News Column

CHIMERA INVESTMENT CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

February 21, 2014

The following discussion of the Company's ("we" or "our") financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in Item 1 of this quarterly report on Form 10-Q.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words ''believe,'' ''expect,'' ''anticipate,'' ''estimate,'' ''plan,'' ''continue,'' ''intend,'' ''should,'' ''may,'' ''would,'' ''will'' or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, are forward-looking by their nature:



? our business and investment strategy;

? our ability to maintain existing financing arrangements, obtain future

financing arrangements and the terms of such arrangements, particularly in

light of the delay of this filing and other matters discussed in this Form

10-Q;



? our ability to timely file our periodic reports with the Securities and

Exchange Commission, or SEC;

? our expectations regarding materiality or significance;

? the effectiveness of our disclosure controls and procedures;

? material weaknesses in our internal controls over financial reporting;

? additional information that may arise from the preparation of our financial

statements;



? inadequacy of or weakness in our internal controls over financial reporting of

which we are not currently aware or which have not been detected;

? general volatility of the securities markets in which we invest;

? the impact of and changes to various government programs;

? our expected investments;

? changes in the value of our investments;

? interest rate mismatches between our investments and our borrowings used to

finance such purchases;



? changes in interest rates and mortgage prepayment rates;

? effects of interest rate caps on our adjustable-rate investments;

? rates of default, delinquencies or decreased recovery rates on our investments;

? prepayments of the mortgage and other loans underlying our mortgage-backed

securities, or RMBS, or other asset-backed securities, or ABS;

? the degree to which our hedging strategies may or may not protect us from

interest rate volatility;

? the potential delisting of our common stock from the New York Stock Exchange,

or NYSE: 35

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? impact of and changes in governmental regulations, tax law and rates,

accounting guidance, and similar matters;

? availability of investment opportunities in real estate-related and other

securities;

? availability of qualified personnel;

? estimates relating to our ability to make distributions to our stockholders in

the future;



? our understanding of our competition;

? market trends in our industry, interest rates, the debt securities markets or

the general economy;



? our ability to maintain our classification as a real estate investment trust,

or REIT, for federal income tax purposes; and

? our ability to maintain our exemption from registration under the Investment

Company Act of 1940, as amended, or 1940 Act.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under the caption ''Risk Factors'' in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Unless otherwise indicated herein or as may be required by law (including, without limitation, to reflect the effects of the restatement of our financial statements), the disclosure included in this Form 10-Q is presented as of March 31, 2013. Accordingly, this Form 10-Q does not reflect all events occurring after March 31, 2013 (except as required by law, or as required by ASC 855, Subsequent Events), and we have not undertaken to update any item included in this Form 10-Q to reflect such events.



Executive Summary

We are a Maryland corporation that commenced operations on November 21, 2007. We acquire, either directly or indirectly through our subsidiaries, residential mortgage-backed securities, or RMBS, residential mortgage loans, commercial mortgage loans, real estate related securities and various other asset classes. We are externally managed by Fixed Income Discount Advisory Company, which we refer to as FIDAC or our Manager. FIDAC is a fixed-income investment management company that is registered as an investment adviser with the SEC. FIDAC is a wholly owned subsidiary of Annaly Capital Management, Inc., or Annaly. FIDAC has a broad range of experience in managing investments in Agency RMBS, which are mortgage pass-through certificates, collateralized mortgage obligations, or CMOs, and other RMBS representing interests in or obligations backed by pools of mortgage loans issued or guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, Non-Agency RMBS, collateralized debt obligations, or CDOs, and other real estate related investments. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. We intend to achieve this objective by investing in a diversified investment portfolio of RMBS, residential mortgage loans, real estate-related securities and various other asset classes, subject to maintaining our REIT status and exemption from registration under the 1940 Act. The RMBS, ABS, CMBS, and CDOs we purchase may include investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes. 36 -------------------------------------------------------------------------------- We rely on our Manager's expertise in identifying assets within our target asset classes. Our Manager makes investment decisions based on various factors, including expected cash yield, relative value, risk-adjusted returns, current and projected credit fundamentals, current and projected macroeconomic considerations, current and projected supply and demand, credit and market risk concentration limits, liquidity, cost of financing and financing availability, as well as maintaining our REIT qualification and our exemption from registration under the 1940 Act. Over time, we will modify our investment allocation strategy as market conditions change to seek to maximize the returns from our investment portfolio. We believe this strategy, combined with our Manager's experience, will enable us to pay dividends and achieve capital appreciation through various changing interest rate and credit cycles and provide attractive long-term returns to investors.



Our targeted asset classes and the principal investments we have made and in which we may in the future invest are:

Asset Class Principal Investments RMBS ? Non-Agency RMBS, including investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes ? Agency RMBS ? Interest-only ("IO") RMBS Residential Mortgage Loans ? Prime mortgage loans, which are mortgage loans that conform to the underwriting guidelines of Fannie Mae and Freddie Mac, which we refer to as Agency Guidelines; and jumbo prime mortgage loans, which are mortgage loans that conform to the Agency Guidelines except as to loan size ? Alt-A mortgage loans, which are mortgage loans that may have been originated using documentation standards that are less stringent than the documentation standards applied by certain other first lien mortgage loan purchase programs, such as the Agency Guidelines, but have one or more compensating factors such as a borrower with a strong credit or mortgage history or significant assets ? FHA/VA insured loans, which are mortgage loans that comply with the underwriting guidelines of the Federal Housing Administration (FHA) or Department of Veteran Affairs (VA) and which are guaranteed by the FHA or VA, respectively ? Mortgage servicing rights associated with residential mortgage loans, which reflect the value of the future stream of expected cash flows from the contractual rights to service a given pool of residential mortgage loans. 37

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Commercial Mortgage Loans ? First or second lien loans secured by multifamily properties, which are residential rental properties consisting of five or more dwelling units; and mixed residential or other commercial properties; retail properties; office properties; or industrial properties, which may or may not conform to the Agency Guidelines



Other Asset-Backed Securities ? CMBS

? Debt and equity tranches of CDOs ? Consumer and non-consumer ABS, including investment-grade and non-investment grade classes, including the BB-rated, B-rated and non-rated classes Hedging Instruments ? Swaps ? Swaptions ? Futures ? Index options ? Mortgage options Since we commenced operations in November 2007, we have focused our investment activities on acquiring Non-Agency and Agency RMBS and on purchasing residential mortgage loans that have been originated by select originators, including the retail lending operations of leading commercial banks. Our investment portfolio at March 31, 2013 was weighted toward Non-Agency RMBS. At March 31, 2013, based on the outstanding principal balance of our interest earning assets, approximately 76.4% of our investment portfolio was Non-Agency RMBS, 14.2% of our investment portfolio was Agency RMBS, and 9.4% of our investment portfolio was securitized residential mortgage loans. At December 31, 2012, based on the outstanding principal balance of our interest earning assets, approximately 74.6% of our investment portfolio was Non-Agency RMBS, 14.7% of our investment portfolio was Agency RMBS, and 10.7% of our investment portfolio was securitized residential mortgage loans. We expect that over the near term, our investment portfolio will continue to be weighted toward Non-Agency RMBS, subject to maintaining our REIT qualification and our 1940 Act exemption. We have engaged in transactions with residential mortgage lending operations of leading commercial banks and other originators in which we identified and re-underwrote residential mortgage loans owned by such entities, and purchased and securitized such residential mortgage loans. In the past we have also acquired formerly AAA-rated Non-Agency RMBS and immediately re-securitized those securities. We sold the resulting AAA-rated super senior RMBS and retained the rated or unrated mezzanine RMBS. Our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment. We expect to adjust our strategy to changing market conditions by shifting our asset allocations across these various asset classes as interest rate and credit cycles change over time. We believe that our strategy, combined with FIDAC's experience, will enable us to pay dividends and achieve capital appreciation throughout changing market cycles. We expect to take a long-term view of assets and liabilities, and our reported earnings and estimates of the fair value of our investments at the end of a financial reporting period will not significantly impact our objective of providing attractive risk-adjusted returns to our stockholders over the long-term. We use leverage to seek to increase our potential returns and to finance the acquisition of our assets. Our income is generated primarily by the difference, or net spread, between the income we earn on our assets and the cost of our borrowings. We expect to finance our investments using a variety of financing sources including, when available, repurchase agreements, warehouse facilities and securitizations. We may manage our debt and interest rate risk by utilizing interest rate hedges, such as interest rate swaps, caps, options and futures to reduce the effect of interest rate fluctuations related to our financing sources. 38 -------------------------------------------------------------------------------- We have elected and believe we are organized and have operated in a manner that qualifies us to be taxed as a REIT under the Code. A REIT generally will not be subject to federal income tax on taxable income that is distributed to stockholders. Furthermore, substantially all of our assets consist of qualified REIT real estate assets (of the type described in Code Section 856(c)(5)). We calculate that at least 75% of our assets were qualified REIT assets, as defined in the Code, for the quarter ended March 31, 2013 and the year ended December 31, 2012. We also calculate that our revenues qualified for the 75% REIT income test and for the 95% REIT income test for the quarter ended March 31, 2013 and the year ended December 31, 2012. We also met all REIT requirements regarding the ownership of our common stock and the distribution of our REIT taxable income. Therefore, for the quarter ended March 31, 2013 and the year ended December 31, 2012, we believe that we qualified as a REIT under the Code. We operate our business to be exempt from registration under the 1940 Act, and therefore we are required to invest a substantial majority of our assets in loans secured by mortgages on real estate and real estate-related assets. Subject to maintaining our REIT qualification and our 1940 Act exemption, we do not have any limitations on the amounts we may invest in any of our targeted asset classes. Looking forward, we cannot predict the percentage of our assets that will be invested in each asset class or whether we will invest in other classes of investments. We may change our investment strategy and policies without a vote of our stockholders. Trends We expect the results of our operations to be affected by various factors, many of which are beyond our control. Our results of operations will primarily depend on, among other things, the level of our net interest income, the market value of our assets, and the supply of and demand for such assets. Economic trends, both macro as well as those directly affecting the residential housing market, and the supply and demand of RMBS may affect our operations and financial results. We also evaluate market information regarding current residential mortgage loan underwriting criteria and loan defaults to manage our portfolio of assets, leverage, and debt. 39

