----

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|   | Quarterly      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 |
|--------|---------------------------------------------------------------------------------------------------|

|   | Transition      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 |
|--------|----------------------------------------------------------------------------------------------------|

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

| Virginia                                                                                 | 52-1549373               |
|------------------------------------------------------------------------------------------|--------------------------|
| (State      or other jurisdiction of                                                     | (I.R.S.      Employer    |
| incorporation      or organization)                                                      | Identification      No.) |
|                                                                                     |                     |
| 4991      Lake Brook Drive, Suite 100, Glen Allen, Virginia                              | 23060-9245               |
| (Address      of principal executive offices)                                            | (Zip      Code)          |
|                                                                                     |                     |
| (804)      217-5800(Registrant’s      telephone number, including area code)  |

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

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|          |                       |                                                                                                                               | Page   |
|---------------|----------------------------|------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART      I.  | FINANCIAL      INFORMATION |                                                                                                                               |
|          |                       |                                                                                                                               |   |
|          | Item      1.               | Financial      Statements                                                                                                          |   |
|          |                       |                                                                                                                               |   |
|          |                       | Consolidated      Balance Sheets as of March 31, 2010 (unaudited) and December 31,      2009                                       | 1      |
|          |                       |                                                                                                                               |   |
|          |                       | Consolidated      Statements of Income for the three months ended March 31,2010and      March 31, 2009 (unaudited)                 | 2      |
|          |                       |                                                                                                                               |   |
|          |                       | Consolidated      Statements of Shareholders’ Equity for the three months endedMarch      31, 2010 (unaudited)               | 3      |
|          |                       |                                                                                                                               |   |
|          |                       | Consolidated      Statements of Cash Flows for the three months ended March 31, 2010 and      March 31, 2009 (unaudited)           | 4      |
|          |                       |                                                                                                                               |   |
|          |                       | Consolidated      Statements of Comprehensive Income for the three months ended March 31,      2010 and March 31, 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                              | 26     |
|          |                       |                                                                                                                               |   |
|          | Item      3.               | Quantitative      and Qualitative Disclosures about Market Risk                                                                    | 44     |
|          |                       |                                                                                                                               |   |
|          | Item      4.               | Controls      and Procedures                                                                                                       | 50     |
|          |                       |                                                                                                                               |   |
| PART      II. | OTHER      INFORMATION     |                                                                                                                               |
|          |                       |                                                                                                                               |   |
|          | Item      1.               | Legal      Proceedings                                                                                                             | 51     |
|          |                       |                                                                                                                               |   |
|          | Item      1A.              | Risk      Factors                                                                                                                  | 52     |
|          |                       |                                                                                                                               |   |
|          | Item      2.               | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                   | 52     |
|          |                       |                                                                                                                               |   |
|          | Item      3.               | Defaults      Upon Senior Securities                                                                                               | 52     |
|          |                       |                                                                                                                               |   |
|          | Item      4.               | (Removed      and Reserved)                                                                                                        | 52     |
|          |                       |                                                                                                                               |   |
|          | Item      5.               | Other      Information                                                                                                             | 52     |
|          |                       |                                                                                                                               |   |
|          | Item      6.               | Exhibits                                                                                                                           | 53     |
|          |                       |                                                                                                                               |   |
| SIGNATURES    | 54                         |

----

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

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

|                                                                                                                                                       |   | March      31, 2010 |     |   | December      31, 2009 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|----------|--------|------------------------|--------|
|                                                                                                                                                       |   | (unaudited)         |     |   |                   |   |
| ASSETS                                                                                                                                                     |   |                |     |   |                   |   |
| Agency      MBS (including pledged of $539,276 and      $575,386,  respectively)                                                                 |   | $                   | 558,935  |   |                   | $      | 594,120 |   |
| Non-Agency      securities (including pledged of $175,492 and $82,770,      respectively)                                                                  |   |                | 188,737  |   |                   |   | 109,110 |   |
| Securitized      mortgage loans, net                                                                                                                       |   |                | 204,609  |   |                   |   | 212,471 |   |
| Other      investments, net                                                                                                                                |   |                | 2,156    |   |                   |   | 2,280 |   |
|                                                                                                                                                       |   |                | 954,437  |   |                   |   | 917,981 |   |
|                                                                                                                                                       |   |                |     |   |                   |   |   |   |
| Cash      and cash equivalents                                                                                                                             |   |                | 30,714   |   |                   |   | 30,173 |   |
| Derivative      assets                                                                                                                                     |   |                | –  |   |                   |   | 1,008 |   |
| Accrued      interest receivable                                                                                                                           |   |                | 4,270    |   |                   |   | 4,583 |   |
| Other      assets, net                                                                                                                                     |   |                | 5,037    |   |                   |   | 4,317 |   |
|                                                                                                                                                       |   | $                   | 994,458  |   |                   | $      | 958,062 |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                            |   |                |     |   |                   |   |   |   |
|                                                                                                                                                       |   |                |     |   |                   |   |   |   |
| Liabilities:                                                                                                                                               |   |                |     |   |                   |   |   |   |
| Repurchase      agreements                                                                                                                                 |   | $                   | 602,451  |   |                   | $      | 638,329 |   |
| Non-recourse      collateralized financing                                                                                                                 |   |                | 201,506  |   |                   |   | 143,081 |   |
| Derivative      liabilities                                                                                                                                |   |                | 187      |   |                   |   | – |   |
| Accrued      interest payable                                                                                                                              |   |                | 1,162    |   |                   |   | 1,208 |   |
| Other      liabilities                                                                                                                                     |   |                | 5,508    |   |                   |   | 6,691 |   |
|                                                                                                                                                       |   |                | 810,814  |   |                   |   | 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;      15,037,802 and 13,931,512 shares issued and outstanding,      respectively |   |                | 150      |   |                   |   |   139 |   |
| Additional      paid-in capital                                                                                                                            |   |                | 389,459  |   |                   |   | 379,717 |   |
| Accumulated      other comprehensive income                                                                                                                |   |                | 14,112   |   |                   |   | 10,061 |   |
| Accumulated      deficit                                                                                                                                   |   |                | (261,826 | )      |                   |   | (262,913 | ) |
|                                                                                                                                                       |   |                | 183,644  |   |                   |   | 168,753 |   |
|                                                                                                                                                       |   | $                   | 994,458  |   |                   | $      | 958,062 |   |

