----

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

|   o | 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, 2011 (unaudited) and December 31, 2010                                                  | 1         |
|       |                  |                                                                                                                                |      |
|       |                  | Consolidated Statements of Income for the three months ended March 31, 2011 (unaudited) and March 31, 2010 (unaudited)              | 2         |
|       |                  |                                                                                                                                |      |
|       |                  | Consolidated Statements of Comprehensive Income for the three months endedMarch 31, 2011 (unaudited) and March 31, 2010 (unaudited) | 3         |
|       |                  |                                                                                                                                |      |
|       |                  | Consolidated Statements of Shareholders’ Equity for the three months endedMarch 31, 2011 (unaudited)                          | 4         |
|       |                  |                                                                                                                                |      |
|       |                  | Consolidated Statements of Cash Flows for the three months ended March 31, 2011 (unaudited) and March 31, 2010 (unaudited)          | 5         |
|       |                  |                                                                                                                                |      |
|       |                  | 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                                                                          |   42 |
|       |                  |                                                                                                                                |      |
|       | Item 4.               | Controls and Procedures                                                                                                             |   48 |
|       |                  |                                                                                                                                |      |
| PART II.   | OTHER INFORMATION     |                                                                                                                                |
|       |                  |                                                                                                                                |      |
|       | Item 1.               | Legal Proceedings                                                                                                                   |   49 |
|       |                  |                                                                                                                                |      |
|       | Item 1A.              | Risk Factors                                                                                                                        |   50 |
|       |                  |                                                                                                                                |      |
|       | Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                                                                         |   50 |
|       |                  |                                                                                                                                |      |
|       | Item 3.               | Defaults Upon Senior Securities                                                                                                     |   50 |
|       |                  |                                                                                                                                |      |
|       | Item 4.               | (Removed and Reserved)                                                                                                              |   50 |
|       |                  |                                                                                                                                |      |
|       | Item 5.               | Other Information                                                                                                                   |   50 |
|       |                  |                                                                                                                                |      |
|       | Item 6.               | Exhibits                                                                                                                            |   51 |
|       |                  |                                                                                                                                |      |
| SIGNATURES |                  |

----

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

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

|                                                                                                                                        |   | March 31, 2011 |      |   | December 31, 2010 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-----------|--------|-------------------|--------|
| ASSETS                                                                                                                                      |   | (unaudited)    |      |   |              |   |
| Agency MBS (including pledged of $1,723,957 and $1,090,174,  respectively)                                                        |   | $              | 1,869,765 |   |              | $      | 1,192,579 |   |
| Non-Agency MBS (including pledged of $262,459 and $259,350, respectively)                                                                   |   |           | 265,229   |   |              |   | 267,356 |   |
| Securitized mortgage loans, net                                                                                                             |   |           | 143,445   |   |              |   | 152,962 |   |
| Other investments, net                                                                                                                      |   |           | 1,171     |   |              |   | 1,229 |   |
|                                                                                                                                        |   |           | 2,279,610 |   |              |   | 1,614,126 |   |
|                                                                                                                                        |   |           |      |   |              |   |   |   |
| Cash and cash equivalents                                                                                                                   |   |           | 49,840    |   |              |   | 18,836 |   |
| Derivative assets                                                                                                                           |   |           | 3,021     |   |              |   | 692 |   |
| Principal receivable on investments                                                                                                         |   |           | 10,903    |   |              |   | 3,739 |   |
| Accrued interest receivable                                                                                                                 |   |           | 9,563     |   |              |   | 6,105 |   |
| Other assets, net                                                                                                                           |   |           | 6,879     |   |              |   | 6,086 |   |
| Total assets                                                                                                                                |   | $              | 2,359,816 |   |              | $      | 1,649,584 |   |
|                                                                                                                                        |   |           |      |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                  |   |           |      |   |              |   |   |   |
|                                                                                                                                        |   |           |      |   |              |   |   |   |
| Liabilities:                                                                                                                                |   |           |      |   |              |   |   |   |
| Repurchase agreements                                                                                                                       |   | $              | 1,848,883 |   |              | $      | 1,234,183 |   |
| Non-recourse collateralized financing                                                                                                       |   |           | 106,223   |   |              |   | 107,105 |   |
| Derivative liabilities                                                                                                                      |   |           | 3,236     |   |              |   | 3,532 |   |
| Accrued interest payable                                                                                                                    |   |           | 1,311     |   |              |   | 1,079 |   |
| Accrued dividends payable                                                                                                                   |   |           | 10,886    |   |              |   | 8,192 |   |
| Other liabilities                                                                                                                           |   |           | 5,784     |   |              |   | 3,136 |   |
|                                                                                                                                        |   |           | 1,976,323 |   |              |   | 1,357,227 |   |
| Commitments and Contingencies (Note 13)                                                                                                     |   |           |      |   |              |   |   |   |
|                                                                                                                                        |   |           |      |   |              |   |   |   |
| Shareholders’ equity:                                                                                                                 |   |           |      |   |              |   |   |   |
| Common stock, par value $.01 per share, 100,000,000 sharesauthorized; 40,318,159 and 30,342,897 shares issued and outstanding, respectively |   |           | 403       |   |              |   | 303 |   |
| Additional paid-in capital                                                                                                                  |   |           | 633,620   |   |              |   | 538,304 |   |
| Accumulated other comprehensive income                                                                                                      |   |           | 6,383     |   |              |   | 10,057 |   |
| Accumulated deficit                                                                                                                         |   |           | (256,913  | )      |              |   | (256,307 | ) |
|                                                                                                                                        |   |           | 383,493   |   |              |   | 292,357 |   |
|  Total liabilities and shareholders’ equity                                                                                      |   | $              | 2,359,816 |   |              | $      | 1,649,584 |   |

----

|                                                |   | Three Months Ended |    |
|-----------------------------------------------------|--------|--------------------|---------|
|                                                |   | March 31,          |    |
|                                                |   | 2011               |    |   | 2010 |   |
| Interest income:                                    |   |               |    |   |   |   |
| Agency MBS                                          |   | $                  | 11,518  |   |   | $ | 4,868 |   |
| Non-Agency MBS                                      |   |               | 3,691   |   |   |   | 2,501 |   |
| Securitized mortgage loans                          |   |               | 2,219   |   |   |   | 3,623 |   |
| Other investments                                   |   |               | 33      |   |   |   | 32 |   |
| Cash and cash equivalents                           |   |               | 4       |   |   |   | 3 |   |
|                                                |   |               | 17,465  |   |   |   | 11,027 |   |
| Interest expense:                                   |   |               |    |   |   |   |   |   |
| Repurchase agreements                               |   |               | 3,428   |   |   |   | 1,263 |   |
| Non-recourse collateralized financing               |   |               | 1,306   |   |   |   | 2,567 |   |
|                                                |   |               | 4,734   |   |   |   | 3,830 |   |
|                                                |   |               |    |   |   |   |   |   |
| Net interest income                                 |   |               | 12,731  |   |   |   | 7,197 |   |
| Provision for loan losses                           |   |               | (250    | ) |   |   | (409 | ) |
| Net interest income after provision for loan losses |   |               | 12,481  |   |   |   | 6,788 |   |
|                                                |   |               |    |   |   |   |   |   |
| Gain on sale of investments, net                    |   |               | – |   |   |   | 77 |   |
| Fair value adjustments, net                         |   |               | (126    | ) |   |   | 82 |   |
| Other income, net                                   |   |               | 43      |   |   |   | 669 |   |
| General and administrative expenses:                |   |               |    |   |   |   |   |   |
| Compensation and benefits                           |   |               | (1,132  | ) |   |   | (972 | ) |
| Other general and administrative expenses           |   |               | (986    | ) |   |   | (1,107 | ) |
|                                                |   |               |    |   |   |   |   |   |
| Net income                                          |   |               | 10,280  |   |   |   | 5,537 |   |
| Preferred stock dividends                           |   |               | – |   |   |   | (1,003 | ) |
|                                                |   |               |    |   |   |   |   |   |
| Net income to common shareholders                   |   | $                  | 10,280  |   |   | $ | 4,534 |   |
|                                                |   |               |    |   |   |   |   |   |
| Weighted average common shares:                     |   |               |    |   |   |   |   |   |
| Basic                                               |   |               | 33,153  |   |   |   | 14,210 |   |
| Diluted                                             |   |               | 33,157  |   |   |   | 18,437 |   |
| Net income per common share:                        |   |               |    |   |   |   |   |   |
| Basic                                               |   | $                  | 0.31    |   |   | $ | 0.32 |   |
| Diluted                                             |   | $                  | 0.31    |   |   | $ | 0.30 |   |
|                                                |   |               |    |   |   |   |   |   |
| Dividends declared per common share                 |   | $                  | 0.27    |   |   | $ | 0.23 |   |

----

|                                                            |   | Three Months Ended |    |
|-----------------------------------------------------------------|--------|--------------------|---------|
|                                                            |   | March 31,          |    |
|                                                            |   | 2011               |    |   | 2010 |   |
| Net income                                                      |   | $                  | 10,280  |   |   | $ | 5,537 |   |
| Other comprehensive income:                                     |   |               |    |   |   |   |   |   |
| Available-for-sale securities:                                  |   |               |    |   |   |   |   |   |
| Change in market value                                          |   |               | (6,631  | ) |   |   | 5,313 |   |
| Reclassification adjustment for net gain on sale of investments |   |               | – |   |   |   | (77 | ) |
| Net unrealized gain (loss) on cash flow hedging instruments     |   |               | 2,957   |   |   |   | (1,185 | ) |
| Other comprehensive (loss) income                               |   |               | (3,674  | ) |   |   | 4,051 |   |
|                                                            |   |               |    |   |   |   |   |   |
| Comprehensive income                                            |   |               | 6,606   |   |   |   | 9,588 |   |
| Dividends declared on preferred stock                           |   |               | – |   |   |   | (1,003 | ) |
| Comprehensive income to common shareholders                     |   | $                  | 6,606   |   |   | $ | 8,585 |   |
|                                                            |   |               |    |   |   |   |   |   |