-------------------------------------------------------------------------------- Our net interest income, which reflects the amortization of purchase premiums and accretion of discounts, varies primarily as a result of changes in interest rates, borrowing costs, credit impairment losses, and prepayment speeds, which is a measurement of how quickly borrowers pay down the unpaid principal balance on their mortgage loans. Further description of these factors is provided below. Prepayment Speeds. Prepayment speeds, as reflected by the Constant Prepayment Rate, or CPR, vary according to interest rates, the type of investment, conditions in financial markets, and other factors, none of which can be predicted with any certainty. In general, when interest rates rise, it is relatively less attractive for borrowers to refinance their mortgage loans, and as a result, prepayment speeds tend to decrease. When interest rates fall, prepayment speeds tend to increase. For mortgage loan and RMBS investments purchased at a premium, as prepayment speeds increase, the amount of income we earn decreases as the purchase premium on the bonds amortizes faster than expected. Conversely, decreases in prepayment speeds result in increased income and can extend the period over which we amortize the purchase premium. For mortgage loan and RMBS investments purchased at a discount, as prepayment speeds increase, the amount of income we earn increases from the acceleration of the accretion of the discount into interest income. Conversely, decreases in prepayment speeds result in decreased income as the accretion of the purchase discount into interest income occurs over a longer period. Recently, the correlation between interest rates and prepayment has not followed normal trends for certain asset classes. Due to economic hardship, some borrowers have been unable to refinance their loans as underwriting standards are more stringent and credit conditions remain restrictive. Rising Interest Rate Environment. As indicated above, as interest rates rise, prepayment speeds generally decrease. Rising interest rates, however, increase our financing costs which may result in a net negative impact on our net interest income. In addition, if we acquire Agency and Non-Agency RMBS collateralized by monthly reset adjustable-rate mortgages, or ARMs, and three- and five-year hybrid ARMs, such interest rate increases could result in decreases in our net investment income, as the increase in our adjustable rate assets may increase slower than our adjustable rate financing. We expect that our fixed-rate assets would decline in value in a rising interest rate environment and that our net interest spreads on fixed rate assets could decline in a rising interest rate environment to the extent such assets are financed with floating rate debt. Credit Risk. One of our strategic focuses is on acquiring distressed Non-Agency RMBS that have been downgraded because of defaults in the mortgages collateralizing such RMBS. When we acquire such RMBS we attempt to purchase it at a price such that its loss-adjusted return profile is in line with our targeted yields. We retain the risk of potential credit losses on all of the residential mortgage loans we hold in our portfolio as well as all of the Non-Agency RMBS. We attempt to mitigate credit risk in the asset selection process. Prior to the purchase of investments, we conduct a credit-risk based analysis of the collateral securing our investment that includes examining borrower characteristics, geographic concentrations, current and projected delinquencies, current and projected severities, and actual and expected prepayment speeds among other characteristics to estimate expected losses. We also acquire assets which we believe to be of high credit quality. Size of Investment Portfolio. The size of our investment portfolio, as measured by the aggregate unpaid principal balance of our mortgage loans and aggregate principal balance of our mortgage related securities and the other assets we own, is also a key revenue driver. Generally, as the size of our investment portfolio grows, the amount of interest income we receive increases. The larger investment portfolio, however, may result in increased expenses if we incur additional interest expense to finance the purchase of our assets.



Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, which requires the use of estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with the Company's Audit Committee. Management believes that the most critical accounting policies and estimates, since these estimates require significant judgment, are interest income and other-than-temporary impairment, or OTTI, on Non-Agency RMBS, the determination of the appropriate accounting model for Non-Agency RMBS, the impact of default and prepayment assumptions on RMBS, and fair value measurements. Financial results could be materially different if other methodologies were used or if management modified its assumptions. 40 -------------------------------------------------------------------------------- For a discussion of the Company's critical accounting policies and estimates, see "Critical Accounting Policies and Estimates" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.



Recent Accounting Pronouncements

Refer to Note 2(q) in the Notes to Consolidated Financial Statements for a discussion of accounting guidance recently adopted by the Company.

Financial Condition

Estimated Economic Book Value

This Management Discussion and Analysis section contains analysis and discussion of financial information that utilizes or presents ratios based on GAAP book value. The table and discussion below present our estimated economic book value. We calculate and disclose this non-GAAP measurement because we believe it represents an estimate of the fair value of the assets we own or are able to dispose of, pledge, or otherwise monetize. The estimated economic book value should not be viewed in isolation and is not a substitute for book value computed in accordance with GAAP. GAAP requires us to consolidate certain securitizations and re-securitization transactions where we have determined that we are the primary beneficiary. In these transactions, we transferred assets to the trusts, which issued tranches of senior and subordinate notes or certificates. We sold the senior tranches and therefore have no continuing involvement in these trusts other than being a holder of notes or certificates issued by the trusts, with the same rights as other holders of the notes or certificates, except as it relates to CSMC 2012-CIM1, CSMC 2012-CIM2 and CSMC 2012-CIM3. As it relates solely to CSMC 2012-CIM1, CSMC 2012-CIM2 and CSMC 2012-CIM3, we have the ability to approve loan modifications and determine the course of action to be taken as it relates to loans in technical default, including whether or not to proceed with foreclosure. The notes and certificates we own that were issued by the trusts are largely subordinated interests in those trusts. The trusts have no recourse to our assets other than pursuant to a breach by us of the transaction documents related to the transfer of the assets by us to the trusts, but are presented as if we own 100% of the trust. For re-securitized RMBS transactions and loan securitizations, we present the pre-securitized assets transferred into the consolidated trusts in our Consolidated Statements of Financial Condition as Non-Agency RMBS transferred to consolidated VIEs or Securitized loans held for investment. Post securitization RMBS assets sold are presented as liabilities in our Consolidated Statements of Financial Condition as Securitized debt, collateralized by Non-Agency RMBS and Securitized debt, collateralized by loans held for investment. We have presented the underlying securities we transferred to the trusts for the calculation of GAAP book value at fair value and recorded the corresponding liability for the notes or certificates sold to third parties at amortized cost. Fair value adjustments that are not credit related are recorded in Other comprehensive income (loss). Credit related impairments are deemed other-than-temporary and are recorded in earnings. Because we are unable to dispose of, monetize or pledge the RMBS or loans we transferred into the trusts, we also present our estimated economic book value. We believe this measure represents the estimated value of the securities issued by these trusts that we own. In contrast to GAAP book value, our estimated economic book value considers only the assets we own or are able to dispose of, pledge, or otherwise monetize. To determine our estimated economic book value, we consider only the fair value of the notes or certificates issued by the securitization and re-securitization trusts that we actually own. Accordingly, our estimated economic book value does not include assets or liabilities for which we have no direct ownership, specifically the notes or certificates of the securitization and re-securitization trusts that were sold to third parties. At March 31, 2013 the difference between GAAP book value and estimated economic book value was determined to be $477.6 million. At December 31, 2012 the difference between GAAP book value and estimated economic book value was determined to be $416.1 million. This difference is primarily driven by the value of the RMBS assets we have retained in these re-securitization transactions as compared to the value of consolidated loans and securities net of RMBS assets sold and recorded at amortized cost in these transactions. In these re-securitization transactions, we retained the subordinated, typically non-rated, first loss notes or certificates issued by the securitization trusts. These securities are complex, typically locked out as to principal repayment, relatively illiquid, and do not necessarily appreciate or depreciate in tandem with the broader Non-Agency RMBS market or with the loans on securities owned by the trusts. The tables below present the adjustments to GAAP book value that we believe are necessary to adequately reflect our calculation of estimated economic book value as of March 31, 2013 and December 31, 2012. 41 --------------------------------------------------------------------------------

