**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      DC 20549**

**FORM      10-Q**

**Quarterly      Report Pursuant to Section 13 or 15(d) of the**

**Securities      Exchange Act of 1934**

**For      the quarterly period March 31, 2006**

**Transition      Report Pursuant to Section 13 or 15(d) of the**

**Securities      Exchange Act of 1934**

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

**DYNEX      CAPITAL, INC.**

**(Exact      name of registrant as specified in its charter)**

| **Virginia**                                                                                                              | **52-1549373**                     |
|---------------------------------------------------------------------------------------------------------------------------|------------------------------------|
| (State                or other jurisdiction of                                                                            | (I.R.S.                Employer    |
| incorporation                or organization)                                                                             | Identification                No.) |
|                                                                                                                      |                               |
| **4551                Cox Road, Suite 300, Glen Allen, Virginia**                                                         | **23060-6740**                     |
| (Address                of principal executive offices)                                                                   | (Zip                Code)          |
|                                                                                                                      |                               |
| **(804)                217-5800**(Registrant‘s                telephone number, including area                code) |

----

**DYNEX      CAPITAL, INC.**

**FORM      10-Q**

**INDEX**

|                    |                                 |                                                                                                                                                                                                       | Page   |
|-------------------------|--------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART                I.  | FINANCIAL                INFORMATION |                                                                                                                                                                                                       |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                1.               | Financial                Statements                                                                                                                                                                        |   |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    |                                 | Condensed                Consolidated Balance Sheets at March 31, 2006 (unaudited) and December                31,                2005                                                                     | 1      |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    |                                 | Condensed                Consolidated Statements of Operations and Comprehensive Income (Loss)                for                the three months ended March 31, 2006 and 2005                (unaudited) | 2      |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    |                                 | Condensed                Consolidated Statements of Cash Flows for the three months ended                March 31,                2006 and 2005 (unaudited)                                                | 3      |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    |                                 | Notes                to Condensed Consolidated Financial Statements                (unaudited)                                                                                                             | 4      |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                2.               | Management’s                Discussion and                Analysis of Financial                Condition and Results of Operations                                                                   | 12     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                3.               | Quantitative                and                Qualitative Disclosures about Market Risk                                                                                                                   | 24     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                4.               | Controls                and Procedures                                                                                                                                                                     | 25     |
|                    |                                 |                                                                                                                                                                                                       |   |
| PART                II. | OTHER                INFORMATION     |                                                                                                                                                                                                       |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                1.               | Legal                Proceedings                                                                                                                                                                      | 26     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                1A.              | Risk                Factors                                                                                                                                                                                | 27     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                2.               | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                                 | 27     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                3.               | Defaults                Upon Senior Securities                                                                                                                                                             | 28     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                4.               | Submission                of Matters to a Vote of Security Holders                                                                                                                                         | 28     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                5.               | Other                Information                                                                                                                                                                           | 28     |
|                    |                                 |                                                                                                                                                                                                       |   |
|                    | Item                6.               | Exhibits                                                                                                                                                                                                   | 28     |
|                    |                                 |                                                                                                                                                                                                       |   |
| SIGNATURE               | 29                                   |

----

**PART      I. FINANCIAL INFORMATION**

**Item      1. **
**Financial      Statements**

**DYNEX      CAPITAL, INC.**

**CONDENSED      **
**CONSOLIDATED      **

**BALANCE      SHEETS (UNAUDITED)**

*(amounts      in thousands except share data)*

|                                                                                                    |   | March                31, |     | December                31, |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------|----------|-----------------------------|--------|
|                                                                                                    |   | 2006                     |     | 2005                        |   |
|                                                                                                    |   |                     |     |                        |   |
| ASSETS                                                                                                  |   |                     |     |                        |   |
| Cash                and cash equivalents                                                                |   | $                        | 23,290   |                        | $      | 45,235 |   |
| Other                assets                                                                             |   |                     | 4,480    |                        |   | 4,332 |   |
|                                                                                                    |   |                     | 27,770   |                        |   | 49,567 |   |
| Investments:                                                                                            |   |                     |     |                        |   |   |   |
| Securitized                finance receivables, net                                                     |   |                     | 694,086  |                        |   | 722,152 |   |
| Securities                                                                                              |   |                     | 36,271   |                        |   | 24,908 |   |
| Other                investments                                                                        |   |                     | 3,829    |                        |   | 4,067 |   |
| Other                loans                                                                              |   |                     | 5,008    |                        |   | 5,282 |   |
|                                                                                                    |   |                     | 739,194  |                        |   | 756,409 |   |
|                                                                                                    |   |                     |     |                        |   |   |   |
|                                                                                                    |   | $                        | 766,964  |                        | $      | 805,976 |   |
|                                                                                                    |   |                     |     |                        |   |   |   |
| LIABILITIES                AND SHAREHOLDERS' EQUITY                                                     |   |                     |     |                        |   |   |   |
| LIABILITIES                                                                                             |   |                     |     |                        |   |   |   |
| Securitization                financing:                                                                |   |                     |     |                        |   |   |   |
| Non-recourse                securitization financing                                                    |   | $                        | 503,536  |                        | $      | 516,578 |   |
| Repurchase                agreements secured by securitization financing                                |   |                     | 120,963  |                        |   | 133,104 |   |
| Repurchase                agreements secured by securities                                              |   |                     | 162      |                        |   | 211 |   |
| Other                liabilities                                                                        |   |                     | 6,637    |                        |   | 6,749 |   |
|                                                                                                    |   |                     | 631,298  |                        |   | 656,642 |   |
|                                                                                                    |   |                     |     |                        |   |   |   |
| Commitments                and Contingencies (Note 11)                                                  |   |                     |     |                        |   |   |   |
|                                                                                                    |   |                     |     |                        |   |   |   |
| SHAREHOLDERS'                EQUITY                                                                     |   |                     |     |                        |   |   |   |
| Preferred                stock, par value $0.01 per share, 50,000,000 shares                authorized, |   |                     |     |                        |   |   |   |
| 9.5%                Cumulative Convertible Series D,                                                    |   |                     |     |                        |   |   |   |
| 4,221,539                and 5,628,737 shares issued and outstanding, respectively,                     |   |                     |     |                        |   |   |   |
| ($43,218                and $57,624 aggregate liquidation                                               |   |                     |     |                        |   |   |   |
| preference,                respectively)                                                                |   |                     | 41,749   |                        |   | 55,666 |   |
| Common                stock, par value $0.01 per share, 100,000,000 shares                authorized,   |   |                     |     |                        |   |   |   |
| 12,143,091                and 12,163,391 shares issued outstanding, respectively                        |   |                     | 121      |                        |   | 122 |   |
| Additional                paid-in capital                                                               |   |                     | 366,612  |                        |   | 366,903 |   |
| Accumulated                other comprehensive income                                                   |   |                     | 504      |                        |   | 140 |   |
| Accumulated                deficit                                                                      |   |                     | (273,320 | )                           |   | (273,497 | ) |
|                                                                                                    |   |                     | 135,666  |                        |   | 149,334 |   |
|                                                                                                    |   |                     |     |                        |   |   |   |
|                                                                                                    |   | $                        | 766,964  |                        | $      | 805,976 |   |
|                                                                                                    |   |                     |     |                        |   |   |   |
| *See                notes to unaudited condensed consolidated financial                statements.*     |   |                     |     |                        |   |   |   |

