----

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

|   | Transition      Report Pursuant to Section 13 or 15(d) of theSecurities      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      |

----

INDEX 

|          |                       |                                                                                                                                                                | Page   |
|---------------|----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART      I.  | FINANCIAL      INFORMATION |                                                                                                                                                                |
|          |                       |                                                                                                                                                                |   |
|          | Item      1.               | Financial      Statements                                                                                                                                           |   |
|          |                       |                                                                                                                                                                |   |
|          |                       | Condensed      Consolidated Balance Sheets at September 30, 2009 (unaudited) and December      31, 2008                                                             | 1      |
|          |                       |                                                                                                                                                                |   |
|          |                       | Condensed      Consolidated Statements of Operations for the three and nine months ended      September 30, 2009 and September 30,      2008  (unaudited) | 2      |
|          |                       |                                                                                                                                                                |   |
|          |                       | Condensed      Consolidated Statements of Shareholders’ Equity for the nine months ended      September 30, 2009 and September 30, 2008 (unaudited)           | 3      |
|          |                       |                                                                                                                                                                |   |
|          |                       | Condensed      Consolidated Statements of Cash Flows for the nine months ended September      30, 2009 and September 30, 2008  (unaudited)                | 4      |
|          |                       |                                                                                                                                                                |   |
|          |                       | Notes      to Unaudited Condensed Consolidated Financial Statements                                                                                                 | 5      |
|          |                       |                                                                                                                                                                |   |
|          | Item      2.               | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                                                               | 23     |
|          |                       |                                                                                                                                                                |   |
|          | Item      3.               | Quantitative      and Qualitative Disclosures About Market Risk                                                                                                     | 47     |
|          |                       |                                                                                                                                                                |   |
|          | Item      4.               | Controls      and Procedures                                                                                                                                        | 53     |
|          |                       |                                                                                                                                                                |   |
| PART      II. | OTHER      INFORMATION     |                                                                                                                                                                |
|          |                       |                                                                                                                                                                |   |
|          | Item      1.               | Legal      Proceedings                                                                                                                                              | 54     |
|          |                       |                                                                                                                                                                |   |
|          | Item      1A.              | Risk      Factors                                                                                                                                                   | 55     |
|          |                       |                                                                                                                                                                |   |
|          | Item      2.               | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                                                    | 55     |
|          |                       |                                                                                                                                                                |   |
|          | Item      3.               | Defaults      Upon Senior Securities                                                                                                                                | 55     |
|          |                       |                                                                                                                                                                |   |
|          | Item      4.               | Submission      of Matters to a Vote of Security Holders                                                                                                            | 55     |
|          |                       |                                                                                                                                                                |   |
|          | Item      5.               | Other      Information                                                                                                                                              | 55     |
|          |                       |                                                                                                                                                                |   |
|          | Item      6.               | Exhibits                                                                                                                                                            | 56     |
|          |                       |                                                                                                                                                                |   |
| SIGNATURES    | 57                         |

----

Item1.                      FinancialStatements 

CONDENSED CONSOLIDATED

BALANCE SHEETS

|                                                                                                                                                                                                              |   | September      30, |     |   | December      31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|----------|--------|-------------------|--------|
|                                                                                                                                                                                                              |   | 2009               |     |   | 2008              |   |
|                                                                                                                                                                                                              |   | (unaudited)        |     |   |              |   |
| ASSETS                                                                                                                                                                                                            |   |               |     |   |              |   |
| Agency      MBS  (including pledged Agency MBS of $552,970 and $300,277 at      September 30, 2009 and December 31, 2008, respectively)                                                                 |   | $                  | 600,927  |   |              | $      | 311,576 |   |
| Securitized      mortgage loans, net                                                                                                                                                                              |   |               | 225,731  |   |              |   | 243,827 |   |
| Investment      in joint venture                                                                                                                                                                                  |   |               | 8,174    |   |              |   | 5,655 |   |
| Other      investments, net                                                                                                                                                                                       |   |               | 8,439    |   |              |   | 12,735 |   |
|                                                                                                                                                                                                              |   |               | 843,271  |   |              |   | 573,793 |   |
|                                                                                                                                                                                                              |   |               |     |   |              |   |   |   |
| Cash      and cash equivalents                                                                                                                                                                                    |   |               | 21,749   |   |              |   | 24,335 |   |
| Restricted      cash                                                                                                                                                                                              |   |               | –  |   |              |   | 2,974 |   |
| Other      assets                                                                                                                                                                                                 |   |               | 7,526    |   |              |   | 6,089 |   |
|                                                                                                                                                                                                              |   | $                  | 872,546  |   |              | $      | 607,191 |   |
|                                                                                                                                                                                                              |   |               |     |   |              |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                   |   |               |     |   |              |   |   |   |
| Liabilities:                                                                                                                                                                                                      |   |               |     |   |              |   |   |   |
| Repurchase      agreements                                                                                                                                                                                        |   | $                  | 545,761  |   |              | $      | 274,217 |   |
| Securitization      financing                                                                                                                                                                                     |   |               | 148,184  |   |              |   | 178,165 |   |
| Obligation      under payment agreement                                                                                                                                                                           |   |               | 9,095    |   |              |   | 8,534 |   |
| Other      liabilities                                                                                                                                                                                            |   |               | 5,745    |   |              |   | 5,866 |   |
|                                                                                                                                                                                                              |   |               | 708,785  |   |              |   | 466,782 |   |
|                                                                                                                                                                                                              |   |               |     |   |              |   |   |   |
| Commitments      and Contingencies (Note 13)                                                                                                                                                                      |   |               |     |   |              |   |   |   |
|                                                                                                                                                                                                              |   |               |     |   |              |   |   |   |
| Shareholders’      equity:                                                                                                                                                                                  |   |               |     |   |              |   |   |   |
| Preferred      stock, par value $0.01 per share: 50,000,000 shares authorized, 9.5%      Cumulative Convertible Series D; 4,221,539 shares issued and outstanding      ($43,218 aggregate liquidation preference) |   |               | 41,749   |   |              |   | 41,749 |   |
| Common      stock, par value $0.01 per share, 100,000,000 shares authorized,      13,572,012 and 12,169,762 shares issued and outstanding,      respectively                                                      |   |               | 136      |   |              |   | 122 |   |
| Additional      paid-in capital                                                                                                                                                                                   |   |               | 376,659  |   |              |   | 366,817 |   |
| Accumulated      other comprehensive income (loss)                                                                                                                                                                |   |               | 7,999    |   |              |   | (3,949 | ) |
| Accumulated      deficit                                                                                                                                                                                          |   |               | (262,782 | )      |              |   | (264,330 | ) |
|                                                                                                                                                                                                              |   |               | 163,761  |   |              |   | 140,409 |   |
|                                                                                                                                                                                                              |   | $                  | 872,546  |   |              | $      | 607,191 |   |
|                                                                                                                                                                                                              |   |               |     |   |              |   |   |   |

----

CONDENSED CONSOLIDATEDSTATEMENTS

OF OPERATIONS 

|                                                     |   | Three      Months Ended |    |   | Nine      Months Ended |   |
|----------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                                     |   | September      30,      |    |   | September      30,     |   |
|                                                     |   | 2009                    |    |   | 2008                   |   |   | 2009 |   |   | 2008 |   |
| Interest      income:                                    |   |                    |    |   |                   |   |   |   |   |   |   |   |
| Investments                                              |   | $                       | 9,448   |   |                   | $      | 7,719 |   |   | $ | 28,735 |   |   | $ | 20,375 |   |
| Cash and cash      equivalents                           |   |                    | 4       |   |                   |   | 158 |   |   |   | 13 |   |   |   | 659 |   |
|                                                     |   |                    | 9,452   |   |                   |   | 7,877 |   |   |   | 28,748 |   |   |   | 21,034 |   |
| Interest      expense                                    |   |                    | (2,855  | )      |                   |   | (5,090 | ) |   |   | (11,226 | ) |   |   | (13,325 | ) |
| Net      interest income                                 |   |                    | 6,597   |   |                   |   | 2,787 |   |   |   | 17,522 |   |   |   | 7,709 |   |
| Provision      for loan losses                           |   |                    | (248    | )      |                   |   | (449 | ) |   |   | (566 | ) |   |   | (796 | ) |
|                                                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income after provision for loan losses |   |                    | 6,349   |   |                   |   | 2,338 |   |   |   | 16,956 |   |   |   | 6,913 |   |
|                                                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      in income (loss) of joint venture            |   |                    | 1,620   |   |                   |   | (3,462 | ) |   |   | 1,476 |   |   |   | (5,153 | ) |
| Gain      on sale of investments, net                    |   |                    | – |   |                   |   | 331 |   |   |   | 220 |   |   |   | 2,381 |   |
| Fair      value adjustments, net                         |   |                    | (457    | )      |                   |   | 1,461 |   |   |   | (319 | ) |   |   | 5,519 |   |
| Other      income                                        |   |                    | 29      |   |                   |   | 3,862 |   |   |   | 193 |   |   |   | 6,954 |   |
| General      and administrative expenses:                |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and      benefits                           |   |                    | (824    | )      |                   |   | (609 | ) |   |   | (2,776 | ) |   |   | (1,693 | ) |
| Other general and      administrative expenses           |   |                    | (715    | )      |                   |   | (876 | ) |   |   | (2,245 | ) |   |   | (2,261 | ) |
|                                                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                          |   |                    | 6,002   |   |                   |   | 3,045 |   |   |   | 13,505 |   |   |   | 12,660 |   |
| Preferred      stock dividends                           |   |                    | (1,003  | )      |                   |   | (1,003 | ) |   |   | (3,008 | ) |   |   | (3,008 | ) |
|                                                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income to common shareholders                   |   | $                       | 4,999   |   |                   | $      | 2,042 |   |   | $ | 10,497 |   |   | $ | 9,652 |   |
|                                                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares:                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   |                    | 13,552  |   |                   |   | 12,170 |   |   |   | 12,908 |   |   |   | 12,165 |   |
| Diluted                                                  |   |                    | 17,776  |   |                   |   | 12,173 |   |   |   | 17,131 |   |   |   | 16,393 |   |
| Net      income per common share:                        |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   | $                       | 0.37    |   |                   | $      | 0.17 |   |   | $ | 0.81 |   |   | $ | 0.79 |   |
| Diluted                                                  |   | $                       | 0.34    |   |                   | $      | 0.17 |   |   | $ | 0.79 |   |   | $ | 0.77 |   |
|                                                     |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      declared per common share                 |   | $                       | 0.23    |   |                   | $      | 0.23 |   |   | $ | 0.69 |   |   | $ | 0.48 |   |

