |   |   |   | 9 |   |   |   | 13 |   |
| Other assets/other liabilities              |   |                             | 6      |   |                             |   | 6 |   |   |   | 19 |   |   |   | 20 |   |
|                                        |   | $                                | 8,190  |   |                             | $      | 6,349 |   |   | $ | 22,759 |   |   | $ | 16,956 |   |

| (1) | Equals net interest income after provision for loan losses. |
|-----|-------------------------------------------------------------|

----

|                   |   | Three Months Ended September 30, |   |
|------------------------|--------|----------------------------------|--------|
|                   |   | 2010                             |   |   | 2009 |   |
| (amounts in thousands) |   | Interest Income                  |   |   | Net Amortization |   |   | Total Interest Income |   |   | Interest Income |   |   | Net Amortization |   |   | Total Interest Income |   |
| Commercial             |   | $                                | 1,934  |   |   |   | 211 |   |   |   | 2,145 |   |   | $ | 3,361 |   |   | $ | (345 | ) |   | $ | 3,016 |   |
| Single-family          |   |                             | 640    |   |   |   | (37 | ) |   |   | 603 |   |   |   | 867 |   |   |   | (51 | ) |   |   | 816 |   |
|                   |   | $                                | 2,574  |   |   |   | 174 |   |   | $ | 2,748 |   |   | $ | 4,228 |   |   | $ | (396 | ) |   | $ | 3,832 |   |

----

|                                                                   |   | Three Months Ended September 30, |   |
|------------------------------------------------------------------------|--------|----------------------------------|--------|
| (amounts in thousands)                                                 |   | 2010                             |   |   | 2009 |   |
| Interest expense:                                                      |   |                             |   |   |   |   |
| Repurchase agreements collateralized by Agency MBS                     |   | $                                | 384    |   |   | $ | 531 |   |
| Repurchase agreements collateralized by non-Agency MBS                 |   |                             | 455    |   |   |   | – |   |
| Repurchase agreements collateralized by securitization financing bonds |   |                             | 182    |   |   |   | 137 |   |
|                                                                   |   |                             | 1,021  |   |   |   | 668 |   |
| Interest expense related to interest rate swap agreements              |   |                             | 651    |   |   |   | – |   |
|                                                                   |   | $                                | 1,672  |   |   | $ | 668 |   |

----

|                              |   | Three Months Ended September 30, |   |
|-----------------------------------|--------|----------------------------------|--------|
|                              |   | 2010                             |   |   | 2009 |   |
| (amounts in thousands)            |   | Interest Expense                 |   |   | Net Amortization |   |   | Total Interest Expense |   |   | Interest Expense |   |   | Net Amortization |   |   | Total Interest Expense |   |
| Collateralized by mortgage loans: |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                        |   | $                                | 857    |   |   | $ | 72 |   |   | $ | 929 |   |   | $ | 2,531 |   |   | $ | (852 | ) |   | $ | 1,679 |   |
| Single-family                     |   |                             | 52     |   |   |   | 21 |   |   |   | 73 |   |   |   | 57 |   |   |   | 33 |   |   |   | 90 |   |
|                              |   | $                                | 909    |   |   | $ | 93 |   |   | $ | 1,002 |   |   | $ | 2,588 |   |   | $ | (819 | ) |   | $ | 1,769 |   |

----

|                     |   | Three Months Ended September 30, |   |
|--------------------------|--------|----------------------------------|--------|
|                     |   | 2010                             |   |   | 2009 |   |
| (amounts in thousands)   |   | Interest Expense                 |   |   | Net Amortization |   |   | Total Interest Expense |   |   | Interest Expense |   |   | Net Amortization |   |   | Total Interest Expense |   |
| Collateralized by CMBS:  |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitization financing |   | $                                | 305    |   |   | $ | (3 | ) |   | $ | 302 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| TALF                     |   |                             | 349    |   |   |   | 8 |   |   |   | 357 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                     |   | $                                | 654    |   |   | $ | 5 |   |   | $ | 659 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

