----

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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      |

----

|          |                       |                                                                                                                                     | Page   |
|---------------|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART      I.  | FINANCIAL      INFORMATION |                                                                                                                                     |
|          |                       |                                                                                                                                     |   |
|          | Item      1.               | Financial      Statements                                                                                                                |   |
|          |                       |                                                                                                                                     |   |
|          |                       | Consolidated      Balance Sheets as of June 30, 2010 (unaudited) and December 31,      2009                                              | 1      |
|          |                       |                                                                                                                                     |   |
|          |                       | Consolidated      Statements of Income for the three and six months ended June 30,      2010and      June 30, 2009 (unaudited)           | 2      |
|          |                       |                                                                                                                                     |   |
|          |                       | Consolidated      Statements of Comprehensive Income for the three and six months ended June      30, 2010 and June 30, 2009 (unaudited) | 3      |
|          |                       |                                                                                                                                     |   |
|          |                       | Consolidated      Statements of Shareholders’ Equity for the six months endedJune      30, 2010 (unaudited)                        | 4      |
|          |                       |                                                                                                                                     |   |
|          |                       | Consolidated      Statements of Cash Flows for the six months ended June 30, 2010 and June      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                                    | 28     |
|          |                       |                                                                                                                                     |   |
|          | Item      3.               | Quantitative      and Qualitative Disclosures about Market Risk                                                                          | 49     |
|          |                       |                                                                                                                                     |   |
|          | Item      4.               | Controls      and Procedures                                                                                                             | 56     |
|          |                       |                                                                                                                                     |   |
| PART      II. | OTHER      INFORMATION     |                                                                                                                                     |
|          |                       |                                                                                                                                     |   |
|          | Item      1.               | Legal      Proceedings                                                                                                                   | 57     |
|          |                       |                                                                                                                                     |   |
|          | Item      1A.              | Risk      Factors                                                                                                                        | 58     |
|          |                       |                                                                                                                                     |   |
|          | Item      2.               | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                         | 58     |
|          |                       |                                                                                                                                     |   |
|          | Item      3.               | Defaults      Upon Senior Securities                                                                                                     | 58     |
|          |                       |                                                                                                                                     |   |
|          | Item      4.               | (Removed      and Reserved)                                                                                                              | 58     |
|          |                       |                                                                                                                                     |   |
|          | Item      5.               | Other      Information                                                                                                                   | 58     |
|          |                       |                                                                                                                                     |   |
|          | Item      6.               | Exhibits                                                                                                                                 | 60     |
|          |                       |                                                                                                                                     |   |
| SIGNATURES    | 61                         |

----

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

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

|                                                                                                                                                       |   | June      30, 2010 |       |   | December      31, 2009 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|--------|------------------------|--------|
|                                                                                                                                                       |   | (unaudited)        |       |   |                   |   |
| ASSETS                                                                                                                                                     |   |               |       |   |                   |   |
| Agency      MBS (including pledged of $519,511 and      $575,386,  respectively)                                                                 |   | $                  | 568,966    |   |                   | $      | 594,120 |   |
| Non-Agency      securities (including pledged of $168,660 and $82,770,      respectively)                                                                  |   |               | 179,996    |   |                   |   | 109,110 |   |
| Securitized      mortgage loans, net                                                                                                                       |   |               | 192,666    |   |                   |   | 212,471 |   |
| Other      investments, net                                                                                                                                |   |               | 1,597      |   |                   |   | 2,280 |   |
|                                                                                                                                                       |   |               | 943,225    |   |                   |   | 917,981 |   |
|                                                                                                                                                       |   |               |       |   |                   |   |   |   |
| Cash      and cash equivalents                                                                                                                             |   |               | 30,279     |   |                   |   | 30,173 |   |
| Derivative      assets                                                                                                                                     |   |               | –    |   |                   |   | 1,008 |   |
| Accrued      interest receivable                                                                                                                           |   |               | 5,043      |   |                   |   | 4,583 |   |
| Other      assets, net                                                                                                                                     |   |               | 4,891      |   |                   |   | 4,317 |   |
| Total      assets                                                                                                                                          |   | $                  | 983,438    |   |                   | $      | 958,062 |   |
|                                                                                                                                                       |   |               |       |   |                   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                            |   |               |       |   |                   |   |   |   |
|                                                                                                                                                       |   |               |       |   |                   |   |   |   |
| Liabilities:                                                                                                                                               |   |               |       |   |                   |   |   |   |
| Repurchase      agreements                                                                                                                                 |   | $                  | 590,925    |   |                   | $      | 638,329 |   |
| Non-recourse      collateralized financing                                                                                                                 |   |               | 191,929    |   |                   |   | 143,081 |   |
| Derivative      liabilities                                                                                                                                |   |               | 2,835      |   |                   |   | – |   |
| Accrued      interest payable                                                                                                                              |   |               | 1,145      |   |                   |   | 1,208 |   |
| Other      liabilities                                                                                                                                     |   |               | 5,773      |   |                   |   | 6,691 |   |
|                                                                                                                                                       |   |               | 792,607    |   |                   |   | 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, 4,221,539 shares                                                                                    |   |               |       |   |                   |   |   |   |
| issued      and outstanding ($43,218 aggregate liquidation preference)                                                                                     |   |               | 41,749     |   |                   |   | 41,749 |   |
| Common      stock, par value $.01 per share, 100,000,000 sharesauthorized;      15,168,742 and 13,931,512 shares issued and outstanding,      respectively |   |               |   152 |   |                   |   |   139 |   |
| Additional      paid-in capital                                                                                                                            |   |               | 390,544    |   |                   |   | 379,717 |   |
| Accumulated      other comprehensive income                                                                                                                |   |               | 17,436     |   |                   |   | 10,061 |   |
| Accumulated      deficit                                                                                                                                   |   |               | (259,050   | )      |                   |   | (262,913 | ) |
|                                                                                                                                                       |   |               | 190,831    |   |                   |   | 168,753 |   |
|  Total      liabilities and shareholders’ equity                                                                                                |   | $                  | 983,438    |   |                   | $      | 958,062 |   |

----

|                                                     |   | Three      Months Ended |    |   | Six      Months Ended |   |
|----------------------------------------------------------|--------|-------------------------|---------|--------|-----------------------|--------|
|                                                     |   | June      30,           |    |   | June      30,         |   |
|                                                     |   | 2010                    |    |   | 2009                  |   |   | 2010 |   |   | 2009 |   |
| Interest      income:                                    |   |                    |    |   |                  |   |   |   |   |   |   |   |
| Agency      MBS                                          |   | $                       | 4,610   |   |                  | $      | 5,096 |   |   | $ | 9,478 |   |   | $ | 9,531 |   |
| Non-Agency      securities                               |   |                    | 3,741   |   |                  |   | 156 |   |   |   | 6,241 |   |   |   | 315 |   |
| Securitized      mortgage loans                          |   |                    | 3,355   |   |                  |   | 4,485 |   |   |   | 6,978 |   |   |   | 9,306 |   |
| Other      investments                                   |   |                    | 32      |   |                  |   | 78 |   |   |   | 64 |   |   |   | 135 |   |
| Cash      and cash equivalents                           |   |                    | 2       |   |                  |   | 4 |   |   |   | 5 |   |   |   | 9 |   |
|                                                     |   |                    | 11,740  |   |                  |   | 9,819 |   |   |   | 22,766 |   |   |   | 19,296 |   |
| Interest      expense:                                   |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements                               |   |                    | 1,362   |   |                  |   | 829 |   |   |   | 2,625 |   |   |   | 1,893 |   |
| Non-recourse      collateralized financing               |   |                    | 2,446   |   |                  |   | 2,711 |   |   |   | 5,013 |   |   |   | 5,686 |   |
| Other      interest expense                              |   |                    | – |   |                  |   | 398 |   |   |   | – |   |   |   | 792 |   |
|                                                     |   |                    | 3,808   |   |                  |   | 3,938 |   |   |   | 7,638 |   |   |   | 8,371 |   |
|                                                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                 |   |                    | 7,932   |   |                  |   | 5,881 |   |   |   | 15,128 |   |   |   | 10,925 |   |
| Provision      for loan losses                           |   |                    | (150    | )      |                  |   | (139 | ) |   |   | (559 | ) |   |   | (318 | ) |
| Net      interest income after provision for loan losses |   |                    | 7,782   |   |                  |   | 5,742 |   |   |   | 14,569 |   |   |   | 10,607 |   |
|                                                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Gain      on sale of investments, net                    |   |                    | 716     |   |                  |   | 138 |   |   |   | 794 |   |   |   | 221 |   |
| Fair      value adjustments, net                         |   |                    | 71      |   |                  |   | (507 | ) |   |   | 153 |   |   |   | 138 |   |
| Other      income, net                                   |   |                    | 555     |   |                  |   | 143 |   |   |   | 1,224 |   |   |   | 164 |   |
| Equity      in income (loss) of joint venture, net       |   |                    | – |   |                  |   | 610 |   |   |   | – |   |   |   | (144 | ) |
| General      and administrative expenses:                |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Compensation      and benefits                           |   |                    | (870    | )      |                  |   | (1,069 | ) |   |   | (1,842 | ) |   |   | (1,953 | ) |
| Other      general and administrative expenses           |   |                    | (987    | )      |                  |   | (687 | ) |   |   | (2,094 | ) |   |   | (1,530 | ) |
|                                                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                          |   |                    | 7,267   |   |                  |   | 4,370 |   |   |   | 12,804 |   |   |   | 7,503 |   |
| Preferred      stock dividends                           |   |                    | (1,003  | )      |                  |   | (1,003 | ) |   |   | (2,005 | ) |   |   | (2,005 | ) |
|                                                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      income to common shareholders                   |   | $                       | 6,264   |   |                  | $      | 3,367 |   |   | $ | 10,799 |   |   | $ | 5,498 |   |
|                                                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares:                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   |                    | 15,122  |   |                  |   | 12,988 |   |   |   | 14,668 |   |   |   | 12,581 |   |
| Diluted                                                  |   |                    | 19,347  |   |                  |   | 17,210 |   |   |   | 18,893 |   |   |   | 12,581 |   |
| Net      income per common share:                        |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   | $                       | 0.41    |   |                  | $      | 0.26 |   |   | $ | 0.74 |   |   | $ | 0.44 |   |
| Diluted                                                  |   | $                       | 0.38    |   |                  | $      | 0.25 |   |   | $ | 0.68 |   |   | $ | 0.44 |   |
|                                                     |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      declared per common share                 |   | $                       | 0.23    |   |                  | $      | 0.23 |   |   | $ | 0.46 |   |   | $ | 0.46 |   |