----

|                                                     |   | Three      Months Ended |    |
|----------------------------------------------------------|--------|-------------------------|---------|
|                                                     |   | March      31,          |    |
|                                                     |   | 2010                    |    |   | 2009 |   |
| Interest      income:                                    |   |                    |    |   |   |   |
| Agency      MBS                                          |   | $                       | 4,868   |   |   | $ | 4,435 |   |
| Non-Agency      securities                               |   |                    | 2,501   |   |   |   | 159 |   |
| Securitized      mortgage loans                          |   |                    | 3,623   |   |   |   | 4,820 |   |
| Other      investments                                   |   |                    | 32      |   |   |   | 58 |   |
| Cash      and cash equivalents                           |   |                    | 3       |   |   |   | 5 |   |
|                                                     |   |                    | 11,027  |   |   |   | 9,477 |   |
| Interest      expense:                                   |   |                    |    |   |   |   |   |   |
| Repurchase      agreements                               |   |                    | 1,263   |   |   |   | 1,064 |   |
| Non-recourse      collateralized financing               |   |                    | 2,567   |   |   |   | 2,975 |   |
| Other      interest expense                              |   |                    | – |   |   |   | 394 |   |
|                                                     |   |                    | 3,830   |   |   |   | 4,433 |   |
|                                                     |   |                    |    |   |   |   |   |   |
| Net      interest income                                 |   |                    | 7,197   |   |   |   | 5,044 |   |
| Provision      for loan losses                           |   |                    | (409    | ) |   |   | (179 | ) |
| Net      interest income after provision for loan losses |   |                    | 6,788   |   |   |   | 4,865 |   |
|                                                     |   |                    |    |   |   |   |   |   |
| Gain      on sale of investments, net                    |   |                    | 77      |   |   |   | 83 |   |
| Fair      value adjustments, net                         |   |                    | 82      |   |   |   | 645 |   |
| Other      income, net                                   |   |                    | 669     |   |   |   | 21 |   |
| Equity      in loss of joint venture, net                |   |                    | – |   |   |   | (754 | ) |
| General      and administrative expenses:                |   |                    |    |   |   |   |   |   |
| Compensation      and benefits                           |   |                    | (972    | ) |   |   | (883 | ) |
| Other      general and administrative expenses           |   |                    | (1,107  | ) |   |   | (843 | ) |
|                                                     |   |                    |    |   |   |   |   |   |
| Net      income                                          |   |                    | 5,537   |   |   |   | 3,134 |   |
| Preferred      stock dividends                           |   |                    | (1,003  | ) |   |   | (1,003 | ) |
|                                                     |   |                    |    |   |   |   |   |   |
| Net      income to common shareholders                   |   | $                       | 4,534   |   |   | $ | 2,131 |   |
|                                                     |   |                    |    |   |   |   |   |   |
| Weighted      average common shares:                     |   |                    |    |   |   |   |   |   |
| Basic                                                    |   |                    | 14,210  |   |   |   | 12,170 |   |
| Diluted                                                  |   |                    | 18,437  |   |   |   | 12,170 |   |
| Net      income per common share:                        |   |                    |    |   |   |   |   |   |
| Basic                                                    |   | $                       | 0.32    |   |   | $ | 0.18 |   |
| Diluted                                                  |   | $                       | 0.30    |   |   | $ | 0.18 |   |
|                                                     |   |                    |    |   |   |   |   |   |
| Dividends      declared per common share                 |   | $                       | 0.23    |   |   | $ | 0.23 |   |

----

|                                                           |   | 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                                     |   |           | – |   |        |   | 11      |                     |   |   | 9,707                                           |   |   |               | – |   |   |   | – |   |   |   | 9,718 |   |
| Restricted      stock vesting                                  |   |           | – |   |        |   | – |                     |   |   | 35                                              |   |   |               | – |   |   |   | – |   |   |   | 35 |   |
| Cumulative      effect of adoption of new accounting principle |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | 12 |   |   |   | 12 |   |
| Net      income                                                |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | 5,537 |   |   |   | 5,537 |   |
| Dividends      on preferred stock                              |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | (1,003 | ) |   |   | (1,003 | ) |
| Dividends      on common stock                                 |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | – |   |   |   | (3,459 | ) |   |   | (3,459 | ) |
| Other      comprehensive income                                |   |           | – |   |        |   | – |                     |   |   | –                                         |   |   |               | 4,051   |   |   |   | – |   |   |   | 4,051 |   |
| Balance      as of March 31, 2010                              |   | $              | 41,749  |   |        | $      | 150     |                     |   | $      | 389,459                                         |   |   | $                  | 14,112  |   |   | $      | (261,826 | ) |   | $ | 183,644 |   |

----

|                                                                              |   | Three      Months Ended |     |
|-----------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                              |   | March      31,          |     |
|                                                                              |   | 2010                    |     |   | 2009 |   |
| Operating      activities:                                                        |   |                    |     |   |   |   |
| Net      income                                                                   |   | $                       | 5,537    |   |   | $ | 3,134 |   |
| Adjustments      to reconcile net income to cash provided by operatingactivities: |   |                    |     |   |   |   |   |   |
| Equity in loss of joint      venture, net                                         |   |                    | –  |   |   |   | 754 |   |
| Decrease (increase) in accrued      interest receivable                           |   |                    | 313      |   |   |   | (823 | ) |
| Decrease in accrued interest      payable                                         |   |                    | (46      | ) |   |   | (333 | ) |
| Provision for loan      losses                                                    |   |                    | 409      |   |   |   | 179 |   |
| Gain on sale of investments,      net                                             |   |                    | (77      | ) |   |   | (83 | ) |
| Fair value adjustments,      net                                                  |   |                    | (82      | ) |   |   | (645 | ) |
| Amortization and      depreciation                                                |   |                    | 1,570    |   |   |   | 436 |   |
| Stock based compensation      expense                                             |   |                    | 58       |   |   |   | 67 |   |
| Net change in other assets and      other liabilities                             |   |                    | (2,078   | ) |   |   | (184 | ) |
| Net      cash and cash equivalents provided by operating activities               |   |                    | 5,604    |   |   |   | 2,502 |   |
|                                                                              |   |                    |     |   |   |   |   |   |
| Investing      activities:                                                        |   |                    |     |   |   |   |   |   |
| Purchase      of investments                                                      |   |                    | (100,431 | ) |   |   | (153,951 | ) |
| Payments      received on investments                                             |   |                    | 59,296   |   |   |   | 18,169 |   |
| Proceeds      from sales of investments                                           |   |                    | 31,405   |   |   |   | 1,860 |   |
| Principal      payments received on securitized mortgage loans                    |   |                    | 7,770    |   |   |   | 5,089 |   |
| Other      investing activities                                                   |   |                    | (16,743  | ) |   |   | (549 | ) |
| Net      cash and cash equivalents used in investing activities                   |   |                    | (18,703  | ) |   |   | (129,382 | ) |
|                                                                              |   |                    |     |   |   |   |   |   |
| Financing      activities:                                                        |   |                    |     |   |   |   |   |   |
| (Repayment      of) borrowings under repurchase agreements, net                   |   |                    | (35,878  | ) |   |   | 128,928 |   |
| Proceeds      from non-recourse collateralized financing                          |   |                    | 50,678   |   |   |   | – |   |
| Principal      payments on non-recourse collateralized financing                  |   |                    | (6,406   | ) |   |   | (3,714 | ) |
| Decrease      in restricted cash                                                  |   |                    | –  |   |   |   | 2,974 |   |
| Proceeds      from issuance of common stock                                       |   |                    | 9,453    |   |   |   | – |   |
| Dividends      paid                                                               |   |                    | (4,207   | ) |   |   | (3,802 | ) |
| Net      cash and cash equivalents provided by financing activities               |   |                    | 13,640   |   |   |   | 124,386 |   |
|                                                                              |   |                    |     |   |   |   |   |   |
|                                                                              |   |                    |     |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                         |   |                    | 541      |   |   |   | (2,494 | ) |
| Cash      and cash equivalents at beginning of period                             |   |                    | 30,173   |   |   |   | 24,335 |   |
| Cash      and cash equivalents at end of period                                   |   | $                       | 30,714   |   |   | $ | 21,841 |   |
|                                                                              |   |                    |     |   |   |   |   |   |
| Supplemental      Non-Cash Investing and Financing Activities:                    |   |                    |     |   |   |   |   |   |
| Common dividends declared but      not paid                                       |   | $                       | 3,459    |   |   | $ | 2,799 |   |
| Preferred dividends declared      but not paid                                    |   | $                       | 1,003    |   |   | $ | 1,003 |   |
|                                                                              |   |                    |     |   |   |   |   |   |