----

|                   |   | Nine Months Ended September 30, |   |
|------------------------|--------|---------------------------------|--------|
|                   |   | 2010                            |   |   | 2009 |   |
| (amounts in thousands) |   | Interest Income                 |   |   | Net Amortization |   |   | Total Interest Income |   |   | Interest Income |   |   | Net Amortization |   |   | Total Interest Income |   |
| Commercial             |   | $                               | 7,411  |   |   | $ | 395 |   |   | $ | 7,806 |   |   | $ | 10,343 |   |   | $ | (142 | ) |   | $ | 10,201 |   |
| Single-family          |   |                            | 2,035  |   |   |   | (115 | ) |   |   | 1,920 |   |   |   | 2,904 |   |   |   | 33 |   |   |   | 2,937 |   |
|                   |   | $                               | 9,446  |   |   | $ | 280 |   |   | $ | 9,726 |   |   | $ | 13,247 |   |   | $ | (109 | ) |   | $ | 13,138 |   |

----

|                                                                   |   | Nine Months Ended September 30, |   |
|------------------------------------------------------------------------|--------|---------------------------------|--------|
| (amounts in thousands)                                                 |   | 2010                            |   |   | 2009 |   |
| Interest expense:                                                      |   |                            |   |   |   |   |
| Repurchase agreements collateralized by Agency MBS                     |   | $                               | 1,080  |   |   | $ | 2,260 |   |
| Repurchase agreements collateralized by non-Agency MBS                 |   |                            | 1,116  |   |   |   | – |   |
| Repurchase agreements collateralized by securitization financing bonds |   |                            | 403    |   |   |   | 301 |   |
|                                                                   |   |                            | 2,599  |   |   |   | 2,561 |   |
| Interest expense related to interest rate swap agreements:             |   |                            | 1,698  |   |   |   | – |   |
|                                                                   |   | $                               | 4,297  |   |   | $ | 2,561 |   |

----

|                              |   | Nine Months Ended September 30, |   |
|-----------------------------------|--------|---------------------------------|--------|
|                              |   | 2010                            |   |   | 2009 |   |
| (amounts in thousands)            |   | Interest Expense                |   |   | Net Amortization |   |   | Total Interest Expense |   |   | Interest Expense |   |   | Net Amortization |   |   | Total Interest Expense |   |
| Collateralized by mortgage loans: |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                        |   | $                               | 5,571  |   |   | $ | (731 | ) |   | $ | 4,840 |   |   | $ | 8,354 |   |   | $ | (1,191 | ) |   | $ | 7,163 |   |
| Single-family                     |   |                            | 153    |   |   |   | 69 |   |   |   | 222 |   |   |   | 195 |   |   |   | 97 |   |   |   | 292 |   |
|                              |   | $                               | 5,724  |   |   | $ | (662 | ) |   | $ | 5,062 |   |   | $ | 8,549 |   |   | $ | (1,094 | ) |   | $ | 7,455 |   |

|                     |   | Nine Months Ended September 30, |   |
|--------------------------|--------|---------------------------------|--------|
|                     |   | 2010                            |   |   | 2009 |   |
| (amounts in thousands)   |   | Interest Expense                |   |   | Net Amortization |   |   | Total Interest Expense |   |   | Interest Expense |   |   | Net Amortization |   |   | Total Interest Expense |   |
| Collateralized by CMBS:  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitization financing |   | $                               | 870    |   |   | $ | (13 | ) |   | $ | 857 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| TALF                     |   |                            | 736    |   |   |   | 19 |   |   |   | 755 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                     |   | $                               | 1,606  |   |   | $ | 6 |   |   | $ | 1,612 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