----

|                                                                                                        |   | Three      Months Ended |    |   | Six      Months Ended |   |
|-------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|-----------------------|--------|
|                                                                                                        |   | June      30,           |    |   | June      30,         |   |
|                                                                                                        |   | 2010                    |    |   | 2009                  |   |   | 2010 |   |   | 2009 |   |
| Net      income                                                                                             |   | $                       | 7,267   |   |                  | $      | 4,370 |   |   | $ | 12,804 |   |   | $ | 7,503 |   |
| Other      comprehensive income:                                                                            |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale      securities:                                                                         |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Change in market      value                                                                                 |   |                    | 6,674   |   |                  |   | 3,878 |   |   |   | 11,987 |   |   |   | 7,431 |   |
| Reclassification adjustment for      net gain on sale of investments                                        |   |                    | (702    | )      |                  |   | (138 | ) |   |   | (779 | ) |   |   | (221 | ) |
| Reclassification adjustment for      equity in the joint venture’s other-than-temporary    impairment |   |                    | – |   |                  |   | – |   |   |   | – |   |   |   | 707 |   |
| Net unrealized loss on cash flow      hedging instruments                                                   |   |                    | (2,648  | )      |                  |   | – |   |   |   | (3,833 | ) |   |   | – |   |
| Other      comprehensive income                                                                             |   |                    | 3,324   |   |                  |   | 3,740 |   |   |   | 7,375 |   |   |   | 7,917 |   |
|                                                                                                        |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income                                                                                   |   |                    | 10,591  |   |                  |   | 8,110 |   |   |   | 20,179 |   |   |   | 15,420 |   |
| Dividends      declared on preferred stock                                                                  |   |                    | (1,003  | )      |                  |   | (1,003 | ) |   |   | (2,005 | ) |   |   | (2,005 | ) |
| Comprehensive      income to common shareholders                                                            |   | $                       | 9,588   |   |                  | $      | 7,107 |   |   | $ | 18,174 |   |   | $ | 13,415 |   |
|                                                                                                        |   |                    |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                               |   | 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                                         |   |           | – |   |        |   | 13      |                     |   |   | 10,846                                          |   |   |               | – |   |   |   | – |   |   |   | 10,859 |   |
| Restricted      stock vesting                                      |   |           | – |   |        |   | – |                     |   |   | (19                                             | )      |   |               | – |   |   |   | – |   |   |   | (19 | ) |
| Cumulative      effect of adoption ofnew      accounting principle |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | 12 |   |   |   | 12 |   |
| Net      income                                                    |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | 12,804 |   |   |   | 12,804 |   |
| Dividends      on preferred stock                                  |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | (2,005 | ) |   |   | (2,005 | ) |
| Dividends      on common stock                                     |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | (6,948 | ) |   |   | (6,948 | ) |
| Other      comprehensive income                                    |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | 7,375   |   |   |   | – |   |   |   | 7,375 |   |
| Balance      as of June 30, 2010                                   |   | $              | 41,749  |   |        | $      | 152     |                     |   | $      | 390,544                                         |   |   | $                  | 17,436  |   |   | $      | (259,050 | ) |   | $ | 190,831 |   |

----

|                                                                              |   | Six      Months Ended June 30, |     |
|-----------------------------------------------------------------------------------|--------|--------------------------------|----------|
|                                                                              |   | 2010                           |     |   | 2009 |   |
| Operating      activities:                                                        |   |                           |     |   |   |   |
| Net      income                                                                   |   | $                              | 12,804   |   |   | $ | 7,503 |   |
| Adjustments      to reconcile net income to cash provided by operatingactivities: |   |                           |     |   |   |   |   |   |
| Increase in accrued interest      receivable                                      |   |                           | (460     | ) |   |   | (918 | ) |
| Decrease in accrued interest      payable                                         |   |                           | (63      | ) |   |   | (521 | ) |
| Provision for loan      losses                                                    |   |                           | 559      |   |   |   | 318 |   |
| Gain on sale of investments,      net                                             |   |                           | (794     | ) |   |   | (221 | ) |
| Fair value adjustments,      net                                                  |   |                           | (153     | ) |   |   | (138 | ) |
| Equity in loss of joint      venture, net                                         |   |                           | –  |   |   |   | 144 |   |
| Amortization and      depreciation                                                |   |                           | 3,197    |   |   |   | 1,093 |   |
| Stock based compensation      expense                                             |   |                           | 163      |   |   |   | 351 |   |
| Net change in other assets and      other liabilities                             |   |                           | (2,245   | ) |   |   | (1,364 | ) |
| Net      cash and cash equivalents provided by operating activities               |   |                           | 13,008   |   |   |   | 6,247 |   |
|                                                                              |   |                           |     |   |   |   |   |   |
| Investing      activities:                                                        |   |                           |     |   |   |   |   |   |
| Purchase      of investments                                                      |   |                           | (219,279 | ) |   |   | (237,475 | ) |
| Payments      received on investments                                             |   |                           | 145,274  |   |   |   | 49,536 |   |
| Proceeds      from sales of investments                                           |   |                           | 50,883   |   |   |   | 3,694 |   |
| Principal      payments received on securitized mortgage loans                    |   |                           | 19,443   |   |   |   | 10,431 |   |
| Other      investing activities                                                   |   |                           | 856      |   |   |   | (1,540 | ) |
| Net      cash and cash equivalents used in investing activities                   |   |                           | (2,823   | ) |   |   | (175,354 | ) |
|                                                                              |   |                           |     |   |   |   |   |   |
| Financing      activities:                                                        |   |                           |     |   |   |   |   |   |
| (Repayment      of) borrowings under repurchase agreements, net                   |   |                           | (47,404  | ) |   |   | 198,314 |   |
| Non-recourse      collateralized financing                                        |   |                           | 50,678   |   |   |   | – |   |
| Principal      payments on non-recourse collateralized financing                  |   |                           | (15,544  | ) |   |   | (7,880 | ) |
| Redemption      of securitization financing                                       |   |                           | –  |   |   |   | (15,492 | ) |
| Decrease      in restricted cash                                                  |   |                           | –  |   |   |   | 2,974 |   |
| Proceeds      from issuance of common stock                                       |   |                           | 10,859   |   |   |   | 6,658 |   |
| Dividends      paid                                                               |   |                           | (8,668   | ) |   |   | (7,602 | ) |
| Net      cash and cash equivalents (used in) provided byfinancing    activities   |   |                           | (10,079  | ) |   |   | 176,972 |   |
|                                                                              |   |                           |     |   |   |   |   |   |
| Net      increase in cash and cash equivalents                                    |   |                           | 106      |   |   |   | 7,865 |   |
| Cash      and cash equivalents at beginning of period                             |   |                           | 30,173   |   |   |   | 24,335 |   |
| Cash      and cash equivalents at end of period                                   |   | $                              | 30,279   |   |   | $ | 32,200 |   |
|                                                                              |   |                           |     |   |   |   |   |   |
| Supplemental      Non-Cash Investing and Financing Activities:                    |   |                           |     |   |   |   |   |   |
| Common dividends declared but      not paid                                       |   | $                              | 3,489    |   |   | $ | 3,029 |   |
| Preferred dividends declared      but not paid                                    |   | $                              | 1,003    |   |   | $ | 1,003 |   |
|                                                                              |   |                           |     |   |   |   |   |   |

