----

|   | 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 March 31, 2009 (unaudited) and December 31,      2008                                 | 1      |
|          |                       |                                                                                                                                |   |
|          |                       | Condensed      Consolidated Statements of Operations for the three months ended March 31,      2009 and 2008  (unaudited) | 2      |
|          |                       |                                                                                                                                |   |
|          |                       | Condensed      Consolidated Statement of Shareholders’ Equity for the three months ended      March 31, 2009 (unaudited)      | 3      |
|          |                       |                                                                                                                                |   |
|          |                       | Condensed      Consolidated Statements of Cash Flows for the three months ended March 31,      2009 and 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                               | 21     |
|          |                       |                                                                                                                                |   |
|          | Item      3.               | Quantitative      and Qualitative Disclosures About Market Risk                                                                     | 37     |
|          |                       |                                                                                                                                |   |
|          | Item      4.               | Controls      and Procedures                                                                                                        | 43     |
|          |                       |                                                                                                                                |   |
| PART      II. | OTHER      INFORMATION     |                                                                                                                                |
|          |                       |                                                                                                                                |   |
|          | Item      1.               | Legal      Proceedings                                                                                                              | 44     |
|          |                       |                                                                                                                                |   |
|          | Item      1A.              | Risk      Factors                                                                                                                   | 45     |
|          |                       |                                                                                                                                |   |
|          | Item      2.               | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                    | 45     |
|          |                       |                                                                                                                                |   |
|          | Item      3.               | Defaults      Upon Senior Securities                                                                                                | 45     |
|          |                       |                                                                                                                                |   |
|          | Item      4.               | Submission      of Matters to a Vote of Security Holders                                                                            | 45     |
|          |                       |                                                                                                                                |   |
|          | Item      5.               | Other      Information                                                                                                              | 45     |
|          |                       |                                                                                                                                |   |
|          | Item      6.               | Exhibits                                                                                                                            | 45     |
|          |                       |                                                                                                                                |   |
| SIGNATURES    |                       |

----

Item1.                      FinancialStatements

CONDENSED CONSOLIDATED

BALANCE SHEETS

|                                                                                                                                                                                                              |   | March      31, |     |   | December      31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|----------|--------|-------------------|--------|
|                                                                                                                                                                                                              |   | 2009           |     |   | 2008              |   |
|                                                                                                                                                                                                              |   | (unaudited)    |     |   |              |   |
| ASSETS                                                                                                                                                                                                            |   |           |     |   |              |   |
| Agency      MBS:                                                                                                                                                                                                  |   |           |     |   |              |   |
| Pledged to counterparties, at      fair value                                                                                                                                                                     |   | $              | 415,360  |   |              | $      | 300,277 |   |
| Unpledged, at fair      value                                                                                                                                                                                     |   |           | 35,440   |   |              |   | 11,299 |   |
|                                                                                                                                                                                                              |   |           | 450,800  |   |              |   | 311,576 |   |
|                                                                                                                                                                                                              |   |           |     |   |              |   |   |   |
| Securitized      mortgage loans, net                                                                                                                                                                              |   |           | 238,838  |   |              |   | 243,827 |   |
| Investment      in joint venture                                                                                                                                                                                  |   |           | 5,417    |   |              |   | 5,655 |   |
| Other      investments                                                                                                                                                                                            |   |           | 10,450   |   |              |   | 12,735 |   |
|                                                                                                                                                                                                              |   |           | 705,505  |   |              |   | 573,793 |   |
|                                                                                                                                                                                                              |   |           |     |   |              |   |   |   |
| Cash      and cash equivalents                                                                                                                                                                                    |   |           | 21,841   |   |              |   | 24,335 |   |
| Restricted      cash                                                                                                                                                                                              |   |           | –  |   |              |   | 2,974 |   |
| Other      assets                                                                                                                                                                                                 |   |           | 7,210    |   |              |   | 6,089 |   |
|                                                                                                                                                                                                              |   | $              | 734,556  |   |              | $      | 607,191 |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                   |   |           |     |   |              |   |   |   |
| LIABILITIES                                                                                                                                                                                                       |   |           |     |   |              |   |   |   |
| Repurchase      agreements                                                                                                                                                                                        |   | $              | 403,145  |   |              | $      | 274,217 |   |
| Securitization      financing                                                                                                                                                                                     |   |           | 174,337  |   |              |   | 178,165 |   |
| Obligation      under payment agreement                                                                                                                                                                           |   |           | 7,971    |   |              |   | 8,534 |   |
| Other      liabilities                                                                                                                                                                                            |   |           | 5,166    |   |              |   | 5,866 |   |
|                                                                                                                                                                                                              |   |           | 590,619  |   |              |   | 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,      12,169,762 shares issued and outstanding                                                                                        |   |           | 122      |   |              |   |   122 |   |
| Additional      paid-in capital                                                                                                                                                                                   |   |           | 366,836  |   |              |   | 366,817 |   |
| Accumulated      other comprehensive income (loss)                                                                                                                                                                |   |           | 228      |   |              |   | (3,949 | ) |
| Accumulated      deficit                                                                                                                                                                                          |   |           | (264,998 | )      |              |   | (264,330 | ) |
|                                                                                                                                                                                                              |   |           | 143,937  |   |              |   | 140,409 |   |
|                                                                                                                                                                                                              |   | $              | 734,556  |   |              | $      | 607,191 |   |
|                                                                                                                                                                                                              |   |           |     |   |              |   |   |   |

----

CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS 

|                                                     |   | Three      Months Ended |   |
|----------------------------------------------------------|--------|-------------------------|--------|
|                                                     |   | March      31,          |   |
|                                                     |   | 2009                    |   |   | 2008 |   |
| Interest      income:                                    |   |                    |   |   |   |   |
| Investments                                              |   | $                       | 9,472  |   |   | $ | 6,159 |   |
| Cash and cash      equivalents                           |   |                    | 5      |   |   |   | 324 |   |
|                                                     |   |                    | 9,477  |   |   |   | 6,483 |   |
| Interest      expense                                    |   |                    | 4,433  |   |   |   | 4,062 |   |
| Net      interest income                                 |   |                    | 5,044  |   |   |   | 2,421 |   |
| Provision      for loan losses                           |   |                    | (179   | ) |   |   | (26 | ) |
|                                                     |   |                    |   |   |   |   |   |   |
| Net      interest income after provision for loan losses |   |                    | 4,865  |   |   |   | 2,395 |   |
|                                                     |   |                    |   |   |   |   |   |   |
| Equity      in loss of joint venture                     |   |                    | (754   | ) |   |   | (2,251 | ) |
| Gain      on sale of investments, net                    |   |                    | 83     |   |   |   | 2,093 |   |
| Fair      value adjustments, net                         |   |                    | 645    |   |   |   | 4,231 |   |
| Other      income                                        |   |                    | 21     |   |   |   | 67 |   |
| General      and administrative expenses                 |   |                    |   |   |   |   |   |   |
| Compensation and      benefits                           |   |                    | (883   | ) |   |   | (495 | ) |
| Other general and      administrative expenses           |   |                    | (843   | ) |   |   | (721 | ) |
|                                                     |   |                    |   |   |   |   |   |   |
| Net      income                                          |   |                    | 3,134  |   |   |   | 5,319 |   |
| Preferred      stock dividends                           |   |                    | (1,003 | ) |   |   | (1,003 | ) |
|                                                     |   |                    |   |   |   |   |   |   |
| Net      income to common shareholders                   |   | $                       | 2,131  |   |   | $ | 4,316 |   |
|                                                     |   |                    |   |   |   |   |   |   |
| Net      income per common share:                        |   |                    |   |   |   |   |   |   |
| Basic                                                    |   | $                       | 0.18   |   |   | $ | 0.36 |   |
| Diluted                                                  |   | $                       | 0.18   |   |   | $ | 0.32 |   |
|                                                     |   |                    |   |   |   |   |   |   |