March 31, 2013 (dollars in thousands, except per share data) Estimated GAAP Book Economic Value Adjustments Book Value Assets: Non-Agency RMBS, at fair value Senior $ 69 $ - $ 69 Senior interest-only 120,051 - 120,051 Subordinated 585,340 - 585,340 Subordinated interest-only 14,534 - 14,534 RMBS transferred to consolidated VIEs 3,299,350 (1,695,076 ) 1,604,274 Agency RMBS, at fair value 1,632,644 - 1,632,644 Securitized loans held for investment, net of allowance for loan losses 1,082,316 (983,436 ) 98,880 Other assets 697,751 - 697,751 Total assets $ 7,432,055$ (2,678,512 )$ 4,753,543 Liabilities: Repurchase agreements, Agency RMBS 1,420,375 - 1,420,375 Securitized debt, collateralized by Non-Agency RMBS 1,241,297 (1,241,297 ) - Securitized debt, collateralized by loans held for investment 959,602 (959,602 ) - Other liabilities 157,108 - 157,108 Total liabilities 3,778,382 (2,200,899 ) 1,577,483 Total stockholders' equity 3,653,673 (477,613 ) 3,176,060 Total liabilities and stockholders' equity $ 7,432,055$ (2,678,512 )$ 4,753,543 Book Value Per Share $ 3.56 $ (0.46 ) $ 3.10 December 31, 2012 (dollars in thousands, except per share data) Estimated GAAP Book Economic Value Adjustments Book Value Assets: Non-Agency RMBS, at fair value Senior $ 88 $ - $ 88 Senior interest-only 122,869 - 122,869 Subordinated 547,794 - 547,794 Subordinated interest-only 16,253 - 16,253 RMBS transferred to consolidated VIEs 3,274,204 (1,730,422 ) 1,543,782 Agency RMBS, at fair value 1,806,697 - 1,806,697 Securitized loans held for investment, net of allowance for loan losses 1,300,131 (1,191,607 ) 108,524 Other assets 674,453 - 674,453 Total assets $ 7,742,489$ (2,922,029 )$ 4,820,460 Liabilities: Repurchase agreements, Agency RMBS 1,528,025 - 1,528,025 Securitized debt, collateralized by Non-Agency RMBS 1,336,261 (1,336,261 ) - Securitized debt, collateralized by loans held for investment 1,169,710 (1,169,710 ) - Other liabilities 166,014 - 166,014 Total liabilities 4,200,010 (2,505,971 ) 1,694,039 Total stockholders' equity 3,542,479 (416,058 ) 3,126,421 Total liabilities and stockholders' equity $ 7,742,489$ (2,922,029 )$ 4,820,460 Book Value Per Share $ 3.45 $ (0.40 ) $ 3.05 Our estimate of economic book value has important limitations. Our estimate of fair value is as of a point in time and subject to significant judgment, primarily the estimate of the fair value of the securities issued by the trusts which we own and can freely sell or pledge. Should we sell the assets in our portfolio, we may realize materially different proceeds from the sale than we have estimated as of the reporting date. 42 -------------------------------------------------------------------------------- The calculation of estimated economic book value described above is used by management to understand the fair value of the assets we own and the liabilities for which we are legally obligated, and is presented for informational use only. The estimated economic book value should not be viewed in isolation and is not a substitute for book value computed in accordance with GAAP.



Portfolio Review

During the quarter ended March 31, 2013, on an aggregate basis, we purchased $7.4 million, sold $182 thousand, and received $476.1 million in principal payments related to our Agency and Non-Agency RMBS. Securitized loans decreased to $1.1 billion at March 31, 2013 from $1.3 billion at December 31, 2012, primarily due to principal repayments of $211.4 million during the quarter. These principal payments were consistent with management's expectations.



The following table summarizes certain characteristics of our portfolio at March 31, 2013 and December 31, 2012.

March 31, 2013 December



31, 2012

(dollars in



thousands)

Interest earning assets at period-end * $ 6,734,304 $ 7,068,036 Interest bearing liabilities at period-end $ 3,621,274 $ 4,033,996 Leverage at period-end 1.0:1



1.1:1

Leverage at period-end (recourse) 0.4:1



0.4:1

Portfolio Composition, at principal value

Non-Agency RMBS 76.4 % 74.6 % Senior 0.0 % 0.0 % Senior, interest only 26.1 % 25.2 % Subordinated 9.1 % 8.8 % Subordinated, interest only 2.2 % 2.1 % RMBS transferred to consolidated VIEs 39.0 % 38.5 % Agency RMBS 14.2 % 14.7 % Securitized loans 9.4 %



10.7 %

Fixed-rate percentage of portfolio 74.9 %



75.4 %

Adjustable-rate percentage of portfolio 25.1 % 24.6 % * Excludes cash and cash equivalents. The following table presents details of each asset class in our portfolio at March 31, 2013 and December 31, 2012. The principal or notional value represents the interest income earning balance of each class. The weighted average figures are weighted by each investment's respective principal/notional value in the asset class. March 31, 2013 Principal or Notional Weighted Principal Value at Weighted Average Weighted Weighted Weighted Writedowns Period-End Average Weighted Weighted Yield at Average 3 Average 12 Average Weighted Weighted During Period (dollars in Amortized Average Average Period-End Month CPR Month

CPR Delinquency Average Loss Average (dollars in thousands) Cost Basis Fair Value Coupon (1) at Period-End at Period-End Pipeline 60+ Severity (2) Credit Enhancement



thousands)

Non-Agency Mortgage-Backed Securities

Senior $ 126 $ 44.93$ 54.88 0.00 % 11.90 % 0.10 % 35.00 % 0.00 % 0.00 % 12.60 % $ - Senior, interest only $ 2,973,384$ 4.45$ 4.04 1.68 % 10.23 % 17.69 % 17.81 % 19.08 % 50.31 % 0.00 % $ - Subordinated $ 1,043,333$ 45.13$ 56.10 3.17 % 10.87 % 18.22 % 18.70 % 17.31 % 50.37 % 15.12 % $ 13,660



Subordinated,

interest only $ 246,466$ 6.09$ 5.83 2.11 % 8.29 % 15.88 % 17.08 % 18.88 % 45.06 % 0.00 % $ - RMBS transferred to consolidated variable



interest entities $ 4,444,160$ 54.38$ 75.78

4.82 % 15.58 % 13.63 % 14.71 % 28.42 % 58.81 % 2.01 % $ 56,976 Agency Mortgage-Backed Securities $ 1,623,245$ 103.15$ 108.08 4.57 % 3.55 % 30.16 % 26.39 % NA NA 0.00 % $ - Securitized loans $ 1,073,323$ 101.95$ 101.52 4.80 % 3.80 % 47.48 % 4.77 % 1.03 % 4.36 % 12.88 % $ 83



(1) Bond Equivalent Yield at period end. Weighted Average Yield is calculated using each investment's respective amortized cost. (2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.).

December 31, 2012 Principal or Notional Weighted Principal Value at Weighted Average Weighted Weighted Weighted Writedowns Period-End Average Weighted Weighted Yield at Average 3 Average 12 Average Weighted Weighted During Period (dollars in Amortized Average Average Period-End Month CPR Month CPR Delinquency Average Loss Average (dollars in thousands) Cost Basis Fair Value Coupon (1) at Period-End at



Period-End Pipeline 60+ Severity (2) Credit Enhancement

thousands)

Non-Agency Mortgage-Backed Securities

Senior $ 126 $ 57.02$ 67.00 0.00 % 11.90 % 22.60 % 38.60 % 0.00 % 0.00 % 12.80 % $ - Senior, interest only $ 3,012,868$ 4.51$ 4.08 1.76 % 10.36 % 17.35 % 17.44 % 20.13 % 50.43 % 0.00 % $ - Subordinated $ 1,057,821$ 44.72$ 51.79 3.18 % 11.07 % 17.36 % 18.74 % 18.72 % 51.03 % 15.22 % $ 15,807 Subordinated, interest only $ 256,072$ 6.32$ 6.35 2.25 % 8.90 % 20.93 % 16.79 % 19.97 % 44.82 % 0.00 % $ - RMBS transferred to consolidated variable



interest entities $ 4,610,109$ 53.96$ 72.50

4.88 % 15.44 % 14.85 % 14.86 % 29.42 % 59.02 % 2.29 % $ 70,953 Agency Mortgage-Backed Securities $ 1,756,580$ 103.09$ 108.24 4.65 % 3.59 % 28.39 % 24.12 % NA NA 0.00 % $ - Securitized loans $ 1,284,845$ 102.09$ 102.79 4.68 % 3.88 % 35.21 % 4.45 % 0.84 % 4.35 % 11.18 % $ 404



(1) Bond Equivalent Yield at period end. Weighted Average Yield is calculated using each investment's respective amortized cost. (2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.).