----

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|                                   |   | Three      Months Ended June 30, |    |
|----------------------------------------|--------|----------------------------------|---------|
|                                   |   | 2010                             |    |   | 2009 |   |
|                                   |   |  Income                     |    |   | Weighted-Average      Common Shares |   |   |  Income |   |   | Weighted-AverageCommonShares |   |
| Net      income                        |   | $                                | 7,267   |   |   |   |   |   | $ | 4,370 |   |   |   |   |
| Preferred      stock dividends         |   |                             | (1,003  | ) |   |   |   |   |   | (1,003 | ) |   |   |   |
| Net      income to common shareholders |   |                             | 6,264   |   |   |   | 15,122,324 |   |   |   | 3,367 |   |   |   | 12,987,784 |   |
| Effect      of dilutive items          |   |                             | 1,003   |   |   |   | 4,224,706 |   |   |   | 1,003 |   |   |   | 4,222,001 |   |
| Diluted                                |   | $                                | 7,267   |   |   |   | 19,347,030 |   |   | $ | 4,370 |   |   |   | 17,209,785 |   |
|                                   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:      |   |
| Basic                                  |   |                             |    |   |   | $ | 0.41 |   |   |   |   |   |   | $ | 0.26 |   |
| Diluted                                |   |                             |    |   |   | $ | 0.38 |   |   |   |   |   |   | $ | 0.25 |   |
|                                   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of dilutive items:     |   |                             |    |
| Convertible      preferred stock       |   | $                                | 1,003   |   |   |   | 4,221,539 |   |   | $ | 1,003 |   |   |   | 4,221,539 |   |
| Stock      options                     |   |                             | – |   |   |   | 3,167 |   |   |   | – |   |   |   | 462 |   |
|                                   |   | $                                | 1,003   |   |   |   | 4,224,706 |   |   | $ | 1,003 |   |   |   | 4,222,001 |   |

|                                   |   | Six      Months Ended June 30, |    |
|----------------------------------------|--------|--------------------------------|---------|
|                                   |   | 2010                           |    |   | 2009 |   |
|                                   |   |  Income                   |    |   | Weighted-Average      Common Shares |   |   |  Income |   |   | Weighted-AverageCommonShares |   |
| Net      income                        |   | $                              | 12,804  |   |   |   |   |   | $ | 7,503 |   |   |   |   |
| Preferred      stock dividends         |   |                           | (2,005  | ) |   |   |   |   |   | (2,005 | ) |   |   |   |
| Net      income to common shareholders |   |                           | 10,799  |   |   |   | 14,668,489 |   |   |   | 5,498 |   |   |   | 12,581,033 |   |
| Effect      of dilutive items          |   |                           | 2,005   |   |   |   | 4,224,438 |   |   |   | – |   |   |   | – |   |
| Diluted                                |   | $                              | 12,804  |   |   |   | 18,892,927 |   |   | $ | 5,498 |   |   |   | 12,581,033 |   |
|                                   |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:      |   |
| Basic                                  |   |                           |    |   |   | $ | 0.74 |   |   |   |   |   |   | $ | 0.44 |   |
| Diluted                                |   |                           |    |   |   | $ | 0.68 |   |   |   |   |   |   | $ | 0.44 |   |
|                                   |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of dilutive items:     |   |                           |    |
| Convertible      preferred stock       |   | $                              | 2,005   |   |   |   | 4,221,539 |   |   | $ | – |   |   |   | – |   |
| Stock      options                     |   |                           | – |   |   |   | 2,899 |   |   |   | – |   |   |   | – |   |
|                                   |   | $                              | 2,005   |   |   |   | 4,224,438 |   |   | $ | – |   |   |   | – |   |

|                                           |   | Three      Months Ended June      30, |    |   | Six      Months EndedJune      30, |   |
|------------------------------------------------|--------|--------------------------------------------|---------|--------|------------------------------------|--------|
|                                           |   | 2010                                       |    |   | 2009                               |   |   | 2010 |   |   | 2009 |   |
| Shares      issuable under stock option awards |   |                                       | 15,000  |   |                               |   | 70,000 |   |   |   | 15,000 |   |   |   | 95,000 |   |
| Convertible      preferred stock               |   |                                       | – |   |                               |   | – |   |   |   | – |   |   |   | 4,221,539 |   |

----

|                                  |   | June      30, 2010 |    |   | December      31, 2009 |   |
|---------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Principal/par      value              |   | $                  | 539,451 |   |                   | $      | 570,215 |   |
| Purchase      premiums                |   |               | 17,888  |   |                   |   | 12,991 |   |
| Purchase      discounts               |   |               | (34     | )      |                   |   | (44 | ) |
| Amortized cost                        |   |               | 557,305 |   |                   |   | 583,162 |   |
| Gross      unrealized gains           |   |               | 12,255  |   |                   |   | 11,261 |   |
| Gross      unrealized losses          |   |               | (594    | )      |                   |   | (303 | ) |
| Fair value                            |   | $                  | 568,966 |   |                   | $      | 594,120 |   |
|                                  |   |               |    |   |                   |   |   |   |
| Weighted      average coupon          |   |               | 4.38    | %      |                   |   | 4.76 | % |
| Weighted      average months to reset |   | 19      months     |    |   | 20      months         |   |

|                         |   | June      30, 2010 |    |   | December      31, 2009 |   |
|------------------------------|--------|--------------------|---------|--------|------------------------|--------|
|                         |   | CMBS               |    |   | RMBS                   |   |   | TotalNon-Agency |   |   | CMBS |   |   | RMBS |   |   | TotalNon-Agency |   |
| Carrying      value          |   | $                  | 166,151 |   |                   | $      | 5,244 |   |   | $ | 171,395 |   |   | $ | 104,553 |   |   | $ | 6,462 |   |   | $ | 111,015 |   |
| Gross      unrealized gains  |   |               | 8,515   |   |                   |   | 548 |   |   |   | 9,063 |   |   |   | 2,795 |   |   |   | 415 |   |   |   | 3,211 |   |
| Gross      unrealized losses |   |               | – |   |                   |   | (462 | ) |   |   | (462 | ) |   |   | (4,145 | ) |   |   | (971 | ) |   |   | (5,116 | ) |
|                         |   | $                  | 174,666 |   |                   | $      | 5,330 |   |   | $ | 179,996 |   |   | $ | 103,203 |   |   | $ | 5,907 |   |   | $ | 109,110 |   |
| Weighted      average coupon |   |               | 6.80    | %      |                   |   | 8.15 | % |   |   | 6.84 | % |   |   | 7.96 | % |   |   | 7.93 | % |   |   | 7.96 | % |

----

|                                                             |   | June      30, 2010 |    |   | December      31, 2009 |   |
|------------------------------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans:                                 |   |               |    |   |                   |   |
| Commercial,      unpaid principal balance                        |   | $                  | 113,729 |   |                   | $      | 137,567 |   |
| Single-family,      unpaid principal balance                     |   |               | 58,184  |   |                   |   | 61,336 |   |
|                                                             |   |               | 171,913 |   |                   |   | 198,903 |   |
| Funds      held by trustees, including funds held for defeasance |   |               | 24,585  |   |                   |   | 17,737 |   |
| Unamortized      discounts and premiums, net                     |   |               | 148     |   |                   |   | 43 |   |
| Loans,      at amortized cost                                    |   |               | 196,646 |   |                   |   | 216,683 |   |
| Allowance      for loan losses                                   |   |               | (3,980  | )      |                   |   | (4,212 | ) |
|                                                             |   | $                  | 192,666 |   |                   | $      | 212,471 |   |

|                                          |   | June      30, 2010 |   |   | December      31, 2009 |   |
|-----------------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
| Securitized      commercial mortgage loans    |   | $                  | 3,709  |   |                   | $      | 3,935 |   |
| Securitized      single-family mortgage loans |   |               | 271    |   |                   |   | 277 |   |
|                                          |   |               | 3,980  |   |                   |   | 4,212 |   |
| Other      investments                        |   |               | 265    |   |                   |   | 96 |   |
|                                          |   | $                  | 4,245  |   |                   | $      | 4,308 |   |