----

|                                                                                                        |   | Three      Months Ended |    |
|-------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                        |   | March      31,          |    |
|                                                                                                        |   | 2010                    |    |   | 2009 |   |
|                                                                                                        |   |                    |    |   |   |   |
| Net      income                                                                                             |   | $                       | 5,537   |   |   | $ | 3,134 |   |
| Other      comprehensive income:                                                                            |   |                    |    |   |   |   |   |   |
| Available-for-sale      securities:                                                                         |   |                    |    |   |   |   |   |   |
| Change in market      value                                                                                 |   |                    | 5,313   |   |   |   | 3,553 |   |
| Reclassification adjustment for      net gain on sale of investments                                        |   |                    | (77     | ) |   |   | (83 | ) |
| Reclassification adjustment for      equity in the joint venture’s other-than-temporary    impairment |   |                    | – |   |   |   | 707 |   |
| Net unrealized loss on cash flow      hedge liabilities                                                     |   |                    | (1,185  | ) |   |   | – |   |
|                                                                                                        |   |                    | 4,051   |   |   |   | 4,177 |   |
|                                                                                                        |   |                    |    |   |   |   |   |   |
| Comprehensive      income                                                                                   |   |                    | 9,588   |   |   |   | 7,311 |   |
| Dividends      declared on preferred stock                                                                  |   |                    | (1,003  | ) |   |   | (1,003 | ) |
|                                                                                                        |   |                    |    |   |   |   |   |   |
| Comprehensive      income to common shareholders                                                            |   | $                       | 8,585   |   |   | $ | 6,308 |   |
|                                                                                                        |   |                    |    |   |   |   |   |   |

----

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----

----

|                                   |   | Three      Months Ended March 31, |    |
|----------------------------------------|--------|-----------------------------------|---------|
|                                   |   | 2010                              |    |   | 2009 |   |
|                                   |   |  Income                      |    |   | Weighted-Average      Common Shares |   |   |  Income |   |   | Weighted-AverageCommonShares |   |
| Net      income                        |   | $                                 | 5,537   |   |   |   |   |   | $ | 3,134 |   |   |   |   |
| Preferred      stock dividends         |   |                              | (1,003  | ) |   |   |   |   |   | (1,003 | ) |   |   |   |
| Net      income to common shareholders |   |                              | 4,534   |   |   |   | 14,210 |   |   |   | 2,131 |   |   |   | 12,170 |   |
| Effect      of dilutive items          |   |                              | 1,003   |   |   |   | 4,228 |   |   |   | – |   |   |   | – |   |
| Diluted                                |   | $                                 | 5,537   |   |   |   | 18,437 |   |   | $ | 2,131 |   |   |   | 12,170 |   |
|                                   |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:      |   |
| Basic                                  |   |                              |    |   |   | $ | 0.32 |   |   |   |   |   |   | $ | 0.18 |   |
| Diluted                                |   |                              |    |   |   | $ | 0.30 |   |   |   |   |   |   | $ | 0.18 |   |
|                                   |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components      of dilutive items:     |   |                              |    |
| Convertible      preferred stock       |   | $                                 | 1,003   |   |   |   | 4,222 |   |   |   | – |   |   |   | – |   |
| Stock      options                     |   |                              | – |   |   |   | 6 |   |   |   | – |   |   |   | – |   |
|                                   |   | $                                 | 1,003   |   |   |   | 4,228 |   |   | $ | – |   |   |   | – |   |

|                                           |   | Three      Months Ended March 31, |    |
|------------------------------------------------|--------|-----------------------------------|---------|
|                                           |   | 2010                              |    |   | 2009 |   |
| Shares      issuable under stock option awards |   |                              | 40      |   |   |   | 110 |   |
| Convertible      preferred stock               |   |                              | – |   |   |   | 4,222 |   |

----

|                                  |   | March      31, 2010 |    |   | December      31, 2009 |   |
|---------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Principal/par      value              |   | $                   | 537,492 |   |                   | $      | 570,215 |   |
| Purchase      premiums                |   |                | 12,000  |   |                   |   | 12,991 |   |
| Purchase      discounts               |   |                | (38     | )      |                   |   | (44 | ) |
| Amortized cost                        |   |                | 549,454 |   |                   |   | 583,162 |   |
| Gross      unrealized gains           |   |                | 9,696   |   |                   |   | 11,261 |   |
| Gross      unrealized losses          |   |                | (215    | )      |                   |   | (303 | ) |
| Fair value                            |   | $                   | 558,935 |   |                   | $      | 594,120 |   |
|                                  |   |                |    |   |                   |   |   |   |
| Weighted      average coupon          |   |                | 4.63    | %      |                   |   | 4.76 | % |
| Weighted      average months to reset |   | 18      months      |    |   | 20      months         |   |

|                         |   | March      31, 2010 |    |   | December      31, 2009 |   |
|------------------------------|--------|---------------------|---------|--------|------------------------|--------|
|                         |   | CMBS                |    |   | RMBS                   |   |   | TotalNon-Agency |   |   | CMBS |   |   | RMBS |   |   | TotalNon-Agency |   |
| Carrying      value          |   | $                   | 178,226 |   |                   | $      | 5,702 |   |   | $ | 183,928 |   |   | $ | 104,553 |   |   | $ | 6,462 |   |   | $ | 111,015 |   |
| Gross      unrealized gains  |   |                | 5,596   |   |                   |   | 314 |   |   |   | 5,910 |   |   |   | 2,795 |   |   |   | 415 |   |   |   | 3,211 |   |
| Gross      unrealized losses |   |                | (216    | )      |                   |   | (885 | ) |   |   | (1,101 | ) |   |   | (4,145 | ) |   |   | (971 | ) |   |   | (5,116 | ) |
|                         |   | $                   | 183,606 |   |                   | $      | 5,131 |   |   | $ | 188,737 |   |   | $ | 103,203 |   |   | $ | 5,907 |   |   | $ | 109,110 |   |
| Weighted      average coupon |   |                | 6.69    | %      |                   |   | 7.51 | % |   |   | 6.72 | % |   |   | 7.96 | % |   |   | 7.93 | % |   |   | 7.96 | % |