----

**DYNEX      CAPITAL, INC.**

**CONDENSED****CONSOLIDATED      STATEMENTS**

**OF      OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED**
**)**

*(amounts      in thousands except share data)*

|                                                                                                |   | Three                Months Ended |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                |   | March                31,          |   |
|                                                                                                |   | 2006                              |   | 2005 |   |
|                                                                                                |   |                              |   |   |   |
| Interest                income:                                                                     |   |                              |   |   |   |
| Securitized                finance receivables                                                      |   | $                                 | 13,886 |   | $ | 21,997 |   |
| Securities                                                                                          |   |                              | 546    |   |   | 1,126 |   |
| Other                investments                                                                    |   |                              | 227    |   |   | 672 |   |
| Other                loans                                                                          |   |                              | 107    |   |   | 258 |   |
|                                                                                                |   |                              | 14,766 |   |   | 24,053 |   |
|                                                                                                |   |                              |   |   |   |   |   |
| Interest                and related expenses:                                                       |   |                              |   |   |   |   |   |
| Non-recourse                securitization financing                                                |   |                              | 10,988 |   |   | 19,101 |   |
| Repurchase                agreements                                                                |   |                              | 1,515  |   |   | 454 |   |
| Other                                                                                               |   |                              | (25    | ) |   | 41 |   |
|                                                                                                |   |                              | 12,478 |   |   | 19,596 |   |
|                                                                                                |   |                              |   |   |   |   |   |
| Net                interest income                                                                  |   |                              | 2,288  |   |   | 4,457 |   |
| Recapture                of (provision for) loan losses                                             |   |                              | 119    |   |   | (2,261 | ) |
|                                                                                                |   |                              |   |   |   |   |   |
| Net                interest income after provision for loan losses                                  |   |                              | 2,407  |   |   | 2,196 |   |
|                                                                                                |   |                              |   |   |   |   |   |
| Impairment                charges                                                                   |   |                              | -      |   |   | (87 | ) |
| Gain                on sale of investments, net                                                     |   |                              | 24     |   |   | 79 |   |
| Other                income                                                                         |   |                              | 109    |   |   | 238 |   |
| General                and administrative expenses                                                  |   |                              | (1,327 | ) |   | (1,492 | ) |
|                                                                                                |   |                              |   |   |   |   |   |
| Net                income                                                                           |   |                              | 1,213  |   |   | 934 |   |
| Preferred                stock charge                                                               |   |                              | (1,036 | ) |   | (1,337 | ) |
|                                                                                                |   |                              |   |   |   |   |   |
| Net                income (loss) to common shareholders                                             |   | $                                 | 177    |   | $ | (403 | ) |
|                                                                                                |   |                              |   |   |   |   |   |
| Change                in net unrealized gain/(loss) on :                                            |   |                              |   |   |   |   |   |
| Investments                classified as available-for-sale                                         |   |                              | 364    |   |   | (3,883 | ) |
| Hedge                instruments                                                                    |   |                              | -      |   |   | 383 |   |
|                                                                                                |   |                              |   |   |   |   |   |
| Comprehensive                income (loss)                                                          |   | $                                 | 1,577  |   | $ | (2,566 | ) |
|                                                                                                |   |                              |   |   |   |   |   |
| Net                income (loss) per common share:                                                  |   |                              |   |   |   |   |   |
| Basic                and diluted                                                                    |   | $                                 | 0.01   |   | $ | (0.03 | ) |
|                                                                                                |   |                              |   |   |   |   |   |
|                                                                                                |   |                              |   |   |   |   |   |
| *See                notes to unaudited condensed consolidated financial                statements.* |   |                              |   |   |   |   |   |