----

|                                                           |   | June      30, 2010 |   |   | December      31, 2009 |   |
|----------------------------------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
|                                                           |   | Commercial         |   |   | Single-family          |   |   | Commercial |   |   | Single-family |   |
| Investment      in impaired loans, including basis adjustments |   | $                  | 12,448 |   |                   | $      | 3,984 |   |   | $ | 20,465 |   |   | $ | 4,152 |   |
| Allowance      for loan losses                                 |   |               | (3,709 | )      |                   |   | ( 271 | ) |   |   | (3,935 | ) |   |   | (277 | ) |
| Investment      in excess of allowance                         |   | $                  | 8,739  |   |                   | $      | 3,713 |   |   | $ | 16,530 |   |   | $ | 3,875 |   |

|                                  |   | Three      Months Ended June 30, |   |   | Six      Months Ended June 30, |   |
|---------------------------------------|--------|----------------------------------|--------|--------|--------------------------------|--------|
|                                  |   | 2010                             |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Allowance      at beginning of period |   | $                                | 4,717  |   |                           | $      | 3,782 |   |   | $ | 4,308 |   |   | $ | 3,707 |   |
| Provision      for loan losses        |   |                             | 150    |   |                           |   | 234 |   |   |   | 559 |   |   |   | 318 |   |
| Credit      losses, net of recoveries |   |                             | (622   | )      |                           |   | – |   |   |   | (622 | ) |   |   | (9 | ) |
| Allowance      at end of period       |   | $                                | 4,245  |   |                           | $      | 4,016 |   |   | $ | 4,245 |   |   | $ | 4,016 |   |

| Type      of Derivative  | Balance      Sheet Location |   | Gross      Fair ValueAs      ofJune      30, 2010 |    |   | Gross      Fair ValueAs      ofDecember      31, 2009 |   |
|--------------------------|-----------------------------|--------|---------------------------------------------------|---------|--------|-------------------------------------------------------|--------|
| Interest      rate swaps | Derivative      assets      |   | $                                                 | – |   |                                                  | $      | 1,008 |   |
| Interest      rate swaps | Derivative      liabilities |   |                                              | (2,835  | )      |                                                  |   | – |   |
|                     |                        | $      | (2,835                                            | )       |   | $                                                     | 1,008  |   |

----

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

| Type      of Derivative Designated asCash      Flow Hedge | Amount      of Loss Recognized in OCI on Derivatives (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 on Derivative      (Ineffective Portion) | Amount      ofLoss      (Gain) Recognized in Statement of Income on Derivatives (Ineffective      Portion) |
|-----------------------------------------------------------|-------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
| Interest      rate swaps                                  | $3,237                                                                        | Interest      expense                                                                         |  $589                                                                                  | Other      income, net                                                                                      |  $(1)                                                                                                 |

| Type      of Derivative Designated asCash      Flow Hedge | Amount      of Loss Recognized in OCI on Derivatives (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 on Derivative      (Ineffective Portion) | Amount      ofLoss      (Gain) Recognized in Statement of Income on Derivatives (Ineffective      Portion) |
|-----------------------------------------------------------|-------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
| Interest      rate swaps                                  | $4,880                                                                        | Interest      expense                                                                         |  $1,047                                                                                | Other      income, net                                                                                      |  $9                                                                                                   |

|                                                                             |   | Three      Months Ended |   |   | Six      Months Ended |   |
|----------------------------------------------------------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|
|                                                                             |   | June      30, 2010      |   |   | June      30, 2010    |   |
| Balance      at beginning of period                                              |   | $                       | (177   | )      |                  | $      | 1,008 |   |
| Change      in fair value of interest rate swaps                                 |   |                    | (3,237 | )      |                  |   | (4,880 | ) |
| Reclassification      adjustment for amounts included in statement of operations |   |                    | 589    |   |                  |   | 1,047 |   |
| Balance      at end of  period                                         |   | $                       | (2,825 | )      |                  | $      | (2,825 | ) |

----

|                                             |   | June      30, 2010 |    |
|--------------------------------------------------|--------|--------------------|---------|
| Collateral      Type                             |   | Balance            |    |   | Weighted      Average Rate |   |   | Fair      Value of Collateral |   |
| Agency      MBS                                  |   | $                  | 489,782 |   |   |   | 0.29 | % |   | $ | 512,671 |   |
| Non-Agency      CMBS                             |   |               | 71,727  |   |   |   | 1.40 | % |   |   | 85,323 |   |
| Non-Agency      RMBS                             |   |               | 2,927   |   |   |   | 1.85 | % |   |   | 3,361 |   |
| Securitization      financing bonds (see Note 9) |   |               | 26,489  |   |   |   | 1.76 | % |   |   | 31,209 |   |
|                                             |   | $                  | 590,925 |   |   |   | 0.50 | % |   | $ | 632,564 |   |

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

| Original      Maturity    |   | June      30, 2010 |    |   | December      31, 2009 |   |
|---------------------------|--------|--------------------|---------|--------|------------------------|--------|
| 30      days or less      |   | $                  | 161,218 |   |                   | $      | 69,576 |   |
| 31      to 60 days        |   |               | 357,269 |   |                   |   | 300,413 |   |
| 61      to 90 days        |   |               | 59,616  |   |                   |   | 180,643 |   |
| Greater      than 90 days |   |               | 12,822  |   |                   |   | 87,697 |   |
|                      |   | $                  | 590,925 |   |                   | $      | 638,329 |   |

----

| Counterparty                         |   | Repurchase      agreements |    |   | Fair      Value of Collateral Pledged |   |    | Equity      at Risk |   | Weighted      Average Original Maturity |
|--------------------------------------|--------|----------------------------|---------|--------|---------------------------------------|--------|---------|---------------------|--------|-----------------------------------------|
| Bank      of America Securities, LLC |   | $                          | 141,748 |   |                                  | $      | 151,090 |                |   | $                                       | 9,342 |   | 59      days |
| Deutsche      Bank                   |   |                       | 60,894  |   |                                  |   | 65,339  |                |   |                                    | 4,445 |   | 31      days |
| All      other                       |   |                       | 388,283 |   |                                  |   | 416,135 |                |   |                                    | 27,852 |   | 31      days |
|                                 |   | $                          | 590,925 |   |                                  | $      | 632,564 |                |   | $                                       | 41,639 |   | 38      days |

----

|                                                 |   | June      30, 2010     |                   |   | December      31, 2009           |   |
|------------------------------------------------------|--------|------------------------|------------------------|--------|----------------------------------|--------|
|                                                 |   | Bonds      Outstanding |                   |   | Range      ofInterest      Rates |   |   | Bonds      Outstanding |   |   | Range      of Interest      Rates |   |
| Fixed      rate classes                              |   | $                      | 121,771                |   |                             |   | 6.2      – 7.2 | % |   | $ | 121,168 |   |   |   | 6.7%      - 7.2 | % |
| Variable      rate class                             |   |                   | 22,773                 |   |                             |   | 0.6 | % |   |   | 23,852 |   |   |   | 0.5 | % |
| Unamortized      net bond premium and deferred costs |   |                   | (3,237                 | )      |                             |   |   |   |   |   | (1,939 | ) |   |   |   |   |
|                                                 |   | $                      | 141,307                |   |                             |   |   |   |   | $ | 143,081 |   |   |   |   |   |
|                                                 |   |                   |                   |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average coupon                         |   |                   | 5.9                    | %      |                             |   |   |   |   |   | 5.9 | % |   |   |   |   |
| Range      of stated maturities                      |   |                   | 2016      – 2027 |   |                             |   |   |   |   |   | 2024      – 2027 |   |   |   |   |   |
| Estimated      weighted average life                 |   | 3.2      years         |                   |   |                             |   |   |   | 3.0      years |   |   |   |   |   |

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

| ·   | 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 securities and      delinquent property taxreceivables. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                         |   |            |    |   | Fair      Value Measurements |   |
|----------------------------------------------|--------|-----------------|---------|--------|------------------------------|--------|
|                                         |   | Fair      Value |    |   | Level      1                 |   |   | Level      2 |   |   | Level      3 |   |
| Assets:                                      |   |            |    |   |                         |   |   |   |   |   |   |   |
| Agency MBS                                   |   | $               | 568,966 |   |                         | $      | – |   |   | $ | 568,966 |   |   | $ | – |   |
| Non-Agency    securities:                    |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                         |   |            | 174,666 |   |                         |   | – |   |   |   | 63,136 |   |   |   | 111,530 |   |
| RMBS                                         |   |            | 5,330   |   |                         |   | – |   |   |   | – |   |   |   | 5,330 |   |
| Other investments                            |   |            | 131     |   |                         |   | – |   |   |   | – |   |   |   | 131 |   |
| Total      assets carried at fair value      |   | $               | 749,093 |   |                         | $      | – |   |   | $ | 632,102 |   |   | $ | 116,991 |   |
|                                         |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                 |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Derivative    liabilities                    |   |            | 2,835   |   |                         |   | – |   |   |   | 2,835 |   |   |   | – |   |
| Total      liabilities carried at fair value |   | $               | 2,835   |   |                         | $      | – |   |   | $ | 2,835 |   |   | $ | – |   |

|                                               |   | Level      3 Fair Values |    |
|----------------------------------------------------|--------|--------------------------|---------|
|                                               |   | Non-Agency      CMBS     |    |   | Non-Agency      RMBS |   |   | Other |   |   | Total      assets |   |
| Balance      as of March 31, 2010                  |   | $                        | 122,023 |   |   | $ | 5,131 |   |   | $ | 132 |   |   | $ | 127,286 |   |
| Total      realized and unrealized gains (losses): |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included      in the statement of operations       |   |                     | – |   |   |   | – |   |   |   | (1 | ) |   |   | (1 | ) |
| Included      in other comprehensive income        |   |                     | 1,536   |   |   |   | 657 |   |   |   | – |   |   |   | 2,193 |   |
| Principal      payments                            |   |                     | (11,672 | ) |   |   | (463 | ) |   |   | – |   |   |   | (12,135 | ) |
| (Amortization)      accretion                      |   |                     | (357    | ) |   |   | 5 |   |   |   |   |   |   |   | (352 | ) |
| Transfers      in and/or out of Level 3            |   |                     | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      as of June 30, 2010                   |   | $                        | 111,530 |   |   | $ | 5,330 |   |   | $ | 131 |   |   | $ | 116,991 |   |