----

|                                                                                              |   | PreferredStock |    |   | CommonStock |   |    | AdditionalPaid-inCapital |   |   | Accumulated      OtherCompre­hen­sive(Loss)      Income |   |   | AccumulatedDeficit |    |   | Total  |   |
|---------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|-------------|--------|---------|--------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|--------------------|---------|--------|--------|--------|
| Balance      at December 31, 2008                                                                 |   | $              | 41,749  |   |        | $      | 122     |                     |   | $      | 366,817                                                           |   |   | $                  | (3,949  | )      |   | $      | (264,330 | ) |   | $ | 140,409 |   |
| Net      income                                                                                   |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 13,505 |   |   |   | 13,505 |   |
| Other      comprehensive income:                                                                  |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   |   |   |
| Change      in market value of securities and other investments                                   |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 11,461  |   |   |   | – |   |   |   | 11,461 |   |
| Reclassification      adjustment for joint venture’s other-than-temporary    impairment     |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 707     |   |   |   | – |   |   |   | 707 |   |
| Reclassification      adjustment for gain on sale of investments, net included in net      income |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (220    | )      |   |   | – |   |   |   | (220 | ) |
| Total      comprehensive income                                                                   |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   | 25,453 |   |
| Dividends      on common stock                                                                    |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (8,949 | ) |   |   | (8,949 | ) |
| Dividends      on preferred stock                                                                 |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (3,008 | ) |   |   | (3,008 | ) |
| Common      stock issuance                                                                        |   |           | – |   |        |   | 14      |                     |   |   | 9,759                                                             |   |   |               | – |   |   |   | – |   |   |   | 9,773 |   |
| Vesting      of restricted stock                                                                  |   |           | – |   |        |   | – |                     |   |   | 83                                                                |   |   |               | – |   |   |   | – |   |   |   | 83 |   |
| Balance      at September 30, 2009                                                                |   | $              | 41,749  |   |        | $      | 136     |                     |   | $      | 376,659                                                           |   |   | $                  | 7,999   |   |   | $      | (262,782 | ) |   | $ | 163,761 |   |

|                                                                                              |   | PreferredStock |    |   | CommonStock |   |    | AdditionalPaid-inCapital |   |   | Accumulated      OtherCompre­hen­sive(Loss)      Income |   |   | AccumulatedDeficit |    |   | Total  |   |
|---------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|-------------|--------|---------|--------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|--------------------|---------|--------|--------|--------|
| Balance      at December 31, 2007                                                                 |   | $              | 41,749  |   |        | $      | 121     |                     |   | $      | 366,716                                                           |   |   | $                  | 1,093   |   |   | $      | (267,743 | ) |   | $ | 141,936 |   |
| Cumulative      effect of adoption of SFAS 159                                                    |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 943 |   |   |   | 943 |   |
| Net      income                                                                                   |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | 12,660 |   |   |   | 12,660 |   |
| Other      comprehensive income:                                                                  |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   |   |   |
| Change      in market value of securities and other investments                                   |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (4,753  | )      |   |   | – |   |   |   | (4,753 | ) |
| Reclassification      adjustment for gain on sale of investments, net included in net      income |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (2,381  | )      |   |   | – |   |   |   | (2,381 | ) |
| Total      comprehensive income                                                                   |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |    |   |   |   |   |   |   |   | 5,526 |   |
| Dividends      on common stock                                                                    |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (5,841 | ) |   |   | (5,841 | ) |
| Dividends      on preferred stock                                                                 |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | – |   |   |   | (3,008 | ) |   |   | (3,008 | ) |
| Stock      option issuance                                                                        |   |           | – |   |        |   | – |                     |   |   | 13                                                                |   |   |               | – |   |   |   | – |   |   |   | 13 |   |
| Grant      and vesting of restricted stock                                                        |   |           | – |   |        |   | 1       |                     |   |   | 64                                                                |   |   |               | – |   |   |   | – |   |   |   | 65 |   |
| Balance      at September 30, 2008                                                                |   | $              | 41,749  |   |        | $      | 122     |                     |   | $      | 366,793                                                           |   |   | $                  | (6,041  | )      |   | $      | (262,989 | ) |   | $ | 139,634 |   |

----

|   | DYNEX      CAPITAL, INC. |
|--------|--------------------------|

|   | CONDENSED CONSOLIDATED  STATEMENTS |
|--------|------------------------------------|

|   | OF CASH FLOWS(UNAUDITED) |
|--------|--------------------------|

|   | (amounts      in thousands) |
|--------|-----------------------------|

|                                                                                    |   | Nine      Months Ended |     |
|-----------------------------------------------------------------------------------------|--------|------------------------|----------|
|                                                                                    |   | September      30,     |     |
|                                                                                    |   | 2009                   |     |   | 2008 |   |
| Operating      activities:                                                              |   |                   |     |   |   |   |
| Net      income                                                                         |   | $                      | 13,505   |   |   | $ | 12,660 |   |
| Adjustments      to reconcile net income to cash provided by operating      activities: |   |                   |     |   |   |   |   |   |
| Equity      in (income) loss of joint venture                                           |   |                   | (1,476   | ) |   |   | 5,153 |   |
| Provision      for loan losses                                                          |   |                   | 566      |   |   |   | 796 |   |
| Gain      on sale of investments, net                                                   |   |                   | (220     | ) |   |   | (2,381 | ) |
| Fair      value adjustments, net                                                        |   |                   | 319      |   |   |   | (5,519 | ) |
| Amortization      and depreciation                                                      |   |                   | 1,812    |   |   |   | (1,694 | ) |
| Stock      based compensation expense (benefit)                                         |   |                   | 426      |   |   |   | (263 | ) |
| Net      change in other assets and other liabilities                                   |   |                   | (2,645   | ) |   |   | (4,134 | ) |
| Net      cash provided by operating activities                                          |   |                   | 12,287   |   |   |   | 4,618 |   |
|                                                                                    |   |                   |     |   |   |   |   |   |
| Investing      activities:                                                              |   |                   |     |   |   |   |   |   |
| Principal      payments received on securitized mortgage loans                          |   |                   | 17,332   |   |   |   | 28,008 |   |
| Purchases      of Agency MBS                                                            |   |                   | (364,575 | ) |   |   | (343,941 | ) |
| Purchases      of other investments                                                     |   |                   | –  |   |   |   | (9,988 | ) |
| Payments      received on Agency MBS and other investments                              |   |                   | 86,448   |   |   |   | 21,171 |   |
| Proceeds      from sales of other investments                                           |   |                   | 3,699    |   |   |   | 19,188 |   |
| Proceeds      from sales of Agency MBS                                                  |   |                   | –  |   |   |   | 29,744 |   |
| Other                                                                                   |   |                   | (1,796   | ) |   |   | (2,882 | ) |
| Net      cash used by investing activities                                              |   |                   | (258,892 | ) |   |   | (258,700 | ) |
|                                                                                    |   |                   |     |   |   |   |   |   |
| Financing      activities:                                                              |   |                   |     |   |   |   |   |   |
| Net      borrowings under repurchase agreements                                         |   |                   | 271,544  |   |   |   | 261,207 |   |
| Principal      payments on securitization financing                                     |   |                   | (13,256  | ) |   |   | (17,217 | ) |
| Decrease      in restricted cash                                                        |   |                   | 2,974    |   |   |   | – |   |
| Redemption      of securitization financing                                             |   |                   | (15,493  | ) |   |   | – |   |
| Proceeds      from issuance of common stock                                             |   |                   | 9,884    |   |   |   | – |   |
| Dividends      paid                                                                     |   |                   | (11,634  | ) |   |   | (8,849 | ) |
| Net      cash provided by financing activities                                          |   |                   | 244,019  |   |   |   | 235,141 |   |
|                                                                                    |   |                   |     |   |   |   |   |   |
| Net      decrease in cash and cash equivalents                                          |   |                   | (2,586   | ) |   |   | (18,941 | ) |
| Cash      and cash equivalents at beginning of period                                   |   |                   | 24,335   |   |   |   | 35,352 |   |
| Cash      and cash equivalents at end of period                                         |   | $                      | 21,749   |   |   | $ | 16,411 |   |
|                                                                                    |   |                   |     |   |   |   |   |   |
| Supplemental      disclosure of non-cash financing activities:                          |   |                   |     |   |   |   |   |   |
| Dividends declared and      unpaid                                                      |   | $                      | 4,125    |   |   | $ | 3,802 |   |
|                                                                                    |   |                   |     |   |   |   |   |   |