----

|                                  |   | CommonStock |    |   | AdditionalPaid-inCapital |   |    | Accumulated OtherCompre­hensiveIncome |   |   | AccumulatedDeficit |   |   | Total  |     |
|---------------------------------------|--------|-------------|---------|--------|--------------------------|--------|---------|--------------------------------------------|--------|--------|--------------------|--------|--------|--------|----------|
| Balance as of December 31, 2010       |   | $           | 303     |   |                     | $      | 538,304 |                                       |   | $      | 10,057             |   |   | $      | (256,307 | ) |   | $ | 292,357 |   |
| Common stock issuance                 |   |        | 100     |   |                     |   | 98,483  |                                       |   |   | –            |   |   |   | –  |   |   |   | 98,583 |   |
| Restricted stock granting and vesting |   |        | – |   |                     |   | (3,026  | )                                          |   |   | –            |   |   |   | –  |   |   |   | (3,026 | ) |
| Capitalized expenses                  |   |        | – |   |                     |   | (141    | )                                          |   |   | –            |   |   |   | –  |   |   |   | (141 | ) |
| Net income                            |   |        | – |   |                     |   | – |                                       |   |   | –            |   |   |   | 10,280   |   |   |   | 10,280 |   |
| Dividends on common stock             |   |        | – |   |                     |   | – |                                       |   |   | –            |   |   |   | (10,886  | ) |   |   | (10,886 | ) |
| Other comprehensive income            |   |        | – |   |                     |   | – |                                       |   |   | (3,674             | )      |   |   | –  |   |   |   | (3,674 | ) |
| Balance as of March 31, 2011          |   | $           | 403     |   |                     | $      | 633,620 |                                       |   | $      | 6,383              |   |   | $      | (256,913 | ) |   | $ | 383,493 |   |

----

|                                                                          |   | Three Months Ended March 31, |     |
|-------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                          |   | 2011                         |     |   | 2010 |   |
| Operating activities:                                                         |   |                         |     |   |   |   |
| Net income                                                                    |   | $                            | 10,280   |   |   | $ | 5,537 |   |
| Adjustments to reconcile net income to cash provided by operating activities: |   |                         |     |   |   |   |   |   |
| (Increase) decrease in accrued interest receivable                            |   |                         | (3,458   | ) |   |   | 313 |   |
| Increase (decrease) in accrued interest payable                               |   |                         | 232      |   |   |   | (46 | ) |
| Provision for loan losses                                                     |   |                         | 250      |   |   |   | 409 |   |
| Gain on sale of investments, net                                              |   |                         | –  |   |   |   | (77 | ) |
| Fair value adjustments, net                                                   |   |                         | 127      |   |   |   | (82 | ) |
| Amortization and depreciation                                                 |   |                         | 4,385    |   |   |   | 1,570 |   |
| Stock-based compensation expense                                              |   |                         | 95       |   |   |   | 58 |   |
| Net change in other assets and other liabilities                              |   |                         | 2,041    |   |   |   | (2,078 | ) |
| Net cash and cash equivalents provided by operating activities                |   |                         | 13,952   |   |   |   | 5,604 |   |
|                                                                          |   |                         |     |   |   |   |   |   |
| Investing activities:                                                         |   |                         |     |   |   |   |   |   |
| Purchase of investments                                                       |   |                         | (769,785 | ) |   |   | (100,431 | ) |
| Principal payments received on investments                                    |   |                         | 84,366   |   |   |   | 59,296 |   |
| Increase in principal receivable on investments                               |   |                         | (7,164   | ) |   |   | (16,568 | ) |
| Proceeds from sales of investments                                            |   |                         | –  |   |   |   | 31,405 |   |
| Principal payments received on securitized mortgage loans                     |   |                         | 9,065    |   |   |   | 7,770 |   |
| Other investing activities                                                    |   |                         | (6       | ) |   |   | (175 | ) |
| Net cash and cash equivalents used in investing activities                    |   |                         | (683,524 | ) |   |   | (18,703 | ) |
|                                                                          |   |                         |     |   |   |   |   |   |
| Financing activities:                                                         |   |                         |     |   |   |   |   |   |
| Borrowings under (repayment of) repurchase agreements, net                    |   |                         | 614,700  |   |   |   | (35,878 | ) |
| Borrowings under non-recourse collateralized financing                        |   |                         | –  |   |   |   | 50,678 |   |
| Principal payments on non-recourse collateralized financing                   |   |                         | (1,138   | ) |   |   | (6,406 | ) |
| Proceeds from issuance of common stock                                        |   |                         | 95,206   |   |   |   | 9,453 |   |
| Dividends paid                                                                |   |                         | (8,192   | ) |   |   | (4,207 | ) |
| Net cash and cash equivalents provided by financing activities                |   |                         | 700,576  |   |   |   | 13,640 |   |
|                                                                          |   |                         |     |   |   |   |   |   |
| Net increase in cash and cash equivalents                                     |   |                         | 31,004   |   |   |   | 541 |   |
| Cash and cash equivalents at beginning of period                              |   |                         | 18,836   |   |   |   | 30,173 |   |
| Cash and cash equivalents at end of period                                    |   | $                            | 49,840   |   |   | $ | 30,714 |   |
|                                                                          |   |                         |     |   |   |   |   |   |
| Supplemental Disclosure of Cash Activities:                                   |   |                         |     |   |   |   |   |   |
| Cash paid for interest                                                        |   | $                            | 4,305    |   |   | $ | 4,145 |   |
|                                                                          |   |                         |     |   |   |   |   |   |

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|                              |   | Three Months Ended March 31, |    |
|-----------------------------------|--------|------------------------------|---------|
|                              |   | 2011                         |    |   | 2010(1) |   |
|                              |   |  Income                 |    |   | Weighted-Average Common Shares |   |   |  Income |   |   | Weighted-AverageCommonShares |   |
| Net income                        |   | $                            | 10,280  |   |   |   |   |   | $ | 5,537 |   |   |   |   |
| Preferred stock dividends         |   |                         | – |   |   |   |   |   |   | (1,003 | ) |   |   |   |
| Net income to common shareholders |   |                         | 10,280  |   |   |   | 33,153 |   |   |   | 4,534 |   |   |   | 14,210 |   |
| Effect of dilutive items          |   |                         | – |   |   |   | 4 |   |   |   | 1,003 |   |   |   | 4,227 |   |
| Diluted                           |   | $                            | 10,280  |   |   |   | 33,157 |   |   | $ | 5,537 |   |   |   | 18,437 |   |
|                              |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income per common share:      |   |
| Basic                             |   |                         |    |   |   | $ | 0.31 |   |   |   |   |   |   | $ | 0.32 |   |
| Diluted                           |   |                         |    |   |   | $ | 0.31 |   |   |   |   |   |   | $ | 0.30 |   |
|                              |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components of dilutive items:     |   |                         |    |
| Convertible preferred stock       |   | $                            | – |   |   |   | – |   |   | $ | 1,003 |   |   |   | 4,221 |   |
| Stock options                     |   |                         | – |   |   |   | 4 |   |   |   | – |   |   |   | 6 |   |
|                              |   | $                            | – |   |   |   | 4 |   |   | $ | 1,003 |   |   |   | 4,227 |   |

|                          |   | March 31, 2011 |      |   | December 31, 2010 |   |
|-------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                          |   | RMBS           |      |   | CMBS              |   |   | Total |   |   | RMBS |   |   | CMBS |   |   | Total |   |
| Principal/par value           |   | $              | 1,542,818 |   |              | $      | 226,613 |   |   | $ | 1,769,431 |   |   | $ | 937,376 |   |   | $ | 190,511 |   |   | $ | 1,127,887 |   |
| Unamortized premium           |   |           | 77,873    |   |              |   | 26,516 |   |   |   | 104,389 |   |   |   | 43,776 |   |   |   | 18,757 |   |   |   | 62,533 |   |
| Unamortized discount          |   |           | (34       | )      |              |   | – |   |   |   | (34 | ) |   |   | (36 | ) |   |   | – |   |   |   | (36 | ) |
| Amortized cost                |   |           | 1,620,657 |   |              |   | 253,129 |   |   |   | 1,873,786 |   |   |   | 981,116 |   |   |   | 209,268 |   |   |   | 1,190,384 |   |
| Unrealized gains:             |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale            |   |           | 8,038     |   |              |   | 393 |   |   |   | 8,431 |   |   |   | 8,266 |   |   |   | 567 |   |   |   | 8,833 |   |
| Trading                       |   |           | –   |   |              |   | 121 |   |   |   | 121 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Unrealized losses:            |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale            |   |           | (8,003    | )      |              |   | (4,568 | ) |   |   | (12,571 | ) |   |   | (3,371 | ) |   |   | (3,267 | ) |   |   | (6,638 | ) |
| Trading                       |   |           | –   |   |              |   | (2 | ) |   |   | (2 | ) |   |   | – |   |   |   | – |   |   |   | – |   |
| Fair value                    |   | $              | 1,620,692 |   |              | $      | 249,073 |   |   | $ | 1,869,765 |   |   | $ | 986,011 |   |   | $ | 206,568 |   |   | $ | 1,192,579 |   |
|  Weighted average coupon |   |           | 4.41      | %      |              |   | 5.27 | % |   |   | 4.53 | % |   |   | 4.46 | % |   |   | 5.41 | % |   |   | 4.62 | % |