----

|                                                             |   | March      31, 2010 |    |   | December      31, 2009 |   |
|------------------------------------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans:                                 |   |                |    |   |                   |   |
| Commercial                                                       |   | $                   | 121,346 |   |                   | $      | 137,567 |   |
| Single-family                                                    |   |                | 59,853  |   |                   |   | 61,336 |   |
|                                                             |   |                | 181,199 |   |                   |   | 198,903 |   |
| Funds      held by trustees, including funds held for defeasance |   |                | 27,671  |   |                   |   | 17,737 |   |
| Unamortized      discounts and premiums, net                     |   |                | 101     |   |                   |   | 43 |   |
| Loans,      at amortized cost                                    |   |                | 208,971 |   |                   |   | 216,683 |   |
| Allowance      for loan losses                                   |   |                | (4,362  | )      |                   |   | (4,212 | ) |
|                                                             |   | $                   | 204,609 |   |                   | $      | 212,471 |   |

|                                          |   | March      31, 2010 |   |   | December      31, 2009 |   |
|-----------------------------------------------|--------|---------------------|--------|--------|------------------------|--------|
| Securitized      commercial mortgage loans    |   | $                   | 4,085  |   |                   | $      | 3,935 |   |
| Securitized      single-family mortgage loans |   |                | 277    |   |                   |   | 277 |   |
|                                          |   |                | 4,362  |   |                   |   | 4,212 |   |
| Other      investments                        |   |                | 355    |   |                   |   | 96 |   |
|                                          |   | $                   | 4,717  |   |                   | $      | 4,308 |   |

----

|                                   |   | March      31, 2010 |   |   | December      31, 2009 |   |
|----------------------------------------|--------|---------------------|--------|--------|------------------------|--------|
|                                   |   | Commercial          |   |   | Single-family          |   |   | Commercial |   |   | Single-family |   |
| Investment      in impaired loans      |   | $                   | 19,591 |   |                   | $      | 3,365 |   |   | $ | 20,465 |   |   | $ | 4,152 |   |
| Allowance      for loan losses         |   |                | (4,085 | )      |                   |   | ( 277 | ) |   |   | (3,935 | ) |   |   | (277 | ) |
| Investment      in excess of allowance |   | $                   | 15,506 |   |                   | $      | 3,088 |   |   | $ | 16,530 |   |   | $ | 3,875 |   |

|                                  |   | Three      Months Ended March 31, |    |
|---------------------------------------|--------|-----------------------------------|---------|
|                                  |   | 2010                              |    |   | 2009 |   |
| Allowance      at beginning of period |   | $                                 | 4,308   |   |   | $ | 3,707 |   |
| Provision      for loan losses        |   |                              | 409     |   |   |   | 179 |   |
| Credit      losses, net of recoveries |   |                              | – |   |   |   | (9 | ) |
| Allowance      at end of period       |   | $                                 | 4,717   |   |   | $ | 3,877 |   |

| Type      of Derivative  | Balance      Sheet Location |   | Gross      Fair ValueAs      of March 31, 2010 |    |   | Gross      Fair ValueAs      of December 31, 2009 |   |
|--------------------------|-----------------------------|--------|------------------------------------------------|---------|--------|---------------------------------------------------|--------|
| Interest      rate swaps | Derivative      assets      |   | $                                              | – |   |                                              | $      | 1,008 |   |
| Interest      rate swaps | Derivative      liabilities |   |                                           | (187    | )      |                                              |   | – |   |
|                     |                        | $      | (187                                           | )       |   | $                                                 | 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%                   |

----

| Type      of Derivative Designated asCash      Flow Hedge | Amount      of Loss Recognized in OCI on Derivative (Effective Portion), net      of  $0 tax | 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      of Loss Recognized in Statement of Income on Derivatives (Ineffective      Portion) |
|-----------------------------------------------------------|--------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
| Interest      rate swaps                                  | $  1,638                                                                                     | Interest      expense                                                                         |  $  453                                                                      | Other      income, net                                                                                      |  $  10                                                                           |

----

|                                             |   | March      31, 2010 |    |
|--------------------------------------------------|--------|---------------------|---------|
| Collateral      Type                             |   | Balance             |    |   | Weighted      Average Rate |   |   | Fair      Value of Collateral |   |
| Agency      MBS                                  |   | $                   | 490,754 |   |   |   | 0.26 | % |   | $ | 539,276 |   |
| Non-Agency      CMBS                             |   |                | 80,077  |   |   |   | 1.52 | % |   |   | 94,665 |   |
| Non-Agency      RMBS                             |   |                | 3,183   |   |   |   | 1.75 | % |   |   | 3,279 |   |
| Securitization      financing bonds (see Note 9) |   |                | 28,437  |   |   |   | 1.64 | % |   |   | 33,394 |   |
|                                             |   | $                   | 602,451 |   |   |   | 0.50 | % |   | $ | 670,614 |   |

|                                             |   | 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    |   | March      31, 2010 |    |   | December      31, 2009 |   |
|---------------------------|--------|---------------------|---------|--------|------------------------|--------|
| 30      days or less      |   | $                   | 106,650 |   |                   | $      | 69,576 |   |
| 31      to 60 days        |   |                | 296,953 |   |                   |   | 300,413 |   |
| 61      to 90 days        |   |                | 70,632  |   |                   |   | 180,643 |   |
| Greater      than 90 days |   |                | 128,216 |   |                   |   | 87,697 |   |
|                      |   | $                   | 602,451 |   |                   | $      | 638,329 |   |

| Counterparty                         |   | Repurchase      agreements |    |   | Fair      Value of Collateral |   |    | Equity      at Risk |   | Weighted      Average Original Maturity |
|--------------------------------------|--------|----------------------------|---------|--------|-------------------------------|--------|---------|---------------------|--------|-----------------------------------------|
| Bank      of America Securities, LLC |   | $                          | 169,279 |   |                          | $      | 192,469 |                |   | $                                       | 23,190 |   |  64      days |
| All      other                       |   |                       | 433,172 |   |                          |   | 478,145 |                |   |                                    | 44,973 |   |  51      days |
|                                 |   | $                          | 602,451 |   |                          | $      | 670,614 |                |   | $                                       | 68,163 |   |  55      days |

----

|                                                 |   | March      31, 2010    |                   |   | December      31, 2009           |   |
|------------------------------------------------------|--------|------------------------|------------------------|--------|----------------------------------|--------|
|                                                 |   | Bonds      Outstanding |                   |   | Range      ofInterest      Rates |   |   | Bonds      Outstanding |   |   | Range      of Interest      Rates |   |
| Fixed      rate classes                              |   | $                      | 130,141                |   |                             |   | 6.2      – 7.2 | % |   | $ | 121,168 |   |   |   | 6.7%      - 7.2 | % |
| Variable      rate class                             |   |                   | 23,484                 |   |                             |   | 0.5 | % |   |   | 23,852 |   |   |   | 0.5 | % |
| Unamortized      net bond premium and deferred costs |   |                   | (2,789                 | )      |                             |   |   |   |   |   | (1,939 | ) |   |   |   |   |
|                                                 |   | $                      | 150,836                |   |                             |   |   |   |   | $ | 143,081 |   |   |   |   |   |
|                                                 |   |                   |                   |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average coupon                         |   |                   | 5.9                    | %      |                             |   |   |   |   |   | 5.9 | % |   |   |   |   |
| Range      of stated maturities                      |   |                   | 2016      – 2027 |   |                             |   |   |   |   |   | 2024      – 2027 |   |   |   |   |   |
| Estimated      weighted average life                 |   | 3.4      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, which are valued based on the average of multiple dealer      quotes that are active in the Agency MBS market, and its      derivatives. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                         |   |            |    |   | Fair      Value Measurements |   |
|----------------------------------------------|--------|-----------------|---------|--------|------------------------------|--------|
|                                         |   | Fair      Value |    |   | Level      1                 |   |   | Level      2 |   |   | Level      3 |   |
| Assets:                                      |   |            |    |   |                         |   |   |   |   |   |   |   |
| Agency MBS                                   |   | $               | 558,935 |   |                         | $      | – |   |   | $ | 558,935 |   |   | $ | – |   |
| Non-Agency    securities                     |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| RMBS                                         |   |            | 5,131   |   |                         |   | – |   |   |   | – |   |   |   | 5,131 |   |
| CMBS                                         |   |            | 183,606 |   |                         |   | – |   |   |   | 61,583 |   |   |   | 122,023 |   |
| Other                                        |   |            | 132     |   |                         |   | – |   |   |   | – |   |   |   | 132 |   |
| Total      assets carried at fair value      |   | $               | 747,804 |   |                         | $      | – |   |   | $ | 620,518 |   |   | $ | 127,286 |   |
|                                         |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                 |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Derivative    liabilities                    |   |            | 187     |   |                         |   | – |   |   |   | 187 |   |   |   | – |   |
| Total      liabilities carried at fair value |   | $               | 187     |   |                         | $      | – |   |   | $ | 187 |   |   | $ | – |   |