----

|                                                               |   | 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                       |   |                     | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Included      in other comprehensive income                        |   |                     | 7,857   |   |   |   | 641 |   |   |   | – |   |   |   | 8,498 |   |
| Purchases                                                          |   |                     | – |   |   |   | – |   |   |   | 12 |   |   |   | 12 |   |
| Principal      payments                                            |   |                     | (13,859 | ) |   |   | (1,227 | ) |   |   | (12 | ) |   |   | (15,098 | ) |
| (Amortization)      accretion                                      |   |                     | (595    | ) |   |   | 9 |   |   |   | – |   |   |   | (586 | ) |
| Transfers      in and/or out of Level 3                            |   |                     | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      as of June 30, 2010                                   |   | $                        | 111,530 |   |   | $ | 5,330 |   |   | $ | 131 |   |   | $ | 116,991 |   |

|                                       |   | June      30, 2010 |    |   | December      31, 2009 |   |
|--------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
|                                       |   | RecordedBasis      |    |   | FairValue              |   |   | RecordedBasis |   |   | FairValue |   |
| Assets:                                    |   |               |    |   |                   |   |   |   |   |   |   |   |
| Agency MBS                                 |   | $                  | 568,966 |   |                   | $      | 568,966 |   |   | $ | 594,120 |   |   | $ | 594,120 |   |
| Non-Agency CMBS                            |   |               | 174,666 |   |                   |   | 174,666 |   |   |   | 103,203 |   |   |   | 103,203 |   |
| Non-Agency RMBS                            |   |               | 5,330   |   |                   |   | 5,330 |   |   |   | 5,907 |   |   |   | 5,907 |   |
| Securitized mortgage loans,      net       |   |               | 192,666 |   |                   |   | 173,371 |   |   |   | 212,471 |   |   |   | 186,547 |   |
| Otherinvestments                           |   |               | 1,597   |   |                   |   | 1,653 |   |   |   | 2,280 |   |   |   | 2,079 |   |
| Derivative assets                          |   |               | – |   |                   |   | – |   |   |   | 1,008 |   |   |   | 1,008 |   |
|                                       |   |               |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                               |   |               |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements                 |   |               | 590,925 |   |                   |   | 590,925 |   |   |   | 638,329 |   |   |   | 638,329 |   |
| Non-recourse collateralized      financing |   |               | 191,929 |   |                   |   | 188,451 |   |   |   | 143,081 |   |   |   | 132,234 |   |
| Derivative      liabilities                |   |               | 2,835   |   |                   |   | 2,835 |   |   |   | – |   |   |   | – |   |

|                               |   | June      30, 2010 |   |   | December      31, 2009 |   |
|------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
|                               |   | FairValue          |   |   | UnrealizedLoss         |   |   | FairValue |   |   | Unrealized      Loss |   |
| Unrealized      loss position for: |   |               |   |   |                   |   |   |   |   |   |   |   |
| Less than one    year:             |   |               |   |   |                   |   |   |   |   |   |   |   |
| Agency MBS                         |   | $                  | 54,697 |   |                   | $      | 594 |   |   | $ | 73,288 |   |   | $ | 302 |   |
| Non-Agency CMBS                    |   |               | 4,191  |   |                   |   | 2 |   |   |   | 92,438 |   |   |   | 4,145 |   |
| One year ormore:                   |   |               |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency RMBS                    |   |               | 3,746  |   |                   |   | 460 |   |   |   | 4,087 |   |   |   | 971 |   |
|                               |   | $                  | 62,634 |   |                   | $      | 1,096 |   |   | $ | 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                             |   |                          | -         |   |              |   | 1,140,200 |   |
| Common      stock redeemed under 2004 Stock and Incentive Plan |   |                          | -         |   |              |   | 50,000 |   |
| Common      stock issued under 2009 Stock and Incentive Plan   |   |                          | -         |   |              |   | 47,030 |   |
| Balance      as of June 30, 2010                               |   |                          | 4,221,539 |   |              |   | 15,168,742 |   |

----

|                                 | June      30, 2010 | December      31, 2009 |
|--------------------------------------|--------------------|------------------------|
| Expected      volatility             | 18.7%-28.3%        | 25.4%-30.9%            |
| Weighted-average      volatility     | 21.9%              | 29.4%                  |
| Expected      dividends              | 9.7%-9.9%          | 10.4%                  |
| Expected      term (in months)       | 15                 | 18                     |
| Weighted-average      risk-free rate | 1.12%              | 1.87%                  |
| Range      of risk-free rates        | 0.82%-1.55%        | 1.44%-2.42%            |

|                                         |   | Three      Months Ended June 30, |    |
|----------------------------------------------|--------|----------------------------------|---------|
|                                         |   | 2010                             |    |   | 2009 |   |
|                                         |   | Number      of Shares            |    |   | Weighted-Average      Exercise Price |   |   | Number      of Shares |   |   | Weighted-AverageExercisePrice |   |
| SARs      outstanding at beginning of period |   |                             | 278,146 |   |   | $ | 7.27 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs      granted                            |   |                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs      forfeited                          |   |                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs      exercised                          |   |                             | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs      outstanding at end of period       |   |                             | 278,146 |   |   | $ | 7.27 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs      vested and exercisable             |   |                             | 258,146 |   |   | $ | 7.29 |   |   |   | 219,396 |   |   | $ | 7.37 |   |

|                                         |   | Six      Months Ended June 30, |    |
|----------------------------------------------|--------|--------------------------------|---------|
|                                         |   | 2010                           |    |   | 2009 |   |
|                                         |   | Number      of Shares          |    |   | Weighted-Average      Exercise Price |   |   | Number      of Shares |   |   | Weighted-AverageExercisePrice |   |
| SARs      outstanding at beginning of period |   |                           | 278,146 |   |   | $ | 7.27 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs      granted                            |   |                           | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs      forfeited                          |   |                           | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs      exercised                          |   |                           | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| SARs      outstanding at end of period       |   |                           | 278,146 |   |   | $ | 7.27 |   |   |   | 278,146 |   |   | $ | 7.27 |   |
| SARs      vested and exercisable             |   |                           | 258,146 |   |   | $ | 7.29 |   |   |   | 219,396 |   |   | $ | 7.37 |   |

----

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

|                                                                        |   | Six      Months Ended June 30, |    |
|-----------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                        |   | 2010                           |    |   | 2009 |   |
|                                                                        |   | Number      of Shares          |    |   | Weighted-Average      Exercise Price |   |   | Number      of Shares |   |   | Weighted-AverageExercisePrice |   |
| 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 June 30, |    |
|----------------------------------------------------|--------|----------------------------------|---------|
|                                               |   | 2010                             |    |   | 2009 |   |
| Restricted      stock at beginning of period       |   |                             | 25,000  |   |   |   | 22,500 |   |
| Restricted      stock granted                      |   |                             | 10,000  |   |   |   | 10,000 |   |
| Restricted      stock forfeited                    |   |                             | – |   |   |   | – |   |
| Restricted      stock vested                       |   |                             | (10,000 | ) |   |   | – |   |
| Restricted      stock outstanding at end of period |   |                             | 25,000  |   |   |   | 32,500 |   |

|                                               |   | Six      Months Ended June 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 |   |