----

|                          |   | March 31, 2011 |   |   | December 31, 2010 |   |
|-------------------------------|--------|----------------|--------|--------|-------------------|--------|
|                          |   | RMBS           |   |   | CMBS              |   |   | Total |   |   | RMBS |   |   | CMBS |   |   | Total |   |
| Principal/par value           |   | $              | 15,676 |   |              | $      | 244,688 |   |   | $ | 260,364 |   |   | $ | 16,101 |   |   | $ | 247,494 |   |   | $ | 263,595 |   |
| Unamortized premium           |   |           | 126    |   |              |   | 7,138 |   |   |   | 7,264 |   |   |   | 138 |   |   |   | 5,352 |   |   |   | 5,490 |   |
| Unamortized discount          |   |           | (1,086 | )      |              |   | (11,698 | ) |   |   | (12,784 | ) |   |   | (1,115 | ) |   |   | (11,296 | ) |   |   | (12,411 | ) |
| Amortized cost                |   |           | 14,716 |   |              |   | 240,128 |   |   |   | 254,844 |   |   |   | 15,124 |   |   |   | 241,550 |   |   |   | 256,674 |   |
| Unrealized gains              |   |           | 517    |   |              |   | 10,609 |   |   |   | 11,126 |   |   |   | 632 |   |   |   | 10,978 |   |   |   | 11,610 |   |
| Unrealized losses             |   |           | (392   | )      |              |   | (349 | ) |   |   | (741 | ) |   |   | (348 | ) |   |   | (580 | ) |   |   | (928 | ) |
| Fair value                    |   | $              | 14,841 |   |              | $      | 250,388 |   |   | $ | 265,229 |   |   | $ | 15,408 |   |   | $ | 251,948 |   |   | $ | 267,356 |   |
|  Weighted average coupon |   |           | 6.33   | %      |              |   | 4.81 | % |   |   | 6.25 | % |   |   | 4.54 | % |   |   | 6.49 | % |   |   | 6.37 | % |

|                      |   | March 31, 2011 |    |   | December 31, 2010 |   |
|---------------------------|--------|----------------|---------|--------|-------------------|--------|
|                      |   | Commercial     |    |   | Single-family     |   |   | Total |   |   | Commercial |   |   | Single-family |   |   | Total |   |
| Principal/par value       |   | $              | 92,331  |   |              | $      | 51,760 |   |   | $ | 144,091 |   |   | $ | 99,432 |   |   | $ | 54,181 |   |   | $ | 153,613 |   |
| FHBT(1)                   |   |           | 3,439   |   |              |   | – |   |   |   | 3,439 |   |   |   | 3,455 |   |   |   | – |   |   |   | 3,455 |   |
| Unamortized premium, net  |   |           | – |   |              |   | 839 |   |   |   | 839 |   |   |   | – |   |   |   | 884 |   |   |   | 884 |   |
| Unamortized discount, net |   |           | (438    | )      |              |   | – |   |   |   | (438 | ) |   |   | (520 | ) |   |   | – |   |   |   | (520 | ) |
| Amortized cost            |   |           | 95,332  |   |              |   | 52,599 |   |   |   | 147,931 |   |   |   | 102,367 |   |   |   | 55,065 |   |   |   | 157,432 |   |
| Allowance for loan losses |   |           | (4,237  | )      |              |   | (249 | ) |   |   | (4,486 | ) |   |   | (4,200 | ) |   |   | (270 | ) |   |   | (4,470 | ) |
|                      |   | $              | 91,095  |   |              | $      | 52,350 |   |   | $ | 143,445 |   |   | $ | 98,167 |   |   | $ | 54,795 |   |   | $ | 152,962 |   |

| (1)   | Funds held by trustees includes $3,232 and $3,306 as of March 31, 2011 and December 31, 2010, respectively, of cash and cash equivalents held by the trust for defeased commercial mortgage loans. These funds were paid by the borrower to the securitization trust pursuant to the contractual terms of the mortgage loan and represent replacement collateral for defeased loans.  In accordance with the underlying agreements, cash payments are made by the securitization trust using these defeased amounts until the funds held for that particular defeased mortgage loan equal the scheduled principal balance of the original loan.  At that point a final distribution is made to the trust as payment in full of the principal amount due on the loan. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     |   | March 31, 2011 |   |   | December 31, 2010 |   |
|------------------------------------------|--------|----------------|--------|--------|-------------------|--------|
| Securitized commercial mortgage loans    |   | $              | 4,237  |   |              | $      | 4,200 |   |
| Securitized single-family mortgage loans |   |           | 249    |   |              |   | 270 |   |
|                                     |   | $              | 4,486  |   |              | $      | 4,470 |   |

|                                   |   | March 31, 2011 |   |   | December 31, 2010 |   |
|----------------------------------------|--------|----------------|--------|--------|-------------------|--------|
|                                   |   | Commercial     |   |   | Single-family     |   |   | Commercial |   |   | Single-family |   |
| Amortized cost basis of impaired loans |   | $              | 11,632 |   |              | $      | 3,013 |   |   | $ | 18,154 |   |   | $ | 3,646 |   |
| Allowance for loan losses              |   |           | (4,237 | )      |              |   | (249 | ) |   |   | (4,200 | ) |   |   | (270 | ) |
| Investment in excess of allowance      |   | $              | 7,395  |   |              | $      | 2,764 |   |   | $ | 13,954 |   |   | $ | 3,376 |   |

|                             |   | Three Months Ended March 31, |   |
|----------------------------------|--------|------------------------------|--------|
|                             |   | 2011                         |   |   | 2010 |   |
|                             |   | Commercial                   |   |   | Single-family |   |   | Commercial |   |   | Single-family |   |
| Allowance at beginning of period |   | $                            | 4,200  |   |   | $ | 270 |   |   | $ | 3,935 |   |   | $ | 277 |   |
| Provision for loan losses(1)     |   |                         | 250    |   |   |   | – |   |   |   | 150 |   |   |   | – |   |
| Credit losses, net of recoveries |   |                         | (213   | ) |   |   | (21 | ) |   |   | – |   |   |   | – |   |
| Allowance at end of period       |   | $                            | 4,237  |   |   | $ | 249 |   |   | $ | 4,085 |   |   | $ | 277 |   |

|   | (1) | Activity shown for the three months ended March 31, 2010 excludes provision of $259 related to the Company’s unsecuritized mortgage loan portfolio. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| As of March 31, 2011  |                   |
|-----------------------|------------------------|
| AccountingDesignation | Balance Sheet Location |   | Fair Value |   |   | Cumulative Notional Amount |   |   | Weighted-average Fixed Rate Swapped |   |
| Hedging instruments   | Derivative assets      |   | $ | 3,021 |   |   | $ | 525,000 |   |   |   | 1.58 | % |
| Trading instruments   | Derivative assets      |   |   | – |   |   |   | – |   |   |   | – |   |
|                  |                   |   | $ | 3,021 |   |   |   |   |   |   |   |   |   |
|                  |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Hedging instruments   | Derivative liabilities |   | $ | (2,903 | ) |   | $ | 320,000 |   |   |   | 1.60 | % |
| Trading instruments   | Derivative liabilities |   |   | (333 | ) |   |   | 27,000 |   |   |   | 2.88 | % |
|                  |                   |   | $ | (3,236 | ) |   |   |   |   |   |   |   |   |

|                    |                   |
|-------------------------|------------------------|
| As of December 31, 2010 |                   |
| Accounting Designation  | Balance Sheet Location |   | Fair Value |   |   | Cumulative Notional Amount |   |   | Weighted-average Fixed Rate Swapped |   |
| Hedging instruments     | Derivative assets      |   | $ | 692 |   |   | $ | 100,000 |   |   |   | 1.89 | % |
| Trading instruments     | Derivative assets      |   |   | – |   |   |   | – |   |   |   | – |   |
|                    |                   |   | $ | 692 |   |   |   |   |   |   |   |   |   |
|                    |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Hedging instruments     | Derivative liabilities |   | $ | (3,532 | ) |   | $ | 245,000 |   |   |   | 1.58 | % |
| Trading instruments     | Derivative liabilities |   |   | – |   |   |   | – |   |   |   | – |   |
|                    |                   |   | $ | (3,532 | ) |   |   |   |   |   |   |   |   |

----

| RemainingMaturity |   | Notional Amount:Trading |    |   |  Notional Amount:Hedging |   |    |  Notional Amount:Total |   |   |  Number of Swaps |   |   | Weighted-AverageFixed Rate Swapped |   |
|-------------------|--------|-------------------------|---------|--------|-------------------------------|--------|---------|-----------------------------|--------|--------|-----------------------|--------|--------|------------------------------------|--------|
| 0-12 months       |   | $                       | – |   |                          | $      | 100,000 |                        |   | $      | 100,000               |   |   |                               | 2      |   |   |   | 1.02 | % |
| 13-36 months      |   |                    | – |   |                          |   | 375,000 |                        |   |   | 375,000               |   |   |                               | 7      |   |   |   | 1.29 | % |
| 37-60 months      |   |                    | 27,000  |   |                          |   | 370,000 |                        |   |   | 397,000               |   |   |                               | 12     |   |   |   | 2.10 | % |
|              |   | $                       | 27,000  |   |                          | $      | 845,000 |                        |   | $      | 872,000               |   |   |                               | 21     |   |   |   | 1.63 | % |

|                                     |                                        |   | Amount of Loss Recognized in Net IncomeFor the Three Months Ended |   |
|------------------------------------------|---------------------------------------------|--------|-------------------------------------------------------------------|--------|
| Type of Derivative Designated as Trading | Location of Amount Recognized in Net Income |   | March 31, 2011                                                    |   |   | March 31, 2010 |   |
| Interest rate swaps                      | Fair value adjustments, net                 |   | $                                                                 | 333    |   |   | $ | – |   |

| Type of Derivative Designated as Cash Flow Hedge | Amount of (Gain) Loss Recognized in OCI (Effective Portion) | Location of Amount Reclassified from OCI into Net Income (Effective Portion) | Amount Reclassified from OCI into Net Income (Effective Portion)               | Location of (Gain) Loss Recognized inNet Income (Ineffective Portion) | Amount of (Gain) Loss Recognized in Net Income Ineffective Portion)          |
|--------------------------------------------------|-------------------------------------------------------------|------------------------------------------------------------------------------|--------------------------------------------------------------------------------|-----------------------------------------------------------------------|------------------------------------------------------------------------------|
| Interest rate swaps                              | $       (1,088)          | Interest expense                                                             |  $           1,869 | Other income, net                                                     |  $           (1) |

| Type of Derivative Designated as Cash Flow Hedge | Amount of (Gain) Loss Recognized in OCI (Effective Portion) | Location of Amount Reclassified from OCI into Net Income (Effective Portion) | Amount Reclassified from OCI into Net Income (Effective Portion)             | Location of(Gain) Loss Recognized inNet Income (Ineffective Portion) | Amount of(Gain) Loss Recognized in Net Income (Ineffective Portion)         |
|--------------------------------------------------|-------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|----------------------------------------------------------------------|-----------------------------------------------------------------------------|
| Interest rate swaps                              | $       1,638            | Interest expense                                                             |  $           453 | Other income, net                                                    |  $           10 |

|                                                                    |   | 2011   |   |   | 2010   |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance as of January 1,                                                |   | $      | (2,820 | )      |   | $      | 1,008 |   |
| Change in fair value of interest rate swaps                             |   |   | 1,088  |   |   |   | (1,638 | ) |
| Reclassification adjustment for amounts included in statement of income |   |   | 1,869  |   |   |   | 453 |   |
| Balance as of March 31,                                                 |   | $      | 137    |   |   | $      | (177 | ) |