----

|                                                                                                          |   | 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                                                                                               |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | –     |   |   |   | 3,134 |   |   |   | 3,134 |   |
| Other      comprehensive income:                                                                              |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |        |   |   |   |   |   |   |   |   |   |
| Change      in market value of securities and other investments                                               |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | 3,      553 |   |   |   | – |   |   |   | 3,553 |   |
| Reclassification      adjustment for equity in the joint venture’s other-than-temporary      impairment |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               | 707         |   |   |   |   |   |   |   | 707 |   |
| Reclassification      adjustment for net gains included in net income                                         |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | (83         | )      |   |   | – |   |   |   | (83 | ) |
| Total      comprehensive income                                                                               |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |        |   |   |   |   |   |   |   | 7,311 |   |
|                                                                                                          |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |        |   |   |   |   |   |   |   |   |   |
| Dividends      on common stock                                                                                |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | –     |   |   |   | (2,799 | ) |   |   | (2,799 | ) |
| Dividends      on preferred stock                                                                             |   |           | – |   |        |   | – |                     |   |   | –                                                           |   |   |               | –     |   |   |   | (1,003 | ) |   |   | (1,003 | ) |
| Vesting      of restricted stock                                                                              |   |           | – |   |        |   | – |                     |   |   | 19                                                                |   |   |               | –     |   |   |   | – |   |   |   | 19 |   |
|                                                                                                          |   |           |    |   |        |   |    |                     |   |   |                                                              |   |   |               |        |   |   |   |   |   |   |   |   |   |
| Balance      at March 31, 2009                                                                                |   | $              | 41,749  |   |        | $      | 122     |                     |   | $      | 366,836                                                           |   |   | $                  | 228         |   |   | $      | (264,998 | ) |   | $ | 143,937 |   |

----

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

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

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

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

|                                                                                    |   | Three      Months Ended |     |
|-----------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                    |   | March      31,          |     |
|                                                                                    |   | 2009                    |     |   | 2008 |   |
| Operating      activities:                                                              |   |                    |     |   |   |   |
| Net      income                                                                         |   | $                       | 3,134    |   |   | $ | 5,319 |   |
| Adjustments      to reconcile net income to cash provided by operating      activities: |   |                    |     |   |   |   |   |   |
| Equity      in loss of joint venture                                                    |   |                    | 754      |   |   |   | 2,251 |   |
| Provision      for loan losses                                                          |   |                    | 179      |   |   |   | 26 |   |
| Gain      on sale of investments, net                                                   |   |                    | (83      | ) |   |   | (2,093 | ) |
| Fair      value adjustments, net                                                        |   |                    | (645     | ) |   |   | (4,231 | ) |
| Amortization      and depreciation                                                      |   |                    | 436      |   |   |   | (264 | ) |
| Stock      based compensation expense (benefit)                                         |   |                    | 67       |   |   |   | (67 | ) |
| Net      change in other assets and other liabilities                                   |   |                    | (1,340   | ) |   |   | 1,979 |   |
| Net      cash provided by operating activities                                          |   |                    | 2,502    |   |   |   | 2,920 |   |
|                                                                                    |   |                    |     |   |   |   |   |   |
| Investing      activities:                                                              |   |                    |     |   |   |   |   |   |
| Principal      payments received on securitized mortgage loans                          |   |                    | 5,089    |   |   |   | 6,825 |   |
| Purchases      of Agency MBS                                                            |   |                    | (153,951 | ) |   |   | (27,742 | ) |
| Payments      received on Agency MBS and other investments                              |   |                    | 18,169   |   |   |   | 2,581 |   |
| Purchases      of other investments                                                     |   |                    | –  |   |   |   | (9,988 | ) |
| Proceeds      from sales of other investments                                           |   |                    | 1,860    |   |   |   | 8,991 |   |
| Other                                                                                   |   |                    | (549     | ) |   |   | 85 |   |
| Net      cash used by investing activities                                              |   |                    | (129,382 | ) |   |   | (19,248 | ) |
|                                                                                    |   |                    |     |   |   |   |   |   |
| Financing      activities:                                                              |   |                    |     |   |   |   |   |   |
| Net      borrowings under repurchase agreements                                         |   |                    | 128,928  |   |   |   | 24,945 |   |
| Principal      payments on securitization financing                                     |   |                    | (3,714   | ) |   |   | (3,814 | ) |
| Decrease      in restricted cash                                                        |   |                    | 2,974    |   |   |   | – |   |
| Dividends      paid                                                                     |   |                    | (3,802   | ) |   |   | (2,220 | ) |
| Net      cash provided by financing activities                                          |   |                    | 124,386  |   |   |   | 18,911 |   |
|                                                                                    |   |                    |     |   |   |   |   |   |
| Net      change in cash and cash equivalents                                            |   |                    | (2,494   | ) |   |   | 2,583 |   |
| Cash      and cash equivalents at beginning of period                                   |   |                    | 24,335   |   |   |   | 35,352 |   |
| Cash      and cash equivalents at end of period                                         |   | $                       | 21,841   |   |   | $ | 37,935 |   |
|                                                                                    |   |                    |     |   |   |   |   |   |
|                                                                                    |   |                    |     |   |   |   |   |   |
| See      notes to unaudited condensed consolidated financial      statements.           |   |                    |     |   |   |   |   |   |

----

NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

----

----

|   | · | Level      1 — Inputs are unadjusted, quoted prices in active markets for identical      assets or liabilities at the measurement date.  The Company’s      investments included in Level 1 fair value generally are equity securities      listed in active markets. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 mortgage-backed securities,      delinquent property tax receivables and the obligation under payment      agreement liability. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                                          |   | Three      Months Ended March 31, |    |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                                                          |   | 2009                              |    |   | 2008 |   |
|                                                                                                          |   | Income                            |    |   | Weighted-Average      Common Shares |   |   | Income |   |   | Weighted-AverageCommonShares |   |
| Net      income                                                                                               |   | $                                 | 3,134   |   |   |   |   |   | $ | 5,319 |   |   |   |   |
| Preferred      stock dividends                                                                                |   |                              | (1,003  | ) |   |   |   |   |   | (1,003 | ) |   |   |   |
| Net      income to common shareholders                                                                        |   |                              | 2,131   |   |   |   | 12,169,762 |   |   | $ | 4,316 |   |   |   | 12,156,887 |   |
| Effect      of dilutive items                                                                                 |   |                              | – |   |   |   | – |   |   |   | 1,003 |   |   |   | 4,230,105 |   |
| Diluted                                                                                                       |   | $                                 | 2,131   |   |   |   | 12,169,762 |   |   | $ | 5,319 |   |   |   | 16,386,992 |   |
|                                                                                                          |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share:                                                                             |   |
| Basic                                                                                                         |   |                              |    |   |   | $ | 0.18 |   |   |   |   |   |   | $ | 0.36 |   |
| Diluted                                                                                                       |   |                              |    |   |   | $ | 0.18 |   |   |   |   |   |   | $ | 0.32 |   |
|                                                                                                          |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation      of shares included in calculation of income per common share due to      dilutive effect: |   |                              |    |
| Net      effect of dilutive:                                                                                  |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible      preferred stock                                                                              |   |                              | – |   |   |   | – |   |   |   | 1,003 |   |   |   | 4,221,539 |   |
| Stock      options                                                                                            |   |                              | – |   |   |   | – |   |   |   | – |   |   |   | 8,566 |   |
|                                                                                                          |   | $                                 | – |   |   |   | – |   |   | $ | 1,003 |   |   |   | 4,230,105 |   |