----

**DYNEX      CAPITAL, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS**

**OF      CASH FLOWS**
**      (UNAUDITED)**

*(amounts      in thousands)*

|                                                                                                |   | Three                Months Ended |    |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                                                |   | March                31,          |    |
|                                                                                                |   | 2006                              |    | 2005 |   |
| Operating                activities:                                                                |   |                              |    |   |   |
| Net                income                                                                           |   | $                                 | 1,213   |   | $ | 934 |   |
| Adjustments                to reconcile net (loss) income to cash                                   |   |                              |    |   |   |   |   |
| provided                by operating activities:                                                    |   |                              |    |   |   |   |   |
| (Recapture                of) provision for loan loss                                               |   |                              | (119    | ) |   | 2,261 |   |
| Impairment                charges                                                                   |   |                              | -       |   |   | 87 |   |
| Gain                on sale of investments                                                          |   |                              | (24     | ) |   | (79 | ) |
| Amortization                and depreciation                                                        |   |                              | 365     |   |   | 407 |   |
| Net                change in other assets and other liabilities                                     |   |                              | 75      |   |   | (721 | ) |
| Net                cash and cash equivalents provided by operating activities                       |   |                              | 1,510   |   |   | 2,889 |   |
|                                                                                                |   |                              |    |   |   |   |   |
|                                                                                                |   |                              |    |   |   |   |   |
| Investing                activities:                                                                |   |                              |    |   |   |   |   |
| Principal                payments received on investments                                           |   |                              | 27,435  |   |   | 45,831 |   |
| Purchase                of securities and other investments                                         |   |                              | (16,168 | ) |   | (92 | ) |
| Payments                received on securities, other investments and loans                         |   |                              | 5,883   |   |   | 12,624 |   |
| Proceeds                from sales of securities and other investments                              |   |                              | 104     |   |   | 5,168 |   |
| Other                                                                                               |   |                              | 69      |   |   | 102 |   |
| Net                cash and cash equivalents provided by investing activities                       |   |                              | 17,323  |   |   | 63,633 |   |
|                                                                                                |   |                              |    |   |   |   |   |
| Financing                activities:                                                                |   |                              |    |   |   |   |   |
| Principal                payments on securitization financing                                       |   |                              | (13,009 | ) |   | (46,072 | ) |
| Repayment                of purchase agreement borrowings                                           |   |                              | (12,190 | ) |   | (11,101 | ) |
| Retirement                of common stock                                                           |   |                              | (137    | ) |   | - |   |
| Retirement                of preferred stock                                                        |   |                              | (14,072 | ) |   | - |   |
| Dividends                paid                                                                       |   |                              | (1,370  | ) |   | (1,337 | ) |
| Net                cash and cash equivalents used for financing activities                          |   |                              | (40,778 | ) |   | (58,510 | ) |
| Net                (decrease) increase in cash and cash equivalents                                 |   |                              | (21,945 | ) |   | 8,012 |   |
| Cash                and cash equivalents at beginning of period                                     |   |                              | 45,235  |   |   | 52,522 |   |
| Cash                and cash equivalents at end of period                                           |   | $                                 | 23,290  |   | $ | 60,534 |   |
|                                                                                                |   |                              |    |   |   |   |   |
|                                                                                                |   |                              |    |   |   |   |   |
| *See                notes to unaudited condensed consolidated financial                statements.* |   |                              |    |   |   |   |   |

----

**NOTES      TO UNAUDITED****CONDENSED****CONSOLIDATED      FINANCIAL STATEMENTS**

**DYNEX      CAPITAL, INC.**

*(amounts      in thousands except share and per share data)*

**NOTE      1 — BASIS OF PRESENTATION**

----

**NOTE      2 — NET INCOME (LOSS) PER COMMON SHARE**

|                                                                                                                                                 |   | Three                Months Ended March 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                                                                                 |   | 2006                                        |   | 2005 |   |
|                                                                                                                                                 |   |   Income(loss)                    |   | Weighted-Average                Number of Shares |   |   Income(loss) |   | Weighted-AverageNumber                ofShares |   |
|                                                                                                                                                 |   |                                        |   |   |   |   |   |   |   |
| Net                income                                                                                                                            |   | $                                           | 1,213  |   |   |   |   | $ | 934 |   |   |   |   |
| Preferred                stock charge                                                                                                                |   |                                        | (1,036 | ) |   |   |   |   | (1,337 | ) |   |   |   |
| Net                income (loss) to common shareholders                                                                                              |   | $                                           | 177    |   |   | 12,161,682 |   | $ | (403 | ) |   | 12,162,391 |   |
| Effect                of dividends and additional shares of preferred stock                                                                          |   |                                        | -      |   |   | - |   |   | - |   |   | - |   |
| Diluted                                                                                                                                              |   | $                                           | 177    |   |   | 12,161,682 |   | $ | (403 | ) |   | 12,162,391 |   |
|                                                                                                                                                 |   |                                        |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share:                                                                                                          |
| Basic                and diluted                                                                                                                     |   |                                        |   |   | $ | 0.01 |   |   |   |   | $ | (0.03 | ) |
|                                                                                                                                                 |   |                                        |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation                of shares not included in calculation of earnings per share due                to                anti-dilutive effect: |   |                                        |
| Dividends                and assumed conversion of Series D preferred stock                                                                          |   | $                                           | 1,036  |   |   | 4,362,259 |   | $ | 1,337 |   |   | 5,628,737 |   |
| Expense                and incremental shares of stock appreciation rights and                options                                                |   |                                        | -      |   |   | (93,589 | ) |   | - |   |   | 257 |   |
|                                                                                                                                                 |   | $                                           | 1,036  |   |   | 4,268,670 |   | $ | 1,337 |   |   | 5,628,994 |   |
|                                                                                                                                                 |   |                                        |   |   |   |   |   |   |   |   |   |   |   |

----

**NOTE      3 — SECURITIZED FINANCE RECEIVABLES**

|                                                                       |   | March                31,2006 |    | December                31, 2005 |   |
|----------------------------------------------------------------------------|--------|------------------------------|---------|----------------------------------|--------|
| Collateral:                                                                |   |                         |    |                             |   |
| Commercial                                                                 |   | $                            | 556,737 |                             | $      | 570,199 |   |
| Single-family                                                              |   |                         | 146,480 |                             |   | 161,058 |   |
|                                                                       |   |                         | 703,217 |                             |   | 731,257 |   |
| Funds                held by trustees, including funds held for defeasance |   |                         | 6,604   |                             |   | 6,648 |   |
| Accrued                interest receivable                                 |   |                         | 5,033   |                             |   | 5,114 |   |
| Unamortized                discounts and premiums, net                     |   |                         | (1,855  | )                                |   | (1,832 | ) |
| Loans,                at amortized cost                                    |   |                         | 712,999 |                             |   | 741,187 |   |
| Allowance                for loan losses                                   |   |                         | (18,913 | )                                |   | (19,035 | ) |
|                                                                       |   | $                            | 694,086 |                             | $      | 722,152 |   |