----

|                                        |   | March 31, 2011 |      |
|---------------------------------------------|--------|----------------|-----------|
| Collateral Type                             |   | Balance        |      |   | Weighted Average Rate |   |   | Fair Value of Collateral Pledged |   |
| Agency RMBS                                 |   | $              | 1,457,047 |   |   |   | 0.29 | % |   | $ | 1,514,578 |   |
| Agency CMBS                                 |   |           | 175,110   |   |   |   | 0.29 | % |   |   | 187,836 |   |
| Non-Agency RMBS                             |   |           | 11,451    |   |   |   | 1.22 | % |   |   | 13,177 |   |
| Non-Agency CMBS                             |   |           | 143,064   |   |   |   | 1.16 | % |   |   | 162,455 |   |
| Securitization financing bonds (see Note 9) |   |           | 62,211    |   |   |   | 1.23 | % |   |   | 72,092 |   |
|                                        |   | $              | 1,848,883 |   |   |   | 0.39 | % |   | $ | 1,950,138 |   |

|                                        |   | December 31, 2010 |      |
|---------------------------------------------|--------|-------------------|-----------|
| Collateral Type                             |   | Balance           |      |   | Weighted Average Rate |   |   | Fair Value of Collateral Pledged |   |
| Agency RMBS                                 |   | $                 | 869,537   |   |   |   | 0.33 | % |   | $ | 908,375 |   |
| Agency CMBS                                 |   |              | 150,178   |   |   |   | 0.31 | % |   |   | 161,143 |   |
| Non-Agency CMBS                             |   |              | 135,143   |   |   |   | 1.29 | % |   |   | 164,871 |   |
| Non-Agency RMBS                             |   |              | 12,126    |   |   |   | 1.31 | % |   |   | 13,628 |   |
| Securitization financing bonds (see Note 9) |   |              | 67,199    |   |   |   | 1.36 | % |   |   | 79,080 |   |
|                                        |   | $                 | 1,234,183 |   |   |   | 0.50 | % |   | $ | 1,327,097 |   |

----

| Original Maturity    |   | March 31, 2011 |      |   | December 31, 2010 |   |
|----------------------|--------|----------------|-----------|--------|-------------------|--------|
| 30 days or less      |   | $              | 355,816   |   |              | $      | 478,848 |   |
| 31 to 60 days        |   |           | 967,357   |   |              |   | 372,702 |   |
| 61 to 90 days        |   |           | 418,640   |   |              |   | 202,569 |   |
| Greater than 90 days |   |           | 107,070   |   |              |   | 180,064 |   |
|                 |   | $              | 1,848,883 |   |              | $      | 1,234,183 |   |

|                                            |                    |   | March 31, 2011                            |   |
|-------------------------------------------------|-------------------------|--------|-------------------------------------------|--------|
|                                            |  Interest Rate     |   | Weighted Average Life Remaining(in years) |   |   | Balance Outstanding |   |   | Value ofCollateral |   |
| Securitization financing:                       |                    |   |                                      |   |   |   |   |   |   |   |
| Secured by commercial mortgage loans            | 7.2% fixed              |   |                                      | 3.4    |   |   | $ | 23,669 |   |   | $ | 92,062 | (1) |
| Secured by non-Agency CMBS                      | 6.2% fixed              |   |                                      | 3.0    |   |   |   | 15,000 |   |   |   | 16,576 |   |
| Secured by single-family mortgage loans         | 1-month LIBORplus 0.30% |   |                                      | 3.4    |   |   |   | 20,107 |   |   |   | 20,972 |   |
| TALF financing:(2)                              |                    |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Secured by non-Agency CMBS                      | 2.7% fixed              |   |                                      | 3.0    |   |   |   | 50,651 |   |   |   | 70,251 |   |
| Unamortized net bond premium and deferred costs |                    |   |                                      |   |   |   |   | (3,204 | ) |   |   | n/a |   |
|                                            |                    |   |                                      |   |   |   | $ | 106,223 |   |   | $ | 199,861 |   |

----

|                                            |                    |   | December 31, 2010                         |   |
|-------------------------------------------------|-------------------------|--------|-------------------------------------------|--------|
|                                            |  Interest Rate     |   | Weighted Average Life Remaining(in years) |   |   | Balance Outstanding |   |   | Value ofCollateral |   |
| Securitization financing:                       |                    |   |                                      |   |   |   |   |   |   |   |
| Secured by commercial mortgage loans            | 7.2% fixed              |   |                                      | 3.7    |   |   | $ | 23,669 |   |   | $ | 97,959 | (1) |
| Secured by non-Agency CMBS                      | 6.2% fixed              |   |                                      | 3.4    |   |   |   | 15,000 |   |   |   | 16,754 |   |
| Secured by single-family mortgage loans         | 1-month LIBORplus 0.30% |   |                                      | 3.4    |   |   |   | 21,183 |   |   |   | 21,889 |   |
| TALF financing: (2)                             |                    |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Secured by non-Agency CMBS                      | 2.7% fixed              |   |                                      | 2.2    |   |   |   | 50,713 |   |   |   | 64,097 |   |
| Unamortized net bond premium and deferred costs |                    |   |                                      |   |   |   |   | (3,460 | ) |   |   | n/a |   |
|                                            |                    |   |                                      |   |   |   | $ | 107,105 |   |   | $ | 200,699 |   |

|  (1) | The value of the commercial mortgage loans collateralizing the bond class with $23,669 remaining outstanding represents the unpaid principal balance, which includes proceeds from defeased loans.  The value of the commercial mortgage loans also includes the amounts collateralizing the bond classes of the trust that the Company has redeemed.  These redeemed classes are senior to the outstanding class and have a balance as of March 31, 2011 and December 31, 2010 of $48,894 and $54,519, respectively, which must be paid in full before any proceeds from the collateral may be used to pay the balance of the outstanding class. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Financing provided by the Federal Reserve Bank of New York under its Term Asset-Backed Securities Loan Facility (“TALF”). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

|  Collateral Type        |   | Par Value Outstanding |   |   | Fair Value |   |   | Repurchase Agreement Balance |   |
|------------------------------|--------|-----------------------|--------|--------|------------|--------|--------|------------------------------|--------|
| Single-family mortgage loans |   | $                     | 24,398 |   |       | $      | 22,277 |                         |   | $ | 20,383 |   |
| Commercial mortgage loans    |   |                  | 48,894 |   |       |   | 49,815 |                         |   |   | 41,828 |   |
|                         |   | $                     | 73,292 |   |       | $      | 72,092 |                         |   | $ | 62,211 |   |

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

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

----

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

|                                    |   |       |      |   | Fair Value Measurements |   |
|-----------------------------------------|--------|------------|-----------|--------|-------------------------|--------|
|                                    |   | Fair Value |      |   | Level 1                 |   |   | Level 2 |   |   | Level 3 |   |
| Assets:                                 |   |       |      |   |                    |   |   |   |   |   |   |   |
| Agency MBS                              |   | $          | 1,869,765 |   |                    | $      | – |   |   | $ | 1,869,765 |   |   | $ | – |   |
| Non-Agency MBS:                         |   |       |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| CMBS                                    |   |       | 250,388   |   |                    |   | – |   |   |   | 111,412 |   |   |   | 138,976 |   |
| RMBS                                    |   |       | 14,841    |   |                    |   | – |   |   |   | 6,054 |   |   |   | 8,787 |   |
| Other investments                       |   |       | 25        |   |                    |   | – |   |   |   | – |   |   |   | 25 |   |
| Derivative assets                       |   |       | 3,021     |   |                    |   | – |   |   |   | 3,021 |   |   |   | – |   |
| Total assets carried at fair value      |   | $          | 2,138,040 |   |                    | $      | – |   |   | $ | 1,990,252 |   |   | $ | 147,788 |   |
|                                    |   |       |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                            |   |       |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Derivative liabilities                  |   | $          | 3,236     |   |                    | $      | – |   |   | $ | 3,236 |   |   | $ | – |   |
| Total liabilities carried at fair value |   | $          | 3,236     |   |                    | $      | – |   |   | $ | 3,236 |   |   | $ | – |   |

|                                   |   | Level 3 Fair Values |    |
|----------------------------------------|--------|---------------------|---------|
|                                   |   | Non-Agency CMBS     |    |   | Non-Agency RMBS |   |   | Other |   |   | Total assets |   |
| Balance as of January 1, 2011          |   | $                   | 146,671 |   |   | $ | 9,307 |   |   | $ | 25 |   |   | $ | 156,003 |   |
| Total unrealized losses:               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included in other comprehensive income |   |                | (774    | ) |   |   | (91 | ) |   |   | – |   |   |   | (865 | ) |
| Principal payments                     |   |                | (6,564  | ) |   |   | (427 | ) |   |   | – |   |   |   | (6,991 | ) |
| Amortization                           |   |                | (357    | ) |   |   | (2 | ) |   |   | – |   |   |   | (359 | ) |
| Balance as of March 31, 2011           |   | $                   | 138,976 |   |   | $ | 8,787 |   |   | $ | 25 |   |   | $ | 147,788 |   |