|                                           |   | Three      Months Ended |      |
|------------------------------------------------|--------|-------------------------|-----------|
|                                           |   | March      31,          |      |
|                                           |   | 2009                    |      |   | 2008 |   |
| Shares      issuable under stock option awards |   |                    | 110,000   |   |   |   | 95,000 |   |
| Convertible      preferred stock               |   |                    | 4,221,539 |   |   |   | – |   |

----

|                                  |   | March      31,2009 |    |   | December      31, 2008 |   |
|---------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Principal/par      value              |   | $                  | 438,883 |   |                   | $      | 307,548 |   |
| Purchase      premiums                |   |               | 7,609   |   |                   |   | 3,585 |   |
| Purchase      discounts               |   |               | (54     | )      |                   |   | (59 | ) |
| Amortized cost                        |   |               | 446,438 |   |                   |   | 311,074 |   |
| Gross      unrealized gains           |   |               | 4,426   |   |                   |   | 1,355 |   |
| Gross      unrealized losses          |   |               | (64     | )      |                   |   | (853 | ) |
| Fair value                            |   | $                  | 450,800 |   |                   | $      | 311,576 |   |
|                                  |   |               |    |   |                   |   |   |   |
| Weighted      average coupon          |   |               | 5.15    | %      |                   |   | 5.06 | % |
| Weighted      average months to reset |   |               | 25      |   |                   |   | 21 |   |

|                                                             |   | March      31,2009 |    |   | December      31, 2008 |   |
|------------------------------------------------------------------|--------|--------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans:                                 |   |               |    |   |                   |   |
| Commercial      mortgage loans                                   |   | $                  | 162,072 |   |                   | $      | 164,032 |   |
| Single-family      mortgage loans                                |   |               | 67,653  |   |                   |   | 70,607 |   |
|                                                             |   |               | 229,725 |   |                   |   | 234,639 |   |
| Funds      held by trustees, including funds held for defeasance |   |               | 11,151  |   |                   |   | 11,267 |   |
| Accrued      interest receivable                                 |   |               | 1,522   |   |                   |   | 1,538 |   |
| Unamortized      discounts and premiums, net                     |   |               | 328     |   |                   |   | 90 |   |
| Other                                                            |   |               | (106    | )      |                   |   | – |   |
| Loans,      at amortized cost                                    |   |               | 242,620 |   |                   |   | 247,534 |   |
| Allowance      for loan losses                                   |   |               | (3,782  | )      |                   |   | (3,707 | ) |
|                                                             |   | $                  | 238,838 |   |                   | $      | 243,827 |   |

----

|                                  |   | Three      Months EndedMarch      31, |   |
|---------------------------------------|--------|---------------------------------------|--------|
|                                  |   | 2009                                  |   |   | 2008 |   |
| Allowance      at beginning of period |   | $                                     | 3,707  |   |   | $ | 2,721 |   |
| Provision      for loan losses        |   |                                  | 179    |   |   |   | 26 |   |
| Credit      losses, net of recoveries |   |                                  | (9     | ) |   |   | (2 | ) |
| Allowance      at end of period       |   | $                                     | 3,877  |   |   | $ | 2,745 |   |

|                                          |   | March      31, 2009 |   |   | December      31, 2008 |   |
|-----------------------------------------------|--------|---------------------|--------|--------|------------------------|--------|
| Securitized      commercial mortgage loans    |   | $                   | 3,567  |   |                   | $      | 3,527 |   |
| Securitized      single-family mortgage loans |   |                | 215    |   |                   |   | 180 |   |
|                                          |   |                | 3,782  |   |                   |   | 3,707 |   |
| Other      mortgage loans                     |   |                | 95     |   |                   |   | – |   |
|                                          |   | $                   | 3,877  |   |                   | $      | 3,707 |   |

|                   |   | Investment      in Impaired Loans |   |   | Allowance      for Loan Losses |   |   | Investment      in Excess of Allowance |   |
|------------------------|--------|-----------------------------------|--------|--------|--------------------------------|--------|--------|----------------------------------------|--------|
| December      31, 2008 |   | $                                 | 24,022 |   |                           | $      | 3,527  |                                   |   | $ | 20,495 |   |
| March      31, 2009    |   |                              | 22,429 |   |                           |   | 3,567  |                                   |   |   | 18,862 |   |

----

| Condensed      Statements of Operations  |   |                                  |   |
|------------------------------------------|--------|---------------------------------------|--------|
|                                     |   | Three      Months EndedMarch      31, |   |
|                                     |   | 2009                                  |   |   | 2008 |   |
| Interest      income                     |   | $                                     | 635    |   |   | $ | 1,354 |   |
| Other-than-temporary      impairment     |   |                                  | (1,417 | ) |   |   | (965 | ) |
| Fair      value adjustments, net         |   |                                  | (563   | ) |   |   | (4,680 | ) |
| General      and administrative expenses |   |                                  | (47    | ) |   |   | (42 | ) |
| Net      loss                            |   | $                                     | (1,392 | ) |   | $ | (4,333 | ) |

| Condensed      Balance Sheets     |   |               |   |   |                   |   |
|-----------------------------------|--------|--------------------|--------|--------|------------------------|--------|
|                              |   | March      31,2009 |   |   | December      31, 2008 |   |
| Total      assets                 |   | $                  | 10,924 |   |                   | $      | 11,240 |   |
| Total      liabilities            |   | $                  | 62     |   |                   | $      | 21 |   |
| Total      members’ capital |   | $                  | 10,862 |   |                   | $      | 11,219 |   |

|                                                |   | March      31, 2009 |   |   | December      31, 2008      |   |
|-----------------------------------------------------|--------|---------------------|--------|--------|-----------------------------|--------|
|                                                |   | CarryingValue       |   |   | Weighted      Average Yield |   |   | Carrying      Value |   |   | Weighted      Average Yield |   |
| Non-Agency      MBS                                 |   | $                   | 6,830  |   |                        |   | 8.24 | % |   | $ | 6,959 |   |   |   | 8.02 | % |
| Equity      securities of publicly traded companies |   |                | 1,696  |   |                        |   |   |   |   |   | 3,441 |   |   |   |   |   |
|                                                |   |                | 8,526  |   |                        |   |   |   |   |   | 10,400 |   |   |   |   |   |
| Gross      unrealized gains                         |   |                | 560    |   |                        |   |   |   |   |   | 802 |   |   |   |   |   |
| Gross      unrealized losses                        |   |                | (1,282 | )      |                        |   |   |   |   |   | (1,335 | ) |   |   |   |   |
|                                                |   |                | 7,804  |   |                        |   |   |   |   |   | 9,867 |   |   |   |   |   |
| Other      loans, net                               |   |                | 2,478  |   |                        |   |   |   |   |   | 2,657 |   |   |   |   |   |
| Other                                               |   |                | 168    |   |                        |   |   |   |   |   | 211 |   |   |   |   |   |
|                                                |   | $                   | 10,450 |   |                        |   |   |   |   | $ | 12,735 |   |   |   |   |   |