Based on the projected cash flows for our Non-Agency RMBS that are not of high credit quality, a portion of the original purchase discount is designated as Accretable Discount, which reflects the purchase discount expected to be accreted into interest income, and a portion is designated as Non-Accretable Difference, which represents the contractual principal on the security that is not expected to be collected. The amount designated as Non-Accretable Difference may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors. If the performance of a security is more favorable than previously estimated, a portion of the amount designated as Non-Accretable Difference may be accreted into interest income over time. Conversely, if the performance of a security is less favorable than previously estimated, the amounts designated as Non-Accretable Difference may increase, resulting in an OTTI loss. 43

-------------------------------------------------------------------------------- The following table presents changes to Accretable Discount and Non-Accretable Difference as it pertains to our entire Non-Agency RMBS portfolio for assets with purchase discounts for the quarters ended March 31, 2013 and 2012. For the Quarter Ended December 31, September March 31, 2013 2012 30, 2012 June 30, 2012 March 31, 2012 (dollars in thousands) Accretable Discount Balance, beginning of period $ 1,115,268$ 1,118,478$ 1,202,957$ 1,212,274$ 1,176,019 Accretion of discount (39,326 ) (40,282 ) (36,770 ) (38,197 ) (36,330 ) Purchases 935 - - - 29,562 Sales (17 ) 8 (81,690 ) - 33,939 Transfers from credit reserve 18,419 39,475 44,888 71,987 35,946 Transfers to credit reserve (7,122 ) (2,411 ) (10,907 ) (43,107 ) (26,862 ) Balance, end of period $ 1,088,157$ 1,115,268$ 1,118,478$ 1,202,957$ 1,212,274 For the Quarter Ended December 31, September March 31, 2013 2012 30, 2012 June 30, 2012 March 31, 2012 (dollars in thousands) Non-Accretable Difference Balance, beginning of period $ 1,540,780$ 1,655,222 $



1,773,195 $ 1,824,956$ 1,931,930 Principal Writedowns

(72,055 ) (85,555 ) (83,948 ) (88,568 ) (57,372 ) Purchases 935 - - - 16,063 Sales 32 (8 ) (10,058 ) - (104,945 ) Net other-than-temporary credit impairment losses 6,163 8,185 10,014 65,687 48,364 Transfers from credit reserve (18,419 ) (39,475 ) (44,888 ) (71,987 ) (35,946 ) Transfers to credit reserve 7,122 2,411 10,907 43,107 26,862



Balance, end of period $ 1,464,558$ 1,540,780$ 1,655,222$ 1,773,195$ 1,824,956

44

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Net Income (Loss) Summary

The table below summarizes the net income (loss) on a GAAP basis for the quarters ended March 31, 2013 and 2012.

Net Income (Loss) (dollars in thousands) (unaudited) For the Quarter ended March 31, 2013 March 31, 2012 Net Interest Income: Interest income $ 29,067 $ 51,319 Interest expense (1,833 ) (2,326 ) Interest income, Assets of consolidated VIEs 96,728 98,349 Interest expense, Non-recourse liabilities of VIEs (26,996 ) (34,049 ) Net interest income (expense) 96,966 113,293 Other-than-temporary impairments: Total other-than-temporary impairment losses - (32,077 )



Portion of loss recognized in other comprehensive income (loss)

(6,163 ) (16,287 ) Net other-than-temporary credit impairment losses (6,163 ) (48,364 ) Other gains (losses): Unrealized gains (losses) on interest rate swaps 5,402 812 Realized gains (losses) on interest rate swaps (5,530 ) (4,398 ) Gains (losses) on interest rate swaps (128 ) (3,586 ) Net unrealized gains (losses) on interest-only RMBS (1,013 ) 17,947 Realized gains (losses) on sales of investments, net 6 16,010 Total other gains (losses) (1,135 ) 30,371 Net investment income (loss) 89,668 95,300 Other expenses: Management fees 6,449 12,909 Expense recoveries from Manager (1,855 ) - Net Management fees 4,594 12,909 Provision for loan losses 424 167 General and administrative expenses 4,847 1,989 Total other expenses 9,865 15,065 Income (loss) before income taxes 79,803 80,235 Income taxes 2 2 Net income (loss) $ 79,801 $ 80,233 Our net income decreased by $432 thousand for the quarter ended March 31, 2013 as compared to March 31, 2012. Our earnings per share on both a basic and diluted basis was $0.08 per share for the both quarters ended March 31, 2013 and 2012. Net interest income (expense) declined by $16.3 million to $97.0 million in the first quarter of 2013 from $113.3 million in first quarter 2012. This decrease was primarily driven by a decline in general interest income of $22.2 million to $29.1 million in the first quarter of 2013 from $51.3 million in the same period of 2012. This decline was the result of a change in the investment portfolio holdings as we reduced our holdings in Agency RMBS from the first quarter of 2012 to the current period. During the quarters ended March 31, 2013 net OTTI recognized declined by $42.2 million over the same period of 2012. The decrease in OTTI is attributable to improving fair values as well as favorable changes in cash flows expected to be collected. The favorable change in cash flows is mainly attributable to improvements in expected cash flow of our Non-Agency RMBS, and increasing prepayment speeds, which result in an increase in the present value of cash flows expected to be collected. OTTI charges, recognized on our Non-Agency RMBS, reflect changes in our estimate of the amount and timing of cash flows expected to be collected. At March 31, 2013, we had a gross unrealized loss of $728 thousand related to Agency RMBS and a gross unrealized loss of $27.0 million related to Non-Agency RMBS. Impairments on Agency RMBS in an unrealized loss position at March 31, 2013 are considered temporary and not credit related. Unrealized losses on Non-Agency RMBS for which no OTTI was recorded during the quarter are considered temporary based on an estimate of the cash flows expected to be collected for such RMBS, which considers recent bond performance and expected future performance of the underlying collateral. Significant judgment is used in estimating both our cash flows expected to be collected for its Non-Agency RMBS and the credit component of OTTI. Refer to "Significant Accounting Policies" in the accompanying notes to the consolidated financial statements for more information regarding the recognition of OTTI. 45 -------------------------------------------------------------------------------- Net income also increased as we recorded lower net unrealized losses on our IO RMBS of $19.0 million for the quarter ended March 31, 2013 as compared to the same period of 2012. We have elected to have all changes in fair value of our IO RMBS recorded in earnings as part of our fair-value election. Additionally, we had reduced realized gains in the quarter ended March 31, 2013 compared to the same period of 2012 of $16.0 million. During the quarter ended March 31, 2013, we sold investments with an amortized cost of $176 thousand for a realized gain of $6 thousand compared to realized gains of $16.0 million for the quarter ended March 31, 2012. Finally, management expenses declined by $6.5 million for the quarter ended March 31, 2013 as compared to the same period of 2012, due to the reduction of management fees from our manager, FIDAC. See further discussion of the changes to the FIDAC management agreement in our discussion of related party transactions below.



Overall net income for the quarter ended March 31, 2013 was not significantly different from net income for the quarter ended March 31, 2012.

Results of Operations for the Quarters Ended March 31, 2013 and 2012

Our primary source of income is interest income earned on our assets. Our economic net interest income equals interest income excluding interest earned on cash and cash equivalents less interest expense and realized losses on interest rate swaps. For the purpose of computing economic net interest income and ratios relating to cost of funds measures throughout this section, interest expense includes net interest payments on interest rate swaps, which is presented as Realized gains (losses) on interest rate swaps in our Consolidated Statements of Operations and Comprehensive Income. Interest rate swaps are used to hedge the increase in interest paid on repurchase agreements in a rising rate environment. Presenting the net contractual interest payments on interest rate swaps with the interest paid on interest-bearing liabilities reflects our total contractual interest payments. We believe this presentation is useful to investors because this presentation depicts the economic value of our investment strategy, by showing actual interest expense and net interest income. Where indicated, interest expense, including interest payments on interest rate swaps, is referred to as economic interest expense. Where indicated, net interest income reflecting interest payments on interest rate swaps, is referred to as economic net interest income. The following table reconciles the GAAP and non-GAAP measurements reflected in the Management's Discussion and Analysis of Financial Condition and Results of Operations. Add: Net Less: Net Realized Realized Economic GAAP GAAP Losses on Economic GAAP Net Losses on Net Interest Interest Interest Interest Interest Interest Interest Income Expense Rate Swaps Expense Income Rate Swaps Income (1)