----

|                                                               |   | 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                        |   |                     | 6,890   |   |   |   | (16 | ) |   |   | – |   |   |   | 6,874 |   |
| Purchases,      sales, issuances and other settlements, net        |   |                     | (2,994  | ) |   |   | (760 | ) |   |   | 1 |   |   |   | (3,753 | ) |
| Transfers      in and/or out of Level 3                            |   |                     | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      as of March 31, 2010                                  |   | $                        | 122,023 |   |   | $ | 5,131 |   |   | $ | 132 |   |   | $ | 127,286 |   |

|                                                        |   | Level      3 Fair Values |    |
|-------------------------------------------------------------|--------|--------------------------|---------|
|                                                        |   | Non-Agency      CMBS     |    |   | Non-Agency      RMBS |   |   | Other |   |   | Total      assets |   |   | Obligation      under payment agreement |   |
| Balance      as of December 31, 2008                        |   | $                        | – |   |   | $ | 6,259 |   |   | $ | 211 |   |   | $ | 6,470 |   |   | $ | (8,534 | ) |
| Total      realized and unrealized gains (losses):          |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included      in the statement of operations                |   |                     | – |   |   |   | – |   |   |   | 1 |   |   |   | 1 |   |   |   | 563 |   |
| Included      in other comprehensive income                 |   |                     | – |   |   |   | (760 | ) |   |   | 6 |   |   |   | (754 | ) |   |   | – |   |
| Purchases,      sales, issuances and other settlements, net |   |                     | – |   |   |   | 571 |   |   |   | (50 | ) |   |   | 521 |   |   |   | – |   |
| Transfers      in and/or out of Level 3                     |   |                     | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      as of March 31, 2009                           |   | $                        | – |   |   | $ | 6,070 |   |   | $ | 168 |   |   | $ | 6,238 |   |   | $ | (7,971 | ) |

|                                       |   | March      31, 2010 |    |   | December      31, 2009 |   |
|--------------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
|                                       |   | RecordedBasis       |    |   | FairValue              |   |   | RecordedBasis |   |   | FairValue |   |
| Assets:                                    |   |                |    |   |                   |   |   |   |   |   |   |   |
| Agency MBS                                 |   | $                   | 558,935 |   |                   | $      | 558,935 |   |   | $ | 594,120 |   |   | $ | 594,120 |   |
| Non-Agency CMBS                            |   |                | 183,606 |   |                   |   | 183,606 |   |   |   | 103,203 |   |   |   | 103,203 |   |
| Non-Agency RMBS                            |   |                | 5,131   |   |                   |   | 5,131 |   |   |   | 5,907 |   |   |   | 5,907 |   |
| Securitized mortgage loans,      net       |   |                | 204,609 |   |                   |   | 181,289 |   |   |   | 212,471 |   |   |   | 186,547 |   |
| Otherinvestments                           |   |                | 2,156   |   |                   |   | 2,263 |   |   |   | 2,280 |   |   |   | 2,079 |   |
| Derivative assets                          |   |                | – |   |                   |   | – |   |   |   | 1,008 |   |   |   | 1,008 |   |
|                                       |   |                |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                               |   |                |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements                 |   |                | 602,451 |   |                   |   | 602,451 |   |   |   | 638,329 |   |   |   | 638,329 |   |
| Non-recourse collateralized      financing |   |                | 201,506 |   |                   |   | 194,326 |   |   |   | 143,081 |   |   |   | 132,234 |   |
| Derivative      liabilities                |   |                | 187     |   |                   |   | 187 |   |   |   | – |   |   |   | – |   |

----

|                               |   | March      31, 2010 |    |   | December      31, 2009 |   |
|------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
|                               |   | FairValue           |    |   | UnrealizedLoss         |   |   | FairValue |   |   | Unrealized      Loss |   |
| Unrealized      loss position for: |   |                |    |   |                   |   |   |   |   |   |   |   |
| Less than one    year:             |   |                |    |   |                   |   |   |   |   |   |   |   |
| Agency MBS                         |   | $                   | 73,282  |   |                   | $      | 215 |   |   | $ | 73,288 |   |   | $ | 302 |   |
| Non-Agency CMBS                    |   |                | 65,672  |   |                   |   | 216 |   |   |   | 92,438 |   |   |   | 4,145 |   |
| One year ormore:                   |   |                |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency RMBS                    |   |                | 3,689   |   |                   |   | 885 |   |   |   | 4,087 |   |   |   | 971 |   |
|                               |   | $                   | 142,643 |   |                   | $      | 1,316 |   |   | $ | 169,813 |   |   | $ | 5,418 |   |

|                                                         |   | Preferred      Stock Series D |      |   | Common      Stock |   |
|--------------------------------------------------------------|--------|-------------------------------|-----------|--------|-------------------|--------|
| January      1, 2010                                         |   |                          | 4,221,539 |   |              |   | 13,931,512 |   |
| Common      stock issued under CEOP                          |   |                          | -         |   |              |   | 1,070,100 |   |
| Common      stock issued under 2009 Stock and Incentive Plan |   |                          | -         |   |              |   | 36,190 |   |
| March      31, 2010                                          |   |                          | 4,221,539 |   |              |   | 15,037,802 |   |

----

|                                 | March      31, 2010 | December      31, 2009 |
|--------------------------------------|---------------------|------------------------|
| Expected      volatility             | 19.9%-28.1%         | 25.4%-30.9%            |
| Weighted-average      volatility     | 24.3%               | 29.4%                  |
| Expected      dividends              | 10.1%               | 10.4%                  |
| Expected      term (in months)       | 16                  | 18                     |
| Weighted-average      risk-free rate | 1.61%               | 1.87%                  |
| Range      of risk-free rates        | 1.07%-2.32%         | 1.44%-2.42%            |

|                                         |   | Three      Months Ended March 31, |    |
|----------------------------------------------|--------|-----------------------------------|---------|
|                                         |   | 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 |   |