----

|                                             |   | March      31, 2009 |    |
|--------------------------------------------------|--------|---------------------|---------|
| Collateral      Type                             |   | Balance             |    |   | Weighted      Average Rate |   |   | Fair      Value of Collateral |   |
| Agency      MBS                                  |   | $                   | 387,641 |   |   |   | 0.90 | % |   | $ | 415,360 |   |
| Securitization      financing bonds (See Note 9) |   |                | 15,504  |   |   |   | 2.52 | % |   |   | 26,877 |   |
|                                             |   | $                   | 403,145 |   |   |   | 0.96 | % |   | $ | 442,237 |   |

|                                |   | 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 |   | March      31, 2009 |    |   | December      31, 2008 |   |
|------------------------|--------|---------------------|---------|--------|------------------------|--------|
| 30      days or less   |   | $                   | 15,504  |   |                   | $      | 38,617 |   |
| 31      to 60 days     |   |                | 356,620 |   |                   |   | 187,960 |   |
| 61      to 90 days     |   |                | 31,021  |   |                   |   | 47,640 |   |
|                   |   | $                   | 403,145 |   |                   | $      | 274,217 |   |

----

|                                                 |   | March      31, 2009    |      |   | December      31, 2008       |   |
|------------------------------------------------------|--------|------------------------|-----------|--------|------------------------------|--------|
|                                                 |   | Bonds      Outstanding |      |   | Range      of Interest Rates |   |   | Bonds      Outstanding |   |   | Range      of Interest Rates |   |
| Fixed-rate      classes                              |   | $                      | 147,523   |   |                         |   | 6.6%      - 8.8 | % |   | $ | 149,598 |   |   |   | 6.6%      - 8.8 | % |
| Variable-rate      classes                           |   |                   | 26,547    |   |                         |   | 0.8 | % |   |   | 28,186 |   |   |   | 1.7 | % |
| Accrued      interest payable                        |   |                   | 994       |   |                         |   |   |   |   |   | 1,008 |   |   |   |   |   |
| Unamortized      net bond premium and deferred costs |   |                   | (727      | )      |                         |   |   |   |   |   | (627 | ) |   |   |   |   |
|                                                 |   | $                      | 174,337   |   |                         |   |   |   |   | $ | 178,165 |   |   |   |   |   |
|                                                 |   |                   |      |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Range      of stated maturities                      |   |                   | 2024-2027 |   |                         |   |   |   |   |   | 2024-2027 |   |   |   |   |   |
| Estimated      weighted average life                 |   | 2.4      years         |      |   |                         |   |   |   | 2.6      years |   |   |   |   |   |
| Number      of series                                |   |                   | 3         |   |                         |   |   |   |   |   | 3 |   |   |   |   |   |

----

|                                         |   |            |    |   | Fair      Value Measurements |   |
|----------------------------------------------|--------|-----------------|---------|--------|------------------------------|--------|
|                                         |   | Fair      Value |    |   | Level      1                 |   |   | Level      2 |   |   | Level      3 |   |
| Assets:                                      |   |            |    |   |                         |   |   |   |   |   |   |   |
| Agency MBS                                   |   | $               | 450,800 |   |                         | $      | – |   |   | $ | 450,800 |   |   | $ | – |   |
| Non-Agency MBS                               |   |            | 6,070   |   |                         |   | – |   |   |   | – |   |   |   | 6,070 |   |
| Equity securities                            |   |            | 1,734   |   |                         |   | 1,734 |   |   |   | – |   |   |   | – |   |
| Other                                        |   |            | 168     |   |                         |   | – |   |   |   | – |   |   |   | 168 |   |
| Total assets carried at fair      value      |   | $               | 458,772 |   |                         | $      | 1,734 |   |   | $ | 450,800 |   |   | $ | 6,238 |   |
|                                         |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                 |   |            |    |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Obligation under payment      agreement      |   | $               | 7,971   |   |                         | $      | – |   |   | $ | – |   |   | $ | 7,971 |   |
| Total liabilities carried at fair      value |   | $               | 7,971   |   |                         | $      | – |   |   | $ | – |   |   | $ | 7,971 |   |

----

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

|                                                |   | March      31, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
|                                                |   | RecordedBasis       |    |   | FairValue              |   |   | RecordedBasis |   |   | FairValue |   |
| Assets:                                             |   |                |    |   |                   |   |   |   |   |   |   |   |
|   Agency      MBS                         |   | $                   | 450,800 |   |                   | $      | 450,800 |   |   | $ | 311,576 |   |   | $ | 311,576 |   |
| Securitized      mortgage loans, net                |   |                | 238,838 |   |                   |   | 197,676 |   |   |   | 243,827 |   |   |   | 201,252 |   |
|   Investment      in joint venture        |   |                | 5,417   |   |                   |   | 5,417 |   |   |   | 5,655 |   |   |   | 5,595 |   |
|   Other      investments                  |   |                | 10,450  |   |                   |   | 10,186 |   |   |   | 12,735 |   |   |   | 12,358 |   |
|                                                |   |                |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                        |   |                |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|   Repurchase      agreements              |   |                | 403,145 |   |                   |   | 403,145 |   |   |   | 274,217 |   |   |   | 274,217 |   |
|   Securitization      financing           |   |                | 174,337 |   |                   |   | 152,155 |   |   |   | 178,165 |   |   |   | 153,370 |   |
|   Obligation      under payment agreement |   |                | 7,971   |   |                   |   | 7,971 |   |   |   | 8,534 |   |   |   | 8,534 |   |

| Declaration            | Record                 | Payment               |   | Dividend      per Share |    |
|------------------------|------------------------|-----------------------|--------|-------------------------|---------|
| Date                   | Date                   | Date                  |   | Common                  |    |   | Preferred |   |
| Common      Stock      |                   |                  |   |                    |    |   |   |   |
| December      10, 2008 | December      22, 2008 | January      30, 2009 |   | $                       | 0.23    |   |   |   | – |   |
| March      20, 2009    | March      31, 2009    | April      30, 2009   |   |                    | 0.23    |   |   |   | – |   |
|                   |                   |                  |   |                    |    |   |   |   |   |   |
| Preferred      Stock   |                   |                  |   |                    |    |   |   |   |   |   |
| December      22, 2008 | December      31, 2008 | February      2, 2009 |   |                    | – |   |   | $ | 0.2375 |   |
| March      20, 2009    | March      31, 2009    | April      30, 2009   |   |                    | – |   |   | $ | 0.2375 |   |