----

----

|                                      |   | Three Months Ended September 30, |     |
|-------------------------------------------|--------|----------------------------------|----------|
|                                      |   | 2010                             |     |   | 2009 |   |
| (amounts in thousands)                    |   | AverageBalance(1)(2)             |     |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveYield/Rate(3) |   |
| Agency MBS                                |   |                             |     |   |   |   |   |   |   |   |   |   |
| Agency MBS                                |   | $                                | 574,395  |   |   |   | 3.44 | % |   | $ | 531,280 |   |   |   | 4.13 | % |
| Repurchase agreements                     |   |                             | (516,002 | ) |   |   | (0.69 | %) |   |   | (485,924 | ) |   |   | (0.43 | %) |
| Net interest spread                       |   |                             |     |   |   |   | 2.75 | % |   |   |   |   |   |   | 3.70 | % |
|                                      |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                            |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                            |   | $                                | 205,694  |   |   |   | 6.67 | % |   | $ | 6,663 |   |   |   | 9.28 | % |
| Non-recourse collateralized financing     |   |                             | (63,368  | ) |   |   | (4.10 | %) |   |   | – |   |   |   | – |   |
| Repurchase agreements                     |   |                             | (107,744 | ) |   |   | (2.19 | %) |   |   | – |   |   |   | – |   |
| Net interest spread                       |   |                             |     |   |   |   | 3.77 | % |   |   |   |   |   |   | 9.28 | % |
|                                      |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage loans                |   | $                                | 170,761  |   |   |   | 6.07 | % |   | $ | 231,004 |   |   |   | 7.13 | % |
| Non-recourse collateralized financing (4) |   |                             | (62,430  | ) |   |   | (6.24 | %) |   |   | (148,737 | ) |   |   | (6.08 | %) |
| Repurchase agreements                     |   |                             | (48,809  | ) |   |   | (1.48 | %) |   |   | (29,312 | ) |   |   | (1.86 | %) |
| Net interest spread                       |   |                             |     |   |   |   | 1.92 | % |   |   |   |   |   |   | 1.75 | % |
|                                      |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other investments                         |   | $                                | 1,501    |   |   |   | 7.87 | % |   | $ | 2,345 |   |   |   | 8.12 | % |
|                                      |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total (5)                                 |   |                             |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning assets                   |   | $                                | 952,351  |   |   |   | 4.62 | % |   | $ | 771,292 |   |   |   | 5.09 | % |
| Interest bearing liabilities              |   |                             | (798,353 | ) |   |   | (1.64 | %) |   |   | 663,973 |   |   |   | (1.76 | %) |
| Net interest spread                       |   |                             |     |   |   |   | 2.98 | % |   |   |   |   |   |   | 3.33 | % |

| (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 proceeds from defeased loans 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)   | Cash and cash equivalents are excluded from the table for each period presented. |
|-----------------|----------------------------------------------------------------------------------|

----

|                                      |   | Nine Months Ended September 30, |     |
|-------------------------------------------|--------|---------------------------------|----------|
|                                      |   | 2010                            |     |   | 2009 |   |
| (amounts in thousands)                    |   | AverageBalance(1)(2)            |     |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveYield/Rate(3) |   |
| Agency MBS                                |   |                            |     |   |   |   |   |   |   |   |   |   |
| Agency MBS                                |   | $                               | 561,415  |   |   |   | 3.57 | % |   | $ | 464,430 |   |   |   | 4.30 | % |
| Repurchase agreements                     |   |                            | (513,779 | ) |   |   | (0.63 | %) |   |   | (423,360 | ) |   |   | (0.72 | %) |
| Net interest spread                       |   |                            |     |   |   |   | 2.94 | % |   |   |   |   |   |   | 3.58 | % |
|                                      |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                            |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                            |   | $                               | 175,928  |   |   |   | 7.10 | % |   | $ | 6,774 |   |   |   | 9.25 | % |
| Non-recourse collateralized financing     |   |                            | (49,818  |   |   |   | (4.27 | %) |   |   | – |   |   |   | – |   |
| Repurchase agreements                     |   |                            | (92,718  | ) |   |   | (2.14 | %) |   |   | – |   |   |   | – |   |
| Net interest spread                       |   |                            |     |   |   |   | 4.22 | % |   |   |   |   |   |   | 9.25 | % |
|                                      |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage loans                |   | $                               | 194,601  |   |   |   | 6.60 | % |   | $ | 237,274 |   |   |   | 7.38 | % |
| Non-recourse collateralized financing (4) |   |                            | (110,038 | ) |   |   | (6.20 | %) |   |   | (153,143 | ) |   |   | (6.19 | %) |
| Repurchase agreements                     |   |                            | (34,203  | ) |   |   | (1.57 | %) |   |   | (19,232 | ) |   |   | (2.09 | %) |
| Net interest spread                       |   |                            |     |   |   |   | 1.50 | % |   |   |   |   |   |   | 1.64 | % |
|                                      |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other investments                         |   | $                               | 1,848    |   |   |   | 6.77 | % |   | $ | 2,480 |   |   |   | 9.54 | % |
|                                      |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total(5)                                  |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning assets                   |   | $                               | 933,792  |   |   |   | 4.87 | % |   | $ | 710,958 |   |   |   | 5.39 | % |
| Interest bearing liabilities              |   |                            | (800,556 | ) |   |   | (1.84 | %) |   |   | (595,735 | ) |   |   | (2.17 | %) |
| Net interest spread                       |   |                            |     |   |   |   | 3.03 | % |   |   |   |   |   |   | 3.22 | % |

