10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35260

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

Maryland	45-0907772
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2 Bethesda Metro Center

14th Floor

Bethesda, Maryland 20814

(Address of principal executive offices)

(301) 968-9220

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter earlier period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

Yes ý   No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	ý	(Do not check if a smaller reporting company)	Smaller Reporting Company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of May 1, 2012 was 23,612,100.

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	41
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
Signatures

1

PART I

Item 1. Financial Statements

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	March 31, 2012		December 31, 2011
	(unaudited)		(audited)
Assets:
Agency securities, at fair value (including pledged securities of $3,652,873 and $1,535,388, respectively)	$	3,844,747	$	1,740,091
Non-agency securities, at fair value (including pledged securities of $79,202 and $8,626, respectively)	128,941		25,561
Linked transactions, at fair value	16,241		13,671
Cash and cash equivalents	79,161		57,428
Restricted cash and cash equivalents	21,187		3,159
Interest receivable	11,103		5,566
Derivative assets, at fair value	6,178		1,845
Receivable for agency securities sold	73,251		271,849
Receivable under reverse repurchase agreements	122,994		50,563
Other assets	486		589
Total assets	$	4,304,289	$	2,170,322
Liabilities:
Repurchase agreements	$	3,567,398	$	1,706,281
Payable for agency securities purchased	111,404		189,042
Derivative liabilities, at fair value	12,266		5,669
Dividend payable	9,011		8,005
Obligation to return securities borrowed under reverse repurchase agreements, at fair value	121,889		50,154
Accounts payable and other accrued liabilities	2,874		2,370
Total liabilities	3,824,842		1,961,521
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000 shares authorized, 0 shares issued and outstanding, respectively	—		—
Common stock, $0.01 par value; 300,000 shares authorized, 22,012 and 10,006 shares issued and outstanding, respectively	220		100
Additional paid-in capital	457,255		199,038
Retained earnings	21,972		9,663
Total stockholders’ equity	479,447		208,801
Total liabilities and stockholders’ equity	$	4,304,289	$	2,170,322

See accompanying notes to consolidated financial statements.

2

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in thousands, except per share data)

(unaudited)

Interest income:
Agency securities	$	15,306
Non-agency securities	1,271
Other	25
Interest expense	(1,664		)
Net interest income	14,938
Other gains (losses):
Realized gain on agency securities, net	5,971
Realized loss on periodic settlements of interest rate swaps, net	(1,041		)
Realized gain on other derivatives and securities, net	562
Unrealized gain on agency securities, net	4,006
Unrealized gain on non-agency securities, net	2,411
Unrealized gain and net interest income on linked transactions, net	3,384
Unrealized loss on other derivatives and securities, net	(6,785		)
Total other gains, net	8,508
Expenses:
Management fees	1,082
General and administrative expenses	1,035
Total expenses	2,117
Income before excise tax	21,329
Excise tax	9
Net income	$	21,320
Net income per common share—basic and diluted	$	1.82
Weighted average number of common shares outstanding—basic and diluted	11,724
Dividends declared per common share	$	0.90

See accompanying notes to consolidated financial statements.

3

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings			Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2011	—	$	—	10,006	$	100	$	199,038	$	9,663		$	208,801
Net income	—	—		—	—		—		21,320			21,320
Issuance of common stock	—	—		12,000	120		258,201		—			258,321
Issuance of restricted stock	—	—		6	—		—		—			—
Stock-based compensation	—	—		—	—		16		—			16
Common dividends declared	—	—		—	—		—		(9,011		)	(9,011		)
Balance, March 31, 2012	—	$	—	22,012	$	220	$	457,255	$	21,972		$	479,447

See accompanying notes to consolidated financial statements.