----

NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

----

----

----

----

----

|                                                                                                              |   | Three      Months Ended September 30, |    |
|-------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                                                              |   | 2009                                  |    |   | 2008 |   |
|                                                                                                              |   | Income                                |    |   | Weighted-Average      Common Shares |   |   | Income |   |   | Weighted-AverageCommonShares |   |
| Net      income                                                                                                   |   | $                                     | 6,002   |   |   |   |   |   | $ | 3,045 |   |   |   |   |
| Preferred      stock dividends                                                                                    |   |                                  | (1,003  | ) |   |   |   |   |   | (1,003 | ) |   |   |   |
| Net      income to common shareholders                                                                            |   |                                  | 4,999   |   |   |   | 13,551,994 |   |   |   | 2,042 |   |   |   | 12,169,762 |   |
| Effect      of dilutive items                                                                                     |   |                                  | 1,003   |   |   |   | 4,224,346 |   |   |   | – |   |   |   | 2,761 |   |
| Diluted                                                                                                           |   | $                                     | 6,002   |   |   |   | 17,776,340 |   |   | $ | 2,042 |   |   |   | 12,172,523 |   |
|                                                                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:                                                                                 |   |
| Basic                                                                                                             |   |                                  |    |   |   | $ | 0.37 |   |   |   |   |   |   | $ | 0.17 |   |
| Diluted                                                                                                           |   |                                  |    |   |   | $ | 0.34 |   |   |   |   |   |   | $ | 0.17 |   |
|                                                                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation      of shares included in calculation of net income per common share due to      dilutive effect: |   |                                  |    |
| Net      effect of dilutive:                                                                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible      preferred stock                                                                                  |   | $                                     | 1,003   |   |   |   | 4,221,539 |   |   | $ | – |   |   |   | – |   |
| Stock      options                                                                                                |   |                                  | – |   |   |   | 2,807 |   |   |   | – |   |   |   | 2,761 |   |
|                                                                                                              |   | $                                     | 1,003   |   |   |   | 4,224,346 |   |   | $ | – |   |   |   | 2,761 |   |

|                                                                                                              |   | Nine      Months Ended September 30, |    |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                                                                              |   | 2009                                 |    |   | 2008 |   |
|                                                                                                              |   | Income                               |    |   | Weighted-Average      Common Shares |   |   | Income |   |   | Weighted-AverageCommonShares |   |
| Net      income                                                                                                   |   | $                                    | 13,505  |   |   |   |   |   | $ | 12,660 |   |   |   |   |
| Preferred      stock dividends                                                                                    |   |                                 | (3,008  | ) |   |   |   |   |   | (3,008 | ) |   |   |   |
| Net      income to common shareholders                                                                            |   |                                 | 10,497  |   |   |   | 12,908,243 |   |   |   | 9,652 |   |   |   | 12,165,483 |   |
| Effect      of dilutive items                                                                                     |   |                                 | 3,008   |   |   |   | 4,222,306 |   |   |   | 3,008 |   |   |   | 4,227,296 |   |
| Diluted                                                                                                           |   | $                                    | 13,505  |   |   |   | 17,130,549 |   |   | $ | 12,660 |   |   |   | 16,392,779 |   |
|                                                                                                              |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income common per share:                                                                                 |   |
| Basic                                                                                                             |   |                                 |    |   |   | $ | 0.81 |   |   |   |   |   |   | $ | 0.79 |   |
| Diluted                                                                                                           |   |                                 |    |   |   | $ | 0.79 |   |   |   |   |   |   | $ | 0.77 |   |
|                                                                                                              |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation      of shares included in calculation of net income per common share due to      dilutive effect: |   |                                 |    |
| Net      effect of dilutive:                                                                                      |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible      preferred stock                                                                                  |   | $                                    | 3,008   |   |   |   | 4,221,539 |   |   | $ | 3,008 |   |   |   | 4,221,539 |   |
| Stock      options                                                                                                |   |                                 | – |   |   |   | 767 |   |   |   | – |   |   |   | 5,757 |   |
|                                                                                                              |   | $                                    | 3,008   |   |   |   | 4,222,306 |   |   | $ | 3,008 |   |   |   | 4,227,296 |   |

----

|                                           |   | Three      Months Ended |    |   | Nine      Months Ended |   |
|------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                           |   | September      30,      |    |   | September      30,     |   |
|                                           |   | 2009                    |    |   | 2008                   |   |   | 2009 |   |   | 2008 |   |
| Shares      issuable under stock option awards |   |                    | 70,000  |   |                   |   | 85,000 |   |   |   | 70,000 |   |   |   | 50,000 |   |
| Convertible      preferred stock               |   |                    | – |   |                   |   | 4,221,539 |   |   |   | – |   |   |   | – |   |

|                                  |   | September      30,2009 |    |   | December      31, 2008 |   |
|---------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Principal/par      value              |   | $                      | 576,573 |   |                   | $      | 307,548 |   |
| Purchase      premiums                |   |                   | 12,993  |   |                   |   | 3,585 |   |
| Purchase      discounts               |   |                   | (46     | )      |                   |   | (59 | ) |
| Amortized cost                        |   |                   | 589,520 |   |                   |   | 311,074 |   |
| Gross      unrealized gains           |   |                   | 11,531  |   |                   |   | 1,355 |   |
| Gross      unrealized losses          |   |                   | (124    | )      |                   |   | (853 | ) |
| Fair value                            |   | $                      | 600,927 |   |                   | $      | 311,576 |   |
|                                  |   |                   |    |   |                   |   |   |   |
| Weighted      average coupon          |   |                   | 4.90    | %      |                   |   | 5.06 | % |
| Weighted      average months to reset |   |                   | 20      |   |                   |   | 21 |   |

----

|                                                                 |   | September      30,2009 |    |   | December      31, 2008 |   |
|----------------------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans:                                     |   |                   |    |   |                   |   |
| Commercial      mortgage loans                                       |   | $                      | 151,001 |   |                   | $      | 164,032 |   |
| Single-family      mortgage loans                                    |   |                   | 63,887  |   |                   |   | 70,607 |   |
|                                                                 |   |                   | 214,888 |   |                   |   | 234,639 |   |
| Funds      held by trustees, including funds held for defeased loans |   |                   | 13,741  |   |                   |   | 11,267 |   |
| Accrued      interest receivable                                     |   |                   | 1,392   |   |                   |   | 1,538 |   |
| Unamortized      discounts and premiums, net                         |   |                   | (18     | )      |                   |   | 90 |   |
| Other                                                                |   |                   | (241    | )      |                   |   | – |   |
| Loans,      at amortized cost                                        |   |                   | 229,762 |   |                   |   | 247,534 |   |
| Allowance      for loan losses                                       |   |                   | (4,031  | )      |                   |   | (3,707 | ) |
|                                                                 |   | $                      | 225,731 |   |                   | $      | 243,827 |   |

|                                  |   | Three      Months EndedSeptember      30, |   |   | Nine      Months EndedSeptember      30, |   |
|---------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                  |   | 2009                                      |   |   | 2008                                     |   |   | 2009 |   |   | 2008 |   |
| Allowance      at beginning of period |   | $                                         | 4,016  |   |                                     | $      | 3,066 |   |   | $ | 3,707 |   |   | $ | 2,721 |   |
| Provision      for loan losses        |   |                                      | 248    |   |                                     |   | 449 |   |   |   | 566 |   |   |   | 796 |   |
| Charge-offs,      net of recoveries   |   |                                      | (138   | )      |                                     |   | (3 | ) |   |   | (147 | ) |   |   | (5 | ) |
| Allowance      at end of period       |   | $                                         | 4,126  |   |                                     | $      | 3,512 |   |   | $ | 4,126 |   |   | $ | 3,512 |   |

|                                          |   | September      30,2009 |   |   | December      31, 2008 |   |
|-----------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
| Securitized      commercial mortgage loans    |   | $                      | 3,785  |   |                   | $      | 3,527 |   |
| Securitized      single-family mortgage loans |   |                   | 246    |   |                   |   | 180 |   |
|                                          |   |                   | 4,031  |   |                   |   | 3,707 |   |
| Other      mortgage loans                     |   |                   | 95     |   |                   |   | – |   |
|                                          |   | $                      | 4,126  |   |                   | $      | 3,707 |   |

----

|                                   |   | September      30, 2009 |   |   | December      31, 2008 |   |
|----------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                   |   | Commercial              |   |   | Single-family          |   |   | Commercial |   |   | Single-family |   |
| Investment      in impaired loans      |   | $                       | 16,742 |   |                   | $      | 3,958 |   |   | $ | 17,292 |   |   | $ | 3,501 |   |
| Allowance      for loan losses         |   |                    | 3,785  |   |                   |   | 246 |   |   |   | 3,527 |   |   |   | 180 |   |
| Investment      in excess of allowance |   | $                       | 12,957 |   |                   | $      | 3,712 |   |   | $ | 13,765 |   |   | $ | 3,321 |   |

| Condensed      Statements of Operations |   |
|-----------------------------------------|--------|
|                                    |   | Three      Months EndedSeptember      30, |   |   | Nine      Months EndedSeptember      30, |   |
|                                    |   | 2009 |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
| Interest      income                    |   | $ | 622 |   |   | $ | 903 |   |   | $ | 1,870 |   |   | $ | 3,392 |   |
| Fair      value adjustment              |   |   | 2,632 |   |   |   | (1,584 | ) |   |   | 2,652 |   |   |   | (5,846 | ) |
| Other-than-temporary      impairment    |   |   | – |   |   |   | (6,073 | ) |   |   | (1,417 | ) |   |   | (7,277 | ) |
| Other      expense                      |   |   | (6 | ) |   |   | (6 | ) |   |   | (25 | ) |   |   | (59 | ) |
| Net      income (loss)                  |   | $ | 3,248 |   |   | $ | (6,760 | ) |   | $ | 3,080 |   |   | $ | (9,790 | ) |