----

----

|                                         |   | Three      Months Ended |    |
|----------------------------------------------|--------|-------------------------|---------|
|                                         |   | March      31, 2009     |    |
|                                         |   | Number      of Shares   |    |   | Weighted-Average      Exercise Price |   |
| SARs      outstanding at beginning of period |   |                    | 278,146 |   |   | $ | 7.27 |   |
| SARs      granted                            |   |                    | – |   |   |   | – |   |
| SARs      forfeited or redeemed              |   |                    | – |   |   |   | – |   |
| SARs      exercised                          |   |                    | – |   |   |   | – |   |
| SARs      outstanding at end of period       |   |                    | 278,146 |   |   | $ | 7.27 |   |
| SARs      vested and exercisable             |   |                    | 219,396 |   |   | $ | 7.37 |   |

----

|                                            |   | Three      Months Ended |    |
|-------------------------------------------------|--------|-------------------------|---------|
|                                            |   | March      31, 2009     |    |
|                                            |   | Number      of Shares   |    |   | Weighted-Average      Exercise Price |   |
| Options      outstanding at beginning of period |   |                    | 110,000 |   |   | $ | 8.55 |   |
| Options      granted                            |   |                    | – |   |   |   | – |   |
| Options      forfeited or redeemed              |   |                    | – |   |   |   | – |   |
| Options      exercised                          |   |                    | – |   |   |   | – |   |
| Options      outstanding at end of period       |   |                    | 110,000 |   |   | $ | 8.55 |   |
| Options      vested and exercisable             |   |                    | 110,000 |   |   | $ | 8.55 |   |

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

|                             |   | SARs      Fair Value |   |
|----------------------------------|--------|----------------------|--------|
|                             |   | March      31, 2009  |   |
| Weighted-average      volatility |   |                 | 28.43  | % |
| Expected      dividends          |   |                 | 13.18  | % |
| Expected      term (in months)   |   |                 | 41     |   |
| Risk-free      rate              |   |                 | 1.60   | % |

----

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

----

| (amounts      in thousands)             |   | March      31, 2009 |    |   | December      31, 2008 |   |
|-----------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
|                                    |   |                |    |   |                   |   |
| Agency      MBS, at fair value          |   | $                   | 450,800 |   |                   | $      | 311,576 |   |
| Securitized      mortgage loans, net    |   |                | 238,838 |   |                   |   | 243,827 |   |
| Investment      in joint venture        |   |                | 5,417   |   |                   |   | 5,655 |   |
| Other      investments                  |   |                | 10,450  |   |                   |   | 12,735 |   |
|                                    |   |                |    |   |                   |   |   |   |
| Repurchase      agreements              |   |                | 403,145 |   |                   |   | 274,217 |   |
| Securitization      financing           |   |                | 174,337 |   |                   |   | 178,165 |   |
| Obligation      under payment agreement |   |                | 7,971   |   |                   |   | 8,534 |   |
| Shareholders’      equity         |   |                | 143,937 |   |                   |   | 140,409 |   |

----

| (amounts      in thousands) |   | March      31, 2009 |    |   | December      31, 2008 |   |
|-----------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Agency      MBS:            |   |                |    |   |                   |   |
| Hybrid Agency    ARMs       |   | $                   | 346,247 |   |                   | $      | 217,800 |   |
| Agency ARMs                 |   |                | 102,272 |   |                   |   | 92,626 |   |
|                        |   |                | 448,519 |   |                   |   | 310,426 |   |
| Fixed      Rate             |   |                | 159     |   |                   |   | 194 |   |
|                        |   |                | 448,678 |   |                   |   | 310,620 |   |
| Principal      receivable   |   |                | 2,122   |   |                   |   | 956 |   |
|                        |   | $                   | 450,800 |   |                   | $      | 311,576 |   |

| (amounts      in thousands)           |   | March      31, 2009 |    |   | December      31, 2008 |   |
|---------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Securitized      mortgage loans, net: |   |                |    |   |                   |   |
| Commercial                            |   | $                   | 169,881 |   |                   | $      | 171,963 |   |
| Single-family                         |   |                | 68,957  |   |                   |   | 71,864 |   |
|                                  |   |                | 238,838 |   |                   |   | 243,827 |   |

----

| (amounts      in thousands)                         |   | March      31, 2009 |   |   | December      31, 2008 |   |
|-----------------------------------------------------|--------|---------------------|--------|--------|------------------------|--------|
| Non-Agency      MBS                                 |   | $                   | 6,830  |   |                   | $      | 6,959 |   |
| Equity      securities of publicly traded companies |   |                | 1,696  |   |                   |   | 3,441 |   |
|                                                |   |                | 8,526  |   |                   |   | 10,400 |   |
| Gross      unrealized gains                         |   |                | 560    |   |                   |   | 802 |   |
| Gross      unrealized losses                        |   |                | (1,282 | )      |                   |   | (1,335 | ) |
|                                                |   |                | 7,804  |   |                   |   | 9,867 |   |
| Other      loans, net                               |   |                | 2,478  |   |                   |   | 2,657 |   |
| Other                                               |   |                | 168    |   |                   |   | 211 |   |
|                                                |   | $                   | 10,450 |   |                   | $      | 12,735 |   |

----

| (amounts      in thousands)                            |   | March      31, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------------------|--------|---------------------|---------|--------|------------------------|--------|
| Securitization      financing:                         |   |                |    |   |                   |   |
| Fixed, secured by commercial      mortgage loans       |   | $                   | 148,359 |   |                   | $      | 150,588 |   |
| Variable, secured by single-family      mortgage loans |   |                | 25,978  |   |                   |   | 27,577 |   |
|                                                   |   | $                   | 174,337 |   |                   | $      | 178,165 |   |

----

|                                                 |   | March      31, 2009(amounts      in thousands) |    |
|------------------------------------------------------|--------|------------------------------------------------|---------|
|  Investment                                     |   | Investment      basis                          |    |   | Financing(1) |   |   | Net      invested capital |   |   | Estimated      fair value of net invested capital |   |
| Agency      MBS (2)                                  |   | $                                              | 450,800 |   |   | $ | 387,641 |   |   | $ | 63,159 |   |   | $ | 63,159 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized      mortgage loans: (3)            |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family      mortgage loans – 2002 Trust |   |                                           | 68,957  |   |   |   | 41,482 |   |   |   | 27,475 |   |   |   | 18,476 |   |
| Commercial      mortgage loans – 1993 Trust    |   |                                           | 21,002  |   |   |   | 17,938 |   |   |   | 3,064 |   |   |   | 3,571 |   |
| Commercial      mortgage loans – 1997 Trust    |   |                                           | 148,879 |   |   |   | 138,392 |   |   |   | 10,487 |   |   |   | – |   |
|                                                 |   |                                           | 238,838 |   |   |   | 197,812 |   |   |   | 41,026 |   |   |   | 22,047 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      in joint venture(4)                  |   |                                           | 5,417   |   |   |   | – |   |   |   | 5,417 |   |   |   | 5,417 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      investments:      (5)                     |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Agency      MBS                                  |   |                                           | 6,070   |   |   |   | – |   |   |   | 6,070 |   |   |   | 6,070 |   |
| Equity      securities                               |   |                                           | 1,734   |   |   |   | – |   |   |   | 1,734 |   |   |   | 1,734 |   |
| Other      loans and investments                     |   |                                           | 2,646   |   |   |   | – |   |   |   | 2,646 |   |   |   | 2,382 |   |
|                                                 |   |                                           | 10,450  |   |   |   | – |   |   |   | 10,450 |   |   |   | 10,186 |   |
|                                                 |   |                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                |   | $                                              | 705,505 |   |   | $ | 585,453 |   |   | $ | 120,052 |   |   | $ | 100,809 |   |