**NOTE      4 — ALLOWANCE FOR LOAN LOSSES**

|                                                    |   | Three                Months Ended March 31, |   |
|---------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                    |   | 2006                                        |   | 2005 |   |
| Allowance                at beginning of period         |   | $                                           | 19,035 |   | $ | 28,014 |   |
| (Recapture                of) provision for loan losses |   |                                        | (119   | ) |   | 2,261 |   |
| Charge-offs,                net of recoveries           |   |                                        | (3     | ) |   | (2,594 | ) |
| Allowance                at end of period               |   | $                                           | 18,913 |   | $ | 27,681 |   |

**NOTE      5 — OTHER INVESTMENTS**

|                                                         |   | March                31, 2006 |   | December                31, 2005 |   |
|--------------------------------------------------------------|--------|-------------------------------|--------|----------------------------------|--------|
| Delinquent                property tax receivable securities |   | $                             | 3,010  |                             | $      | 3,220 |   |
| Real                estate owned                             |   |                          | 819    |                             |   | 847 |   |
|                                                         |   | $                             | 3,829  |                             | $      | 4,067 |   |

----

**NOTE      6 — SECURITIES**

| ** **                                       | ** ** | March                  31, 2006 |   | December                  31, 2005       |   |
|--------------------------------------------------|------------|---------------------------------|--------|------------------------------------------|--------|
|                                             |       | FairValue                       |   | Effective                  Interest Rate |   | FairValue |   | Effective                  Interest Rate |   |
| Securities,                  available-for-sale: |       |                            |   |                                     |   |   |   |   |   |
| Fixed-rate                  mortgage securities  |       | $                               | 18,132 |                                     |   | 6.56% |   | $ | 22,900 |   |   | 6.14% |   |
| Commercial                  paper                |       |                            | 14,989 |                                     |   | 4.42% |   |   | - |   |   | - |   |
| Other                  securities                |       |                            | 2,846  |                                     |   |   |   |   | 1,602 |   |   |   |   |
| Equity                  securities               |       |                            | 15     |                                     |   |   |   |   | 320 |   |   |   |   |
|                                             |       |                            | 35,982 |                                     |   |   |   |   | 24,822 |   |   |   |   |
| Gross                  unrealized gains          |       |                            | 461    |                                     |   |   |   |   | 332 |   |   |   |   |
| Gross                  unrealized losses         |       |                            | (172   | )                                        |   |   |   |   | (246 | ) |   |   |   |
|                                             |       | $                               | 36,271 |                                     |   |   |   | $ | 24,908 |   |   |   |   |

**NOTE      7 - OTHER LOANS**

|                                                                   |   | March                31, 2006 |   | December                31, 2005 |   |
|------------------------------------------------------------------------|--------|-------------------------------|--------|----------------------------------|--------|
| Single-family                mortgage loans                            |   | $                             | 4,574  |                             | $      | 4,825 |   |
| Multifamily                and commercial mortgage loan participations |   |                          | 987    |                             |   | 995 |   |
|                                                                   |   |                          | 5,561  |                             |   | 5,820 |   |
| Unamortized                discounts                                   |   |                          | (553   | )                                |   | (538 | ) |
|                                                                   |   | $                             | 5,008  |                             | $      | 5,282 |   |

**NOTE      8 - NON-RECOURSE SECURITIZATION FINANCING**

----

|                                        |   | March                31, 2006    |      | December                31, 2005       |   |
|---------------------------------------------|--------|----------------------------------|-----------|----------------------------------------|--------|
|                                        |   | Bonds                Outstanding |      | Range                of Interest Rates |   | Bonds                Outstanding |   | Range                of Interest Rates |   |
| Fixed-rate                classes           |   | $                                | 496,915   |                                   |   | 6.6%                - 8.8% |   | $ | 509,923 |   |   | 6.6%                - 8.8% |   |
| Accrued                interest payable     |   |                             | 3,355     |                                   |   |   |   |   | 3,438 |   |   |   |   |
| Deferred                costs               |   |                             | (15,682   | )                                      |   |   |   |   | (16,912 | ) |   |   |   |
| Unamortized                net bond premium |   |                             | 18,948    |                                   |   |   |   |   | 20,129 |   |   |   |   |
|                                        |   | $                                | 503,536   |                                   |   |   |   | $ | 516,578 |   |   |   |   |
|                                        |   |                             |      |                                   |   |   |   |   |   |   |   |   |   |
| Range                of stated maturities   |   |                             | 2009-2028 |                                   |   |   |   |   | 2009-2028 |   |   |   |   |
| Number                of series             |   |                             | 3         |                                   |   |   |   |   | 3 |   |   |   |   |

**NOTE      9 - REPURCHASE AGREEMENTS **

**NOTE      10 — PREFERRED STOCK**

----

**NOTE      11 — COMMITMENTS AND CONTINGENCIES**

**NOTE      12 — STOCK BASED COMPENSATION**

----

|                                                              |   | Three                Months EndedMarch                31, 2005 |   |
|-------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
| Net                loss to common shareholders                    |   | $                                                              | (403   | ) |
| Fair                value method stock based compensation expense |   |                                                           | (16    | ) |
| Pro                forma net loss to common shareholders          |   | $                                                              | (419   | ) |
|                                                              |   |                                                           |   |   |
| Net                loss per common share:                         |   |                                                           |   |   |
| Basic                and diluted - as reported                    |   | $                                                              | (0.03  | ) |
| Basic                and diluted - pro forma                      |   | $                                                              | (0.03  | ) |
|                                                              |   |                                                           |   |   |

|                                                   | ** ** | Three                Months ended |       |
|--------------------------------------------------------|------------|-----------------------------------|------------|
|                                                   |       | March                31, 2006     | ** ** |
| ** **                                             | ** ** |  NumberOfShares              | ** ** | Weighted-AverageExercisePrice |   |
| SARs                outstanding at beginning of period |       |                              | 126,297    |   |   | 7.81 |   |
| SARs                granted                            |       |                              | 77,000     |   |   | 6.61 |   |
| SARs                forfeited or redeemed              |       |                              | -          |   |   | - |   |
| SARs                exercised                          |       |                              | -          |   |   | - |   |
| SARs                outstanding at end of period       |       |                              | 203,297    |   |   | 7.36 |   |
| SARs                vested and exercisable             |       |                              | 31,574     |   |   | 7.81 |   |