----

|                                                                   |   | Three      Months Ended March 31, |    |
|------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                   |   | 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                                                 |   |                              | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options      exercised                                                 |   |                              | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options      outstanding at end of period (all vested and exercisable) |   |                              | 95,000  |   |   | $ | 8.59 |   |   |   | 110,000 |   |   | $ | 8.55 |   |

|                                               |   | Three      Months Ended March 31, |    |
|----------------------------------------------------|--------|-----------------------------------|---------|
|                                               |   | 2010                              |    |   | 2009 |   |
| Restricted      stock at beginning of period       |   |                              | 32,500  |   |   |   | 30,000 |   |
| Restricted      stock granted                      |   |                              | – |   |   |   | – |   |
| Restricted      stock forfeited                    |   |                              | – |   |   |   | – |   |
| Restricted      stock vested                       |   |                              | (7,500  | ) |   |   | (7,500 | ) |
| Restricted      stock outstanding at end of period |   |                              | 25,000  |   |   |   | 22,500 |   |

----

----

|                                        |   | March      31, 2010 |    |   | December      31, 2009 |   |
|---------------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Available      for sale investments:        |   |                |    |   |                   |   |
| Unrealized      gains                       |   | $                   | 15,606  |   |                   | $      | 14,472 |   |
| Unrealized      losses                      |   |                | (1,317  | )      |                   |   | (5,419 | ) |
|                                        |   |                | 14,289  |   |                   |   | 9,053 |   |
| Hedging      instruments:                   |   |                |    |   |                   |   |   |   |
| Unrealized      gains                       |   |                | – |   |                   |   | 1,008 |   |
| Unrealized      losses                      |   |                | (177    | )      |                   |   | – |   |
|                                        |   |                | (177    | )      |                   |   | 1,008 |   |
|                                        |   |                |    |   |                   |   |   |   |
| Accumulated      other comprehensive income |   | $                   | 14,112  |   |                   | $      | 10,061 |   |

----

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

----

----

| (amounts      in thousands) |   | March      31, 2010 |    |   | December      31, 2009 |   |
|-----------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Agency      MBS:            |   |                |    |   |                   |   |
| Hybrid ARMs                 |   | $                   | 236,963 |   |                   | $      | 293,428 |   |
| ARMs                        |   |                | 298,886 |   |                   |   | 297,002 |   |
|                        |   |                | 535,849 |   |                   |   | 590,430 |   |
| Fixed-rate                  |   |                | 2,959   |   |                   |   | 131 |   |
|                        |   |                | 538,808 |   |                   |   | 590,561 |   |
| Principal      receivable   |   |                | 20,127  |   |                   |   | 3,559 |   |
|                        |   | $                   | 558,935 |   |                   | $      | 594,120 |   |

----

| (amounts      in thousands)           |   | March      31, 2010 |    |   | December      31, 2009 |   |
|---------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans, net: |   |                |    |   |                   |   |
| Commercial                            |   | $                   | 144,029 |   |                   | $      | 150,371 |   |
| Single-family                         |   |                | 60,580  |   |                   |   | 62,100 |   |
|                                  |   | $                   | 204,609 |   |                   | $      | 212,471 |   |

| (amounts      in thousands) |   | March      31, 2010 |    |   | December      31, 2009 |   |
|-----------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Non-Agency      securities: |   |                |    |   |                   |   |
| CMBS                        |   | $                   | 183,606 |   |                   | $      | 103,203 |   |
| RMBS                        |   |                | 5,131   |   |                   |   | 5,907 |   |
|                        |   | $                   | 188,737 |   |                   | $      | 109,110 |   |

----

|                                    |   | March      31, 2010       |    |   | December      31, 2009                  |   |
|-----------------------------------------|--------|---------------------------|---------|--------|-----------------------------------------|--------|
| (amounts      in thousands)             |   | Repurchase      agreement |    |   | Estimated      fair value of collateral |   |   | Repurchase      agreement |   |   | Estimated      fair value of collateral |   |
| Collateral      type:                   |   |                      |    |   |                                    |   |   |   |   |   |   |   |
| Agency MBS                              |   | $                         | 490,754 |   |                                    | $      | 539,276 |   |   | $ | 540,586 |   |   | $ | 575,386 |   |
| Non-Agency securities -      CMBS       |   |                      | 80,077  |   |                                    |   | 94,665 |   |   |   | 73,338 |   |   |   | 82,770 |   |
| Non-Agency securities -      RMBS       |   |                      | 3,183   |   |                                    |   | 3,279 |   |   | ─ |   |   | ─ |   |
| Securitization financing bonds      (1) |   |                      | 28,437  |   |                                    |   | 33,394 |   |   |   | 24,405 |   |   |   | 34,431 |   |
|                                    |   | $                         | 602,451 |   |                                    | $      | 670,614 |   |   | $ | 638,329 |   |   | $ | 692,587 |   |

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

|                                | March      31, 2010                                         | December      31, 2009 |
|-------------------------------------|-------------------------------------------------------------|------------------------|
| (amounts      in thousands)         | Weighted      average original maturity (in      days) | Interest      rate     | Weighted      average original maturity(in      days) | Interest      rate |
| Collateral      type:               |                                                        |                   |   |   |
| Agency MBS                          | 60                                                          | 0.26%                  | 64 | 0.60% |
| Non-Agency securities -      CMBS   | 32                                                          | 1.52%                  | 33 | 1.73% |
| Non-Agency securities -      RMBS   | 32                                                          | 1.75%                  | ─ | ─ |
| Securitization financing      bonds | 32                                                          | 1.64%                  | 33 | 1.59% |

----

| (amounts      in thousands)                            |   | March      31, 2010 |    |   | December      31, 2009 |    |
|--------------------------------------------------------|--------|---------------------|---------|--------|------------------------|---------|
| TALF:                                                  |   |                |    |   |                   |    |   |   |
| Fixed, secured by      CMBS                            |   | $                   | 50,670  |   |                   |  $ | ─ |   |
| Securitization      financing bonds:                   |   |                |    |   |                   |    |   |   |
| Fixed, secured by commercial      mortgage loans       |   |                | 127,814 |   |                   |    | 119,713 |   |
| Variable, secured by single-family      mortgage loans |   |                | 23,022  |   |                   |    | 23,368 |   |
|                                                   |   | $                   | 201,506 |   |                   | $       | 143,081 |   |

----

|                                                 |   | March      31, 2010(amounts      in thousands) |    |
|------------------------------------------------------|--------|------------------------------------------------|---------|
| Investment                                           |   | Investment      basis                          |    |   | Financing      (1) |   |   | Net invested      capital |   |   | Estimated      fair value of net invested capital |   |
| Agency      MBS (2)                                  |   | $                                              | 558,935 |   |   | $ | 490,754 |   |   | $ | 68,181 |   |   | $ | 68,181 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized      mortgage loans: (3)            |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family      mortgage loans – 2002 Trust |   |                                           | 60,581  |   |   |   | 45,587 |   |   |   | 14,994 |   |   |   | 9,057 |   |
| Commercial      mortgage loans – 1993 Trust    |   |                                           | 11,322  |   |   |   | 5,873 |   |   |   | 5,449 |   |   |   | 5,077 |   |
| Commercial      mortgage loans – 1997 Trust    |   |                                           | 132,706 |   |   |   | 113,430 |   |   |   | 19,276 |   |   |   | 10,252 |   |
|                                                 |   |                                           | 204,609 |   |   |   | 164,890 |   |   |   | 39,719 |   |   |   | 24,386 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities  (4)            |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                                 |   |                                           | 183,606 |   |   |   | 145,130 |   |   |   | 38,476 |   |   |   | 37,670 |   |
| RMBS                                                 |   |                                           | 5,131   |   |   |   | 3,183 |   |   |   | 1,948 |   |   |   | 1,948 |   |
|                                                 |   |                                           | 188,737 |   |   |   | 148,313 |   |   |   | 40,424 |   |   |   | 39,618 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      investments                               |   |                                           | 2,156   |   |   | ─ |   |   |   | 2,156 |   |   |   | 2,263 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                |   | $                                              | 954,437 |   |   | $ | 803,957 |   |   | $ | 150,480 |   |   | $ | 134,448 |   |