| (1) | Financing      includes repurchase agreements and securitization financing issued to      third parties.  Financing for the 1997 Trust also includes      obligation under payment agreement, which at March 31, 2009 had a balance      of $7,971. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| (4) | 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 3above. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (5) | Fair      values are based on closing prices from national exchange for equity      securities.  For the other items, fair value is calculated as      the net present value of expected future cash  flows. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 | Fair      Value Assumptions               |                                       |
|------------------------------------------------------|-------------------------------------------|--------------------------------------------|
| Loan      type                                       | Approximate      date of loan origination | Weighted-average      prepayment speeds(1) | Projected      annual losses (2) | Weighted-averagediscount      rate(3) | YTD      2009 Cash Flows (4)(amounts      in thousands) |
|                                                 |                                      |                                       |   |   |   |
| Single-family      mortgage loans – 2002 Trust | 1994                                      | 15%      CPR                               | 0.2% | 13% | $      2,376 |
|                                                 |                                      |                                       |   |   |   |
| Commercial      mortgage loans – 1993 Trust    | 1993                                      | 0%      CPR                                | 0.8% | 20% | $         229 |
| Commercial      mortgage loans – 1997 Trust    | 1997                                      | (5)                                        | 2.0% | 40% | $             – |
|                                                 |                                      |                                       |   |   |   |

| (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) | Represents      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      net  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) | Although      no prepayments are modeled, estimated  cash flows assume these      loans prepay on the expiration of their lockout period, which is before      their scheduled maturity. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (amounts      in thousands)                |   | March      31, 2009 |    |
|--------------------------------------------|--------|---------------------|---------|
| Investments:                               |   |                |    |
| Agency      MBS                            |   | $                   | 63,159  |   |
| AAA      rated non-Agency MBS              |   |                | 23,659  |   |
| AA      and A rated non-Agency MBS         |   |                | 329     |   |
| Unrated      and non-investment grade      |   |                | 4,787   |   |
| Securitization      over-collateralization |   |                | 22,701  |   |
| Investment      in joint venture           |   |                | 5,417   |   |
|                                       |   | $                   | 120,052 |   |

----

| (amounts      in thousands)                    |   | Book      Value |    |
|------------------------------------------------|--------|-----------------|---------|
| Total      investment assets (per table above) |   | $               | 120,052 |   |
| Cash      and cash equivalents                 |   |            | 21,841  |   |
| Other      assets and liabilities, net         |   |            | 2,044   |   |
|                                           |   | $               | 143,937 |   |

|                                                     |   | Three      Months EndedMarch      31, |   |
|----------------------------------------------------------|--------|---------------------------------------|--------|
| (amounts      in thousands except per share information) |   | 2009                                  |   |   | 2008 |   |
| Interest      income                                     |   | $                                     | 9,477  |   |   | $ | 6,483 |   |
| Interest      expense                                    |   |                                  | 4,433  |   |   |   | 4,062 |   |
| Provision      for loan losses                           |   |                                  | (179   | ) |   |   | (26 | ) |
| Net      interest income after provision for loan losses |   |                                  | 4,865  |   |   |   | 2,395 |   |
| Equity      in loss of joint venture                     |   |                                  | (754   | ) |   |   | (2,251 | ) |
| Gain      on sale of investments, net                    |   |                                  | 83     |   |   |   | 2,093 |   |
| Fair      value adjustments, net                         |   |                                  | 645    |   |   |   | 4,231 |   |
| Other      income                                        |   |                                  | 21     |   |   |   | 67 |   |
| General      and administrative expenses:                |   |                                  |   |   |   |   |   |   |
| Compensation      and benefits                           |   |                                  | (883   | ) |   |   | (495 | ) |
| Other      administrative and general expenses           |   |                                  | (843   | ) |   |   | (721 | ) |
| Net      income                                          |   |                                  | 3,134  |   |   |   | 5,319 |   |
|                                                     |   |                                  |   |   |   |   |   |   |
| Net      income per common share:                        |   |                                  |   |   |   |   |   |   |
| Basic                                                    |   | $                                     | 0.18   |   |   | $ | 0.36 |   |
| Diluted                                                  |   | $                                     | 0.18   |   |   | $ | 0.32 |   |
|                                                     |   |                                  |   |   |   |   |   |   |

|                                                   |   | Three      Months EndedMarch      31, |   |
|--------------------------------------------------------|--------|---------------------------------------|--------|
| (amounts      in thousands)                            |   | 2009                                  |   |   | 2008 |   |
| Interest      income - Investments:                    |   |                                  |   |   |   |   |
| Agency MBS                                             |   | $                                     | 4,435  |   |   | $ | 104 |   |
| Securitized mortgage      loans                        |   |                                  | 4,820  |   |   |   | 5,602 |   |
| Other    investments                                   |   |                                  | 217    |   |   |   | 453 |   |
|                                                   |   |                                  | 9,472  |   |   |   | 6,159 |   |
| Interest      income – Cash and cash equivalents |   |                                  | 5      |   |   |   | 324 |   |
|                                                   |   | $                                     | 9,477  |   |   | $ | 6,483 |   |

----

|                             |   | Three      Months Ended March 31, |   |
|----------------------------------|--------|-----------------------------------|--------|
|                             |   | 2009                              |   |   | 2008 |   |
| (amounts      in thousands)      |   | Interest      Income              |   |   | Net      Amortization |   |   | Total      Interest Income |   |   | Interest      Income |   |   | Net      Amortization |   |   | Total      Interest Income |   |
| Securitized      mortgage loans: |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                       |   | $                                 | 3,519  |   |   | $ | 125 |   |   | $ | 3,644 |   |   | $ | 3,985 |   |   | $ | 100 |   |   | $ | 4,085 |   |
| Single-family                    |   |                              | 1,063  |   |   |   | 113 |   |   |   | 1,176 |   |   |   | 1,604 |   |   |   | (87 | ) |   |   | 1,517 |   |
|                             |   | $                                 | 4,582  |   |   | $ | 238 |   |   | $ | 4,820 |   |   | $ | 5,589 |   |   | $ | 13 |   |   | $ | 5,602 |   |