| (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 proceeds from defeased loans 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)   | Cash and cash equivalents are excluded from the table for each period presented. |
|-----------------|----------------------------------------------------------------------------------|

----

|                            |   | Three Months Ended September 30, |    |   | Nine Months Ended September 30, |   |
|---------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|
|                            |   | 2010                                  |    |   | 2009                                 |   |   | 2010 |   |   | 2009 |   |
| Average balance outstanding     |   | $                                     | 672,554 |   |                                 | $      | 515,236 |   |   | $ | 640,700 |   |   | $ | 442,592 |   |
| Weighted average borrowing rate |   |                                  | 0.99    | %      |                                 |   | 0.51 | % |   |   | 0.90 | % |   |   | 0.77 | % |
| Maximum balance outstanding     |   | $                                     | 750,190 |   |                                 | $      | 577,476 |   |   | $ | 750,190 |   |   | $ | 577,476 |   |

----

----

| (amounts in thousands)           |   | Payments due by period |    |
|----------------------------------|--------|------------------------|---------|
| Contractual Obligations: (1)     |   | Total                  |    |   | < 1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | > 5 years |   |
| Repurchase agreements (2)        |   | $                      | 745,147 |   |   | $ | 745,147 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Securitization financing (2) (3) |   |                   | 46,030  |   |   |   | 4,301 |   |   |   | 7,201 |   |   |   | 28,154 |   |   |   | 6,374 |   |
| TALF financing (2) (3)           |   |                   | 50,727  |   |   |   | – |   |   |   | 50,727 |   |   |   | – |   |   |   | – |   |
| Operating lease obligations      |   |                   | 512     |   |   |   | 140 |   |   |   | 332 |   |   |   | 40 |   |   |   | – |   |
| Total                            |   | $                      | 842,416 |   |   | $ | 749,588 |   |   | $ | 58,260 |   |   | $ | 28,194 |   |   | $ | 6,374 |   |

| (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.  As of September 30, 2010, outstanding servicing advances were $0.2 million compared to $0.3 million as of December 31, 2009. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (3) | Represents financing that is non-recourse to us as the debt is payable solely from loans and securities pledged as collateral.  Payments due by period were estimated based on the principal repayments forecast for the underlying loans and securities, substantially all of which is used to repay the associated financing outstanding. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
|---------|------------------------------------------------------------|

| Lifetime Interest Rate Caps on ARM MBS     |   |       | Interim Interest Rate Caps on ARM MBS |   |
|--------------------------------------------|--------|------------|---------------------------------------|--------|
|                                       |   | % of Total |                                  |   |   |   |   | % of Total |   |
|     9.0% to 10.0%      |   |       | 47.9                                  | %      |   |     1.0% |   | 2.6 | % |
|     >10.0% to 11.0% |   |       | 41.4                                  | %      |   |     2.0% |   |   |   | 39.7 | % |
|     >11.0% to 12.0% |   |       | 10.7                                  | %      |   |     5.0% |   |   |   | 57.7 | % |
|                                       |   |       | 100.00                                | %      |   |   |   |   |   | 100.00 | % |