For the Quarter Ended March 31, 2013 $ 125,795$ 28,829$ 5,530$ 34,359$ 96,966$ 5,530$ 91,422 For the Year Ended December 31, 2012 $ 589,440$ 126,558$ 20,223$ 146,781$ 462,882$ 20,223$ 442,639 For the Quarter Ended December 31, 2012 $ 133,552$ 33,874$ 5,333$ 39,207$ 99,678$ 5,333$ 94,334 For the Quarter Ended September 30, 2012 $ 144,696$ 34,356$ 5,298$ 39,654$ 110,340$ 5,298$ 105,038 For the Quarter Ended June 30, 2012 $ 161,524$ 21,953$ 5,194$ 27,147$ 139,571$ 5,194$ 134,375 For the Quarter Ended March 31, 2012 $ 149,668$ 36,375$ 4,398$ 40,773$ 113,293$ 4,398$ 108,892

(1) Excludes cash and cash equivalents. 46

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Economic Net Interest Income

The table below shows our average earning assets held, interest earned on assets, yield on average interest earning assets, average debt balance, economic interest expense, economic average cost of funds, economic net interest income, and net interest rate spread for the periods presented. Yield on Average Average Economic Economic Earning Interest Interest Average Interest Economic Net Interest Assets Earned on Earning Debt Expense Average Cost Income Net Interest Held (1) Assets (1) Assets Balance (2) of Funds (1) (2) Rate Spread (Ratios have been annualized, dollars in thousands) For The Quarter Ended March 31, 2013 $ 11,631,215$ 125,781 4.33 % $ 3,803,946$ 34,359 3.61 % $ 91,422 0.72 % For The Year Ended December 31, 2012 $ 10,721,300$ 589,420 5.50 % $ 4,372,034$ 146,781 3.36 % $ 442,639 2.14 % For The Quarter Ended December 31, 2012 $ 10,956,750$ 133,541 4.88 % $ 4,014,159$ 39,207 3.91 % $ 94,334 0.97 % For The Quarter Ended September 30, 2012 $ 12,366,202$ 144,692 4.68 % $ 4,397,212$ 39,654 3.61 % $ 105,038 1.07 % For The Quarter Ended June 30, 2012 $ 9,898,151$ 161,522 6.53 % $ 4,718,431$ 27,147 2.30 % $ 134,375 4.23 % For The Quarter Ended March 31, 2012 $ 9,664,096$ 149,665 6.19 % $ 4,358,333$ 40,773 3.74 % $ 108,892 2.45 % (1) Excludes cash and cash equivalents. (2) Includes effect of realized losses on interest rate swaps. Our economic net interest income declined by $17.5 million for the quarter ended March 31, 2013 as compared to the same period of 2012. Our net interest spread, which equals the yield on our average assets for the period less the economic average cost of funds for the period, declined by 173 basis points for the quarter ended March 31, 2013 from the same period of 2012. We attribute the decline in economic net interest income for the quarter ended March 31, 2013 compared to 2012 to decrease in our yield on our average assets.



Interest Income and Average Earning Asset Yield

Our average earning assets increased by $2.0 billion as of March 31, 2013 from the quarter ended March 31, 2012. Our interest income declined by $23.9 million for the quarter ended March 31, 2013 from quarter ended March 31, 2012. The yield on our portfolio declined by 186 basis points for the quarter ended March 31, 2013 as compared to the same period of 2012. While the average earning assets increased year over year, the yield on these assets has declined due to the addition of three new securitizations of whole loans totaling approximately $1.5 billion which yield less than the securitizations of RMBS securities.



Economic Interest Expense and the Cost of Funds

The borrowing rate at which we are able to finance our assets using repurchase agreements is typically correlated to LIBOR and the term of the financing. The table below shows our average borrowed funds, economic interest expense, average cost of funds (inclusive of realized losses on interest rate swaps), average one-month LIBOR, average six-month LIBOR, average one-month LIBOR relative to average six-month LIBOR, and average cost of funds relative to average one- and six- month LIBOR. Average Average One-Month Average Cost Cost of LIBOR of Funds Funds Average Average Relative to Relative to Relative to Average Economic Average One- Six- Average Average Average Borrowed Interest Cost of Month Month Six-Month One-Month Six-Month Funds Expense (1) Funds LIBOR LIBOR LIBOR LIBOR LIBOR (Ratios have been annualized, dollars in thousands) For The Quarter Ended March 31, 2013 $ 3,803,946$ 34,359 3.61 % 0.24 % 0.73 % (0.49 %) 3.37 % 2.88 % For The Year Ended December 31, 2012 $ 4,372,034$ 146,781 3.36 % 0.24 % 0.74 % (0.49 %) 3.12 % 2.62 % For The Quarter Ended December 31, 2012 $ 4,014,159$ 39,207 3.91 % 0.24 % 0.73 % (0.49 %) 3.67 % 3.18 % For The Quarter Ended September 30, 2012 $ 4,397,212$ 39,654 3.61 % 0.24 % 0.73 % (0.49 %) 3.37 % 2.88 % For The Quarter Ended June 30, 2012 $ 4,718,431$ 27,147 2.30 % 0.24 % 0.73 % (0.49 %) 2.06 % 1.57 % For The Quarter Ended March 31, 2012 $ 4,358,333$ 40,773 3.74 % 0.26 % 0.76 % (0.50 %) 3.48 %



2.98 % (1) Includes effect of realized losses on interest rate swaps.

Average borrowed funds decreased by $554.4 million as of the quarter ended March 31, 2013 as compared to the quarter ended March 31, 2012. This decline is due primarily to a significant reduction in repurchase agreements year over year. This decline reflects our rebalancing of the portfolio from agency collateralized repurchase agreements to securitized debt collateralized by loans held for investment. Economic interest expense decreased by $6.4 million for the quarter ended March 31, 2013 as compared to the same period of 2012. This decline is due to the decrease in our average borrowed funds for the quarter ended March 31, 2013 as compared to March 31, 2012. The average cost of funds did not significantly change period over period as average one-month and six-month LIBOR rates did not change significantly from the quarter ended March 31, 2013 as compared to March 31, 2012. The reduction in spread is due primarily to the increase in securitized loans held for investment which produce a lower yield than the RMBS securities. 47

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Gains and Losses on Sales of Assets

During the quarter ended March 31, 2013, we sold RMBS (primarily Agency RMBS) with a carrying value of $176 thousand for realized gains of $6 thousand. During the quarter ended March 31, 2012, we sold RMBS with a carrying value of $63.0 million for realized gains of $16.0 million. Capital gains from sales of securities are realized when management believes it is appropriate to sell a security. Management may decide to sell securities to reduce leverage in the portfolio, improve liquidity and take advantage of market conditions.



Secured Debt Financing Transactions

We did not re-securitize any RMBS or jumbo prime whole loans during the quarter ended March 31, 2013. During the quarter ended March 31, 2012, we financed the purchase of $753.7 million of jumbo prime whole loans by securitizing and selling senior bonds to third party investors for net proceeds of $696.1 million. We retained the subordinate tranches of the securitization.



Provision for Loan Losses

The provision for loan losses related to our securitized loans held for investment represents managements estimate of expected future losses on the securitized loans held. During the quarter ended March 31, 2013, the provision for loan losses increased by $424 thousand, net of principal writedowns on loans of $83 thousand. The total loan loss reserve as of March 31, 2013 is $12.0 million. During the quarter ended March 31, 2012, the provision for loan losses increased by $892 thousand.



Management Fee and General and Administrative Expenses

The table below shows our total management fee and general and administrative, or G&A, expenses as compared to average total assets and average equity for the periods presented. Total Management Total Management Total Management Fee and G&A Fee and G&A Fee and G&A Expenses/Total Expenses/Average Expenses Assets Equity (Ratios have been annualized, dollars in thousands) For The Quarter Ended March 31, 2013 $ 9,441 0.50 % 1.05 % For The Year Ended December 31, 2012 $ 58,799 0.76 % 1.78 % For The Quarter Ended December 31, 2012 $ 12,658 0.66 % 1.45 % For The Quarter Ended September 30, 2012 $ 15,799 0.80 % 1.92 % For The Quarter Ended June 30, 2012 $ 15,444 0.75 % 1.95 % For The Quarter Ended March 31, 2012 $ 14,898 0.74 % 1.92 % We paid FIDAC a management fee of $6.4 million and $12.9 million for the quarters ended March 31, 2013 and 2012, respectively. The management fee is based on our stockholders' equity as defined in the investment management agreement. The decrease in the management fee is due to the agreement to lower the management fee until all our SEC filings are current. See further discussion of the management fee and other agreements with FIDAC in our discussion of related party transactions below.



G&A expenses were $4.8 million and $2.0 million for the quarters ended March 31, 2013 and 2012, respectively. Our G&A expenses increased primarily due to increased legal and accounting fees as well as increased servicing fees associated with the CSMC 2012-CIM1, CSMC 2012-CIM2 and CSMC 2012-CIM securitizations.