| (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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 of its 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 speeds(1) | Projected      annual losses (2) | Weighted-averagediscount      rate(3) |
|                                                 |                                                        |   |   |   |
| Single-family      mortgage loans – 2002 Trust | 1994                                                        | 15%      CPR | 0.2% | 11% |
| Commercial      mortgage loans – 1993 Trust    | 1993                                                        | 0%      CPR | 0.4% | 20% |
| Commercial      mortgage loans – 1997 Trust    | 1997                                                        | 0%      CPY(4) | 1.0% | 21% |
|                                                 |                                                        |   |   |   |

----

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

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

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

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

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

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

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

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

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

| (amounts      in thousands)            |   | March      31, 2010 |    |   | December      31, 2009 |   |
|----------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Net      invested capital              |   | $                   | 150,480 |   |                   | $      | 136,571 |   |
| Cash      and cash equivalents         |   |                | 30,714  |   |                   |   | 30,173 |   |
| Derivative      (liabilities) assets   |   |                | (187    | )      |                   |   | 1,008 |   |
| Accrued      interest, net             |   |                | 3,108   |   |                   |   | 3,375 |   |
| Other      assets and liabilities, net |   |                | (471    | )      |                   |   | (2,374 | ) |
| Shareholders’      equity        |   | $                   | 183,644 |   |                   | $      | 168,753 |   |

----

|                             |   | Three      Months Ended March 31, |   |
|----------------------------------|--------|-----------------------------------|--------|
|                             |   | 2010                              |   |   | 2009 |   |
| (amounts      in thousands)      |   | Interest      Income              |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Securitized      mortgage loans: |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                       |   | $                                 | 2,849  |   |   | $ | 94 |   |   | $ | 2,943 |   |   | $ | 3,519 |   |   | $ | 125 |   |   | $ | 3,644 |   |
| Single-family                    |   |                              | 716    |   |   |   | (36 | ) |   |   | 680 |   |   |   | 1,063 |   |   |   | 113 |   |   |   | 1,176 |   |
|                             |   | $                                 | 3,565  |   |   | $ | 58 |   |   | $ | 3,623 |   |   | $ | 4,582 |   |   | $ | 238 |   |   | $ | 4,820 |   |

----

|                                                                        |   | Three      Months Ended March 31, |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------|--------|
| (amounts      in thousands)                                                 |   | 2010                              |   |   | 2009 |   |
| Interest      expense:                                                      |   |                              |   |   |   |   |
| Repurchase agreements      collateralized by Agency MBS                     |   | $                                 | 327    |   |   | $ | 1,021 |   |
| Repurchase agreements      collateralized by CMBS                           |   |                              | 374    |   |   |   | – |   |
| Repurchase agreements      collateralized by securitization financing bonds |   |                              | 104    |   |   |   | 43 |   |
|                                                                        |   |                              | 805    |   |   |   | 1,064 |   |
| Interest      expense related to interest rate swap agreements:             |   |                              | 458    |   |   |   | – |   |
|                                                                        |   | $                                 | 1,263  |   |   | $ | 1,064 |   |

|                                   |   | Three      Months Ended March 31, |   |
|----------------------------------------|--------|-----------------------------------|--------|
|                                   |   | 2010                              |   |   | 2009 |   |
| (amounts      in thousands)            |   | Interest      Expense             |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Collateralized      by mortgage loans: |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                             |   | $                                 | 2,417  |   |   | $ | (242 | ) |   | $ | 2,175 |   |   | $ | 2,983 |   |   | $ | (118 | ) |   | $ | 2,865 |   |
| Single-family                          |   |                              | 32     |   |   |   | 40 |   |   |   | 72 |   |   |   | 51 |   |   |   | 59 |   |   |   | 110 |   |
|                                   |   | $                                 | 2,449  |   |   | $ | (202 | ) |   | $ | 2,247 |   |   | $ | 3,034 |   |   | $ | (59 | ) |   | $ | 2,975 |   |

----

|                          |   | Three      Months Ended March 31, |   |
|-------------------------------|--------|-----------------------------------|--------|
|                          |   | 2010                              |   |   | 2009 |   |
| (amounts      in thousands)   |   | Interest      Expense             |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Collateralized      by CMBS:  |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitization      financing |   | $                                 | 232    |   |   | $ | 44 |   |   | $ | 276 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| TALF                          |   |                              | 42     |   |   |   | 2 |   |   |   | 44 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                          |   | $                                 | 274    |   |   | $ | 46 |   |   | $ | 320 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

----

|                                                |   | Three      Months Ended March 31, |    |
|-----------------------------------------------------|--------|-----------------------------------|---------|
|                                                |   | 2010                              |    |   | 2009 |   |
| (amounts      in thousands, except for percentages) |   | AverageBalance(1)(2)              |    |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveYield/Rate(3) |   |
| Agency MBS                                          |   |                              |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                                 | 549,791 |   |   |   | 3.72 | % |   | $ | 401,573 |   |   |   | 4.47 | % |
| Repurchase      agreements                          |   |                              | 511,458 |   |   |   | (0.55 | %) |   |   | 369,159 |   |   |   | (1.12 | %) |
| Net interest    spread                              |   |                              |    |   |   |   | 3.17 | % |   |   |   |   |   |   | 3.35 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency Securities                               |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      securities                          |   | $                                 | 143,071 |   |   |   | 6.99 | % |   | $ | 6,893 |   |   |   | 9.23 | % |
| Non-recourse collateralized      financing          |   |                              | 20,574  |   |   |   | (6.20 | %) |   |   | – |   |   |   | – |   |
| Repurchase      agreements                          |   |                              | 90,640  |   |   |   | (2.06 | %) |   |   | – |   |   |   | – |   |
| Net interest    spread                              |   |                              |    |   |   |   | 4.16 | % |   |   |   |   |   |   | 9.23 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                          |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                     |   | $                                 | 212,465 |   |   |   | 6.74 | % |   | $ | 243,166 |   |   |   | 7.65 | % |
| Non-recourse collateralized      financing      (4) |   |                              | 138,902 |   |   |   | (6.68 | %) |   |   | 174,627 |   |   |   | (6.80 | %) |
| Repurchase      agreements                          |   |                              | 26,170  |   |   |   | (1.61 | %) |   |   | 6,943 |   |   |   | (2.52 | %) |
| Net interest    spread                              |   |                              |    |   |   |   | 0.86 | % |   |   |   |   |   |   | 1.02 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other investments                                   |   | $                                 | 2,226   |   |   |   | 5.77 | % |   | $ | 2,595 |   |   |   | 8.84 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                               |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning      assets                        |   | $                                 | 907,553 |   |   |   | 4.95 | % |   | $ | 654,227 |   |   |   | 5.72 | % |
| Interest bearing      liabilities                   |   |                              | 787,744 |   |   |   | (1.99 | %) |   |   | 550,729 |   |   |   | (2.94 | %) |
| Net interest    spread                              |   |                              |    |   |   |   | 2.96 | % |   |   |   |   |   |   | 2.78 | % |