----

|                                       |   | Investments |      |   | Borrowings |   |
|--------------------------------------------|--------|-------------|-----------|--------|------------|--------|
| (amounts in thousands)                     |   | Amounts (1) |      |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate Investments/Obligations         |   | $           | 443,398   |   |       |   | 41.5 | % |   | $ | 86,082 |   |   |   | 10.1 | % |
|                                       |   |        |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate Investments/Obligations:   |   |        |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3 months                         |   |        | 97,602    |   |       |   | 9.1 | % |   |   | 501,818 |   |   |   | 58.8 | % |
| Greater than 3 months and less than 1 year |   |        | 182,517   |   |       |   | 17.1 | % |   |   | 50,274 |   |   |   | 5.9 | % |
| Greater than 1 year and less than 2 years  |   |        | 136,759   |   |       |   | 12.8 | % |   |   | 100,000 |   |   |   | 11.7 | % |
| Greater than 2 years and less than 3 years |   |        | 47,221    |   |       |   | 4.4 | % |   |   | 50,000 |   |   |   | 5.9 | % |
| Greater than 3 years and less than 5 years |   |        | 160,912   |   |       |   | 15.1 | % |   |   | 65,000 |   |   |   | 7.6 | % |
| Total                                      |   | $           | 1,068,409 |   |       |   | 100.0 | % |   | $ | 853,174 |   |   |   | 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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 | As of September 30, 2010                              |
|--------------------------------------|-------------------------------------------------------|
| Basis Point Change in Interest Rates | Percentage change in projected net interest income(1) | Percentage change in projected market value(2) |
|                                 |                                                  |   |
| +100                                 | (6.4)%                                                | (1.3)% |
| +50                                  | (2.5)%                                                | (0.6)% |
| 0                                    | –                                               | – |
| -50                                  | (0.4)%                                                | 0.5% |
| -100                                 | (5.4)%                                                | 1.0% |

| (1) | Includes changes in interest expense from the financings for our investments as well as our interest rate swaps. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (2) | Includes changes in market value of our interest rate swaps, but excludes changes in market value of our financings because they are not carried at fair value on our balance sheet. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Basis Point Change in Interest Rates | Basis Point Change in Mortgage Spreads |
|--------------------------------------|----------------------------------------|
| -50                                  | -25                                    | 0 | +25 | +50 |
| +100                                 | (0.4)%                                 | (0.8)% | (1.3)% | (1.8)% | (2.4)% |
| +50                                  | 0.3%                                   | (0.1)% | (0.6)% | (1.2)% | (1.7)% |
| 0                                    | 0.9%                                   | 0.5% | – | (0.5)% | (1.1)% |
| -50                                  | 1.4%                                   | 1.0% | 0.5% | (0.0)% | (0.6)% |
| -100                                 | 1.9%                                   | 1.5% | 1.0% | 0.5% | (0.1)% |

----

|                             |   | September 30, 2010 |
|----------------------------------|--------|--------------------|
| Investment(amounts in thousands) |   | Accounting Basis   |   |   | Amount of Guaranty |   | Guarantor | Credit Rating of Guarantor (1) |
| With Guaranty of Payment         |   |               |   |   |   |   |   |   |
| Agency MBS                       |   | $                  | 676,843 |   |   | $ | 633,746 |   | Fannie Mae/Freddie Mac | AAA |
| Securitized mortgage loans:      |   |               |   |   |   |   |   |   |   |   |
| Commercial                       |   |               | 51,203 |   |   |   | 10,400 |   | American International Group | BBB |
| Single-family                    |   |               | 18,677 |   |   |   | 18,376 |   | PMI/GEMICO | Caa2 |
| Defeased loans                   |   |               | 3,337 |   |   |   | 3,351 |   | Fully secured with cash |   |
|                             |   |               |   |   |   |   |   |   |   |   |
| Without Guaranty of Payment      |   |               |   |   |   |   |   |   |   |   |
| Securitized mortgage loans:      |   |               |   |   |   |   |   |   |   |   |
| Commercial                       |   |               | 52,774 |   |   |   | – |   |   |   |
| Single-family                    |   |               | 38,766 |   |   |   | – |   |   |   |
| Non-Agency MBS                   |   |               | 225,371 |   |   |   | – |   |   |   |
| Other investments                |   |               | 1,437 |   |   |   | – |   |   |   |
|                             |   |               | 1,068,408 |   |   |   | 665,873 |   |   |   |
|                             |   |               |   |   |   |   |   |   |   |   |
| Allowance for loan losses        |   |               | (3,862 | ) |   |   | – |   |   |   |
|                             |   |               |   |   |   |   |   |   |   |   |
| Total investments                |   | $                  | 1,064,546 |   |   | $ | 665,873 |   |   |   |