----

|                                                      |   | **Three                Months ended** |   |
|-----------------------------------------------------------|--------|---------------------------------------|--------|
|                                                      |   | **March                31, 2006**     |   |
|                                                      |   |  **Number****Of****Shares**      |   | **Weighted-****Average****Exercise****Price** |   |
| Options                outstanding at beginning of period |   |                                  | 40,000 |   |   | 8.46 |   |
| Options                granted                            |   |                                  | -      |   |   | - |   |
| Options                forfeited or redeemed              |   |                                  | -      |   |   | - |   |
| Options                exercised                          |   |                                  | -      |   |   | - |   |
| Options                outstanding at end of period       |   |                                  | 40,000 |   |   | 8.46 |   |
| Options                vested and exercisable             |   |                                  | 40,000 |   |   | 8.46 |   |

**NOTE      13 — RECENT ACCOUNTING PRONOUNCEMENTS**

*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities, *

----

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

**CRITICAL      ACCOUNTING POLICIES**

*Consolidation      of Subsidiaries.*

----

*Impairments.*

*Allowance      for Loan Losses.*

**FINANCIAL      CONDITION**

| *(amounts                  in thousands except per share data)*                  |   | **March                  31, 2006** | ** ** | **December                  31, 2005** |   |
|----------------------------------------------------------------------------------|--------|-------------------------------------|------------|----------------------------------------|--------|
| Investments:                                                                     |   |                                |       |                                   |   |
| Securitized                  finance receivables, net                            |   | $                                   | 694,086    |                                   | $      | 722,152 |   |
| Securities                                                                       |   |                                | 36,271     |                                   |   | 24,908 |   |
| Other                  investments                                               |   |                                | 3,829      |                                   |   | 4,067 |   |
| Other                  loans                                                     |   |                                | 5,008      |                                   |   | 5,282 |   |
|                                                                             |   |                                |       |                                   |   |   |   |
| Non-recourse                  securitization financing                           |   |                                | 503,536    |                                   |   | 516,578 |   |
| Repurchase                  agreements secured by securitization financing bonds |   |                                | 120,963    |                                   |   | 133,104 |   |
| Repurchase                  agreements secured by securities                     |   |                                | 162        |                                   |   | 211 |   |
|                                                                             |   |                                |       |                                   |   |   |   |
| Shareholders’                  equity                                      |   |                                | 135,666    |                                   |   | 149,334 |   |
| Common                  book value per share                                     |   | $                                   | 7.70       |                                   | $      | 7.65 |   |

----

*Securitized      finance receivables.*

*Securities*

*Other      investments*

*Other      loans*

*Non-recourse      securitization financing. *

*Repurchase      Agreements*

*Shareholders’      equity*

**Supplemental      Discussion of Investments**

----

| *(amounts                in thousands)*           |   | **March                31, 2006**       |    |
|---------------------------------------------------|--------|-----------------------------------------|---------|
|                                              |   | **Amortized                cost basis** |    | **Financing** |   | **Net                basis** |   | **Fair                value of net basis****(1)** |   |
| Securitized                finance receivables:   |   |                                    |    |   |   |   |   |   |   |
| Single                family mortgage loans       |   | $                                       | 149,117 |   | $ | 120,963 |   | $ | 28,154 |   | $ | 29,012 |   |
| Commercial                mortgage loans          |   |                                    | 563,882 |   |   | 503,536 |   |   | 60,346 |   |   | 39,722 |   |
| Allowance                for loan losses          |   |                                    | (18,913 | ) |   | - |   |   | (18,913 | ) |   | - |   |
|                                              |   |                                    | 694,086 |   |   | 624,499 |   |   | 69,587 |   |   | 68,734 |   |
| Securities:                                       |   |                                    |    |   |   |   |   |   |   |   |   |   |   |
| Investment                grade single-family     |   |                                    | 17,631  |   |   | 162 |   |   | 17,469 |   |   | 17,631 |   |
| Non-investment                grade single-family |   |                                    | 668     |   |   | - |   |   | 668 |   |   | 668 |   |
| Equity                and other                   |   |                                    | 17,972  |   |   | - |   |   | 17,972 |   |   | 17,972 |   |
|                                              |   |                                    | 36,271  |   |   | 162 |   |   | 36,109 |   |   | 36,271 |   |
|                                              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |
| Other                loans and investments        |   |                                    | 8,837   |   |   | - |   |   | 8,837 |   |   | 9,948 |   |
|                                              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |
| Total                                             |   | $                                       | 739,194 |   | $ | 624,661 |   | $ | 114,533 |   | $ | 114,953 |   |
|                                              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |

**(1)**

*Fair      values are based on dealer quotes, and where dealer quotes are not available      fair values are calculated as the net present value of expected future cash      flows, discounted at 16%. Fair value also includes our capital invested in      redeemed securitization financing bonds. Expected future cash flows were based      on the forward LIBOR curve as of March 31, 2006, and incorporate the resetting      of the interest rates on the adjustable rate assets to a level consistent with      projected prevailing rates. Expected cash flows were also based on estimated      prepayment speeds and credit losses on the underlying loans set forth in the      table below. Increases or decreases in interest rates and index levels from      those used would impact the calculation of fair value, as would differences      in      actual prepayment speeds and credit losses versus the assumptions set forth      above.*

|                                        | **Fair                Value Assumptions**             | **($                in thousands)** |
|---------------------------------------------|-------------------------------------------------------|-------------------------------------|
| **Loan                type**                | **Weighted-average                prepayment speeds** |  **Losses**                    | **Weighted-Average****Discount                Rate** | **Projected                cash flow termination date** | **Cash                flows received in 2006****(1)** |
|                                        |                                                  |                                |   |   |   |
| Single-family                mortgage loans | 30%                CPR                                | 0.2%                annually        | 16% | Anticipated                final maturity 2024 | $819 |
|                                        |                                                  |                                |   |   |   |
| Commercial                mortgage loans(2) | (3)                                                   | 0.8%                annually        | 16% | (4) | $2,263 |
|                                        |                                                  |                                |   |   |   |

*(1)*

*Represents      the excess of the cash flows received on the collateral pledged over the cash      flow requirements of the securitization financing*
*bond      security.*

*(2)*

*Includes      loans pledged to three different securitization trusts. *

*(3)*

*Assumed      CPR speeds generally are governed by underlying pool characteristics, prepayment      lock-out provisions, and yield maintenance provisions. Loans currently      delinquent in excess of 30 days are assumed liquidated in month      six.*

*(4)*

*Cash      flow termination dates are modeled based on the repayment dates of the loans      or      optional redemption dates of the underlying securitization financing      bonds.*

----

**RESULTS      OF OPERATIONS**

|                                                                 |       | **Three                Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                           | ** ** | **March                31**,          |       |
| *(amounts                in thousands except per share information)* |       | **2006**                              | ** ** | **2005** |   |
|                                                                 |       |                                  |       |   |   |
| Net                interest income                                   |       | $                                     | 2,288      |   | $ | 4,457 |   |
| Recapture                of (provision for) loan losses              |       |                                  | 119        |   |   | (2,261 | ) |
| Net                interest income after provision for loan losses   |       |                                  | 2,407      |   |   | 2,196 |   |
| General                and administrative expenses                   |       |                                  | (1,327     | ) |   | (1,492 | ) |
| Net                income                                            |       |                                  | 1,213      |   |   | 934 |   |
| Preferred                stock charge                                |       |                                  | (1,036     | ) |   | (1,337 | ) |
| Net                income (loss) to common shareholders              |       |                                  | 177        |   |   | (403 | ) |
|                                                                 |       |                                  |       |   |   |   |   |
| Net                income (loss) per common share:                   |       |                                  |       |   |   |   |   |
| Basic                and diluted                                     |       | $                                     | 0.01       |   | $ | (0.03 | ) |

*Three      Months Ended March 31, 2006 Compared to Three Months Ended March 31,      2005*

General      and administrative expense decreased to $1.3 million for the three-months ended      March 31, 2006 from $1.5 million for the same period in 2005. This decrease      was primarily the result of the reductions in expenses associated with the      Company’s tax lien servicing operations, partially offset by an increase in      expense associated with stock appreciation rights and timing of accounting      fees.

----

**Average      Balances and Effective Interest Rates**

|                                                                     |       | **Three                Months Ended March 31,** |       |
|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
|                                                                     |       | **2006**                                        | ** ** | **2005** | ** ** |
| ** **                                                               | ** ** | **Average****Balance**                          | ** ** | **Effective****Rate** | ** ** | **Average****Balance** | ** ** | **Effective****Rate** |   |
|                                                                     |       |                                            |       |   |   |   |   |   |   |
| Interest-earning                assets:(1)                               |       |                                            |       |   |   |   |   |   |   |
| Securitized                finance receivables(2)                        |       | $                                               | 717,445    |   |   | 7.74 | % | $ | 1,226,852 |   |   | 7.17 | % |
| Securities                                                               |       |                                            | 35,605     |   |   | 6.09 | % |   | 72,807 |   |   | 5.69 | % |
| Cash                                                                     |       |                                            | 17,054     |   |   | 4.15 | % |   | 54,200 |   |   | 2.21 | % |
| Other                loans                                               |       |                                            | 5,184      |   |   | 8.23 | % |   | 7,092 |   |   | 14.53 | % |
| Other                investments                                         |       |                                            | -          |   |   | - |   |   | 7,394 |   |   | 20.14 | % |
| Total                interest-earning assets                             |       | $                                               | 775,288    |   |   | 7.58 | % | $ | 1,368,345 |   |   | 7.00 | % |
|                                                                     |       |                                            |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                             |       |                                            |       |   |   |   |   |   |   |   |   |   |   |
| Non-recourse                securitization financing(3)                  |       | $                                               | 507,482    |   |   | 8.48 | % | $ | 1,147,513 |   |   | 6.49 | % |
| Repurchase                agreements secured by securitization financing |       |                                            | 128,201    |   |   | 4.75 | % |   | - |   |   | - |   |
| Repurchase                agreements                                     |       |                                            | 194        |   |   | 4.78 | % |   | 69,216 |   |   | 2.62 | % |
| Total                interest-bearing liabilities                        |       | $                                               | 635,877    |   |   | 7.73 | % | $ | 1,216,729 |   |   | 6.27 | % |
| Net                interest spread on all investments(3)                 |       |                                            |       |   |   | (0.15 | )% |   |   |   |   | 0.73 | % |
| Net                yield on average interest-earning assets(3)(4)        |       |                                            |       |   |   | 1.25 | % |   |   |   |   | 1.43 | % |
|                                                                     |       |                                            |       |   |   |   |   |   |   |   |   |   |   |