----

----

|                                        |   | June      30, 2010 |    |   | December      31, 2009 |   |
|---------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Available      for sale investments:        |   |               |    |   |                   |   |
| Unrealized      gains                       |   | $                  | 21,318  |   |                   | $      | 14,472 |   |
| Unrealized      losses                      |   |               | (1,057  | )      |                   |   | (5,419 | ) |
|                                        |   |               | 20,261  |   |                   |   | 9,053 |   |
| Hedging      instruments:                   |   |               |    |   |                   |   |   |   |
| Unrealized      gains                       |   |               | – |   |                   |   | 1,008 |   |
| Unrealized      losses                      |   |               | (2,825  | )      |                   |   | – |   |
|                                        |   |               | (2,825  | )      |                   |   | 1,008 |   |
|                                        |   |               |    |   |                   |   |   |   |
| Accumulated      other comprehensive income |   | $                  | 17,436  |   |                   | $      | 10,061 |   |

----

----

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

----

----

----

|                        |   | June      30, 2010 |    |   | December      31, 2009 |   |
|-----------------------------|--------|--------------------|---------|--------|------------------------|--------|
| (amounts      in thousands) |   | FNMA               |    |   | FHMLC                  |   |   | Total |   |   | FNMA |   |   | FHMLC |   |   | Total |   |
| Hybrid      ARMs            |   | $                  | 163,546 |   |                   | $      | 112,890 |   |   | $ | 276,436 |   |   | $ | 165,893 |   |   | $ | 129,837 |   |   | $ | 295,730 |   |
| ARMs                        |   |               | 218,944 |   |                   |   | 28,904 |   |   |   | 247,848 |   |   |   | 246,823 |   |   |   | 51,436 |   |   |   | 298,259 |   |
| Fixed      rate             |   |               | 43,553  |   |                   |   | 1,129 |   |   |   | 44,682 |   |   |   | 131 |   |   | ─ |   |   |   | 131 |   |
|                        |   | $                  | 426,043 |   |                   | $      | 142,923 |   |   | $ | 568,966 |   |   | $ | 412,847 |   |   | $ | 181,273 |   |   | $ | 594,120 |   |

| (amounts      in thousands) |   | June      30, 2010 |    |   | December      31, 2009 |   |
|-----------------------------|--------|--------------------|---------|--------|------------------------|--------|
| CMBS                        |   | $                  | 174,666 |   |                   | $      | 103,203 |   |
| RMBS                        |   |               | 5,330   |   |                   |   | 5,907 |   |
|                        |   | $                  | 179,996 |   |                   | $      | 109,110 |   |

----

| (amounts      in thousands) |   | June      30, 2010 |    |   | December      31, 2009 |   |
|-----------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Commercial                  |   | $                  | 133,791 |   |                   | $      | 150,371 |   |
| Single-family               |   |               | 58,875  |   |                   |   | 62,100 |   |
|                        |   | $                  | 192,666 |   |                   | $      | 212,471 |   |

| (amounts      in thousands)                            |   | June      30, 2010 |    |   | December      31, 2009 |   |
|--------------------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| TALF:                                                  |   |               |    |   |                   |   |
| Fixed, secured by      CMBS                            |   | $                  | 50,622  |   |                   | $      | ─ |   |
| Securitization      financing bonds:                   |   |               |    |   |                   |   |   |   |
| Fixed, secured by commercial      mortgage loans       |   |               | 118,970 |   |                   |   | 119,713 |   |
| Variable, secured by single-family      mortgage loans |   |               | 22,337  |   |                   |   | 23,368 |   |
|                                                   |   | $                  | 191,929 |   |                   | $      | 143,081 |   |

----

----

|                                                 |   | June      30, 2010(amounts      in thousands) |    |
|------------------------------------------------------|--------|-----------------------------------------------|---------|
|  Investment                                     |   | Investment      basis                         |    |   | Financing      (1) |   |   | Net invested      capital |   |   | Estimated      fair value of net invested capital |   |
| Agency      MBS (2)                                  |   | $                                             | 568,966 |   |   | $ | 489,782 |   |   | $ | 79,184 |   |   | $ | 79,184 |   |
|                                                 |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities  (4)            |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                                 |   |                                          | 174,666 |   |   |   | 136,783 |   |   |   | 37,883 |   |   |   | 37,129 |   |
| RMBS                                                 |   |                                          | 5,330   |   |   |   | 2,927 |   |   |   | 2,403 |   |   |   | 2,403 |   |
|                                                 |   |                                          | 179,996 |   |   |   | 139,710 |   |   |   | 40,286 |   |   |   | 39,532 |   |
|                                                 |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized      mortgage loans: (3)            |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family      mortgage loans – 2002 Trust |   |                                          | 58,875  |   |   |   | 43,872 |   |   |   | 15,003 |   |   |   | 9,279 |   |
| Commercial      mortgage loans – 1993 Trust    |   |                                          | 9,697   |   |   |   | 4,954 |   |   |   | 4,743 |   |   |   | 4,391 |   |
| Commercial      mortgage loans – 1997 Trust    |   |                                          | 124,094 |   |   |   | 104,536 |   |   |   | 19,558 |   |   |   | 10,572 |   |
|                                                 |   |                                          | 192,666 |   |   |   | 153,362 |   |   |   | 39,304 |   |   |   | 24,242 |   |
|                                                 |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      investments                               |   |                                          | 1,597   |   |   | ─ |   |   |   | 1,597 |   |   |   | 1,653 |   |
|                                                 |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                |   | $                                             | 943,225 |   |   | $ | 782,854 |   |   | $ | 160,371 |   |   | $ | 144,611 |   |

| (1) | Financing      includes repurchase agreements and non-recourse collateralized      financing. |
|-----|-----------------------------------------------------------------------------------------------|

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

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

| (4) | Estimated      fair values are calculated for certain non-Agency securities based upon      prices obtained from a third-party pricing service and broker quotes with      the remainder calculated as the net present value of expected future cash      flows. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 | Fair      Value Assumptions                                 |
|------------------------------------------------------|-------------------------------------------------------------|
| Investment      type                                 | Approximate      year of investment origination or issuance | Weighted-average      prepayment rates(1) | Projected      annual losses (2) | Weighted-averagediscount      rate(3) |
|                                                 |                                                        |   |   |   |
| Single-family      mortgage loans – 2002 Trust | 1994                                                        | 15%      CPR | 0.2% | 10% |
| Commercial      mortgage loans – 1993 Trust    | 1993                                                        | 0%      CPR | 0.4% | 20% |
| Commercial      mortgage loans – 1997 Trust    | 1997                                                        | 0%      CPY(4) | 1.0% | 20% |
|                                                 |                                                        |   |   |   |

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

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

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

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

----

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

| (1) | Financing      includes repurchase agreements and non-recourse collateralized      financing. |
|-----|-----------------------------------------------------------------------------------------------|

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

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

| (4) | Estimated      fair values are calculated for certain non-Agency securities based upon      prices obtained from a third-party pricing service and broker quotes with      the remainder calculated as the net present value of expected future cash      flows. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (amounts      in thousands)            |   | June      30, 2010 |    |   | December      31, 2009 |   |
|----------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Net      invested capital              |   | $                  | 160,371 |   |                   | $      | 136,571 |   |
| Cash      and cash equivalents         |   |               | 30,279  |   |                   |   | 30,173 |   |
| Derivative      (liabilities) assets   |   |               | (2,835  | )      |                   |   | 1,008 |   |
| Accrued      interest, net             |   |               | 3,898   |   |                   |   | 3,375 |   |
| Other      assets and liabilities, net |   |               | (882    | )      |                   |   | (2,374 | ) |
| Shareholders’      equity        |   | $                  | 190,831 |   |                   | $      | 168,753 |   |

----

|                        |   | Three      Months Ended June 30, |   |
|-----------------------------|--------|----------------------------------|--------|
|                        |   | 2010                             |   |   | 2009 |   |
| (amounts      in thousands) |   | Interest      Income             |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Commercial                  |   | $                                | 2,629  |   |   | $ | 89 |   |   | $ | 2,718 |   |   | $ | 3,463 |   |   | $ | 78 |   |   | $ | 3,541 |   |
| Single-family               |   |                             | 679    |   |   |   | (42 | ) |   |   | 637 |   |   |   | 973 |   |   |   | (29 | ) |   |   | 944 |   |
|                        |   | $                                | 3,308  |   |   | $ | 47 |   |   | $ | 3,355 |   |   | $ | 4,436 |   |   | $ | 49 |   |   | $ | 4,485 |   |

----

|                                                                        |   | Three      Months Ended June 30, |   |
|-----------------------------------------------------------------------------|--------|----------------------------------|--------|
| (amounts      in thousands)                                                 |   | 2010                             |   |   | 2009 |   |
| Interest      expense:                                                      |   |                             |   |   |   |   |
| Repurchase agreements      collateralized by Agency MBS                     |   | $                                | 369    |   |   | $ | 708 |   |
| Repurchase agreements      collateralized by non-Agency securities          |   |                             | 287    |   |   |   | – |   |
| Repurchase agreements      collateralized by securitization financing bonds |   |                             | 117    |   |   |   | 121 |   |
|                                                                        |   |                             | 773    |   |   |   | 829 |   |
| Interest      expense related to interest rate swap agreements              |   |                             | 589    |   |   |   | – |   |
|                                                                        |   | $                                | 1,362  |   |   | $ | 829 |   |