----

| Condensed      Balance Sheets     |   |                   |   |   |                   |   |
|-----------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                              |   | September      30,2009 |   |   | December      31, 2008 |   |
| Total      assets                 |   | $                      | 16,410 |   |                   | $      | 11,240 |   |
| Total      liabilities            |   | $                      | 21     |   |                   | $      | 21 |   |
| Total      members’ capital |   | $                      | 16,389 |   |                   | $      | 11,219 |   |

|                                                |   | September      30, 2009 |    |   | December      31, 2008      |   |
|-----------------------------------------------------|--------|-------------------------|---------|--------|-----------------------------|--------|
|                                                |   | CarryingValue           |    |   | Weighted      Average Yield |   |   | Carrying      Value |   |   | Weighted      Average Yield |   |
| Non-Agency      MBS                                 |   | $                       | 6,612   |   |                        |   | 8.07 | % |   | $ | 6,959 |   |   |   | 8.02 | % |
| Equity      securities of publicly traded companies |   |                    | – |   |                        |   |   |   |   |   | 3,441 |   |   |   |   |   |
|                                                |   |                    | 6,612   |   |                        |   |   |   |   |   | 10,400 |   |   |   |   |   |
| Gross      unrealized gains                         |   |                    | 490     |   |                        |   |   |   |   |   | 802 |   |   |   |   |   |
| Gross      unrealized losses                        |   |                    | (990    | )      |                        |   |   |   |   |   | (1,335 | ) |   |   |   |   |
|                                                |   |                    | 6,112   |   |                        |   |   |   |   |   | 9,867 |   |   |   |   |   |
| Other      mortgage loans, net                      |   |                    | 2,188   |   |                        |   |   |   |   |   | 2,657 |   |   |   |   |   |
| Other                                               |   |                    | 139     |   |                        |   |   |   |   |   | 211 |   |   |   |   |   |
|                                                |   | $                       | 8,439   |   |                        |   |   |   |   | $ | 12,735 |   |   |   |   |   |

|                                             |   | September      30, 2009 |    |
|--------------------------------------------------|--------|-------------------------|---------|
| Collateral      Type                             |   | Balance                 |    |   | Weighted      Average Rate |   |   | Fair      Value of Collateral |   |
| Agency      MBS                                  |   | $                       | 516,627 |   |   |   | 0.39 | % |   | $ | 552,970 |   |
| Securitization      financing bonds (see Note 9) |   |                    | 29,134  |   |   |   | 1.71 | % |   |   | 41,732 |   |
|                                             |   | $                       | 545,761 |   |   |   | 0.46 | % |   | $ | 594,702 |   |

----

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

| Original      Maturity    |   | September      30, 2009 |    |   | December      31, 2008 |   |
|---------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| 30      days or less      |   | $                       | 280,759 |   |                   | $      | 38,617 |   |
| 31      to 60 days        |   |                    | 75,680  |   |                   |   | 187,960 |   |
| 61      to 90 days        |   |                    | 7,577   |   |                   |   | 47,640 |   |
| Greater      than 90 days |   |                    | 181,745 |   |                   |   | – |   |
|                      |   | $                       | 545,761 |   |                   | $      | 274,217 |   |

----

|                                                 |   | September      30, 2009 |      |   | December      31, 2008       |   |
|------------------------------------------------------|--------|-------------------------|-----------|--------|------------------------------|--------|
|                                                 |   | Bonds      Outstanding  |      |   | Range      of Interest Rates |   |   | Bonds      Outstanding |   |   | Range      of Interest Rates |   |
| Fixed-rate      classes                              |   | $                       | 123,956   |   |                         |   | 6.7%      - 8.8 | % |   | $ | 149,598 |   |   |   | 6.6%      - 8.8 | % |
| Variable-rate      classes                           |   |                    | 25,079    |   |                         |   | 0.6 | % |   |   | 28,186 |   |   |   | 1.7 | % |
| Accrued      interest payable                        |   |                    | 854       |   |                         |   |   |   |   |   | 1,008 |   |   |   |   |   |
| Unamortized      net bond premium and deferred costs |   |                    | (1,705    | )      |                         |   |   |   |   |   | (627 | ) |   |   |   |   |
|                                                 |   | $                       | 148,184   |   |                         |   |   |   |   | $ | 178,165 |   |   |   |   |   |
|                                                 |   |                    |      |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Range      of stated maturities                      |   |                    | 2024-2027 |   |                         |   |   |   |   |   | 2024-2027 |   |   |   |   |   |
| Estimated      weighted average life                 |   | 3.3      years          |      |   |                         |   |   |   | 2.6      years |   |   |   |   |   |
| Number      of series                                |   |                    | 3         |   |                         |   |   |   |   |   | 3 |   |   |   |   |   |

----

|                           |   | September      30, 2009 |   |   | December      31, 2008 |   |
|--------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Discount      rate             |   |                    | 25.0   | %      |                   |   | 36.5 | % |
| Annual      loss rate          |   |                    | 1.5    | %      |                   |   | 0.8 | % |
| Prepayment      speed      (1) |   | 20% CPY                 |   |   | 100% CPY               |   |

| (1) | CPR      with yield maintenance provision.  100% CPY assumes all loans      prepay at expiration of their prepayment lock-out period and pay yield      maintenance premium. 20% CPY assumes a CPR of 20% per annum on the pool      upon expiration of the prepayment lock-out  period. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      1 — Inputs are unadjusted, quoted prices in active markets for identical      assets or liabilities at the measurement date.  The types of      assets and liabilities carried at Level 1 fair value generally are equity      securities listed in activemarkets. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

|                                         |   |            |    |   | Fair      Value Measurements |   |
|----------------------------------------------|--------|-----------------|---------|--------|------------------------------|--------|
|                                         |   | Fair      Value |    |   | Level      1                 |   |   | Level      2 |   |   | Level      3 |   |
| Assets:                                      |   |            |    |   |                         |   |   |   |   |   |   |   |
| Agency MBS                                   |   | $               | 600,927 |   |                         | $      | – |   |   | $ | 600,927 |   |   | $ | – |   |
| Non-Agency MBS                               |   |            | 6,112   |   |                         |   | – |   |   |   | – |   |   |   | 6,112 |   |
| Other                                        |   |            | 139     |   |                         |   | – |   |   |   | – |   |   |   | 139 |   |
| Total assets carried at fair      value      |   | $               | 607,178 |   |                         | $      | – |   |   | $ | 600,927 |   |   | $ | 6,251 |   |
|                                         |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                 |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Obligation under payment      agreement      |   | $               | 9,095   |   |                         | $      | – |   |   | $ | – |   |   | $ | 9,095 |   |
| Total liabilities carried at fair      value |   | $               | 9,095   |   |                         | $      | – |   |   | $ | – |   |   | $ | 9,095 |   |

| Level      3 Fair Values                                    |   |
|-------------------------------------------------------------|--------|
|                                                        |   | Other      Investments |   |   | Total      assets |   |   | Obligation      under payment agreement |   |
|                                                        |   | Non-Agency      MBS |   |   | Other |   |
| Balance      at June 30, 2009                               |   | $ | 5,813 |   |   | $ | 158 |   |   | $ | 5,971 |   |   | $ | (8,555 | ) |
| Total      realized and unrealized gains (losses)           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included in      earnings                                   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (540 | ) |
| Included in other comprehensive      income (loss)          |   |   | 383 |   |   |   | (14 | ) |   |   | 369 |   |   |   | – |   |
| Purchases,      sales, issuances and other settlements, net |   |   | (84 | ) |   |   | (5 | ) |   |   | (89 | ) |   |   | – |   |
| Transfers      in and/or out of Level 3                     |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      at September 30, 2009                          |   | $ | 6,112 |   |   | $ | 139 |   |   | $ | 6,251 |   |   | $ | (9,095 | ) |

| Level      3 Fair Values                                    |   |
|-------------------------------------------------------------|--------|
|                                                        |   | Other      Investments |   |   | Total      assets |   |   | Obligation      under payment agreement |   |
|                                                        |   | Non-Agency      MBS |   |   | Other |   |
| Balance      at December 31, 2008                           |   | $ | 6,259 |   |   | $ | 211 |   |   | $ | 6,470 |   |   | $ | (8,534 | ) |
| Total      realized and unrealized gains (losses)           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Included in      earnings                                   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (561 | ) |
| Included in other comprehensive      income (loss)          |   |   | 199 |   |   |   | (31 | ) |   |   | 168 |   |   |   | – |   |
| Purchases,      sales, issuances and other settlements, net |   |   | (346 | ) |   |   | (41 | ) |   |   | (387 | ) |   |   | – |   |
| Transfers      in and/or out of Level 3                     |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Balance      at September 30, 2009                          |   | $ | 6,112 |   |   | $ | 139 |   |   | $ | 6,251 |   |   | $ | (9,095 | ) |

----

|                                    |   | September      30, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                    |   | RecordedBasis           |    |   | FairValue              |   |   | RecordedBasis |   |   | FairValue |   |
| Assets:                                 |   |                    |    |   |                   |   |   |   |   |   |   |   |
| Agency MBS                              |   | $                       | 600,927 |   |                   | $      | 600,927 |   |   | $ | 311,576 |   |   | $ | 311,576 |   |
| Securitized mortgage loans,      net    |   |                    | 225,731 |   |                   |   | 194,436 |   |   |   | 243,827 |   |   |   | 201,252 |   |
| Investment in joint      venture        |   |                    | 8,174   |   |                   |   | 8,174 |   |   |   | 5,655 |   |   |   | 5,595 |   |
| Otherinvestments                        |   |                    | 8,439   |   |                   |   | 8,234 |   |   |   | 12,735 |   |   |   | 12,358 |   |
|                                    |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                            |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements              |   |                    | 545,761 |   |                   |   | 545,761 |   |   |   | 274,217 |   |   |   | 274,217 |   |
| Securitization      financing           |   |                    | 148,184 |   |                   |   | 133,294 |   |   |   | 178,165 |   |   |   | 153,370 |   |
| Obligation under payment      agreement |   |                    | 9,095   |   |                   |   | 9,095 |   |   |   | 8,534 |   |   |   | 8,534 |   |

|                               |   | September      30, 2009 |   |   | December      31, 2008 |   |
|------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                               |   | FairValue               |   |   | UnrealizedLoss         |   |   | FairValue |   |   | Unrealized      Loss |   |
| Unrealized      loss position for: |   |                    |   |   |                   |   |   |   |   |   |   |   |
| Less than one    year:             |   |                    |   |   |                   |   |   |   |   |   |   |   |
| Agency MBS                         |   | $                       | 29,906 |   |                   | $      | 124 |   |   | $ | 98,171 |   |   | $ | 853 |   |
| Non-Agency MBS                     |   |                    | 20     |   |                   |   | 1 |   |   |   | 3,719 |   |   |   | 937 |   |
| One year ormore:                   |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency MBS                     |   |                    | 4,346  |   |                   |   | 989 |   |   |   | 598 |   |   |   | 355 |   |
|                               |   | $                       | 34,272 |   |                   | $      | 1,114 |   |   | $ | 102,488 |   |   | $ | 2,145 |   |