Our Manager has agreed to pay all past and future expenses that we and/or our Audit Committee incur to: (1) evaluate our accounting policy related to the application of GAAP to our Non-Agency RMBS portfolio (the Evaluation); (2) restate our financial statements for the period covering 2008 through 2011 as a result of the Evaluation (the Restatement Filing); and (3) investigate and evaluate any shareholder derivative demands arising from the Evaluation and/or the Restatement Filing (the Investigation); provided, however, that our Manager's obligation to pay expenses applies only to expenses not paid by our insurers under our insurance policies. Expenses shall include, without limitation, fees and costs incurred with respect to auditors (to the extent such fees and costs exceed our originally estimated audit fees of $542,400), outside counsel, and consultants engaged by us and/or our Audit Committee for the Evaluation, Restatement Filing and the Investigation. The amount paid by our Manager related to these expenses for the quarter ended March 31, 2013 is $1.9 million and is presented in the Consolidated Statements of Operations and Comprehensive Income as Expense recoveries from Manager. 48 -------------------------------------------------------------------------------- We reimburse FIDAC for our pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of FIDAC and its affiliates required for our operations. During the quarters ended March 31, 2013 and 2012, we reimbursed FIDAC approximately $99 thousand and $115 thousand for such expenses, respectively.



Net Income (Loss) and Return on Average Equity

Our net income was $79.8 million and $80.2 million for the quarters ended March 31, 2013 and 2012, respectively. Economic net interest income as a percentage of average equity decreased by 384 basis points for the quarter ended March 31, 2013 as compared to the same period of 2012. The decline in our economic net interest income as a percentage of average equity is due to the lower yield on our average assets from the increase in securitized loans held for investment. The return on average equity decreased by 145 basis points for the quarter ended March 31, 2013 as compared to the same period of 2012. The decline in our return on average equity is primarily due to the decline in the net interest rate spread, offset in part by reduced management fees. The table below shows our economic net interest income, realized gains (losses) on sale of assets and the credit related OTTI, realized and unrealized gains (losses) on interest rate swaps and IOs, total management fee and G&A expenses, and income tax, each as a percentage of average equity, and the return on average equity for the periods presented. Realized and Unrealized Gains Realized Gains (Losses) on Total Economic Net (Losses) on Interest Rate Management Fee Interest Sales and Swaps and & G&A Income Tax Return on Income/Average OTTI/Average IOs/Average Expenses/Average Benefit/Average Average Equity * Equity Equity Equity Equity Equity (Ratios have been annualized) For The Quarter Ended March 31, 2013 10.17 % (0.73 %) 0.49 % (1.05 %) 0.00 % 8.87 % For The Year Ended December 31, 2012 13.44 % (1.44 %) (0.26 %) (1.78 %) 0.00 % 9.95 % For The Quarter Ended December 31, 2012 10.85 % (1.03 %) 0.68 % (1.45 %) 0.00 % 9.04 % For The Quarter Ended September 30, 2012 12.74 % 7.11 % (2.40 %) (1.92 %) 0.00 % 15.53 % For The Quarter Ended June 30, 2012 16.93 % (8.14 %) (1.70 %) (1.95 %) 0.00 % 5.14 % For The Quarter Ended March 31, 2012 14.01 % (4.18 %) 2.41 % (1.92 %) 0.00 %



10.32 % * Includes the effect of realized losses on interest rate swaps

Exposure to European Financial Counterparties

A significant portion of our Agency RMBS is financed with repurchase agreements. We secure our borrowings under these agreements by pledging our Agency RMBS as collateral to the lender. The collateral we pledge exceeds the amount of the borrowings under each agreement, typically with the extent of over-collateralization being at least 3% of the amount borrowed. If the counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged assets, we are at risk of losing the over-collateralized amount. The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral. We also use interest rate swaps to manage our interest rate risks. Under these swap agreements, we pledge Agency RMBS as collateral as part of a margin arrangement for interest rate swaps that are in an unrealized loss position. If a swap counterparty were to default on its obligation, we would be exposed to a loss to the extent that the amount of our Agency RMBS pledged exceeded the unrealized loss on the associated swaps and we were not able to recover the excess collateral. 49 -------------------------------------------------------------------------------- Over the past several years, several large European financial institutions have experienced financial difficulty and have been either rescued by government assistance or by other large European banks or institutions. Some of these financial institutions or their U.S. subsidiaries have provided us financing under repurchase agreements or we have entered into interest rate swaps with such institutions. We have entered into repurchase agreements and/or interest rate swaps with six counterparties as of March 31, 2013 that are either domiciled in Europe or are a U.S.-based subsidiary of a European-domiciled financial institution. The following table summarizes our exposure to such counterparties at March 31, 2013: Repurchase Interest Rate Exposure as a Number of Agreement Swaps Percentage of Country Counterparties Financing at Fair Value Exposure (1) Total Assets (dollars in thousands) France 1 177,831 $ - $ 8,815 0.12 % Germany 1 - (12,925 ) 1,862 0.03 % Netherlands 1 186,528 - 8,972 0.12 % Switzerland 2 232,872 (35,612 ) 18,342 0.25 % United Kingdom 1 147,609 - 5,291 0.07 % Total 6 $ 744,840 $ (48,537 ) $ 43,282 0.59 %



(1) Represents the amount of securities pledged as collateral to each counterparty less the aggregate of repurchase agreement financing and unrealized loss on swaps for each counterparty.

At March 31, 2013, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.

If the European credit crisis continues to impact these major European financial institutions, it is possible that it will also impact the operations of their U.S. subsidiaries. Our financings and operations could be adversely affected by such events. We monitor our exposure to our repurchase agreement and swap counterparties on a regular basis, using various methods, including review of recent rating agency actions, financial relief plans, credit spreads or other developments and by monitoring the amount of cash and securities collateral pledged and the associated loan amount under repurchase agreements and/or the fair value of swaps with our counterparties. We make reverse margin calls on our counterparties to recover excess collateral as permitted by the agreements governing our financing arrangements or interest rate swaps, or may try to take other actions to reduce the amount of our exposure to a counterparty when necessary.



Liquidity and Capital Resources

General

Liquidity measures our ability to meet cash requirements, including ongoing commitments to repay our borrowings, purchase RMBS, mortgage loans and other assets for our portfolio, pay dividends and other general business needs. Our principal sources of capital and funds for additional investments primarily include earnings from our investments, borrowings under securitizations and re-securitizations, repurchase agreements and other financing facilities, and proceeds from equity offerings. To meet our short term (one year or less) liquidity needs, we expect to continue to borrow funds in the form of repurchase agreements and, subject to market conditions, other types of financing. The terms of the repurchase transaction borrowings under our master repurchase agreements generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association, or SIFMA, as to repayment, margin requirements and the segregation of all securities we have initially sold under the repurchase transaction. In addition, each lender typically requires that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions include changes to the margin maintenance requirements, cross default provisions, required haircuts (or the percentage that is subtracted from the value of RMBS that collateralizes the financing), purchase price maintenance requirements, and requirements that all disputes related to the repurchase agreement be litigated or arbitrated in a particular jurisdiction. These provisions may differ for each of our lenders. We also expect to meet our short term liquidity needs by relying on the cash flows generated by our investments. These cash flows are primarily comprised of monthly principal and interest payments received on our investments. We may also sell our investments and utilize those proceeds to meet our short term liquidity needs or enter into non-recourse financing of our assets through sales of securities to third parties of loan securitization or RMBS re-securitization transactions that we have completed in prior periods. Based on our current portfolio, leverage ratio and available borrowing arrangements, we believe our assets will be sufficient to enable us to meet anticipated short-term liquidity requirements. However, a decline in the value of our collateral could cause a temporary liquidity shortfall due to the timing of margin calls on the financing arrangements and the actual receipt of the cash related to principal paydowns. If our cash resources are at any time insufficient to satisfy our liquidity requirements, we may have to sell investments, potentially at a loss, or issue debt or additional equity securities in a common stock offering. 50 -------------------------------------------------------------------------------- To meet our longer term liquidity needs (greater than one year), we expect our principal sources of capital and funds to continue to be provided by earnings from our investments, borrowings under securitizations and re-securitizations, repurchase agreements and other financing facilities, as well as proceeds from equity offerings. As a result of our failure to file our SEC filings by the filing date required by the SEC (including the grace period permitted by Rule 12b-25 under the Securities Exchange Act of 1934, as amended), we are not eligible to file a new Form S-3 registration statement or use our existing Form S-3 registration statements to raise additional equity capital until filings with the SEC have been timely made for a full year. Our ineligibility to use Form S-3 during this time period will have a negative impact on our ability to quickly access the public capital markets because we would be required to file a long-form registration statement and wait for the SEC to declare such registration statement effective. In addition to the principal sources of capital described above, we may enter into warehouse facilities and use longer dated structured repurchase agreements. The use of any particular source of capital and funds will depend on market conditions, availability of these facilities, and the investment opportunities available to us.