----

|                                   |   | Three      Months Ended June 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                             |   | $                                | 2,271  |   |   | $ | (535 | ) |   | $ | 1,736 |   |   | $ | 2,772 |   |   | $ | (153 | ) |   | $ | 2,619 |   |
| Single-family                          |   |                             | 52     |   |   |   | 26 |   |   |   | 78 |   |   |   | 67 |   |   |   | 25 |   |   |   | 92 |   |
|                                   |   | $                                | 2,323  |   |   | $ | (509 | ) |   | $ | 1,814 |   |   | $ | 2,839 |   |   | $ | (128 | ) |   | $ | 2,711 |   |

|                          |   | Three      Months Ended June 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 |   | $                                | 287    |   |   | $ | (8 | ) |   | $ | 279 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| TALF                          |   |                             | 345    |   |   |   | 8 |   |   |   | 353 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                          |   | $                                | 632    |   |   | $ | – |   |   | $ | 632 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

----

|                        |   | Six      Months Ended June 30, |   |
|-----------------------------|--------|--------------------------------|--------|
|                        |   | 2010                           |   |   | 2009 |   |
| (amounts      in thousands) |   | Interest      Income           |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Commercial                  |   | $                              | 5,478  |   |   | $ | 183 |   |   | $ | 5,661 |   |   | $ | 6,982 |   |   | $ | 204 |   |   | $ | 7,186 |   |
| Single-family               |   |                           | 1,395  |   |   |   | (78 | ) |   |   | 1,317 |   |   |   | 2,036 |   |   |   | 84 |   |   |   | 2,120 |   |
|                        |   | $                              | 6,873  |   |   | $ | 105 |   |   | $ | 6,978 |   |   | $ | 9,018 |   |   | $ | 288 |   |   | $ | 9,306 |   |

----

|                                                                        |   | Six      Months Ended June 30, |   |
|-----------------------------------------------------------------------------|--------|--------------------------------|--------|
| (amounts      in thousands)                                                 |   | 2010                           |   |   | 2009 |   |
| Interest      expense:                                                      |   |                           |   |   |   |   |
| Repurchase agreements      collateralized by Agency MBS                     |   | $                              | 696    |   |   | $ | 1,729 |   |
| Repurchase agreements      collateralized by non-Agency securities          |   |                           | 661    |   |   |   | – |   |
| Repurchase agreements      collateralized by securitization financing bonds |   |                           | 221    |   |   |   | 164 |   |
|                                                                        |   |                           | 1,578  |   |   |   | 1,893 |   |
| Interest      expense related to interest rate swap agreements:             |   |                           | 1,047  |   |   |   | – |   |
|                                                                        |   | $                              | 2,625  |   |   | $ | 1,893 |   |

----

|                                   |   | Six      Months Ended June 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                             |   | $                              | 4,715  |   |   | $ | (803 | ) |   | $ | 3,912 |   |   | $ | 5,824 |   |   | $ | (340 | ) |   | $ | 5,484 |   |
| Single-family                          |   |                           | 101    |   |   |   | 48 |   |   |   | 149 |   |   |   | 138 |   |   |   | 64 |   |   |   | 202 |   |
|                                   |   | $                              | 4,816  |   |   | $ | (755 | ) |   | $ | 4,061 |   |   | $ | 5,962 |   |   | $ | (276 | ) |   | $ | 5,686 |   |

|                          |   | Six      Months Ended June 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 |   | $                              | 564    |   |   | $ | (9 | ) |   | $ | 555 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| TALF                          |   |                           | 387    |   |   |   | 10 |   |   |   | 397 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                          |   | $                              | 951    |   |   | $ | 1 |   |   | $ | 952 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

----

|                                                |   | Three      Months Ended June 30, |    |
|-----------------------------------------------------|--------|----------------------------------|---------|
|                                                |   | 2010                             |    |   | 2009 |   |
| (amounts      in thousands)                         |   | AverageBalance(1)(2)             |    |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveYield/Rate(3) |   |
| Agency MBS                                          |   |                             |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                                | 559,789 |   |   |   | 3.45 | % |   | $ | 459,012 |   |   |   | 4.39 | % |
| Repurchase      agreements                          |   |                             | 513,827 |   |   |   | (0.64 | %) |   |   | 413,714 |   |   |   | (0.69 | %) |
| Net interest    spread                              |   |                             |    |   |   |   | 2.81 | % |   |   |   |   |   |   | 3.70 | % |
|                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency Securities                               |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities                          |   | $                                | 178,332 |   |   |   | 6.77 | % |   | $ | 6,771 |   |   |   | 9.22 | % |
| Non-recourse collateralized      financing          |   |                             | 65,042  |   |   |   | (3.87 | %) |   |   | – |   |   |   | – |   |
| Repurchase      agreements                          |   |                             | 79,582  |   |   |   | (2.16 | %) |   |   | – |   |   |   | – |   |
| Net interest    spread                              |   |                             |    |   |   |   | 2.93 | % |   |   |   |   |   |   | 9.22 | % |
|                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                          |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                     |   | $                                | 201,034 |   |   |   | 6.58 | % |   | $ | 237,785 |   |   |   | 7.37 | % |
| Non-recourse collateralized      financing      (4) |   |                             | 129,622 |   |   |   | (6.48 | %) |   |   | 159,571 |   |   |   | (6.72 | %) |
| Repurchase      agreements                          |   |                             | 27,382  |   |   |   | (1.72 | %) |   |   | 21,194 |   |   |   | (2.29 | %) |
| Net interest    spread                              |   |                             |    |   |   |   | 0.93 | % |   |   |   |   |   |   | 1.17 | % |
|                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other investments                                   |   | $                                | 1,826   |   |   |   | 7.06 | % |   | $ | 2,504 |   |   |   | 9.46 | % |
|                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total(5)                                            |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning      assets                        |   | $                                | 940,981 |   |   |   | 4.76 | % |   | $ | 706,072 |   |   |   | 5.46 | % |
| Interest bearing      liabilities                   |   |                             | 815,455 |   |   |   | (2.01 | %) |   |   | 594,479 |   |   |   | (2.36 | %) |
| Net interest    spread                              |   |                             |    |   |   |   | 2.75 | % |   |   |   |   |   |   | 3.10 | % |

| (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 and assets that are on non-accrual status are      excluded from the table for each period  presented. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                |   | Six      Months Ended June 30, |    |
|-----------------------------------------------------|--------|--------------------------------|---------|
|                                                |   | 2010                           |    |   | 2009 |   |
| (amounts      in thousands)                         |   | AverageBalance(1)(2)           |    |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveYield/Rate(3) |   |
| Agency MBS                                          |   |                           |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                              | 554,817 |   |   |   | 3.53 | % |   | $ | 430,451 |   |   |   | 4.43 | % |
| Repurchase      agreements                          |   |                           | 512,649 |   |   |   | (0.60 | %) |   |   | 391,560 |   |   |   | (0.89 | %) |
| Net interest    spread                              |   |                           |    |   |   |   | 2.93 | % |   |   |   |   |   |   | 3.54 | % |
|                                                |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency Securities                               |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities                          |   | $                              | 160,799 |   |   |   | 7.16 | % |   | $ | 6,841 |   |   |   | 9.23 | % |
| Non-recourse collateralized      financing          |   |                           | 42,931  |   |   |   | (4.42 | %) |   |   | – |   |   |   | – |   |
| Repurchase      agreements                          |   |                           | 85,080  |   |   |   | (2.11 | %) |   |   | – |   |   |   | – |   |
| Net interest    spread                              |   |                           |    |   |   |   | 4.28. | % |   |   |   |   |   |   | 9.23 | % |
|                                                |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                          |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                     |   | $                              | 206,718 |   |   |   | 6.69 | % |   | $ | 240,461 |   |   |   | 7.59 | % |
| Non-recourse collateralized      financing      (4) |   |                           | 134,237 |   |   |   | (6.38 | %) |   |   | 167,057 |   |   |   | (6.68 | %) |
| Repurchase      agreements                          |   |                           | 26,780  |   |   |   | (1.66 | %) |   |   | 14,108 |   |   |   | (2.34 | %) |
| Net interest    spread                              |   |                           |    |   |   |   | 1.10 | % |   |   |   |   |   |   | 1.24 | % |
|                                                |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other investments                                   |   | $                              | 2,025   |   |   |   | 6.36 | % |   | $ | 2,549 |   |   |   | 9.64 | % |
|                                                |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total(5)                                            |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning      assets                        |   | $                              | 924,359 |   |   |   | 4.87 | % |   | $ | 680,302 |   |   |   | 5.61 | % |
| Interest bearing      liabilities                   |   |                           | 801,677 |   |   |   | (1.96 | %) |   |   | 572,725 |   |   |   | (2.62 | %) |
| Net interest    spread                              |   |                           |    |   |   |   | 2.91 | % |   |   |   |   |   |   | 2.99 | % |