----

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

|                                         |   | Preferred     |      |   |   |   |
|----------------------------------------------|--------|---------------|-----------|--------|--------|--------|
|                                         |   | Series      D |      |   | Common |   |
| December      31, 2008                       |   |          | 4,221,539 |   |   |   | 12,169,762 |   |
| Issuance      of shares under the CEOP       |   |          | -         |   |   |   | 1,392,250 |   |
| Restricted      shares granted (see Note 14) |   |          | -         |   |   |   | 10,000 |   |
| September      30, 2009                      |   |          | 4,221,539 |   |   |   | 13,572,012 |   |

----

----

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

|                                            |   | Three      Months Ended |    |   | Nine      Months Ended               |   |
|-------------------------------------------------|--------|-------------------------|---------|--------|--------------------------------------|--------|
|                                            |   | September      30, 2009 |    |   | September      30, 2009              |   |
|                                            |   | Number      of Shares   |    |   | Weighted-Average      Exercise Price |   |   | Number      of Shares |   |   | Weighted-AverageExercisePrice |   |
| Options      outstanding at beginning of period |   |                    | 95,000  |   |                                 | $      | 8.59 |   |   |   | 110,000 |   |   | $ | 8.55 |   |
| Options      granted                            |   |                    | – |   |                                 |   | – |   |   |   | – |   |   |   | – |   |
| Options      forfeited or redeemed              |   |                    | – |   |                                 |   | – |   |   |   | (15,000 | ) |   |   | 8.30 |   |
| Options      exercised                          |   |                    | – |   |                                 |   | – |   |   |   | – |   |   |   | – |   |
| Options      outstanding at end of period       |   |                    | 95,000  |   |                                 | $      | 8.59 |   |   |   | 95,000 |   |   | $ | 8.59 |   |
| Options      vested and exercisable             |   |                    | 95,000  |   |                                 | $      | 8.59 |   |   |   | 95,000 |   |   | $ | 8.59 |   |

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

----

|                             | SARs      Fair Value    |
|----------------------------------|-------------------------|
|                             | September      30, 2009 |
| Expected      volatility         | 25.36%      - 32.98%    |
| Weighted-average      volatility | 30.65%                  |
| Expected      dividend yield     | 10.98%      - 11.00%    |
| Expected      term (in months)   | 36                      |
| Risk-free      rate              | 1.87%                   |

Item2.                      Management’sDiscussion and Analysis of Financial Condition and Results of Operations

----

----

| (amounts      in thousands)             |   | September      30, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                    |   |                    |    |   |                   |   |
| Agency      MBS, at fair value          |   | $                       | 600,927 |   |                   | $      | 311,576 |   |
| Securitized      mortgage loans, net    |   |                    | 225,731 |   |                   |   | 243,827 |   |
| Investment      in joint venture        |   |                    | 8,174   |   |                   |   | 5,655 |   |
| Other      investments                  |   |                    | 8,439   |   |                   |   | 12,735 |   |
|                                    |   |                    |    |   |                   |   |   |   |
| Repurchase      agreements              |   |                    | 545,761 |   |                   |   | 274,217 |   |
| Securitization      financing           |   |                    | 148,184 |   |                   |   | 178,165 |   |
| Obligation      under payment agreement |   |                    | 9,095   |   |                   |   | 8,534 |   |
| Shareholders’      equity         |   |                    | 163,761 |   |                   |   | 140,409 |   |

| (amounts      in thousands) |   | September      30, 2009 |    |   | December      31, 2008 |   |
|-----------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Agency      MBS:            |   |                    |    |   |                   |   |
| Hybrid Agency    ARMs       |   | $                       | 323,178 |   |                   | $      | 217,800 |   |
| Agency ARMs                 |   |                    | 274,821 |   |                   |   | 92,626 |   |
|                        |   |                    | 597,999 |   |                   |   | 310,426 |   |
| Fixed-rate                  |   |                    | 139     |   |                   |   | 194 |   |
|                        |   |                    | 598,138 |   |                   |   | 310,620 |   |
| Principal      receivable   |   |                    | 2,789   |   |                   |   | 956 |   |
|                        |   | $                       | 600,927 |   |                   | $      | 311,576 |   |

----

| (amounts      in thousands)           |   | September      30, 2009 |    |   | December      31, 2008 |   |
|---------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans, net: |   |                    |    |   |                   |   |
| Commercial                            |   | $                       | 160,715 |   |                   | $      | 171,963 |   |
| Single-family                         |   |                    | 65,016  |   |                   |   | 71,864 |   |
|                                  |   | $                       | 225,731 |   |                   | $      | 243,827 |   |

----

| (amounts      in thousands)                         |   | September      30, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Non-Agency      MBS                                 |   | $                       | 6,612   |   |                   | $      | 6,959 |   |
| Equity      securities of publicly traded companies |   |                    | – |   |                   |   | 3,441 |   |
|                                                |   |                    | 6,612   |   |                   |   | 10,400 |   |
| Gross      unrealized gains                         |   |                    | 490     |   |                   |   | 802 |   |
| Gross      unrealized losses                        |   |                    | (990    | )      |                   |   | (1,335 | ) |
|                                                |   |                    | 6,112   |   |                   |   | 9,867 |   |
| Other      loans, net                               |   |                    | 2,188   |   |                   |   | 2,657 |   |
| Other                                               |   |                    | 139     |   |                   |   | 211 |   |
|                                                |   | $                       | 8,439   |   |                   | $      | 12,735 |   |

----

| (amounts      in thousands)                                 |   | September      30, 2009 |    |   | December      31, 2008 |   |
|-------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Securitization      financing:                              |   |                    |    |   |                   |   |
| Fixed-rate, secured by commercial      mortgage loans       |   | $                       | 123,618 |   |                   | $      | 150,588 |   |
| Variable-rate, secured by      single-family mortgage loans |   |                    | 24,566  |   |                   |   | 27,577 |   |
|                                                        |   | $                       | 148,184 |   |                   | $      | 178,165 |   |

----

----

|                                                 |   | September      30, 2009(amounts      in thousands) |    |
|------------------------------------------------------|--------|----------------------------------------------------|---------|
| Investment                                           |   | Investment      basis                              |    |   | Financing(1) |   |   | Net invested      capital |   |   | Net earnings      Contribution(2) |   |   | Estimated      fair value of net invested capital |   |
| Agency      MBS  (3)                       |   | $                                                  | 600,927 |   |   | $ | 516,627 |   |   | $ | 84,300 |   |   | $ | 4,881 |   |   | $ | 84,300 |   |
|                                                 |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized      mortgage loans: (4)            |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family      mortgage loans – 2002 Trust |   |                                               | 65,016  |   |   |   | 42,930 |   |   |   | 22,086 |   |   |   | 540 |   |   |   | 15,123 |   |
| Commercial      mortgage loans – 1993 Trust    |   |                                               | 18,479  |   |   |   | 10,979 |   |   |   | 7,500 |   |   |   | 369 |   |   |   | 7,790 |   |
| Commercial      mortgage loans – 1997 Trust    |   |                                               | 142,236 |   |   |   | 132,504 |   |   |   | 9,732 |   |   |   | 351 |   |   |   | – |   |
|                                                 |   |                                               | 225,731 |   |   |   | 186,413 |   |   |   | 39,318 |   |   |   | 1,260 |   |   |   | 22,913 |   |
|                                                 |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      in joint venture (5)                 |   |                                               | 8,174   |   |   |   | – |   |   |   | 8,174 |   |   |   | 1,620 |   |   |   | 8,174 |   |
|                                                 |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      investments:  (6)               |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      MBS                                  |   |                                               | 6,112   |   |   |   | – |   |   |   | 6,112 |   |   |   | 155 |   |   |   | 6,112 |   |
| Other      loans and investments                     |   |                                               | 2,327   |   |   |   | – |   |   |   | 2,327 |   |   |   | 49 |   |   |   | 2,122 |   |
|                                                 |   |                                               | 8,439   |   |   |   | – |   |   |   | 8,439 |   |   |   | 204 |   |   |   | 8,234 |   |
|                                                 |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                |   | $                                                  | 843,271 |   |   | $ | 703,040 |   |   | $ | 140,231 |   |   | $ | 7,965 |   |   | $ | 123,621 |   |

|   | (1) | Financing      includes repurchase agreements and securitization financing issued to      third parties.  Financing for the 1997 Trust also includes the      obligation under payment agreement, which at September 30, 2009 had a      balance of $9,095. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Equals      third quarter 2009 net interest income after provision for loan losses for      each of the captions (except the investment in joint venture which is      equity in income of the venture). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Estimated      fair values are based on a third-party pricing service and dealer      quotes. |
|--------|-----|-----------------------------------------------------------------------------------------------|

|   | (4) | Estimated      fair values are based on discounted cash flows using assumptions set forth      in the table below, inclusive of amounts invested in unredeemed      securitization financing bonds. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Estimated      fair value for investment in joint venture represents our share of the      fair value of the joint venture’s assets valued using methodologies and      assumptions consistent with note 4above. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | Estimated      fair values are calculated as the net present value of expected future      cash flows. |
|--------|-----|--------------------------------------------------------------------------------------------------------|