| *(1)  * | *Average                balances exclude adjustments made in accordance with Statement of                Financial Accounting Standards No. 115, “Accounting for Certain                Investments in Debt and Equity Securities” to record available-for-sale                securities at fair value.* |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(2)  * | *Average                balances exclude funds held by trustees of $6,618 and $233 for the                three                months ended March 31, 2006 and 2005,                respectively.* |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(3)  * | *Effective                rates are calculated excluding non-interest related collateralized                bond                expenses. If included, the effective rate on interest-bearing liabilities                would be 7.85% and 6.44% for the three months ended March 31, 2006                and                2005.* |
|-------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(4)  * | *Net                yield on average interest-earning assets reflects net interest income                excluding non-interest related collateralized bond expenses divided                by                average interest earning assets for the period,                annualized.* |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                           |   | **Three                Months Ended March 31, 2006 vs. 2005** |       |
|------------------------------------------------|--------|---------------------------------------------------------------|------------|
| *(amounts                in thousands)*        |   | **Rate**                                                      | ** ** | **Volume** | ** ** | **Total** |   |
|                                           |   |                                                          |       |   |   |   |   |
| Securitized                finance receivables |   | $                                                             | 1,661      |   | $ | (9,772 | ) | $ | (8,111 | ) |
| Securities                                     |   |                                                          | 123        |   |   | (616 | ) |   | (493 | ) |
| Other                investments               |   |                                                          | (186       | ) |   | (186 | ) |   | (372 | ) |
| Cash                and cash equivalents       |   |                                                          | 69         |   |   | (191 | ) |   | (122 | ) |
| Other                loans                     |   |                                                          | (93        | ) |   | (58 | ) |   | (151 | ) |
|                                           |   |                                                          |       |   |   |   |   |   |   |   |
| Total                interest income           |   |                                                          | 1,574      |   |   | (10,823 | ) |   | (9,249 | ) |
|                                           |   |                                                          |       |   |   |   |   |   |   |   |
| Securitization                financing        |   |                                                          | 3,086      |   |   | (9,413 | ) |   | (6,327 | ) |
| Repurchase                agreements           |   |                                                          | 155        |   |   | (607 | ) |   | (452 | ) |
|                                           |   |                                                          |       |   |   |   |   |   |   |   |
| Total                interest expense          |   |                                                          | 3,241      |   |   | (10,020 | ) |   | (6,779 | ) |
|                                           |   |                                                          |       |   |   |   |   |   |   |   |
| Net                interest income             |   | $                                                             | (1,667     | ) | $ | (803 | ) | $ | (2,470 | ) |

*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 dividends on equity securities, securitization financing      expense, other interest expense and provision for credit      losses.*

*Credit      Exposures*

----

**Credit      Reserves and Actual Credit Losses**

|                           |   |  **Outstanding****Loan                Principal****Balance** | ** ** |  **Credit                Exposure,****Net                Of****Credit                Reserves** | ** ** |  **Actual****Credit****Losses** | ** ** | **Credit                Exposure, Net Of Credit Reserves To Outstanding Loan                Balance** |   |
|--------------------------------|--------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------------------------------------------------------|--------|
| 2005,                Quarter 1 |   | $                                                                 | 1,245.8    |                                                                                                 | $          | 39.4                                 |       | $                                                                                                     | 2.6    |   |   | 3.16 | % |
| 2005,                Quarter 2 |   |                                                              | 828.9      |                                                                                                 |       | 29.0                                 |       |                                                                                                  | 0.5    |   |   | 3.50 | % |
| 2005,                Quarter 3 |   |                                                              | 786.5      |                                                                                                 |       | 29.3                                 |       |                                                                                                  | 0.3    |   |   | 3.73 | % |
| 2005,                Quarter 4 |   |                                                              | 753.2      |                                                                                                 |       | 31.0                                 |       |                                                                                                  | 0.0    |   |   | 4.12 | % |
| 2006,                Quarter 1 |   |                                                              | 724.4      |                                                                                                 |       | 32.0                                 |       |                                                                                                  | 0.0    |   |   | 4.42 | % |

**Single-Family      Loan Delinquency Statistics**

|  **December                31,** |   | **30                to 59 days delinquent** |   | **60                to 89 days****delinquent** |   | **90                days and over delinquent****(1)** |   |  **Total** |   |
|---------------------------------------|--------|---------------------------------------------|--------|------------------------------------------------|--------|-------------------------------------------------------|--------|-----------------|--------|
| 2005,                Quarter 1        |   |                                        | 4.43%  |                                           |   | 1.06%                                                 |   |            | 3.52%  |   |   | 9.01% |   |
| 2005,                Quarter 2        |   |                                        | 4.09%  |                                           |   | 0.69%                                                 |   |            | 2.46%  |   |   | 7.24% |   |
| 2005,                Quarter 3        |   |                                        | 3.33%  |                                           |   | 1.43%                                                 |   |            | 2.24%  |   |   | 7.00% |   |
| 2005,                Quarter 4        |   |                                        | 4.23%  |                                           |   | 0.61%                                                 |   |            | 2.57%  |   |   | 7.41% |   |
| 2006,                Quarter 1        |   |                                        | 4.50%  |                                           |   | 0.85%                                                 |   |            | 2.90%  |   |   | 8.25% |   |

----

|  **December                31,** |  **30                to 59 days delinquent** | **60                to 89 days****delinquent** |  **90                days and over delinquent****(1)** |  **Total** |
|---------------------------------------|---------------------------------------------------|------------------------------------------------|-------------------------------------------------------------|-----------------|
| 2005,                Quarter 1        | 0.10%                                             | 0.20%                                          | 5.76%                                                       | 6.06%           |
| 2005,                Quarter 2        | 0.84%                                             | 0.71%                                          | 5.78%                                                       | 7.33%           |
| 2005,                Quarter 3        | -%                                                | 1.50%                                          | 6.54%                                                       | 8.04%           |
| 2005,                Quarter 4        | -%                                                | 0.25%                                          | 6.65%                                                       | 6.90%           |
| 2006,                Quarter 1        | 1.25%                                             | -%                                             | 6.38%                                                       | 7.63%           |