----

|                                  |   | March 31, 2011 |      |   | December 31, 2010 |   |
|---------------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                                  |   | Recorded Basis |      |   | Fair Value        |   |   | Recorded Basis |   |   | Fair Value |   |
| Assets:                               |   |           |      |   |              |   |   |   |   |   |   |   |
| Agency MBS                            |   | $              | 1,869,765 |   |              | $      | 1,869,765 |   |   | $ | 1,192,579 |   |   | $ | 1,192,579 |   |
| Non-Agency CMBS                       |   |           | 250,388   |   |              |   | 250,388 |   |   |   | 251,948 |   |   |   | 251,948 |   |
| Non-Agency RMBS                       |   |           | 14,841    |   |              |   | 14,841 |   |   |   | 15,408 |   |   |   | 15,408 |   |
| Securitized mortgage loans, net       |   |           | 143,445   |   |              |   | 132,312 |   |   |   | 152,962 |   |   |   | 142,177 |   |
| Other investments                     |   |           | 1,171     |   |              |   | 1,065 |   |   |   | 1,229 |   |   |   | 1,112 |   |
| Derivative assets                     |   |           | 3,021     |   |              |   | 3,021 |   |   |   | 692 |   |   |   | 692 |   |
|                                  |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                          |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase agreements                 |   | $              | 1,848,883 |   |              | $      | 1,848,883 |   |   | $ | 1,234,183 |   |   | $ | 1,234,183 |   |
| Non-recourse collateralized financing |   |           | 106,223   |   |              |   | 107,626 |   |   |   | 107,105 |   |   |   | 109,395 |   |
| Derivative liabilities                |   |           | 3,236     |   |              |   | 3,236 |   |   |   | 3,532 |   |   |   | 3,532 |   |

|                          |   | March 31, 2011 |      |   | December 31, 2010 |   |
|-------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                          |   | Fair Value     |      |   | Unrealized Loss   |   |   | Fair Value |   |   | Unrealized Loss |   |
| Unrealized loss position for: |   |           |      |   |              |   |   |   |   |   |   |   |
| Less than one year:           |   |           |      |   |              |   |   |   |   |   |   |   |
| Agency MBS                    |   | $              | 1,343,683 |   |              | $      | 12,104 |   |   | $ | 695,854 |   |   | $ | 6,638 |   |
| Non-Agency MBS                |   |           | 49,506    |   |              |   | 399 |   |   |   | 45,602 |   |   |   | 592 |   |
| One year or more:             |   |           |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Agency MBS                    |   |           | 26,524    |   |              |   | 469 |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                |   |           | 3,431     |   |              |   | 341 |   |   |   | 3,494 |   |   |   | 337 |   |
|                          |   | $              | 1,423,144 |   |              | $      | 13,313 |   |   | $ | 744,950 |   |   | $ | 7,567 |   |

----

|                                                      |   | Three Months Ended March 31, |       |
|-----------------------------------------------------------|--------|------------------------------|------------|
|                                                      |   | 2011                         |       |   | 2010 |   |
| Balance at beginning of period                            |   |                         | 30,342,897 |   |   |   | 13,931,512 |   |
| Common stock issued under EPP                             |   |                         | 409,237    |   |   |   | 1,070,100 |   |
| Common stock issued via public offering                   |   |                         | 9,200,000  |   |   |   | – |   |
| Common stock redeemed under 2004 Stock and Incentive Plan |   |                         | 10,000     |   |   |   | – |   |
| Common stock issued under 2009 Stock and Incentive Plan   |   |                         | 356,025    |   |   |   | 36,190 |   |
| Balance at end of period                                  |   |                         | 40,318,159 |   |   |   | 15,037,802 |   |

----

|                                                             |   | Three Months Ended March 31, |    |
|------------------------------------------------------------------|--------|------------------------------|---------|
|                                                             |   | 2011                         |    |   | 2010 |   |
|                                                             |   | Number of Shares             |    |   | Weighted-Average Exercise Price |   |   | Number of Shares |   |   | Weighted-AverageExercisePrice |   |
| Options outstanding at beginning of period                       |   |                         | 45,000  |   |   | $ | 8.75 |   |   |   | 95,000 |   |   | $ | 8.59 |   |
| Options granted                                                  |   |                         | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options forfeited                                                |   |                         | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Options exercised                                                |   |                         | (10,000 | ) |   |   | 7.43 |   |   |   | – |   |   |   | – |   |
| Options outstanding at end of period(all vested and exercisable) |   |                         | 35,000  |   |   | $ | 9.13 |   |   |   | 95,000 |   |   | $ | 8.59 |   |

|                                          |   | Three Months Ended March 31, |    |
|-----------------------------------------------|--------|------------------------------|---------|
|                                          |   | 2011                         |    |   | 2010 |   |
| Restricted stock at beginning of period       |   |                         | 25,000  |   |   |   | 32,500 |   |
| Restricted stock granted                      |   |                         | 303,000 |   |   |   | – |   |
| Restricted stock forfeited                    |   |                         | – |   |   |   | – |   |
| Restricted stock vested                       |   |                         | (7,500  | ) |   |   | (7,500 | ) |
| Restricted stock outstanding at end of period |   |                         | 320,500 |   |   |   | 25,000 |   |

|                            |   | March 31, 2011 |       |   | December 31, 2010 |   |
|---------------------------------|--------|----------------|------------|--------|-------------------|--------|
| Expected volatility             |   |           | 12.5%-16.6 | %      |              |   | 16.2%-18.6 | % |
| Weighted-average volatility     |   |           | 14.8       | %      |              |   | 17.3 | % |
| Expected dividends              |   |           | 11.1%-11.3 | %      |              |   | 9.9%-10.3 | % |
| Expected term (in months)       |   |           | 10         |   |              |   | 12 |   |
| Weighted-average risk-free rate |   |           | 0.84       | %      |              |   | 0.81 | % |
| Range of risk-free rates        |   |           | 0.4%-1.4   | %      |              |   | 0.4%-1.3 | % |

----

----

|                                   |   | March 31, 2011 |    |   | December 31, 2010 |   |
|----------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| Available for sale investments:        |   |           |    |   |              |   |
| Unrealized gains                       |   | $              | 19,557  |   |              | $      | 20,443 |   |
| Unrealized losses                      |   |           | (13,311 | )      |              |   | (7,566 | ) |
|                                   |   |           | 6,246   |   |              |   | 12,877 |   |
| Hedging instruments:                   |   |           |    |   |              |   |   |   |
| Unrealized gains                       |   |           | 3,016   |   |              |   | 692 |   |
| Unrealized losses                      |   |           | (2,879  | )      |              |   | (3,512 | ) |
|                                   |   |           | 137     |   |              |   | (2,820 | ) |
|                                   |   |           |    |   |              |   |   |   |
| Accumulated other comprehensive income |   | $              | 6,383   |   |              | $      | 10,057 |   |

----

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

----

----

----

----

|                       |   | March 31, 2011 |      |   | December 31, 2010 |   |
|----------------------------|--------|----------------|-----------|--------|-------------------|--------|
| (amounts in thousands)     |   | RMBS           |      |   | CMBS              |   |   | Total |   |   | RMBS |   |   | CMBS |   |   | Total |   |
| Beginning balance          |   | $              | 986,011   |   |              | $      | 206,568 |   |   | $ | 1,192,579 |   |   | $ | 590,561 |   |   | $ | – |   |   | $ | 594,120 |   |
| Purchases                  |   |           | 718,730   |   |              |   | 45,227 |   |   |   | 763,957 |   |   |   | 649,590 |   |   |   | 211,893 |   |   |   | 908,407 |   |
| Principal payments         |   |           | (76,474   | )      |              |   | (663 | ) |   |   | (77,137 | ) |   |   | (225,688 | ) |   |   | (1,805 | ) |   |   | (274,076 | ) |
| Sales                      |   |           | –   |   |              |   | – |   |   |   | – |   |   |   | (18,762 | ) |   |   | – |   |   |   | (18,762 | ) |
| Net unrealized loss        |   |           | (4,860    | )      |              |   | (1,356 | ) |   |   | (6,216 | ) |   |   | (6,063 | ) |   |   | (2,700 | ) |   |   | (8,763 | ) |
| Net amortization and other |   |           | (2,715    | )      |              |   | (703 | ) |   |   | (3,418 | ) |   |   | (3,627 | ) |   |   | (820 | ) |   |   | (4,615 | ) |
| Ending balance             |   | $              | 1,620,692 |   |              | $      | 249,073 |   |   | $ | 1,869,765 |   |   | $ | 986,011 |   |   | $ | 206,568 |   |   | $ | 1,192,579 |   |