----

|                                                 | Fair      Value Assumptions               |                                       |   |                             |   |
|------------------------------------------------------|-------------------------------------------|--------------------------------------------|--------|----------------------------------|--------|
| Loan      type                                       | Approximate      year of loan origination | Weighted-average      prepayment speeds(1) |   | Projected      annual losses (2) |   |   | Weighted-averagediscount      rate(3) |   |   | YTD      2009Cash      Flows (4) |   |
|                                                 |                                      |                                       |   |                             |   |   |   |   |   | (amounts      in thousands) |   |
| Single-family      mortgage loans – 2002 Trust | 1994                                      | 15%      CPR                               |   |                             | 0.2    | % |   |   | 11 | % |   | $ | 6,118 |   |
| Commercial      mortgage loans – 1993 Trust    | 1993                                      | 0%      CPR                                |   |                             | 0.8    | % |   |   | 10 | % |   | $ | 3,427 |   |
| Commercial      mortgage loans – 1997 Trust    | 1997                                      | 20%      CPY(5)                            |   |                             | 1.5    | % |   |   | 25 | % |   | $ | – |   |
|                                                 |                                      |                                       |   |                             |   |   |   |   |   |   |   |   |   |   |

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

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

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

| (4) | Represents      total cash flows received on the investment including principal and      interest.  Cash flows from the Commercial mortgage loans – 1997      Trust are paid by the Company to the joint venture pursuant to the      Obligation Under Payment Agreement. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | CPR      with yield maintenance provision.  20% CPY assumes a CPR of 20%      per annum on the pool upon expiration of the prepayment lock-out      period. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (amounts      in thousands)                                              |   | September      30, 2009 |    |
|--------------------------------------------------------------------------|--------|-------------------------|---------|
| Investments      by rating classification:                               |   |                    |    |
| Agency      MBS                                                          |   | $                       | 84,300  |   |
| AAA      rated non-Agency MBS                                            |   |                    | 18,532  |   |
| AA      and A rated non-Agency MBS                                       |   |                    | 364     |   |
| Securitization      overcollateralization                                |   |                    | 26,143  |   |
| Investment      in joint venture (principally non-investment grade CMBS) |   |                    | 8,174   |   |
| Unrated      and non-investment grade                                    |   |                    | 2,718   |   |
| Net      invested capital                                                |   | $                       | 140,231 |   |

----

| (amounts      in thousands)            |   | Book      Value |    |
|----------------------------------------|--------|-----------------|---------|
| Net      invested capital              |   | $               | 140,231 |   |
| Cash      and cash equivalents         |   |            | 21,749  |   |
| Other      assets and liabilities, net |   |            | 1,781   |   |
|                                   |   | $               | 163,761 |   |

|                                                     |   | Three      Months EndedSeptember      30, |   |   | Nine      Months EndedSeptember      30, |   |
|----------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
| (amounts      in thousands except per share information) |   | 2009                                      |   |   | 2008                                     |   |   | 2009 |   |   | 2008 |   |
| Interest      income                                     |   | $                                         | 9,452  |   |                                     | $      | 7,877 |   |   | $ | 28,748 |   |   | $ | 21,034 |   |
| Interest      expense                                    |   |                                      | (2,855 | )      |                                     |   | (5,090 | ) |   |   | (11,226 | ) |   |   | (13,325 | ) |
| Provision      for loan losses                           |   |                                      | (248   | )      |                                     |   | (449 | ) |   |   | (566 | ) |   |   | (796 | ) |
| Net      interest income after provision for loan losses |   |                                      | 6,349  |   |                                     |   | 2,338 |   |   |   | 16,956 |   |   |   | 6,913 |   |
| Equity      in income (loss) of joint venture            |   |                                      | 1,620  |   |                                     |   | (3,462 | ) |   |   | 1,476 |   |   |   | (5,153 | ) |
| Gain      on sale of investments, net                    |   | ─                                   |   |   |                                     | 331    |   |   |   | 220 |   |   |   | 2,381 |   |
| Fair      value adjustments, net                         |   |                                      | (457   | )      |                                     |   | 1,461 |   |   |   | (319 | ) |   |   | 5,519 |   |
| Other      income                                        |   |                                      | 29     |   |                                     |   | 3,862 |   |   |   | 193 |   |   |   | 6,954 |   |
| General      and administrative expenses:                |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and      benefits                           |   |                                      | (824   | )      |                                     |   | (609 | ) |   |   | (2,776 | ) |   |   | (1,693 | ) |
| Other administrative and general      expenses           |   |                                      | (715   | )      |                                     |   | (876 | ) |   |   | (2,245 | ) |   |   | (2,261 | ) |
| Net      income                                          |   |                                      | 6,002  |   |                                     |   | 3,045 |   |   |   | 13,505 |   |   |   | 12,660 |   |
|                                                     |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:                        |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   | $                                         | 0.37   |   |                                     | $      | 0.17 |   |   | $ | 0.81 |   |   | $ | 0.79 |   |
| Diluted                                                  |   | $                                         | 0.34   |   |                                     | $      | 0.17 |   |   | $ | 0.79 |   |   | $ | 0.77 |   |
|                                                     |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |

|                                                   |   | Three      Months EndedSeptember      30, |   |
|--------------------------------------------------------|--------|-------------------------------------------|--------|
| (amounts      in thousands)                            |   | 2009                                      |   |   | 2008 |   |
| Interest      income - Investments:                    |   |                                      |   |   |   |   |
| Agency MBS                                             |   | $                                         | 5,413  |   |   | $ | 2,408 |   |
| Securitized mortgage      loans                        |   |                                      | 3,832  |   |   |   | 5,037 |   |
| Other    investments                                   |   |                                      | 203    |   |   |   | 274 |   |
|                                                   |   |                                      | 9,448  |   |   |   | 7,719 |   |
| Interest      income – Cash and cash equivalents |   |                                      | 4      |   |   |   | 158 |   |
|                                                   |   | $                                         | 9,452  |   |   | $ | 7,877 |   |

----

|                             |   | Three      Months Ended September 30, |   |
|----------------------------------|--------|---------------------------------------|--------|
|                             |   | 2009                                  |   |   | 2008 |   |
| (amounts      in thousands)      |   | Interest      Income                  |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Securitized      mortgage loans: |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                       |   | $                                     | 3,361  |   |   | $ | (345 | ) |   | $ | 3,016 |   |   | $ | 3,767 |   |   | $ | 77 |   |   | $ | 3,844 |   |
| Single-family                    |   |                                  | 867    |   |   |   | (51 | ) |   |   | 816 |   |   |   | 1,261 |   |   |   | (68 | ) |   |   | 1,193 |   |
|                             |   | $                                     | 4,228  |   |   | $ | (396 | ) |   | $ | 3,832 |   |   | $ | 5,028 |   |   | $ | 9 |   |   | $ | 5,037 |   |

----

|                                    |   | Three      Months EndedSeptember      30, |   |
|-----------------------------------------|--------|-------------------------------------------|--------|
| (amounts      in thousands)             |   | 2009                                      |   |   | 2008 |   |
| Interest      expense:                  |   |                                      |   |   |   |   |
| Securitization      financing           |   | $                                         | 1,769  |   |   | $ | 3,276 |   |
| Repurchase      agreements              |   |                                      | 668    |   |   |   | 1,417 |   |
| Obligation under payment      agreement |   |                                      | 416    |   |   |   | 402 |   |
| Other                                   |   |                                      | 2      |   |   |   | (5 | ) |
|                                    |   | $                                         | 2,855  |   |   | $ | 5,090 |   |

|                                         |   | Three      Months Ended September 30, |   |
|----------------------------------------------|--------|---------------------------------------|--------|
|                                         |   | 2009                                  |   |   | 2008 |   |
| (amounts      in thousands)                  |   | Interest      Expense                 |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Securitization      financing:               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Secured by commercial mortgage      loans    |   | $                                     | 2,567  |   |   | $ | (852 | ) |   | $ | 1,715 |   |   | $ | 3,131 |   |   | $ | (156 | ) |   | $ | 2,975 |   |
| Secured by single-family      mortgage loans |   |                                  | 38     |   |   |   | 33 |   |   |   | 71 |   |   |   | 219 |   |   |   | 13 |   |   |   | 232 |   |
| Other bond related      costs                |   |                                  | (17    | ) |   |   | – |   |   |   | (17 | ) |   |   | 69 |   |   |   | – |   |   |   | 69 |   |
|                                         |   | $                                     | 2,588  |   |   | $ | (819 | ) |   | $ | 1,769 |   |   | $ | 3,419 |   |   | $ | (143 | ) |   | $ | 3,276 |   |

----

|                                                                       |   | Three      Months EndedSeptember      30, |   |
|----------------------------------------------------------------------------|--------|-------------------------------------------|--------|
| (amounts      in thousands)                                                |   | 2009                                      |   |   | 2008 |   |
| Interest      expense:                                                     |   |                                      |   |   |   |   |
| Repurchase agreements      collateralized by Agency MBS                    |   | $                                         | 531    |   |   | $ | 1,394 |   |
| Repurchase agreements      collateralized by securitizationfinancing bonds |   |                                      | 137    |   |   |   | 23 |   |
|                                                                       |   | $                                         | 668    |   |   | $ | 1,417 |   |

----

|                                |   | Nine      Months Ended September 30, |   |
|-------------------------------------|--------|--------------------------------------|--------|
| (amounts      in thousands)         |   | 2009                                 |   |   | 2008 |   |
| Interest      income - Investments: |   |                                 |   |   |   |   |
| Agency MBS                          |   | $                                    | 14,943 |   |   | $ | 3,262 |   |
| Securitized mortgage      loans     |   |                                 | 13,138 |   |   |   | 16,020 |   |
| Other    investments                |   |                                 | 654    |   |   |   | 1,093 |   |
|                                |   |                                 | 28,735 |   |   |   | 20,375 |   |
| Cash and cash      equivalents      |   |                                 | 13     |   |   |   | 659 |   |
|                                |   | $                                    | 28,748 |   |   | $ | 21,034 |   |