Current Period

We held cash and cash equivalents of approximately $649.5 million and $621.2 million at March 31, 2013 and December 31, 2012, respectively.

Our operating activities provided net cash of approximately $66.4 million and $94.5 million for the quarters ended March 31, 2013 and 2012, respectively. The cash provided by operating activities decreased for the quarter ended March 31, 2013 when compared to the quarter ended March 31, 2012 due primarily to a decrease in economic net interest income earned on the portfolio of $17.5 million. Our investing activities provided net cash of approximately $468.9 million for the quarter ended March 31, 2013 and resulted in the net use of cash of approximately $428.8 million for the quarter ended March 31, 2012. During the quarter ended March 31, 2013 we generated cash primarily from principal payments of $476.1 million related to all our investment assets offset in part by purchases of $7.4 million in RMBS securities. During the quarter ended March 31, 2012, we used cash to purchase securitized loans related to the CSMC 2012-CIM1 transaction of $753.7 million and used cash to purchase RMBS securities of $91.4 million. These uses of cash were offset in part by principal payments received of $337.3 million and proceeds from sales of securities of $79.1 million. Our financing activities resulted in the net use of cash of approximately $507.0 million for the quarter ended March 31, 2013 and provided net cash of approximately $259.2 million for the quarter ended March 31, 2012. During the quarter ended March 31, 2013, we used cash to repay repurchase agreements, net of new borrowings of $107.7 million. Other uses of cash for the quarter ended March 31, 2013 included repayment of principal of our securitized debt of $306.9 million and the payment of the fourth quarter 2012 dividend of $92.4 million. During the quarter ended March 31, 2012, we received proceeds from the issuance of debt related to the CSMC 2012-CIM1 securitization of $696.1 million. This receipt of cash was offset in part by our use of cash to repay repurchase agreements of $170.1 million, net of new borrowings. In addition we used cash for the repayments of debt on securitized borrowings of $149.6 million and the payment of dividends of $112.9 million. We expect to continue to finance our RMBS portfolio largely through repurchase agreements and loans through the securitization market. In addition, we may from time to time sell securities as a source of cash to fund new purchases. 51 --------------------------------------------------------------------------------



At March 31, 2013 and December 31, 2012, the remaining maturities on our RMBS repurchase agreements were as follows.

March 31, 2013 December 31, 2012 (dollars in thousands) Overnight $ 25,985 $ - 1-29 days 791,373 732,809 30 to 59 days 284,763 325,915 60 to 89 days 258,164 - 90 to 119 days 60,090 211,137 Greater than or equal to 120 days - 258,164 Total $ 1,420,375 $ 1,528,025 We collateralize the repurchase agreements we use to finance our operations with Agency RMBS. Our counterparties negotiate a 'haircut' when we enter into a financing transaction, which varies from lender to lender. The size of the haircut reflects the perceived risk associated with holding the RMBS by the lender. The haircut provides lenders with a cushion for daily market value movements that reduce the need for a margin call to be issued or margin to be returned as normal daily increases or decreases in RMBS market values occur. At March 31, 2013, the weighted average haircut on our repurchase agreements was 4.87%. Despite the haircut, repurchase agreements subject us to two types of margin calls. First, there are monthly margin calls that are triggered as principal payments and pre-payments are received by us as these payments lower the value of the collateral. As a result, we expect to receive margin calls from our repurchase counterparties monthly simply due to the principal paydowns on our Agency RMBS. The monthly principal payments and pre-payments are not known in advance and vary depending on the behavior of the borrowers related to the underlying mortgages. Second, counterparties make margin calls or return margin as a result of normal daily increases or decreases in asset fair values. In addition, when financing assets using standard form of SIFMA Master Repurchase Agreements, the counterparty to the agreement typically nets its exposure to us on all outstanding repurchase agreements and issues margin calls if movement of the fair values of the assets in the aggregate exceeds their allowable exposure to us. A decline in asset fair values could create a margin call, or may create no margin call depending on the counterparty's specific policy. In addition, counterparties consider a number of factors, including their aggregate exposure to us as a whole and the number of days remaining before the repurchase transaction closes prior to issuing a margin call. See Note 5 to our Consolidated Financial Statements for a discussion on how we determine the fair values of the RMBS collateralizing our repurchase agreements. The table below presents our average repurchase balance and repurchase balance at each period end for the periods presented. Our balance at period-end tends to have little fluctuation from the average balances except in periods where we are adjusting the size of our portfolio by using leverage. Our average repurchase agreement balance at March 31, 2013 decreased compared to our average repurchase agreement balance for the quarter ended December 31, 2012 due to sales of Agency RMBS during the fourth quarter of 2012 by $107.0 million. The Company continues to deploy capital to the strategic purchases of investments. Average Repurchase Repurchase Balance at Period Balance Period End (dollars in thousands) Quarter Ended March 31, 2013 $ 1,460,629$ 1,420,375 Year Ended December 31, 2012 $ 2,122,421$ 1,528,025 Quarter Ended December 31, 2012 $ 1,567,605$ 1,528,025 Quarter Ended September 30, 2012 $ 1,954,958$ 1,658,906 Quarter Ended June 30, 2012 $ 2,412,827$ 2,362,088 Quarter Ended March 31, 2012 $ 2,554,295$ 2,502,870 We are not required to maintain any specific debt-to-equity ratio. We believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At March 31, 2013 and December 31, 2012 our total debt was approximately $3.6 billion and $4.0 billion, which represented a debt-to-equity ratio of approximately 1.0:1 and 1.1:1, respectively. We include repurchase agreements and securitized debt in the numerator of our debt-to-equity ratio and stockholders' equity as the denominator. We do not manage our portfolio to have a pre-designated amount of borrowings at quarter-end or year-end. Our borrowings at period end are a snapshot of borrowing as of a date, and this number should be expected to differ from average borrowings over the period. Our borrowings will change as we implement our portfolio and risk management strategies to address changing market conditions by increasing or decreasing leverage. Our borrowings may change during periods when we raise capital, and in certain instances we may purchase additional assets and increase borrowings prior to an expected capital raise. Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings during a period provides a more accurate representation of our exposure to the risks associated with leverage. 52

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Stockholders' Equity

On January 28, 2011, we entered into an equity distribution agreement with FIDAC and UBS Securities LLC, or UBS. Through this agreement, we may sell through UBS, as our sales agent, up to 125,000,000 shares of our common stock in ordinary brokers' transactions at market prices or other transactions as agreed between us and UBS. We did not sell any shares of our common stock under the equity distribution agreement during the quarters ended March 31, 2013 or 2012. On September 24, 2009, we implemented a Dividend Reinvestment and Share Purchase Plan, or DRSPP. The DRSPP provided holders of record of our common stock an opportunity to automatically reinvest all or a portion of their cash distributions received on common stock in additional shares of our common stock as well as to make optional cash payments to purchase shares of our common stock. The DRSPP was administered by the Administrator, Computershare. The DRSPP was suspended when we were no longer current on our filings beginning in the second quarter of 2012. During the quarter ended March 31, 2012 we raised $117 thousand by issuing 39,000 shares through the DRSPP.



As a result of our failure to file our SEC filings by the filing date required by the SEC (including the grace period permitted by Rule 12b-25 under the Securities Exchange Act of 1934, as amended), we will not be able to issue shares of our common stock under the equity distribution agreement or DRSPP until filings with the SEC have been timely made for a full year.

During the quarter ended March 31, 2013 we declared dividends to common shareholders totaling $92.4 million, or $0.09 per share. During the quarter ended March 31, 2012, we declared dividends to common shareholders totaling $112.9 million, or $0.11 per share.

The Board of Directors declared and paid a regular quarterly dividend of $0.09 per share for the second, third and fourth quarters of 2013. The Board of Directors has determined that there will be a regular quarterly dividend of $0.09 per share for each of the first two quarters of 2014. The Board of Directors will review this program after the conclusion of the second quarter of 2014. The Board of Directors also declared and paid a special dividend of $0.20 per share payable on January 31, 2014 to shareholders of record on January 8, 2014.



There was no preferred stock issued or outstanding as of March 31, 2012 and December 31, 2012.

Related Party Transactions Management Agreement

On November 15, 2007 we entered into a management agreement with FIDAC, pursuant to which FIDAC is entitled to receive a management fee and, in certain circumstances, a termination fee and reimbursement of certain expenses as described in the management agreement. The management fee and expenses do not have fixed and determinable payments and the termination fee is no longer applicable.