----

|                   |   | March 31, 2011 |      |   | December 31, 2010 |   |
|------------------------|--------|----------------|-----------|--------|-------------------|--------|
| (amounts in thousands) |   | Fannie Mae     |      |   | Freddie Mac       |   |   | Total |   |   | Fannie Mae |   |   | Freddie Mac |   |   | Total |   |
| Hybrid ARMs            |   | $              | 959,866   |   |              | $      | 380,562 |   |   | $ | 1,340,428 |   |   | $ | 496,601 |   |   | $ | 262,878 |   |   | $ | 759,479 |   |
| ARMs                   |   |           | 203,448   |   |              |   | 76,746 |   |   |   | 280,194 |   |   |   | 198,638 |   |   |   | 27,821 |   |   |   | 226,459 |   |
| Fixed rate             |   |           | 243,105   |   |              |   | 6,038 |   |   |   | 249,143 |   |   |   | 206,641 |   |   | ─ |   |   |   | 206,641 |   |
|                   |   | $              | 1,406,419 |   |              | $      | 463,346 |   |   | $ | 1,869,765 |   |   | $ | 901,880 |   |   | $ | 290,699 |   |   | $ | 1,192,579 |   |

|                   |   | March 31, 2011(1) |      |   | December 31, 2010(2) |   |
|------------------------|--------|-------------------|-----------|--------|----------------------|--------|
| MTR                    |   | Par Value         |      |   | Fair Value           |   |   | WAC |   |   | Par Value |   |   | Fair Value |   |   | WAC |   |
| (amounts in thousands) |   |
| 0-12 months            |   | $                 | 266,614   |   |                 | $      | 280,194 |   |   |   | 3.69 | % |   | $ | 216,420 |   |   | $ | 226,459 |   |   |   | 3.35 | % |
| 13-24 months           |   |              | 335,894   |   |                 |   | 356,532 |   |   |   | 5.36 | % |   |   | 189,841 |   |   |   | 201,144 |   |   |   | 5.50 | % |
| 25-36 months           |   |              | 266,480   |   |                 |   | 282,999 |   |   |   | 5.17 | % |   |   | 304,713 |   |   |   | 322,758 |   |   |   | 5.10 | % |
| Over 36 months         |   |              | 673,761   |   |                 |   | 700,897 |   |   |   | 3.90 | % |   |   | 226,329 |   |   |   | 235,577 |   |   |   | 3.81 | % |
| Fixed rate             |   |              | 226,682   |   |                 |   | 249,143 |   |   |   | 5.38 | % |   |   | 190,584 |   |   |   | 206,641 |   |   |   | 5.41 | % |
|                   |   | $                 | 1,769,431 |   |                 | $      | 1,869,765 |   |   |   | 4.53 | % |   | $ | 1,127,887 |   |   | $ | 1,192,579 |   |   |   | 4.62 | % |

| (1) | As of March 31, 2011, approximately 3% of our Agency ARMs and hybrid ARMs reset based upon the level of six month LIBOR, 95% reset based on the level of one-year LIBOR and 2% reset based on the level of one-year CMT. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | As of December 31, 2010, approximately 5% of our Agency ARMs and hybrid ARMs reset based upon the level of six month LIBOR, 92% reset based on the level of one-year LIBOR and 3% reset based on the level of one-year CMT. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                         |   | March 31, 2011 |   |   | December 31, 2010 |   |
|------------------------------|--------|----------------|--------|--------|-------------------|--------|
| (amounts in thousands)       |   | RMBS           |   |   | CMBS(1)           |   |   | Total |   |   | RMBS |   |   | CMBS |   |   | Total |   |
| Beginning balance            |   | $              | 15,408 |   |              | $      | 251,948 |   |   | $ | 267,356 |   |   | $ | 5,907 |   |   | $ | 118,127 |   |   | $ | 124,034 |   |
| Purchases/redemptions        |   | ─        |   |   |              | 5,827  |   |   |   | 5,827 |   |   |   | 11,671 |   |   |   | 183,045 |   |   |   | 194,716 |   |
| Principal payments           |   |           | (427   | )      |              |   | (6,734 | ) |   |   | (7,161 | ) |   |   | (3,054 | ) |   |   | (27,676 | ) |   |   | (30,730 | ) |
| Sales                        |   | ─        |   |   | ─           |   |   | ─ |   |   | ─ |   |   |   | (31,328 | ) |   |   | (31,328 | ) |
| Net unrealized (loss) gain   |   |           | (159   | )      |              |   | (137 | ) |   |   | (296 | ) |   |   | 840 |   |   |   | 11,178 |   |   |   | 12,018 |   |
| Net accretion (amortization) |   |           | 19     |   |              |   | (516 | ) |   |   | (497 | ) |   |   | 44 |   |   |   | (1,398 | ) |   |   | (1,354 | ) |
| Ending balance               |   | $              | 14,841 |   |              | $      | 250,388 |   |   | $ | 265,229 |   |   | $ | 15,408 |   |   | $ | 251,948 |   |   | $ | 267,356 |   |

| (amounts in thousands) |   |   | RMBS   |   |   | CMBS   |    |    | Total  |   |
|------------------------|--------|--------|--------|--------|--------|--------|---------|---------|--------|--------|
| AAA                    |   |   | $      | 10,462 |   |   | $       | 196,038 |   |   | $ | 206,500 |   |
| AA                     |   |   |   | 216    |   |   | ─ |    |   |   | 216 |   |
|  A                |   |   |   | 76     |   |   |    | 50,024  |   |   |   | 50,100 |   |
| Below A/Not Rated      |   |   |   | 4,087  |   |   |    | 4,326   |   |   |   | 8,413 |   |
|         |   |   | $      | 14,841 |   |   | $       | 250,388 |   |   | $ | 265,229 |   |

| (amounts in thousands) |   | March 31, 2011 |    |   | December 31, 2010 |   |
|------------------------|--------|----------------|---------|--------|-------------------|--------|
| Commercial             |   | $              | 91,095  |   |              | $      | 98,167 |   |
| Single-family          |   |           | 52,350  |   |              |   | 54,795 |   |
|                   |   | $              | 143,445 |   |              | $      | 152,962 |   |

----

| (amounts in thousands)                            |   | March 31, 2011 |    |   | December 31, 2010 |   |
|---------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| TALF:                                             |   |           |    |   |              |   |
| Fixed, secured by CMBS                            |   | $              | 50,585  |   |              | $      | 50,639 |   |
| Securitization financing bonds:                   |   |           |    |   |              |   |   |   |
| Fixed, secured by commercial mortgage loans       |   |           | 35,895  |   |              |   | 35,673 |   |
| Variable, secured by single-family mortgage loans |   |           | 19,743  |   |              |   | 20,793 |   |
|                                              |   | $              | 106,223 |   |              | $      | 107,105 |   |

----

|                            |   | As of March 31, 2011 |      |
|---------------------------------|--------|----------------------|-----------|
| (amounts in thousands)          |   | Asset Carrying Basis |      |   | Associated Financing(1)/ Liability Carrying Basis |   |   | Allocated Shareholders’ Equity |   |   | % of Shareholders’ Equity |   |
|                            |   |                 |      |   |   |   |   |   |   |   |   |   |
| Agency RMBS                     |   | $                    | 1,620,692 |   |   | $ | (1,457,047 | ) |   | $ | 163,645 |   |   |   | 42.7 | % |
| Agency CMBS                     |   |                 | 249,073   |   |   |   | (175,110 | ) |   |   | 73,963 |   |   |   | 19.3 | % |
| Non-Agency RMBS                 |   |                 | 14,841    |   |   |   | (11,451 | ) |   |   | 3,390 |   |   |   | 0.9 | % |
| Non-Agency CMBS                 |   |                 | 250,388   |   |   |   | (208,250 | ) |   |   | 42,138 |   |   |   | 11.0 | % |
| Securitized mortgage loans      |   |                 | 143,445   |   |   |   | (103,248 | ) |   |   | 40,197 |   |   |   | 10.5 | % |
| Other investments               |   |                 | 1,171     |   |   |   | – |   |   |   | 1,171 |   |   |   | 0.3 | % |
| Derivative assets (liabilities) |   |                 | 3,021     |   |   |   | (3,236 | ) |   |   | (215 | ) |   |   | (0.1 | )% |
| Cash and cash equivalents       |   |                 | 49,840    |   |   |   | – |   |   |   | 49,840 |   |   |   | 13.0 | % |
| Other assets/other liabilities  |   |                 | 27,345    |   |   |   | (17,981 | ) |   |   | 9,364 |   |   |   | 2.4 | % |
|                            |   | $                    | 2,359,816 |   |   | $ | (1,976,323 | ) |   | $ | 383,493 |   |   |   | 100.0 | % |

|                            |   | As of December 31, 2010 |      |
|---------------------------------|--------|-------------------------|-----------|
| (amounts in thousands)          |   | Asset Carrying Basis    |      |   | Associated Financing(1)/ Liability Carrying Basis |   |   | Allocated Shareholders’ Equity |   |   | % of Shareholders’ Equity |   |
|                            |   |                    |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency RMBS                     |   | $                       | 986,011   |   |   | $ | (869,537 | ) |   | $ | 116,474 |   |   |   | 39.8 | % |
| Agency CMBS                     |   |                    | 206,568   |   |   |   | (150,178 | ) |   |   | 56,390 |   |   |   | 19.3 | % |
| Non-Agency RMBS                 |   |                    | 15,408    |   |   |   | (12,126 | ) |   |   | 3,282 |   |   |   | 1.1 | % |
| Non-Agency CMBS                 |   |                    | 251,948   |   |   |   | (200,328 | ) |   |   | 51,620 |   |   |   | 17.7 | % |
| Securitized mortgage loans      |   |                    | 152,962   |   |   |   | (109,119 | ) |   |   | 43,843 |   |   |   | 15.0 | % |
| Other investments               |   |                    | 1,229     |   |   |   | – |   |   |   | 1,229 |   |   |   | 0.4 | % |
| Derivative assets (liabilities) |   |                    | 692       |   |   |   | (3,532 | ) |   |   | (2,840 | ) |   |   | (0.9 | )% |
| Cash and cash equivalents       |   |                    | 18,836    |   |   |   | – |   |   |   | 18,836 |   |   |   | 6.4 | % |
| Other assets/other liabilities  |   |                    | 15,930    |   |   |   | (12,407 | ) |   |   | 3,523 |   |   |   | 1.2 | % |
|                            |   | $                       | 1,649,584 |   |   | $ | (1,357,227 | ) |   | $ | 292,357 |   |   |   | 100.0 | % |