----

|                             |   | Nine      Months Ended September 30, |   |
|----------------------------------|--------|--------------------------------------|--------|
|                             |   | 2009                                 |   |   | 2008 |   |
| (amounts      in thousands)      |   | Interest      Income                 |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Securitized      mortgage loans: |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                       |   | $                                    | 10,343 |   |   | $ | (142 | ) |   | $ | 10,201 |   |   | $ | 11,628 |   |   | $ | 295 |   |   | $ | 11,923 |   |
| Single-family                    |   |                                 | 2,904  |   |   |   | 33 |   |   |   | 2,937 |   |   |   | 4,318 |   |   |   | (221 | ) |   |   | 4,097 |   |
|                             |   | $                                    | 13,247 |   |   | $ | (109 | ) |   | $ | 13,138 |   |   | $ | 15,946 |   |   | $ | 74 |   |   | $ | 16,020 |   |

----

|                                    |   | Nine      Months Ended September 30, |   |
|-----------------------------------------|--------|--------------------------------------|--------|
| (amounts      in thousands)             |   | 2009                                 |   |   | 2008 |   |
| Interest      expense:                  |   |                                 |   |   |   |   |
| Securitization      financing           |   | $                                    | 7,455  |   |   | $ | 10,212 |   |
| Repurchase      agreements              |   |                                 | 2,561  |   |   |   | 1,897 |   |
| Obligation under payment      agreement |   |                                 | 1,217  |   |   |   | 1,207 |   |
| Other                                   |   |                                 | (7     | ) |   |   | 9 |   |
|                                    |   | $                                    | 11,226 |   |   | $ | 13,325 |   |

|                                         |   | Nine      Months Ended September 30, |   |
|----------------------------------------------|--------|--------------------------------------|--------|
|                                         |   | 2009                                 |   |   | 2008 |   |
| (amounts      in thousands)                  |   | Interest      Expense                |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Securitization      financing:               |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Secured by commercial mortgage      loans    |   | $                                    | 8,289  |   |   | $ | (1,192 | ) |   | $ | 7,097 |   |   | $ | 9,873 |   |   | $ | (830 | ) |   | $ | 9,043 |   |
| Secured by single-family      mortgage loans |   |                                 | 136    |   |   |   | 98 |   |   |   | 234 |   |   |   | 795 |   |   |   | 116 |   |   |   | 911 |   |
| Other bond related      costs                |   |                                 | 124    |   |   |   | – |   |   |   | 124 |   |   |   | 258 |   |   |   | – |   |   |   | 258 |   |
|                                         |   | $                                    | 8,549  |   |   | $ | (1,094 | ) |   | $ | 7,455 |   |   | $ | 10,926 |   |   | $ | (714 | ) |   | $ | 10,212 |   |

----

|                                                                       |   | Nine      Months EndedSeptember      30, |   |
|----------------------------------------------------------------------------|--------|------------------------------------------|--------|
| (amounts      in thousands)                                                |   | 2009                                     |   |   | 2008 |   |
| Interest      expense:                                                     |   |                                     |   |   |   |   |
| Repurchase agreements      collateralized by Agency MBS                    |   | $                                        | 2,260  |   |   | $ | 1,796 |   |
| Repurchase agreements      collateralized by securitizationfinancing bonds |   |                                     | 301    |   |   |   | 101 |   |
|                                                                       |   | $                                        | 2,561  |   |   | $ | 1,897 |   |

----

----

|                                                |   | Three      Months Ended September 30, |    |
|-----------------------------------------------------|--------|---------------------------------------|---------|
|                                                |   | 2009                                  |    |   | 2008 |   |
| (amounts      in thousands, except for percentages) |   | AverageBalance(1)(2)                  |    |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveYield/Rate(3) |   |
| Agency MBS                                          |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                                     | 531,280 |   |   |   | 4.13 | % |   | $ | 213,574 |   |   |   | 4.45 | % |
| Repurchase      agreements                          |   |                                  | 485,924 |   |   |   | (0.43 | %) |   |   | 201,863 |   |   |   | (2.75 | %) |
| Net interest    spread                              |   |                                  |    |   |   |   | 3.70 | % |   |   |   |   |   |   | 1.70 | % |
|                                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                          |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                     |   | $                                     | 231,004 |   |   |   | 7.13 | % |   | $ | 257,310 |   |   |   | 7.81 | % |
| Securitization financing      (4)                   |   |                                  | 148,974 |   |   |   | (6.25 | %) |   |   | 185,882 |   |   |   | (6.94 | %) |
| Repurchase      agreements                          |   |                                  | 29,312  |   |   |   | (1.86 | %) |   |   | 3,609 |   |   |   | (2.58 | %) |
| Net interest    spread                              |   |                                  |    |   |   |   | 1.61 | % |   |   |   |   |   |   | 0.95 | % |
|                                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other    investments                                |   | $                                     | 9,009   |   |   |   | 8.98 | % |   | $ | 9,876 |   |   |   | 10.85 | % |
|                                                |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                               |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning      assets                        |   | $                                     | 771,293 |   |   |   | 5.09 | % |   | $ | 480,760 |   |   |   | 6.38 | % |
| Interest bearing      liabilities                   |   |                                  | 664,210 |   |   |   | (1.80 | %) |   |   | 391,354 |   |   |   | (4.74 | %) |
| Net interest    spread                              |   |                                  |    |   |   |   | 3.29 | % |   |   |   |   |   |   | 1.64 | % |

|   | (1) | Average      balances exclude unrealized gains and losses on available-for-sale      securities. |
|--------|-----|--------------------------------------------------------------------------------------------------|

|   | (2) | Average      balances exclude funds held by trustees except collateral received on      defeased loans held by trustees. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

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

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

----

|                                                |   | Nine      Months Ended September 30, |    |
|-----------------------------------------------------|--------|--------------------------------------|---------|
|                                                |   | 2009                                 |    |   | 2008 |   |
| (amounts      in thousands, except for percentages) |   | AverageBalance(1)      (2)           |    |   | EffectiveYield/Rate(3) |   |   | AverageBalance(1)      (2) |   |   | EffectiveYield/Rate(3) |   |
|                                                |   |                                 |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   |                                 |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                                    | 464,430 |   |   |   | 4.30 | % |   | $ | 98,658 |   |   |   | 4.39 | % |
| Repurchase      agreements                          |   |                                 | 423,360 |   |   |   | (0.72 | %) |   |   | 87,613 |   |   |   | (2.74 | )% |
| Net interest    spread                              |   |                                 |    |   |   |   | 3.58 | % |   |   |   |   |   |   | 1.65 | % |
|                                                |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage Loans                          |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                     |   | $                                    | 237,274 |   |   |   | 7.38 | % |   | $ | 267,036 |   |   |   | 7.98 | % |
| Securitization financing      (4)                   |   |                                 | 160,963 |   |   |   | (6.24 | %) |   |   | 194,144 |   |   |   | (6.88 | %) |
| Repurchase      agreements                          |   |                                 | 19,232  |   |   |   | (2.09 | %) |   |   | 4,275 |   |   |   | (3.15 | %) |
| Net interest    spread                              |   |                                 |    |   |   |   | 1.59 | % |   |   |   |   |   |   | 1.18 | % |
|                                                |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other    investments                                |   | $                                    | 9,262   |   |   |   | 9.32 | % |   | $ | 13,040 |   |   |   | 11.27 | % |
|                                                |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                               |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest earning      assets                        |   | $                                    | 710,966 |   |   |   | 5.39 | % |   | $ | 378,734 |   |   |   | 7.16 | % |
| Interest bearing      liabilities                   |   |                                 | 603,555 |   |   |   | (2.23 | %) |   |   | 286,032 |   |   |   | (5.56 | %) |
| Net interest    spread                              |   |                                 |    |   |   |   | 3.16 | % |   |   |   |   |   |   | 1.60 | % |
|                                                |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | (1) | Average      balances exclude unrealized gains and losses on available-for-sale      securities. |
|--------|-----|--------------------------------------------------------------------------------------------------|

|   | (2) | Average      balances exclude funds held by trustees except collateral received on      defeased loans held by trustees. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

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

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

----

----

----

----

| ·   | risks      associated with investing in real estate assets, including changes in      general economic and market conditions, including the ongoing volatility      in the credit markets which impacts assets prices and the cost and      availability of financing, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our      ability to borrow to continue to finance our  assets, |
|--------------------|----------------------------------------------------------------|

| ·   | availability      of suitable reinvestmentopportunities, |
|--------------------|----------------------------------------------------------|

| ·   | fluctuations      in interest rates and the market value of our investments, particularly in      response to changes in governmentpolicy, |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | defaults      by borrowers and/or guarantors of our  investments, |
|--------------------|-------------------------------------------------------------------|

| ·   | fluctuations      in property capitalization rates and values of commercial real      estate, |
|--------------------|----------------------------------------------------------------------------------------------------|

----

| ·   | uncertainty      around government policy, and the impact of regulatory changes, the full      impact of which is unknown at thistime, |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | defaults      by third-party servicers, |
|--------------------|-----------------------------------------|

| ·   | actual      or expected changes in the rate of prepayments on our investments,      particularly those that we own at a premium to their principal      balance, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | other      general competitive factors, |
|--------------------|-----------------------------------------|

| ·   | our      ability to maintain our qualification as a REIT for federal income tax      purposes, |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | our      ability to maintain our exemption from registration under the Investment      Company Act of 1940, as amended, |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | the      impact of Section 404 of the Sarbanes-Oxley Act of  2002, |
|--------------------|--------------------------------------------------------------------|

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

| ·   | the      impact of new accounting standards or changes in current accounting      estimates and assumptions on our financial  results. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

Item3.                      Quantitativeand Qualitative Disclosures About Market Risk 