| (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 and assets that are on non-accrual status are      excluded from the table for each period  presented. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| (amounts      in thousands)                |   | Payments      due by period |    |
|--------------------------------------------|--------|-----------------------------|---------|
| Contractual Obligations:      (1)          |   | Total                       |    |   | <      1 year |   |   | 1-3      years |   |   | 3-5      years |   |   | >      5 years |   |
|                                       |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements (2)             |   | $                           | 590,925 |   |   | $ | 590,925 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Securitization      financing (2)      (3) |   |                        | 129,424 |   |   |   | 13,907 |   |   |   | 46,955 |   |   |   | 61,916 |   |   |   | 6,646 |   |
| TALF      financing (2)      (3)           |   |                        | 50,727  |   |   |   | – |   |   |   | 50,727 |   |   |   | – |   |   |   | – |   |
| Operating      lease obligations           |   |                        | 550     |   |   |   | 139 |   |   |   | 329 |   |   |   | 82 |   |   |   |   |   |
| Total                                      |   | $                           | 771,626 |   |   | $ | 604,971 |   |   | $ | 98,011 |   |   | $ | 61,998 |   |   | $ | 6,646 |   |

| (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 June 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 financingoutstanding. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| Item      3. | Quantitative      and Qualitative Disclosures about MarketRisk |
|--------------|----------------------------------------------------------------|

| Lifetime      Interest Rate Caps on ARM MBS |   |            | Interim      Interest Rate Caps on ARM MBS |   |
|---------------------------------------------|--------|-----------------|--------------------------------------------|--------|
|                                        |   | %      of Total |                                       |   |   |   |   | %      of Total |   |
| 9.0%      to 10.0%                          |   |            | 41.94                                      | %      |   |   | 1.0 | % |   |   | 2.04 | % |
| >10.0%      to 11.0%                     |   |            | 45.28                                      | %      |   |   | 2.0 | % |   |   | 33.59 | % |
| >11.0%      to 12.0%                     |   |            | 12.78                                      | %      |   |   | 5.0 | % |   |   | 64.37 | % |
|                                        |   |            | 100.00                                     | %      |   |   |   |   |   |   | 100.00 | % |

----

|                                            |   | Investments      |    |   | Borrowings |   |
|-------------------------------------------------|--------|------------------|---------|--------|------------|--------|
| (amounts      in thousands)                     |   | Amounts      (1) |    |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate      Investments/Obligations         |   | $                | 371,585 |   |       |   | 39.2 | % |   | $ | 169,592 |   |   |   | 21.6 | % |
|                                            |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate      Investments/Obligations:   |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3    months                           |   |             | 135,826 |   |       |   | 14.3 |   |   |   | 398,262 |   |   |   | 50.9 |   |
| Greater than 3 months and less      than 1 year |   |             | 163,622 |   |       |   | 17.3 |   |   |   | – |   |   |   | – |   |
| Greater than 1 year and less      than 2 years  |   |             | 135,732 |   |       |   | 14.3 |   |   |   | 100,000 |   |   |   | 12.8 |   |
| Greater than 2 years and less      than 3 years |   |             | 52,550  |   |       |   | 5.6 |   |   |   | 50,000 |   |   |   | 6.4 |   |
| Greater than 3 years and less      than 5 years |   |             | 88,155  |   |       |   | 9.3 |   |   |   | 65,000 |   |   |   | 8.3 |   |
| Total                                           |   | $                | 947,470 |   |       |   | 100.0 | % |   | $ | 782,854 |   |   |   | 100.0 | % |

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

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

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

----

|                                      | As      of June 30, 2010                                |
|-------------------------------------------|---------------------------------------------------------|
| Basis      Point Change in Interest Rates | Percentage      change in projected net interest income | Percentage      change in projected      market value |
|                                      |                                                    |   |
| +200                                      | (8.6)%                                                  | (1.3)% |
| +100                                      | (1.8)%                                                  | (0.5)% |
| 0                                         | –                                                 | – |
| -100                                      | (7.2)%                                                  | 0.3% |
| -200                                      | (21.9)%                                                 | 0.4% |

|                                      | As      of December 31, 2009                            |
|-------------------------------------------|---------------------------------------------------------|
| Basis      Point Change in Interest Rates | Percentage      change in projected net interest income | Percentage      change in projected      market value |
|                                      |                                                    |   |
| +200                                      | (16.1)%                                                 | (1.8)% |
| +100                                      |   (6.4)%                                      | (0.8)% |
| 0                                         | –                                                 | – |
| -100                                      |  (3.3)%                                            | 0.5% |
| -200                                      | (15.8)%                                                 | 0.7% |

----

|                                  |   | June      30, 2010    |    |
|---------------------------------------|--------|-----------------------|---------|
| Investment(amounts      in thousands) |   | Accounting      Basis |    |   | Amount      of Guaranty |   | Guarantor |   | Average      Credit Rating of Guarantor (1) |   |
| With      Guaranty of Payment         |   |                  |    |   |   |   |   |   |   |   |
| Agency MBS                            |   | $                     | 568,966 |   |   | $ | 536,845 |   | Fannie      Mae/Freddie Mac |   | AAA |   |
| Securitized mortgage      loans:      |   |                  |    |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                  | 57,015  |   |   |   | 13,237 |   | American      International Group |   |  A3 |   |
| Single-family                         |   |                  | 19,145  |   |   |   | 18,834 |   | PMI/GEMICO |   | Caa2/BBB– |   |
| Defeased loans                        |   |                  | 24,318  |   |   |   | 24,436 |   | Fully      secured with cash |   |   |   |   |
|                                  |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Without      Guaranty of Payment      |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans:      |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                  | 56,167  |   |   |   | – |   |   |   |   |   |   |
| Single-family                         |   |                  | 40,001  |   |   |   | – |   |   |   |   |   |   |
| Non-Agency      securities            |   |                  | 179,996 |   |   |   | – |   |   |   |   |   |   |
| Otherinvestments                      |   |                  | 1,862   |   |   |   | – |   |   |   |   |   |   |
|                                  |   |                  | 947,470 |   |   |   | 593,352 |   |   |   |   |   |   |
|                                  |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses        |   |                  | (4,245  | ) |   |   | – |   |   |   |   |   |   |
|                                  |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Totalinvestments                      |   | $                     | 943,225 |   |   | $ | 593,352 |   |   |   |   |   |   |

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

----

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

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

|                                  |   | As      of June 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        |   | $                                  | 133,791 |   |   |   | 14 |   |   |   | 45 | % |   | $ | 12,617 |   |   |   | 11.87 | % |
| Single-family      mortgage loans     |   |                               | 58,875  |   |   |   | 16 |   |   |   | 50 | % |   |   | 5,123 | (2) |   |   | 9.12 | % |

----

|                                  |   | 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 June 30, 2010, approximately $1.2 million of the delinquent      single-family loans are pool insured and, of the remaining $4.1 million,      $3.2 million of the loans made a payment within the 90 days prior to June      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 |   | June      30, 2010 |   |   | December      31, 2009 |   |
|---------------------------------------------------|--------|--------------------|--------|--------|------------------------|--------|
| Compliance      period already exceeded           |   |               | 35.5   | %      |                   |   | 38.5 | % |
| Up      to one year remaining                     |   |               | 51.3   |   |                   |   | 37.1 |   |
| Between      one and three years remaining        |   |               | 13.2   |   |                   |   | 24.4 |   |
| Total                                             |   |               | 100.0  | %      |                   |   | 100.0 | % |

----

----

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

----

| PART      II. | OTHER      INFORMATION |
|---------------|------------------------|

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

----

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

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

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

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

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

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

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

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

----

----

| 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 (filed      herewith).                                                                                                                                      |
| 10.14       | Equity      Distribution Agreement between Dynex Capital, Inc. and JMP Securities LLC,      dated June 24, 2010 (incorporated herein by reference to Exhibit 10.14 to      Dynex’s Current Report on Form 8-K filed June 24, 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:      August 9, 2010            | /s/      Thomas B. Akin                                                                 |
|                                 | Thomas      B. Akin                                                                     |
|                                 | Chairman      and Chief Executive Officer                                               |
|                                 | (Principal      Executive Officer)                                                      |
|                                 |                                                                                    |
|                                 |                                                                                    |
| Date:  August      9, 2010 | /s/      Stephen J. Benedetti                                                           |
|                                 | Stephen      J. Benedetti                                                               |
|                                 | Executive      Vice President, Chief Operating Officer and Chief Financial      Officer |
|                                 | (Principal      Financial Officer)                                                      |
|                                 |                                                                                    |

----