| (1)   | Associated financing related to investments includes repurchase agreements, securitization financing issued to third parties, and TALF financing (the latter two of which are presented on the Company’s balance sheet as “non-recourse collateralized financing”).  Associated financing for derivative instruments represents the fair value of the interest rate swap agreements in a liability position. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                       |   | For the Three Months Ended March 31, |   |
|----------------------------|--------|--------------------------------------|--------|
|                       |   | 2011                                 |   |   | 2010 |   |
| (amounts in thousands)     |   | Income (Expense) (1)                 |   |   | AverageBalance(2) |   |   | EffectiveYield (Rate)(3) |   |   | Income (Expense) (1) |   |   | AverageBalance(2) |   |   | EffectiveYield (Rate)(3) |   |
| Agency RMBS                |   | $                                    | 9,351  |   |   | $ | 1,145,261 |   |   |   | 3.24 | % |   | $ | 4,854 |   |   | $ | 548,089 |   |   |   | 3.72 | % |
| Financing                  |   |                                 | (1,949 | ) |   |   | (1,052,506 | ) |   |   | (0.74 | %) |   |   | (785 | ) |   |   | (511,458 | ) |   |   | (0.62 | %) |
| Net interest income/spread |   | $                                    | 7,402  |   |   |   |   |   |   |   | 2.50 | % |   | $ | 4,069 |   |   |   |   |   |   |   | 3.10 | % |
|                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency CMBS                |   | $                                    | 2,167  |   |   | $ | 231,899 |   |   |   | 3.73 | % |   | $ | 14 |   |   |   | 1,702 |   |   |   | 3.28 | % |
| Financing                  |   |                                 | (676   | ) |   |   | (165,790 | ) |   |   | (1.64 | %) |   |   | – |   |   |   | – |   |   |   | – |   |
| Net interest income/spread |   | $                                    | 1,491  |   |   |   |   |   |   |   | 2.09 | % |   | $ | 14 |   |   |   |   |   |   |   | 3.28 | % |
|                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1)   | Expense amounts and financing rates include interest rate swap expense. |
|-----------------|-------------------------------------------------------------------------|

| (2)   | Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses. |
|-----------------|--------------------------------------------------------------------------------------------------------------------|

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

----

|                       |   | For the Three Months Ended March 31, |   |
|----------------------------|--------|--------------------------------------|--------|
|                       |   | 2011                                 |   |   | 2010 |   |
| (amounts in thousands)     |   | Income (Expense) (1)                 |   |   | AverageBalance(2) |   |   | EffectiveYield/Rate(3) |   |   | Income (Expense) (1) |   |   | AverageBalance(2) |   |   | EffectiveYield/Rate(3) |   |
|                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency RMBS            |   | $                                    | 204    |   |   | $ | 14,854 |   |   |   | 5.54 | % |   | $ | 132 |   |   | $ | 6,196 |   |   |   | 8.51 | % |
| Financing                  |   |                                 | (37    | ) |   |   | (11,628 | ) |   |   | (1.27 | %) |   |   | (6 | ) |   |   | (1,329 | ) |   |   | (1.76 | %) |
| Net interest income/spread |   | $                                    | 167    |   |   |   |   |   |   |   | 4.27 | % |   | $ | 126 |   |   |   |   |   |   |   | 6.75 | % |
|                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency CMBS            |   | $                                    | 3,487  |   |   | $ | 239,778 |   |   |   | 5.96 | % |   | $ | 2,369 |   |   | $ | 136,875 |   |   |   | 6.92 | % |
| Financing                  |   |                                 | (1,204 | ) |   |   | (205,527 | ) |   |   | (2.35 | %) |   |   | (688 | ) |   |   | (109,885 | ) |   |   | (2.52 | %) |
| Net interest income/spread |   | $                                    | 2,283  |   |   |   |   |   |   |   | 3.61 | % |   | $ | 1,681 |   |   |   |   |   |   |   | 4.40 | % |

| (1)   | Expense amounts and financing rates include interest rate swap expense. |
|-----------------|-------------------------------------------------------------------------|

| (2)   | Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses. |
|-----------------|--------------------------------------------------------------------------------------------------------------------|

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

----

|                       |   | For the Three Months Ended March 31, |   |
|----------------------------|--------|--------------------------------------|--------|
|                       |   | 2011                                 |   |   | 2010 |   |
| (amounts in thousands)     |   | Income (Expense) (1)                 |   |   | Average Balance(2) |   |   | Effective Yield/Rate(3) |   |   | Income (Expense) (1) |   |   | Average Balance(2) |   |   | Effective Yield/Rate(3) |   |
|                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage loans |   | $                                    | 2,219  |   |   | $ | 151,602 |   |   |   | 5.75 | % |   | $ | 3,623 |   |   | $ | 212,465 |   |   |   | 6.74 | % |
| Financing                  |   |                                 | (868   | ) |   |   | (106,169 | ) |   |   | (3.15 | %) |   |   | (2,357 | ) |   |   | (165,072 | ) |   |   | (5.88 | %) |
| Net interest income/spread |   | $                                    | 1,351  |   |   |   |   |   |   |   | 2.60 | % |   | $ | 1,266 |   |   |   |   |   |   |   | 0.86 | % |

| (1)   | Average balance excludes funds held by trustees except proceeds from defeased loans held by trustees. |
|-----------------|-------------------------------------------------------------------------------------------------------|

| (2)   | Certain income and expense items of a one-time nature are not annualized for the calculation of effective yields or rates.  Examples of such one-time items include retrospective adjustments of discount and premium amortization arising from adjustments of effective interest rates. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                            |   | Three Months Ended March 31, |      |
|---------------------------------|--------|------------------------------|-----------|
| (amounts in thousands)          |   | 2011                         |      |   | 2010 |   |
| Average balance outstanding     |   | $                            | 1,434,700 |   |   | $ | 628,268 |   |
| Weighted average borrowing rate |   |                         | 0.44      | % |   |   | 0.52 | % |
| Maximum balance outstanding     |   | $                            | 1,848,883 |   |   | $ | 679,341 |   |

----

| (amounts in thousands)           |   | Payments due by period |      |
|----------------------------------|--------|------------------------|-----------|
| Contractual Obligations: (1)     |   | Total                  |      |   | < 1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | > 5 years |   |
|                             |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase agreements (2)        |   | $                      | 1,848,883 |   |   | $ | 1,848,883 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Securitization financing (2) (3) |   |                   | 58,776    |   |   |   | 4,242 |   |   |   | 15,862 |   |   |   | 33,016 |   |   |   | 5,656 |   |
| TALF financing (2) (3)           |   |                   | 50,651    |   |   |   | – |   |   |   | 50,651 |   |   |   | – |   |   |   | – |   |
| Operating lease obligations      |   |                   | 437       |   |   |   | 155 |   |   |   | 282 |   |   |   | – |   |   |   | – |   |
| Total                            |   | $                      | 1,958,747 |   |   | $ | 1,853,280 |   |   | $ | 66,795 |   |   | $ | 33,016 |   |   | $ | 5,656 |   |

| (1) | As the master servicer for certain of the series of non-recourse securitization financing securities which we have issued, and certain loans which have been securitized but for which we are not the master servicer, we have an obligation to advance scheduled principal and interest on delinquent loans in accordance with the underlying servicing agreements should the primary servicer of the loan fail to make such advance.  Such advance amounts are generally repaid in the same month as they are made or shortly thereafter, and so the contractual obligation with respect to these advances is excluded from the above table.  As of March 31, 2011, outstanding servicing advances were $0.2 million compared to $0.2 million as of December 31, 2010. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

| ·   | Our business and investment strategy including our ability to generate acceptable risk-adjusted returns; |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | Our financing and hedging strategy; |
|--------------------|-------------------------------------|

| ·   | Our investment portfolio composition and target investments; |
|--------------------|--------------------------------------------------------------|

| ·   | Our investment portfolio performance, including the value and yields of our investment portfolio; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | Our liquidity and ability to access financing, and the anticipated availability and cost of financing; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | Our use of our tax NOL carryfoward; |
|--------------------|-------------------------------------|

| ·   | Market, industry and economic trends; and |
|--------------------|-------------------------------------------|

| ·   | Interest rates. |
|--------------------|-----------------|

----

| ·   | the risks and uncertainties referenced in this Quarterly Report on Form 10-Q or the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, particularly those set forth under Item 1A. “Risk Factors”; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our ability to find suitable reinvestment opportunities; |
|--------------------|----------------------------------------------------------|

| ·   | changes in economic conditions; |
|--------------------|---------------------------------|

| ·   | changes in interest rates and interest rate spreads; |
|--------------------|------------------------------------------------------|

| ·   | our investment portfolio performance particularly as it relates to cash flow, prepayment rates and credit performance; |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | the cost and availability of financing; |
|--------------------|-----------------------------------------|

| ·   | the cost and availability of new equity capital; |
|--------------------|--------------------------------------------------|

| ·   | changes in our use of leverage; |
|--------------------|---------------------------------|

| ·   | the quality of performance of third-party servicer providers of our loans and loans underlying our securities; |
|--------------------|----------------------------------------------------------------------------------------------------------------|

| ·   | the level of defaults by borrowers on loans we have securitized; |
|--------------------|------------------------------------------------------------------|

| ·   | changes in our industry; |
|--------------------|--------------------------|

| ·   | increased competition; |
|--------------------|------------------------|

| ·   | changes in government regulations affecting our business; |
|--------------------|-----------------------------------------------------------|

| ·   | government initiatives to support the U.S financial system and U.S. housing and real estate markets; |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | GSE reform or other government policies and actions; and |
|--------------------|----------------------------------------------------------|

| ·   | an ownership shift under Section 382 of the Code that impacts the use of our tax NOL carryforward. |
|--------------------|----------------------------------------------------------------------------------------------------|