----

----

| Investment(amounts      in thousands) |   | Amortized      Cost Basis |    |   | Amount      of Guaranty |   | Guarantor |   | Credit      Rating of Guarantor (1)                       |   |
|---------------------------------------|--------|---------------------------|---------|--------|-------------------------|--------|-----------|--------|-----------------------------------------------------------|--------|
| With      Guaranty of Payment         |   |                      |    |   |                    |   |      |   |                                                      |   |
| Agency MBS                            |   | $                         | 600,927 |   |                    | $      | 573,785   |   | Fannie      Mae/Freddie Mac                               |   | AAA |   |
| Securitized mortgage      loans:      |   |                      |    |   |                    |   |      |   |                                                      |   |   |   |
| Commercial                            |   |                      | 60,711  |   |                    |   | 6,935     |   | American      International Group (“AIG”) (2) |   |  A3 |   |
| Single-family                         |   |                      | 21,046  |   |                    |   | 20,602    |   | PMI/GEMICO      “Pool” Insurance              |   | Ba3/Baa2 |   |
| Defeased commercial      loans        |   |                      | 13,588  |   |                    |   | 13,593    |   | Fully      secured with cash                              |   |   |   |   |
|                                  |   |                      |    |   |                    |   |      |   |                                                      |   |   |   |   |
| Without      Guaranty of Payment      |   |                      |    |   |                    |   |      |   |                                                      |   |   |   |   |
| Securitized mortgage      loans:      |   |                      |    |   |                    |   |      |   |                                                      |   |   |   |   |
| Commercial                            |   |                      | 90,200  |   |                    |   | –   |   |                                                      |   |   |   |   |
| Single-family                         |   |                      | 44,217  |   |                    |   | –   |   |                                                      |   |   |   |   |
| Investment in joint      venture      |   |                      | 8,174   |   |                    |   | –   |   |                                                      |   |   |   |   |
| Otherinvestments                      |   |                      | 8,534   |   |                    |   | –   |   |                                                      |   |   |   |   |
|                                  |   |                      | 847,397 |   |                    |   | 614,915   |   |                                                      |   |   |   |   |
|                                  |   |                      |    |   |                    |   |      |   |                                                      |   |   |   |   |
| Allowance      for loan losses        |   |                      | (4,126  | )      |                    |   | –   |   |                                                      |   |   |   |   |
|                                  |   |                      |    |   |                    |   |      |   |                                                      |   |   |   |   |
| Totalinvestments                      |   | $                         | 843,271 |   |                    | $      | 614,915   |   |                                                      |   |   |   |   |

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

| (2) | AIG,      through its subsidiary AIG Retirement Services, Inc., will reimburse us      for any loss on these loans as a pool up to the amount      indicated. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Investment      Type(1)(amounts      in thousand except percentages) |   | Amortized      Cost Basis of Loans |    |   | Excess      of Loans UPB over Securitization Financing UPB |   |   | Current      Loan-to-Value based on Original Appraised Value |   |   | Amortized      Cost Basis of Delinquent Loans(2) |   |   | Delinquency      % |   |
|----------------------------------------------------------------------|--------|------------------------------------|---------|--------|------------------------------------------------------------|--------|--------|--------------------------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|--------------------|--------|
| Commercial      mortgage loans                                       |   | $                                  | 160,715 |   |                                                       | $      | 40,637 |                                                         |   |   | 47.9                                             | %      |   | $                  | 7,938  |   |   |   | 5.09 | % |
| Single-family      mortgage loans                                    |   |                               | 65,016  |   |                                                       |   | 38,808 |                                                         |   |   | 51.7                                             | %      |   |               | 5,494  | (3) |   |   | 8.32 | % |

| (1) | The      average seasoning in years for the commercial mortgage loans and the      single-family mortgage loans are 13.2 years and 15.5 years, respectively,      as of September 30, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Loans      contractually delinquent by 30 or more days. No delinquent commercial      loans have a guarantee of payment. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

| (3) | Of      the $5,494 of delinquent single-family loans, approximately $1,786 are      pool insured and, of the remaining $3,708,$1,118 of the loans made at      least one payment within the 90 days prior to September 30,      2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Months      remaining to end of compliance period |   | As      a Percent of Unpaid Principal Balance |    |
|---------------------------------------------------|--------|-----------------------------------------------|---------|
| Compliance      period already exceeded           |   |                                          | 36.7    | % |
| Up      to one year remaining                     |   |                                          | 16.8    |   |
| Between      one and three years remaining        |   |                                          | 46.5    |   |
| Between      four and six years remaining         |   |                                          | – |   |
| Total                                             |   |                                          | 100.0   | % |

----

|                                            |   | Investments      |    |   | Borrowings |   |
|-------------------------------------------------|--------|------------------|---------|--------|------------|--------|
| (amounts      in thousands)                     |   | Amounts      (1) |    |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate      Investments/Obligations         |   | $                | 173,161 |   |       |   | 20.9 | % |   | $ | 132,172 |   |   |   | 18.8 | % |
|                                            |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate      Investments/Obligations:   |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3    months                           |   |             | 39,192  |   |       |   | 4.7 |   |   |   | 570,327 |   |   |   | 81.2 |   |
| Greater than 3 months and less      than 1 year |   |             | 293,697 |   |       |   | 35.4 |   |   |   | – |   |   |   | – |   |
| Greater than 1 year and less      than 2 years  |   |             | 109,098 |   |       |   | 13.1 |   |   |   | – |   |   |   | – |   |
| Greater than 2 years and less      than 3 years |   |             | 157,863 |   |       |   | 19.0 |   |   |   | – |   |   |   | – |   |
| Greater than 3 years and less      than 5 years |   |             | 57,678  |   |       |   | 6.9 |   |   |   | – |   |   |   | – |   |
| Total                                           |   | $                | 830,689 |   |       |   | 100.0 | % |   | $ | 702,499 |   |   |   | 100.0 | % |

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

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

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

----

| Lifetime      Interest Rate Caps on ARM MBS |   | Interim      Interest Rate Caps on ARM MBS |
|---------------------------------------------|--------|--------------------------------------------|
|                                        |   | %      of Total                            |   |   |   | %      of Total |
| 9.0%      to 10.0%                          |   | 34.87%                                     |   | 1.0% |   | 1.36% |
| 10.1%      to 11.0%                         |   | 50.69%                                     |   | 2.0% |   | 34.09% |
| 11.1%      to 12.0%                         |   | 14.44%                                     |   | 5.0% |   | 64.55% |
|                                        |   | 100.00%                                    |   |   |   | 100.00% |

| CPR                                                    | Estimated      Months to AssetReset      or Expected Prepayment | Estimated      Months to Liabilities Reset | RepricingGap      in Months |
|--------------------------------------------------------|-----------------------------------------------------------------|--------------------------------------------|-----------------------------|
|              0% (1) | 20      months                                                  | 1 month                                    | 19      months              |
| 15%                                                    | 17      months                                                  | 1 month                                    | 16      months              |
| 25%                                                    | 15      months                                                  | 1 month                                    | 14      months              |
| 35%                                                    | 13      months                                                  | 1 month                                    | 12      months              |

| (1) | Reflects      contractual maturities, which do not consider any    prepayments. |
|-----|---------------------------------------------------------------------------------|

----

|  Basis      Point Change inInterest      Rates |   | Percentage      change in projected net interest income |   | Percentage      change in projected market value |   |
|-----------------------------------------------------|--------|---------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                |   |                                                    |   |                                             |   |
| +200                                                |   | (23.34)%                                                |   | (9.21)%                                          |   |
| +100                                                |   | (8.58)%                                                 |   | (3.86)%                                          |   |
| 0                                                   |   | –                                                 |   | –                                          |   |
| -100                                                |   | (5.86)%                                                 |   | 2.08%                                            |   |
| -200                                                |   | (20.38)%                                                |   | 2.78%                                            |   |

----

Item1.                      LegalProceedings 

----

Item3.                      DefaultsUpon Senior Securities 

Item4.                      Submissionof Matters to a Vote of Security Holders 

Item5.                      OtherInformation 

----

Item6.                      Exhibits

| Exhibit No. | Description                                                                                                                                                                                        |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         | Restated      Articles of Incorporation, effective July 9, 2008 (incorporated herein by      reference to Exhibit 3.1 to Dynex’s Current Report on Form 8-K filed July      11, 2008).  |
| 3.2         | Amended      and Restated Bylaws, effective March 26, 2008 (incorporated herein by      reference to Exhibit 3.2 to Dynex’s Current Report on Form 8-K filed April      1, 2008).       |
| 10.6        | Employment      Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and      Thomas B. Akin (filed herewith).                                                                   |
| 10.9        | Dynex      Capital, Inc. ROAE Bonus Program, as amended October 8, 2009 (filed      herewith).                                                                                                |
| 10.12       | Employment      Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and      Byron L. Boston (filed herewith).                                                                  |
| 31.1        | Certification      of Principal Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filed herewith).                                                            |
| 31.2        | Certification      of Principal Financial Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filed herewith).                                                            |
| 32.1        | Certification      of Principal Executive Officer and Principal Financial Officer pursuant to      Section 906 of the Sarbanes-Oxley Act of 2002 (filed      herewith).                       |

----

|                                   | DYNEX CAPITAL, INC.                                                                     |
|----------------------------------------|-----------------------------------------------------------------------------------------|
|                                   |                                                                                    |
|                                   |                                                                                    |
| Date:  November      9, 2009 | /s/      Thomas B. Akin                                                                 |
|                                   | Thomas      B. Akin                                                                     |
|                                   | Chairman      and Chief Executive Officer                                               |
|                                   | (Principal      Executive Officer)                                                      |
|                                   |                                                                                    |
|                                   |                                                                                    |
| Date:  November      9, 2009 | /s/      Stephen J. Benedetti                                                           |
|                                   | Stephen      J. Benedetti                                                               |
|                                   | Executive      Vice President, Chief Operating Officer and Chief Financial      Officer |
|                                   | (Principal      Financial Officer)                                                      |
|                                   |                                                                                    |