----

|                                    |   | Three      Months EndedMarch      31, |   |
|-----------------------------------------|--------|---------------------------------------|--------|
| (amounts      in thousands)             |   | 2009                                  |   |   | 2008 |   |
| Interest      expense:                  |   |                                  |   |   |   |   |
| Securitization      financing           |   | $                                     | 2,975  |   |   | $ | 3,599 |   |
| Repurchase      agreements              |   |                                  | 1,064  |   |   |   | 54 |   |
| Obligation under payment      agreement |   |                                  | 401    |   |   |   | 401 |   |
| Other                                   |   |                                  | (7     | ) |   |   | 8 |   |
|                                    |   | $                                     | 4,433  |   |   | $ | 4,062 |   |

|                           |   | Three      Months Ended March 31, |   |
|--------------------------------|--------|-----------------------------------|--------|
|                           |   | 2009                              |   |   | 2008 |   |
| (amounts      in thousands)    |   | Interest      Expense             |   |   | Net      Amortization |   |   | Total      Interest Expense |   |   | Interest      Expense |   |   | Net      Amortization |   |   | Total      Interest Expense |   |
| Securitization      financing: |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                     |   | $                                 | 2,983  |   |   | $ | (187 | ) |   | $ | 2,796 |   |   | $ | 3,441 |   |   | $ | (325 | ) |   | $ | 3,116 |   |
| Single-family                  |   |                              | 51     |   |   |   | 39 |   |   |   | 90 |   |   |   | 338 |   |   |   | 52 |   |   |   | 390 |   |
| Other bond related      costs  |   |                              | 89     |   |   |   | – |   |   |   | 89 |   |   |   | 93 |   |   |   | – |   |   |   | 93 |   |
|                           |   | $                                 | 3,123  |   |   | $ | (148 | ) |   | $ | 2,975 |   |   | $ | 3,872 |   |   | $ | (273 | ) |   | $ | 3,599 |   |

----

----

|                                                |   | Three      Months Ended March 31, |    |
|-----------------------------------------------------|--------|-----------------------------------|---------|
|                                                |   | 2009                              |    |   | 2008 |   |
| (amounts      in thousands, except for percentages) |   | AverageBalance(1)(2)              |    |   | EffectiveRate(3) |   |   | AverageBalance(1)(2) |   |   | EffectiveRate(3) |   |
| Agency      MBS                                     |   |                              |    |   |   |   |   |   |   |   |   |   |
| Agency MBS                                          |   | $                                 | 401,573 |   |   |   | 4.47 | % |   | $ | 8,862 |   |   |   | 4.69 | % |
| Repurchase      agreements                          |   |                              | 369,159 |   |   |   | 1.12 | % |   |   | 1,096 |   |   |   | 2.96 | % |
| Net interest    spread                              |   |                              |    |   |   |   | 3.35 | % |   |   |   |   |   |   | 1.73 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized Mortgage      Loans                     |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securitized mortgage      loans                     |   | $                                 | 243,166 |   |   |   | 7.65 | % |   | $ | 276,399 |   |   |   | 8.08 | % |
| Securitization financing      (4)                   |   |                              | 174,627 |   |   |   | 6.68 | % |   |   | 201,443 |   |   |   | 7.11 | % |
| Repurchase      agreements                          |   |                              | 6,943   |   |   |   | 2.52 | % |   |   | 4,612 |   |   |   | 3.98 | % |
| Net interest    spread                              |   |                              |    |   |   |   | 1.13 | % |   |   |   |   |   |   | 1.04 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other    investments                                |   | $                                 | 9,507   |   |   |   | 9.11 | % |   | $ | 15,871 |   |   |   | 11.85 | % |
|                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                               |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning      assets                        |   | $                                 | 654,246 |   |   |   | 5.72 | % |   | $ | 301,133 |   |   |   | 8.18 | % |
| Interest-bearing      liabilities                   |   |                              | 550,729 |   |   |   | 2.90 | % |   |   | 207,151 |   |   |   | 7.00 | % |
| Net interest    spread                              |   |                              |    |   |   |   | 2.82 | % |   |   |   |   |   |   | 1.18 | % |

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

----

|                            |   | Three      Months Ended March 31, 2009 vs. 2008 |   |
|---------------------------------|--------|-------------------------------------------------|--------|
| (amounts      in thousands)     |   | Rate                                            |   |   | Volume |   |   | Total |   |
| Agency      MBS                 |   | $                                               | (6     | ) |   | $ | 4,337 |   |   | $ | 4,331 |   |
| Securitized      mortgage loans |   |                                            | (121   | ) |   |   | (661 | ) |   |   | (782 | ) |
| Other      investments          |   |                                            | (77    | ) |   |   | (159 | ) |   |   | (236 | ) |
|                            |   |                                            |   |   |   |   |   |   |   |   |   |   |
| Total      interest income      |   |                                            | (204   | )  |   |   | 3,517 |   |   |   | 3,313 |   |
|                            |   |                                            |   |   |   |   |   |   |   |   |   |   |
| Securitization      financing   |   |                                            | (170   | ) |   |   | (450 | ) |   |   | (620 | ) |
| Repurchase      agreements      |   |                                            | (29    | ) |   |   | 1,039 |   |   |   | 1,010 |   |
|                            |   |                                            |   |   |   |   |   |   |   |   |   |   |
| Total      interest expense     |   |                                            | (199   | )  |   |   | 589 |   |   |   | 390 |   |
|                            |   |                                            |   |   |   |   |   |   |   |   |   |   |
| Net      interest income        |   | $                                               | (5     | ) |   | $ | 2,928 |   |   | $ | 2,923 |   |

| Note:  | The change in interest income      and interest expense due to changes in both volume and rate, which cannot      be segregated, has been allocated proportionately to the change due to      volume and the change due to rate. This table excludes non-interest      related, securitization financing expense, other interest expense,      provision for credit losses and dividends on equity      securities. |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|   | · | 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, |
|--------|--------|----------------------------------------------------------------|

|   | · | defaults      by borrowers and/or guarantors, |
|--------|--------|-----------------------------------------------|

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

|   | · | fluctuations      in interest rates and the market value of our Agency securities,      particularly in response to changes in government  policy, |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

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

|   | · | prepayments      of investment portfolio assets, |
|--------|--------|--------------------------------------------------|

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

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

|   | · | 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 pronouncements 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 |   | Average      Credit Rating of Guarantor (1) |   |
|---------------------------------------|--------|---------------------------|---------|--------|-------------------------|--------|-----------|--------|---------------------------------------------|--------|
| With      Guaranty of Payment         |   |                      |    |   |                    |   |      |   |                                        |   |
| Agency MBS                            |   | $                         | 450,800 |   |                    | $      | 436,761   |   | Fannie      Mae/Freddie Mac                 |   | AAA |   |
| Securitized mortgage      loans:      |   |                      |    |   |                    |   |      |   |                                        |   |   |   |
| Commercial                            |   |                      | 64,501  |   |                    |   | 6,935     |   | American      International Group           |   |  A3 |   |
| Single-family                         |   |                      | 22,375  |   |                    |   | 21,883    |   | PMI/GEMICO                                  |   | Ba3/Baa2 |   |
| Defeased loans                        |   |                      | 11,031  |   |                    |   | 11,003    |   | Fully      secured with cash                |   |   |   |   |
|                                  |   |                      |    |   |                    |   |      |   |                                        |   |   |   |   |
| Without      Guaranty of Payment      |   |                      |    |   |                    |   |      |   |                                        |   |   |   |   |
| Securitized mortgage      loans:      |   |                      |    |   |                    |   |      |   |                                        |   |   |   |   |
| Commercial                            |   |                      | 97,915  |   |                    |   | –   |   |                                        |   |   |   |   |
| Single-family                         |   |                      | 46,798  |   |                    |   | –   |   |                                        |   |   |   |   |
| Investment in joint      venture      |   |                      | 5,417   |   |                    |   | –   |   |                                        |   |   |   |   |
| Otherinvestments                      |   |                      | 10,545  |   |                    |   | –   |   |                                        |   |   |   |   |
|                                  |   |                      |    |   |                    |   |      |   |                                        |   |   |   |   |
|                                  |   |                      | 709,382 |   |                    |   | 476,582   |   |                                        |   |   |   |   |
| Allowance      for loan losses        |   |                      | (3,877  | )      |                    |   | –   |   |                                        |   |   |   |   |
|                                  |   |                      |    |   |                    |   |      |   |                                        |   |   |   |   |
| Totalinvestments                      |   | $                         | 705,505 |   |                    | $      | 476,582   |   |                                        |   |   |   |   |