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

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

----

|                    |   | Investments |      |   | Borrowings |   |
|-------------------------|--------|-------------|-----------|--------|------------|--------|
| (amounts in thousands)  |   | Amounts (1) |      |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed Rate              |   | $           | 611,703   |   |       |   | 26.8 | % |   | $ | 86,480 |   |   |   | 4.4 | % |
|                    |   |        |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable Rate:        |   |        |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
|   0-12 months |   |        | 331,965   |   |       |   | 14.5 | % |   |   | 1,123,626 |   |   |   | 57.5 | % |
| 13-24 months            |   |        | 356,532   |   |       |   | 15.6 | % |   |   | 75,000 |   |   |   | 3.8 | % |
| 25-36 months            |   |        | 282,999   |   |       |   | 12.4 | % |   |   | 300,000 |   |   |   | 15.4 | % |
| Over 36 months          |   |        | 700,897   |   |       |   | 30.7 | % |   |   | 370,000 |   |   |   | 18.9 | % |
| Total                   |   | $           | 2,284,096 |   |       |   | 100.0 | % |   | $ | 1,955,106 |   |   |   | 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%                          |   |       | 55.0                                  | %      |   |  1.0% |   |   | 1.1 | % |
| >10.0% to 11.0%                     |   |       | 36.0                                  | %      |   |  2.0% |   |   | 18.1 | % |
| >11.0% to 12.0%                     |   |       | 9.0                                   | %      |   |  5.0%-6.0% |   |   | 80.8 | % |
|                                   |   |       | 100.00                                | %      |   |   |   |   | 100.00 | % |

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

----

|                                 | As of March 31, 2011                                  |
|--------------------------------------|-------------------------------------------------------|
| Basis Point Change in Interest Rates | Percentage change in projected net interest income(1) | Percentage change in projected market value(2) |
|                                 |                                                  |   |
| +100                                 | (5.8)%                                                | (1.1)% |
| +50                                  | (1.9)%                                                | (0.5)% |
| 0                                    | –                                               | – |
| -50                                  | (0.7)%                                                | 0.4% |
| -100                                 | (6.9)%                                                | 0.6% |

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

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

| Basis Point Change in Interest Rates | Basis Point Change in Mortgage Spreads |
|--------------------------------------|----------------------------------------|
| -50                                  | -25                                    | 0 | +25 | +50 |
|                                 |                                   |   |   |   |   |
| +100                                 | 0.9%                                   | (0.2)% | (1.1)% | (2.1)% | (3.1)% |
| +50                                  | 1.5%                                   | 0.5% | (0.5)% | (1.5)% | (2.4)% |
| 0                                    | 2.0%                                   | 1.0% | – | (1.0)% | (1.9)% |
| -50                                  | 2.4%                                   | 1.4% | 0.4% | (0.6)% | (1.6)% |
| -100                                 | 2.6%                                   | 1.6% | 0.6% | (0.4)% | (1.3)% |

----

|                                        |   | Agency |      |   | Non-Agency |   |
|---------------------------------------------|--------|--------|-----------|--------|------------|--------|
| (amounts in thousands)                      |   | RMBS   |      |   | CMBS       |   |   | RMBS |   |   | CMBS |   |
| Principal/par value                         |   | $      | 1,542,818 |   |       | $      | 226,613 |   |   | $ | 15,676 |   |   | $ | 244,688 |   |
| Unamortized premium (discount), net         |   |   | 77,839    |   |       |   | 26,516 |   |   |   | (960 | ) |   |   | (4,560 | ) |
| Amortized cost basis                        |   | $      | 1,620,657 |   |       | $      | 253,129 |   |   | $ | 14,716 |   |   | $ | 240,128 |   |
| Amortized cost as a percentage of par value |   |   | 105.0     | %      |       |   | 111.7 | % |   |   | 93.9 | % |   |   | 98.1 | % |

----

|                             |   | March 31, 2011   |
|----------------------------------|--------|------------------|
| Investment(amounts in thousands) |   | Accounting Basis |   |   | Amount of Guaranty |   | Guarantor | Credit Rating of Guarantor (1) |
| With Guaranty of Payment         |   |             |   |   |   |   |   |   |
| Agency MBS                       |   | $                | 1,869,765 |   |   | $ | 1,769,431 |   | Fannie Mae/Freddie Mac | AAA |
| Securitized mortgage loans:      |   |             |   |   |   |   |   |   |   |   |
| Commercial                       |   |             | 42,607 |   |   |   | 6,619 |   | American International Group | BBB |
| Single-family                    |   |             | 17,377 |   |   |   | 17,100 |   | PMI/GEMICO | Caa2/Baa3 |
| Defeased loans                   |   |             | 3,277 |   |   |   | 3,291 |   | Fully secured with cash |   |
|                             |   |             |   |   |   |   |   |   |   |   |
| Without Guaranty of Payment      |   |             |   |   |   |   |   |   |   |   |
| Securitized mortgage loans:      |   |             |   |   |   |   |   |   |   |   |
| Commercial                       |   |             | 49,448 |   |   |   | – |   |   |   |
| Single-family                    |   |             | 35,222 |   |   |   | – |   |   |   |
| Non-Agency MBS                   |   |             | 265,229 |   |   |   | – |   |   |   |
| Other investments                |   |             | 1,171 |   |   |   | – |   |   |   |
|                             |   |             | 2,279,610 |   |   |   | 1,796,441 |   |   |   |
|                             |   |             |   |   |   |   |   |   |   |   |
| Allowance for loan losses        |   |             | (4,486 | ) |   |   | – |   |   |   |
|                             |   |             |   |   |   |   |   |   |   |   |
| Total investments                |   | $                | 2,279,610 |   |   | $ | 1,796,441 |   |   |   |

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

|                             |   | December 31, 2010 |
|----------------------------------|--------|-------------------|
| Investment(amounts in thousands) |   | Accounting Basis  |   |   | Amount of Guaranty |   | Guarantor | Credit Rating of Guarantor (1) |
| With Guaranty of Payment         |   |              |   |   |   |   |   |   |
| Agency MBS                       |   | $                 | 1,192,579 |   |   | $ | 1,127,887 |   | Fannie Mae/Freddie Mac | AAA |
| Securitized mortgage loans:      |   |              |   |   |   |   |   |   |   |   |
| Commercial                       |   |              | 46,741 |   |   |   | 6,619 |   | American International Group | BBB |
| Single-family                    |   |              | 18,465 |   |   |   | 18,169 |   | PMI/GEMICO | Caa2/Baa3 |
| Defeased loans                   |   |              | 3,289 |   |   |   | 3,306 |   | Fully secured with cash |   |
|                             |   |              |   |   |   |   |   |   |   |   |
| Without Guaranty of Payment      |   |              |   |   |   |   |   |   |   |   |
| Non-Agency MBS                   |   |              | 267,356 |   |   |   | – |   |   |   |
| Securitized mortgage loans:      |   |              |   |   |   |   |   |   |   |   |
| Commercial                       |   |              | 52,338 |   |   |   | – |   |   |   |
| Single-family                    |   |              | 36,599 |   |   |   | – |   |   |   |
| Other investments                |   |              | 1,229 |   |   |   | – |   |   |   |
|                             |   |              | 1,618,596 |   |   |   | 1,155,981 |   |   |   |
|                             |   |              |   |   |   |   |   |   |   |   |
| Allowance for loan losses        |   |              | (4,470 | ) |   |   | – |   |   |   |
|                             |   |              |   |   |   |   |   |   |   |   |
| Total investments                |   | $                 | 1,614,126 |   |   | $ | 1,155,981 |   |   |   |

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

----

|                             |   | As of March 31, 2011          |   |
|----------------------------------|--------|-------------------------------|--------|
| 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        |   | $                             | 95,332 |   |   |   | 14 |   |   |   | 43.9 | % |   | $ | 21,583 |   |   |   | 22.6 | % |
| Single-family mortgage loans     |   |                          | 52,599 |   |   |   | 17 |   |   |   | 47.8 | % |   |   | 4,157 | (2) |   |   | 7.9 | % |

|                             |   | As of December 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        |   | $                             | 98,167 |   |   |   | 14 |   |   |   | 45 | % |   | $ | 12,147 |   |   |   | 16.0 | % |
| Single-family mortgage loans     |   |                          | 54,795 |   |   |   | 17 |   |   |   | 48 | % |   |   | 5,277 | (2) |   |   | 10.1 | % |

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

| (2) | As of March 31, 2011, approximately $1.3 million of the delinquent single-family loans are pool insured compared to $1.7 million as of December 31, 2010. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

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

----

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

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

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

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

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

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

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

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

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

----

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

| Exhibit No. | Description                                                                                                                                                                                                                                                                                           |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         | Restated Articles of Incorporation, effective July 9, 2008 (incorporated herein by reference to Exhibit 3.1 to Dynex’s Current Report on Form 8-K filed July 11, 2008).                                                                                                                    |
| 3.2         | Amended and Restated Bylaws, effective March 26, 2008 (incorporated herein by reference to Exhibit 3.2 to Dynex’s Current Report on Form 8-K filed April 1, 2008).                                                                                                                         |
| 10.19       | Underwriting Agreement, dated March 4, 2011, by and among Dynex Capital, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC (incorporated herein by reference to Exhibit 1.1 to Dynex’s Current Report on Form 8-K filed March 9, 2011).  |
| 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, 2011            | /s/ Thomas B. Akin                                                            |
|                          | Thomas B. Akin                                                                |
|                          | Chairman and Chief Executive Officer                                          |
|                          | (Principal Executive Officer)                                                 |
|                          |                                                                          |
|                          |                                                                          |
| Date:  May 10, 2011 | /s/ Stephen J. Benedetti                                                      |
|                          | Stephen J. Benedetti                                                          |
|                          | Executive Vice President, Chief Operating Officer and Chief Financial Officer |
|                          | (Principal Financial Officer)                                                 |
|                          |                                                                          |

----