The Management Agreement

On November 15, 2007 we entered into a management agreement with FIDAC, which provided for an initial term through December 31, 2010 with an automatic one-year extension option and subject to certain termination rights. The Compensation Committee of the Board of Directors renewed the management agreement through December 31, 2013. In 2011 and 2010, we paid to our Manager a quarterly management fee equal to 1.50% per annum of our gross Stockholders' Equity (as defined in the management agreement). Effective November 28, 2012, the management fee was reduced to 0.75% per annum of gross Stockholders' Equity, which reduction will remain in effect until we are current on all of our filings required under applicable securities laws. We are obligated to reimburse our Manager for its costs incurred under the management agreement. In addition, the management agreement permits our Manager to require us to pay for its pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses that our Manager incurred in connection with our operations. These expenses are allocated between our Manager and us based on the ratio of the proportion of gross assets compared to the gross assets managed by our Manager as calculated at each quarter end. Together we will modify this allocation methodology, subject to the approval of our board of directors if the allocation becomes inequitable (i.e., if we become very highly leveraged compared to our Manager's other funds and accounts). 53 --------------------------------------------------------------------------------



March 2013 Amendment to Management Agreement

On March 8, 2013 we amended the management agreement. In the amendment, we memorialized the reduction in the management fee. Additionally, our Manager agreed to pay all past and future expenses that we and/or our Audit Committee incur to: (1) evaluate our accounting policy related to the application of GAAP to our Non-Agency RMBS portfolio (the Evaluation); (2) restate our financial statements for the period covering 2008 through 2011 as a result of the Evaluation (the Restatement Filing); and (3) investigate and evaluate any shareholder derivative demands arising from the Evaluation and/or the Restatement Filing (the Investigation); provided, however, that our Manager's obligation to pay expenses applies only to expenses not paid by our insurers under our insurance policies. Expenses shall include, without limitation, fees and costs incurred with respect to auditors, outside counsel, and consultants engaged by us and/or our Audit Committee for the Evaluation, Restatement Filing and the Investigation. The amendment also provides that the independent directors or the holders of a majority of the outstanding shares of common stock (other than those held by Annaly or its affiliates) may elect to terminate the management agreement upon 30 days notice at any time in their sole discretion without the payment of a termination fee. Additionally, we may terminate the management agreement effective immediately if (i) our Manager engages in any act of fraud, misappropriation of funds, or embezzlement against the us, (ii) there is an event of any gross negligence on the part of our Manager in the performance of its duties under the management agreement, (iii) there is a commencement of any proceeding relating to our Manager's bankruptcy or insolvency, (iv) there is a dissolution of our Manager, or (v) our Manager is convicted of (including a plea of nolo contendere) a felony.



Fees Paid Under the Management Agreement

For the quarters ended March 31, 2013 and 2012, our Manager earned management fees of $6.4 million and $12.9 million, respectively and received expense reimbursements of $99 thousand and $115 thousand, respectively. From our inception through 2009, our Manager waived its right to require us to pay our pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates required for our operations.



Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and employees who, notwithstanding that certain of them also are our officers, receive no cash compensation directly from us.

Clearing Fees

On March 1, 2011, we entered into an administrative services agreement with RCap Securities, Inc., or RCap. We use RCap, a SEC registered broker-dealer and a wholly-owned subsidiary of Annaly, to clear trades for us and RCap is paid customary fees in return for such services. RCap may also provide brokerage services to us from time to time. During the quarters ended March 31, 2013 and 2012, fees paid to RCap were $34 thousand and $44 thousand, respectively.



Restricted Stock Grants

We granted 1,301,000 shares of restricted stock to employees of our Manager and its affiliates and members of our board of directors on January 2, 2008. During the quarters ended March 31, 2013 and 2012, 29,300 and 31,600 shares of restricted stock vested, respectively. Of those vested shares 2,000 and 200 shares were forfeited, respectively. At March 31, 2013 2012 there were approximately 586,000 and 726,800 unvested shares of restricted stock issued to employees of FIDAC, respectively. For the quarter ended March 31, 2013 and 2012, compensation expense associated with the amortization of the fair value of the restricted stock was approximately $78 thousand and $82 thousand, respectively. 54

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Contractual Obligations and Commitments

The following tables summarize our contractual obligations at March 31, 2013 and December 31, 2012. The estimated principal repayment schedule of the securitized debt is based on expected cash flows of the residential mortgage loans or RMBS, as adjusted for expected principal writedowns on the underlying collateral of the debt. March 31, 2013 Greater Than Within One One to Three Three to Five or Equal to Contractual Obligations Year Years Years Five Years Total (dollars in thousands) Repurchase agreements for RMBS $ 1,420,375 $ - $ - $ - $ 1,420,375 Securitized debt 557,036 689,102 371,069 512,916 2,130,123 Interest expense on RMBS repurchase agreements (1) 3,214 5 - - 3,219 Interest expense on securitized debt (1) 78,323 103,003 68,621 206,175 456,122 Total $ 2,058,948$ 792,110$ 439,690$ 719,091$ 4,009,839 (1) Interest is based on variable rates in effect as of March 31, 2013. December 31, 2012 Greater Than Within One One to Three Three to Five or Equal to Contractual Obligations Year Years Years Five Years Total (dollars in thousands) Repurchase agreements for RMBS $ 1,528,025 $ - $ - $ - $ 1,528,025 Securitized debt 658,423 793,150 430,993 555,717 2,438,283 Interest expense on RMBS repurchase agreements (1) 3,481 5 - - 3,486 Interest expense on securitized debt (1) 88,177 113,931 72,902 201,721 476,731 Total $ 2,278,106$ 907,086 $



503,895 $ 757,438$ 4,446,525 (1) Interest is based on variable rates in effect as of December 31, 2012.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities.



Capital Requirements

At March 31, 2013 and December 31, 2012, we had no material commitments for capital expenditures.

Dividends

To qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our taxable income (subject to certain adjustments). We intend to pay regular quarterly dividends to our stockholders. Before we pay any dividend, we must first meet any operating requirements and scheduled debt service on our financing facilities and other debt payable.



Inflation

A significant portion of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions will be determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and financial condition are measured with reference to historical cost and/or fair market value without considering inflation.



Other Matters

We at all times intend to conduct our business so as not to become regulated as an investment company under the 1940 Act. If we were to become regulated as an investment company, our ability to use leverage would be substantially reduced. 55 -------------------------------------------------------------------------------- Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis (the "40% test"). Excluded from the term "investment securities," among other things, are securities issued by majority-owned subsidiaries that rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act. Certain of our subsidiaries, including Chimera Asset Holding LLC and certain subsidiaries that we may form in the future, rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the Securities and Exchange Commission (or the SEC), requires us to invest at least 55% of our assets in "mortgages and other liens on and interest in real estate" (or Qualifying Real Estate Assets) and at least 80% of our assets in Qualifying Real Estate Assets plus real estate related assets. The assets that we acquire, therefore, are limited by the provisions of and the rules and regulations promulgated under the Investment Company Act. On August 31, 2011, the SEC issued a concept release titled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage-Related Instruments" (SEC Release No. IC-29778). Under the concept release, the SEC is reviewing interpretive issues related to the Section 3(c)(5)(C) exemption. We are monitoring developments related to this matter.



Based on our calculations, as of March 31, 2013 and 2012, we were in compliance with the exemption from registration provided by Section 3(c)(5)(C) and 3(a)(1)(C) of the Investment Company Act.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the U.S. Commodity Futures Trading Commission, or CFTC, gained jurisdiction over the regulation of interest rate swaps. The CFTC has asserted that this causes the operators of mortgage real estate investment trusts that use swaps as part of their business model to fall within the statutory definition of Commodity Pool Operator, or CPO, and, absent relief from the Division or the Commission, to register as CPOs. On December 7, 2012, as a result of numerous requests for no-action relief from the CPO registration requirement for operators of mortgage real estate investment trusts, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued no-action relief entitled "No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts" that permits a CPO to receive relief by filing a claim to perfect the use of the relief. A claim submitted by a CPO will be effective upon filing, so long as the claim is materially complete. The conditions that must be met to claim the relief are that the mortgage real estate investment trust must:



? Limit the initial margin and premiums required to establish its commodity

interest positions to no more than five percent of the fair market value of

the mortgage real estate investment trust's total assets;

? Limit the net income derived annually from its commodity interest positions

that are not qualifying hedging transactions to less than five percent of the

mortgage real estate investment trust's gross income;

? Ensure that interests in the mortgage real estate investment trust are not

marketed to the public as or in a commodity pool or otherwise as or in a

vehicle for trading in the commodity futures, commodity options, or swaps

markets; and ? Either:



o identify itself as a "mortgage REIT" in Item G of its last U.S. income tax

return on Form 1120-REIT; or

o if it has not yet filed its first U.S. income tax return on Form 1120-REIT,

disclose to its shareholders that it intends to identify itself as a "mortgage REIT" in its first U.S. income tax return on Form 1120-REIT. While we disagree that the CFTC's position that mortgage real estate investment trusts that use swaps as part of their business model fall within the statutory definition of a CPO, we have submitted a claim for the relief set forth in the no-action relief entitled "No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts" and believe we meet the criteria for such relief set forth therein. 56



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