* *

*(1)*

*Includes      foreclosures and real estate owned*

**RECENT      ACCOUNTING PRONOUNCEMENTS**

*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities, *

----

**LIQUIDITY      AND CAPITAL RESOURCES**

*i.e.*

**FORWARD-LOOKING      STATEMENTS**

----

*Reinvestment.*

*Economic      Conditions*

*Investment      Portfolio Cash Flow*

*Defaults.      *

*Interest      Rate Fluctuations.*

----

*Third-party      Servicers.*

*Prepayments.*

*Competition.*

*Regulatory      Changes.*

*Section      404 of the Sarbanes-Oxley Act of 2002*

*Other.*

| ·   | We                may be unable to invest in new assets with attractive yields, and                yields                on new assets in which we do invest may not generate attractive yields,                resulting in a decline in our earnings per share over                time. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                ownership of certain subordinate interests in securitization trusts                subjects us to credit risk on the underlying loans, and we provide                for                loss reserves on these loans as required under GAAP. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Certain                investments employ internal structural leverage as a result of the                securitization process, and are in the most subordinate position                in the                capital structure, which magnifies the potential impact of adverse                events                on our cash flows and reported results. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                efforts to manage credit risk may not be successful in limiting                delinquencies and defaults in underlying loans or losses on our                investments. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Prepayments                of principal on our investments, and the timing of prepayments, may                impact                our reported earnings and our cash                flows. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | We                finance a portion of our investment portfolio with short-term recourse                repurchase agreements which subjects us to margin calls if the assets                pledged subsequently decline in                value. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We                may be subject to the risks associated with inadequate or untimely                services from third-party service providers, which may harm our results                of                operations. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Interest                rate fluctuations can have various negative effects on us, and could                lead                to reduced earnings and/or increased earnings                volatility. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                reported income depends on accounting conventions and assumptions                about                the future that may change. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Failure                to qualify as a REIT would adversely affect our dividend distributions                and                could adversely affect the value of our                securities. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Maintaining                REIT status may reduce our flexibility to manage our                operations. |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | We                may fail to properly conduct our operations so as to avoid falling                under                the definition of an investment company pursuant to the Investment                Company                Act of 1940. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We                are dependent on certain key                personnel. |
|--------------------|--------------------------------------------------------------------------|

**Item      3. Quantitative and Qualitative Disclosures about Market      Risk**

----

| **Basis                Point****Increase                (Decrease)****In                Interest Rates** | ** ** | **Projected                Change In Net****Interest                Margin****Cash                Flow From****Base                Case** | ** ** | **Projected                Change In Value, Expressed As A Percentage Of Shareholders’                Equity** |   |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|--------|
| +200                                                                                                     |       |                                                                                                                                      | (3.9)%     |                                                                                                                 |   | (1.0)% |   |
| +100                                                                                                     |       |                                                                                                                                      | (1.5)%     |                                                                                                                 |   | (0.4)% |   |
| Base                                                                                                     |       |                                                                                                                                      |       |                                                                                                                 |   |   |  |
| -100                                                                                                     |       |                                                                                                                                      | 0.4%       |                                                                                                                 |   | 0.0% |   |
| -200                                                                                                     |       |                                                                                                                                      | 0.7%       |                                                                                                                 |   | 0.1% |   |

**Item      4. Controls and Procedures**

----

**PART      II. OTHER INFORMATION**

**Item      1. Legal Proceedings**

----

**Item      1A. Risk Factors**

**Item      2.****Unregistered      Sales of Equity Securities and Use of Proceeds**

----

| **Period**                      | **Total                Number of Shares Purchased** | **Average                Price Paid per Share** | **Total                Number of Shares Purchased as Part of Publicly Announced Plan or                Program** | **Maximum                Number of Shares That May Yet Be Purchased under the Plan or                Program** |
|---------------------------------|-----------------------------------------------------|-------------------------------------------------|------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|
| Beginning                       | Ending                                              |                                            |                                                                                                             |                                                                                                           |   |
|                            |                                                |                                            |                                                                                                             |                                                                                                           |   |
| January                1, 2006  | January                31, 2006                     | -                                               | -                                                                                                                | -                                                                                                              | 1,000,000 |
| February                1, 2006 | February                28, 2006                    | -                                               | -                                                                                                                | -                                                                                                              | 1,000,000 |
| March                1, 2006    | March                31, 2006                       | 20,300                                          | $                6.72                                                                                            | 20,300                                                                                                         | 979,700 |
|                            |                                                |                                            |                                                                                                             |                                                                                                           |   |
|                            |                                                | 20,300                                          | $                6.72                                                                                            | 20,300                                                                                                         | 979,700 |

**Item      3. Defaults Upon Senior Securities**

**Item      4. Submission of Matters to a Vote of Security Holders**

**Item      5. Other Information**

**Item      6. Exhibits**

|   |                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1   | Certification                of Principal Executive Officer and Principal Financial Officer pursuant                to                Section 302 (filed herewith). |
|   |                                                                                                                                                                |
| 32.1   | Certification                of Principal Executive Officer and Principal Financial Officer pursuant                to                Section 906 (filed herewith). |

----

**SIGNATURE**

|                              | **DYNEX                CAPITAL, INC.**                                                      |
|-----------------------------------|---------------------------------------------------------------------------------------------|
|                              |                                                                                        |
|                              |                                                                                        |
|                              |                                                                                        |
| Date:                May 15, 2006 | /s/                Stephen J. Benedetti                                                     |
|                              | Stephen                J. Benedetti                                                         |
|                              | Executive                Vice President and Chief Operating Officer                         |
|                              | (Principal                Executive Officer and Principal Financial                Officer) |

----

**EXHIBIT      INDEX**

| **Exhibit                No.** |                                                                                                                                                                |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                                                                                |
| 31.1                           | Certification                of Principal Executive Officer and Principal Financial Officer pursuant                to                Section 302 (filed herewith). |
|                           |                                                                                                                                                                |
| 32.1                           | Certification                of Principal Executive Officer and Principal Financial Officer pursuant                to                Section 906 (filed herewith). |

----