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

|                             |   | December 31, 2009 |    |
|----------------------------------|--------|-------------------|---------|
| Investment(amounts in thousands) |   | Accounting Basis  |    |   | Amount of Guaranty |   | Guarantor |  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 MBS                   |   |              | 109,110 |   |   |   | – |   |   |   |   |   |   |
| Other investments                |   |              | 2,376   |   |   |   | – |   |   |   |   |   |   |
|                             |   |              | 922,289 |   |   |   | 610,632 |   |   |   |   |   |   |
|                             |   |              |    |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses        |   |              | (4,308  | ) |   |   | – |   |   |   |   |   |   |
|                             |   |              |    |   |   |   |   |   |   |   |   |   |   |
| Total investments                |   | $                 | 917,981 |   |   | $ | 610,632 |   |   |   |   |   |   |

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

----

|                             |   | As of September 30, 2010      |    |
|----------------------------------|--------|-------------------------------|---------|
| 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        |   | $                             | 103,721 |   |   |   | 14 |   |   |   | 45 | % |   | $ | 10,756 |   |   |   | 13.8 | % |
| Single-family mortgage loans     |   |                          | 57,174  |   |   |   | 16 |   |   |   | 49 | % |   |   | 6,246 | (2) |   |   | 11.3 | % |

|                             |   | 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        |   | $                             | 150,371 |   |   |   | 13 |   |   |   | 47 | % |   | $ | 15,165 |   |   |   | 9.77 | % |
| Single-family mortgage loans     |   |                          | 62,100  |   |   |   | 15 |   |   |   | 50 | % |   |   | 6,284 | (2) |   |   | 9.96 | % |

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

| (2) | As of September 30, 2010, approximately $1.9 million of the delinquent single-family loans are pool insured and, of the remaining $4.5 million, $2.5 million of the loans made a payment within the 90 days prior to September 30, 2010. As of December 31, 2009, approximately $1.9 million of the delinquent single-family loans were 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. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Months remaining to end of compliance period |   | September 30, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| Compliance period already exceeded           |   |               | 42.3   | %      |              |   | 38.5 | % |
| Up to one year remaining                     |   |               | 52.8   |   |              |   | 37.1 |   |
| Between one and three years remaining        |   |               | 4.9    |   |              |   | 24.4 |   |
| Total                                        |   |               | 100.0  | %      |              |   | 100.0 | % |

----

----

| Item 4. | Controls and Procedures |
|---------|-------------------------|

----

|  Item 1. | Legal Proceedings |
|---------------|-------------------|

----

|   Item 1A. | Risk Factors |
|-----------------|--------------|

| Item 2. | Unregistered Sales of Securities and Use of Proceeds |
|---------|------------------------------------------------------|

|   | None |
|--------|------|

|   Item 3. | Defaults Upon Senior Securities |
|----------------|---------------------------------|

|   | None |
|--------|------|

|   Item 4. | (Removed and Reserved) |
|----------------|------------------------|

|   | (Removed and Reserved) |
|--------|------------------------|

|   Item 5. | Other Information |
|----------------|-------------------|

|   | None |
|--------|------|

----

|   Item 6. | Exhibits |
|----------------|----------|

| Exhibit No. | Description                                                                                                                                                                                             |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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).                           |
| 10.9        | Dynex Capital, Inc. Performance Bonus Program, as approved August 5, 2010 (incorporated herein by reference to Exhibit 10.9 to Dynex’s Quarterly Report on Form 10-Q filed August 9, 2010).  |
| 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).                                                                           |
| 32.1        | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                           |

----

|                              | DYNEX CAPITAL, INC.                                                           |
|-----------------------------------|-------------------------------------------------------------------------------|
|                              |                                                                          |
|                              |                                                                          |
| Date: November 9, 2010            | /s/ Thomas B. Akin                                                            |
|                              | Thomas B. Akin                                                                |
|                              | Chairman and Chief Executive Officer                                          |
|                              | (Principal Executive Officer)                                                 |
|                              |                                                                          |
|                              |                                                                          |
| Date:  November 9, 2010 | /s/ Stephen J. Benedetti                                                      |
|                              | Stephen J. Benedetti                                                          |
|                              | Executive Vice President, Chief Operating Officer and Chief Financial Officer |
|                              | (Principal Financial Officer)                                                 |
|                              |                                                                          |

----