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

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

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

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

----

----

----

----

----

----

----

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

----

|                                  |   | March      31, 2010   |    |
|---------------------------------------|--------|-----------------------|---------|
| Investment(amounts      in thousands) |   | Accounting      Basis |    |   | Amount      of Guaranty |   | Guarantor |   | Average      Credit Rating of Guarantor (1) |   |
| With      Guaranty of Payment         |   |                  |    |   |   |   |   |   |   |   |
| Agency MBS                            |   | $                     | 558,935 |   |   | $ | 517,365 |   | Fannie      Mae/Freddie Mac |   |   | AAA |   |
| Securitized mortgage      loans:      |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                  | 62,315  |   |   |   | 14,053 |   | American      International Group |   |   | A3 |   |
| Single-family                         |   |                  | 19,747  |   |   |   | 19,421 |   | PMI/GEMICO |   |   | Caa2/BBB– |   |
| Defeased loans                        |   |                  | 27,413  |   |   |   | 27,552 |   | Fully      secured with cash |   |   |   |   |
|                                  |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Without      Guaranty of Payment      |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans:      |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |   |                  | 58,386  |   |   |   | – |   |   |   |   |   |   |
| Single-family                         |   |                  | 41,110  |   |   |   | – |   |   |   |   |   |   |
| Non-Agency      securities            |   |                  | 188,737 |   |   |   | – |   |   |   |   |   |   |
| Otherinvestments                      |   |                  | 2,156   |   |   |   | – |   |   |   |   |   |   |
|                                  |   |                  | 958,799 |   |   |   | 578,391 |   |   |   |   |   |   |
|                                  |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses        |   |                  | (4,362  | ) |   |   | – |   |   |   |   |   |   |
|                                  |   |                  |    |   |   |   |   |   |   |   |   |   |   |
| Totalinvestments                      |   | $                     | 954,437 |   |   | $ | 578,391 |   |   |   |   |   |   |

----

|                                  |   | 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 March 31, 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        |   | $                                  | 144,029 |   |   |   | 14 |   |   |   | 46 | % |   | $ | 23,328 |   |   |   | 15.75 | % |
| Single-family      mortgage loans     |   |                               | 60,580  |   |   |   | 16 |   |   |   | 50 | % |   |   | 7,444 | (2) |   |   | 12.23 | % |

|                                  |   | 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. |
|-----|----------------------------------------------------------------------------------------------------------|

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| (2) | As      of March 31, 2010, approximately $2.2 million of the delinquent      single-family loans are pool insured and, of the remaining $5.2 million,      $3.9 million of the loans made a payment within the 90 days prior to March      31, 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 |   | March      31, 2010 |   |   | December      31, 2009 |   |
|---------------------------------------------------|--------|---------------------|--------|--------|------------------------|--------|
| Compliance      period already exceeded           |   |                | 29.9   | %      |                   |   | 38.5 | % |
| Up      to one year remaining                     |   |                | 53.1   |   |                   |   | 37.1 |   |
| Between      one and three years remaining        |   |                | 17.0   |   |                   |   | 24.4 |   |
| Total                                             |   |                | 100.0  | %      |                   |   | 100.0 | % |

----

|                                            |   | Investments      |    |   | Borrowings |   |
|-------------------------------------------------|--------|------------------|---------|--------|------------|--------|
| (amounts      in thousands)                     |   | Amounts      (1) |    |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate      Investments/Obligations         |   | $                | 349,806 |   |       |   | 36.5 | % |   | $ | 178,484 |   |   |   | 22.2 | % |
|                                            |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate      Investments/Obligations:   |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3    months                           |   |             | 164,131 |   |       |   | 17.1 |   |   |   | 445,473 |   |   |   | 55.4 |   |
| Greater than 3 months and less      than 1 year |   |             | 191,349 |   |       |   | 19.9 |   |   |   | – |   |   |   | – |   |
| Greater than 1 year and less      than 2 years  |   |             | 89,835  |   |       |   | 9.4 |   |   |   | 100,000 |   |   |   | 12.5 |   |
| Greater than 2 years and less      than 3 years |   |             | 95,273  |   |       |   | 9.9 |   |   |   | 50,000 |   |   |   | 6.2 |   |
| Greater than 3 years and less      than 5 years |   |             | 68,759  |   |       |   | 7.2 |   |   |   | 30,000 |   |   |   | 3.7 |   |
| Total                                           |   | $                | 959,153 |   |       |   | 100.0 | % |   | $ | 803,957 |   |   |   | 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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Lifetime      Interest Rate Caps on ARM MBS |            | Interim      Interest Rate Caps on ARM MBS |
|---------------------------------------------|-----------------|--------------------------------------------|
|                                        | %      of Total |                                       |   | %      of Total |
| 9.0%      to 10.0%                          | 39.37%          |                                       | 1.0% | 2.11% |
| >10.0%      to 11.0%                     | 47.50%          |                                       | 2.0% | 38.47% |
| >11.0%      to 12.0%                     | 13.13%          |                                       | 5.0% | 59.42% |
|                                        | 100.00%         |                                       |   | 100.00% |

----

| Basis      Point Change in Interest Rates | Percentage      change in projected net interest income | Percentage      change in projected      market value |
|-------------------------------------------|---------------------------------------------------------|------------------------------------------------------------|
|                                      |                                                    |                                                       |
| +200                                      | (8.0)%                                                  | (1.3)%                                                     |
| +100                                      | (2.7)%                                                  | (0.6)%                                                     |
| 0                                         | –                                                 | –                                                    |
| -100                                      | (6.2)%                                                  | 0.4%                                                       |
| -200                                      | (19.7)%                                                 | 0.6%                                                       |

|        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 |
|--------------------------|------------------------|

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

----

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

| Exhibit No. | Description                                                                                                                                                                                                                                  |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         | Restated      Articles of Incorporation, effective July 9, 2008 (incorporated herein by      reference to Exhibit 3.1 to Dynex’s Current Report on Form 8-K filed July      11, 2008).                                            |
| 3.2         | Amended      and Restated Bylaws, effective March 26, 2008 (incorporated herein by      reference to Exhibit 3.2 to Dynex’s Current Report on Form 8-K filed April      1, 2008).                                                 |
| 10.6        | Employment      Agreement, effective as of March 1, 2010, between Dynex Capital, Inc. and      Thomas B. Akin (incorporated herein by reference to Exhibit 10.6 to      Dynex’s Current Report on Form 8-K filed March 16, 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:  May      10, 2010 | /s/      Thomas B. Akin             |
|                               | Thomas      B. Akin                                                                             |
|                               | Chairman      and Chief Executive Officer                                                       |
|                               | (Principal      Executive Officer)                                                              |
|                               |                                                                                            |
|                               |                                                                                            |
| Date:  May      10, 2010 | /s/      Stephen J. Benedetti                 |
|                               | Stephen      J. Benedetti                                                                       |
|                               | Executive      Vice President, Chief Operating Officer and Chief Financial      Officer         |
|                               | (Principal      Financial Officer)                                                              |
|                               |                                                                                            |

----