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

----

| Investment(amounts      in thousands) |   | Amortized      Cost Basis of loans |    |   | Average      Seasoning (in      years) |   |   | Current      Loan-to-Value based on Original Appraised Value |   |   | Amortized      Cost Basis of Delinquent Loans(1) |   |   | Delinquency      % |   |
|---------------------------------------|--------|------------------------------------|---------|--------|---------------------------------------------|--------|--------|--------------------------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|--------------------|--------|
| Commercial      mortgage loans        |   | $                                  | 169,881 |   |                                        |   | 13     |                                                         |   |   | 49                                               | %      |   | $                  | 3,037  |   |   |   | 3.20 | % |
| Single-family      mortgage loans     |   |                               | 68,957  |   |                                        |   | 15     |                                                         |   |   | 53                                               | %      |   |               | 5,667  | (2) |   |   | 7.99 | % |

| (1) | Loans      contractually delinquent by 30 or more days.  An additional      commercial mortgage loan with an unpaid principal balance of $2,508 became      delinquent during the three months ended March 31,  2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Of      the $5,667 of delinquent single-family loans, approximately $1,583 are      pool insured and, of the remaining $4,084, $2,865 of the loans made a      payment within the 90 days prior to March 31,  2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Months      remaining to end of compliance period |   | As      a Percent of Unpaid Principal Balance |   |
|---------------------------------------------------|--------|-----------------------------------------------|--------|
| Compliance      period already exceeded           |   |                                          | 31.3   | % |
| Up      to one year remaining                     |   |                                          | 11.9   |   |
| Between      one and three years remaining        |   |                                          | 54.3   |   |
| Between      four and six years remaining         |   |                                          | 2.5    |   |
| Total                                             |   |                                          | 100.0  | % |

----

|                                            |   | Investments      |    |   | Borrowings |   |
|-------------------------------------------------|--------|------------------|---------|--------|------------|--------|
| (amounts      in thousands)                     |   | Amounts      (1) |    |   | Percent    |   |   | Amounts |   |   | Percent |   |
| Fixed-Rate      Investments/Obligations         |   | $                | 182,653 |   |       |   | 26.3 | % |   | $ | 156,330 |   |   |   | 26.7 | % |
|                                            |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Adjustable-Rate      Investments/Obligations:   |   |             |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Less than 3    months                           |   |             | 18,550  |   |       |   | 2.7 |   |   |   | 429,123 |   |   |   | 73.3 |   |
| Greater than 3 months and less      than 1 year |   |             | 144,953 |   |       |   | 20.9 |   |   |   | – |   |   |   | – |   |
| Greater than 1 year and less      than 2 years  |   |             | 146,311 |   |       |   | 21.1 |   |   |   | – |   |   |   | – |   |
| Greater than 2 years and less      than 3 years |   |             | 112,902 |   |       |   | 16.3 |   |   |   | – |   |   |   | – |   |
| Greater than 3 years and less      than 5 years |   |             | 88,052  |   |       |   | 12.7 |   |   |   | – |   |   |   | – |   |
| Total                                           |   | $                | 693,421 |   |       |   | 100.0 | % |   | $ | 585,453 |   |   |   | 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%                          |   | 17.85%                                     |   | 1.0% |   | 3.12% |
| 10.1%      to 11.0%                         |   | 60.46%                                     |   | 2.0% |   | 34.31% |
| 11.1%      to 12.0%                         |   | 21.69%                                     |   | 5.0% |   | 62.57% |
|                                        |   | 100.00%                                    |   |   |   | 100.00% |

| CPR                                                    | Estimated      Months to AssetReset      or Expected Prepayment | Estimated      Months to Liabilities Reset  | RepricingGap      in Months |
|--------------------------------------------------------|-----------------------------------------------------------------|--------------------------------------------------|-----------------------------|
|              0% (1) | 25      months                                                  | 1 month                                          | 24      months              |
| 15%                                                    | 20      months                                                  | 1 month                                          | 19      months              |
| 25%                                                    | 18      months                                                  | 1 month                                          | 17      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                                          |   | (17.55)%                                                |   | (7.91)%                                          |   |
| +100                                          |   | (6.19)%                                                 |   | (3.26)%                                          |   |
| 0                                             |   | –                                                 |   | –                                          |   |
| -100                                          |   | (1.60)%                                                 |   | 1.27%                                            |   |
| -200                                          |   | (8.02)%                                                 |   | 1.36%                                            |   |

----

Item1.                      LegalProceedings

----

Item1A.                      RiskFactors

Item2.                      UnregisteredSales of Equity Securities and Use of Proceeds

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).                                                                            |
| 10.8             | Sales      Agreement, dated as of March 16, 2009, between Dynex Capital, Inc. and      Cantor Fitzgerald & Co. (incorporated herein by reference to Exhibit      10.8 to Dynex’s Annual Report on Form 10-K for the year ended December 31,      2008).  |
| 10.9             | Dynex      Capital, Inc. ROAE Bonus Program (filed herewith).                                                                                                                                                                                                      |
| 10.10            | Dynex      Capital, Inc. 2009 Capital Bonus Pool (filed herewith).                                                                                                                                                                                                 |
| 31.1             | Certification      of Principal Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                 |

----

| Exhibit      No. |  Description                                                                                                                                                             |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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).  |

----

SIGNATURES

|                               | DYNEX CAPITAL, INC.                                                                     |
|------------------------------------|-----------------------------------------------------------------------------------------|
|                               |                                                                                    |
|                               |                                                                                    |
| Date:  May      11, 2009 | /s/      Thomas B. Akin                                                                 |
|                               | Thomas      B. Akin                                                                     |
|                               | Chairman      and Chief Executive Officer                                               |
|                               | (Principal      Executive Officer)                                                      |
|                               |                                                                                    |
|                               |                                                                                    |
| Date:  May      11, 2009 | /s/      Stephen J. Benedetti                                                           |
|                               | Stephen      J. Benedetti                                                               |
|                               | Executive      Vice President, Chief Operating Officer and Chief Financial      Officer |
|                               | (Principal      Financial Officer)                                                      |
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