4

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in thousands, unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	21,320
Adjustments to reconcile net income to net cash flows from operating activities:
Amortization of premiums and discounts, net	1,238
Unrealized gain on securities and derivatives, net	(2,307		)
Realized gain on agency securities, net	(5,971		)
Realized gain on other derivatives and securities, net	(562		)
Increase in interest receivable	(5,537		)
Decrease in other assets	103
Increase in accounts payable and other accrued liabilities	504
Stock-based compensation	16
Net cash flows from operating activities	8,804
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of agency securities	(2,585,473		)
Purchases of non-agency securities	(96,074		)
Proceeds from sale of agency securities	571,428
Principal collections on agency securities	37,667
Principal collections on non-agency securities	2,151
Purchases of non-agency securities underlying linked transactions	(6,589		)
Principal collections on non-agency securities underlying linked transactions	1,987
Purchases of U.S. Treasury securities sold prior to purchase	(1,015,802		)
Proceeds from sale of U.S. Treasury securities sold prior to purchase	1,092,521
Payments of reverse repurchase agreements	(368,914		)
Proceeds from reverse repurchase agreements	296,483
Purchases of U.S. Treasury securities	(50,167		)
Proceeds from sale of U.S. Treasury securities	49,902
Payment of premiums for interest rate swaptions	(3,881		)
Increase in restricted cash and cash equivalents	(18,028		)
Net payments on other derivatives	(4,727		)
Net cash flows used in investing activities	(2,097,516		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(8,005		)
Proceeds from common stock offerings, net of offering costs	258,321
Proceeds from repurchase agreements	4,225,558
Repayments on repurchase agreements	(2,368,087		)
Proceeds from repurchase agreements underlying linked transactions	91,735
Repayments of repurchase agreements underlying linked transactions	(89,077		)
Net cash flow from financing activities	2,110,445
Net increase in cash and cash equivalents	21,733
Cash and cash equivalent at beginning of the period	57,428
Cash and cash equivalents at end of period	$	79,161
Supplemental non-cash investing and financing activities:
Non-agency securities recorded upon de-linking of Linked Transactions	$	6,215
Repurchase agreements recorded upon de-linking of Linked Transactions	$	3,646

See accompanying notes to consolidated financial statements.

5

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Unaudited Interim Consolidated Financial Statements

The interim consolidated financial statements of American Capital Mortgage Investment Corp. (together with its consolidated subsidiary, American Capital Mortgage Investment TRS, LLC, is referred to throughout this report as the “Company”, “we”, “us” and “our”) are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Our interim unaudited consolidated financial statements include the accounts of our wholly-owned subsidiary, American Capital Mortgage Investment TRS, LLC. As of March 31, 2012, there has been no activity in American Capital Mortgage Investment TRS, LLC.

In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim period have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year.

Note 2. Organization

We were incorporated in Maryland on March 15, 2011 and commenced operations on August 9, 2011 following the completion of our initial public offering (“IPO”) of 8.0 million shares of common stock. Concurrent with our IPO, American Capital, Ltd. ("American Capital") purchased 2.0 million shares of our common stock in a private placement. We are externally managed by American Capital MTGE Management, LLC (our “Manager”), an affiliate of American Capital. We do not have any employees. Our common stock is traded on the NASDAQ Global Select Market under the symbol “MTGE.”

We invest in, finance and manage a leveraged portfolio of mortgage-related investments, which we define to include agency mortgage investments, non-agency mortgage investments and other mortgage-related investments. Agency mortgage investments include residential mortgage pass-through certificates and collateralized mortgage obligations (“CMOs”) structured from residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government-sponsored entity (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or by a U.S. Government agency, such as the Government National Mortgage Association ("Ginnie Mae”). Non-agency mortgage investments include residential mortgage-backed securities (“RMBS”) backed by residential mortgages that are not guaranteed by a GSE or U.S. Government agency. Non-agency mortgage investments may also include prime and non-prime residential mortgage loans. Other mortgage-related investments may include commercial mortgage-backed securities (“CMBS”), commercial mortgage loans, mortgage-related derivatives and other mortgage-related investments.

Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term through a combination of dividends and net book value appreciation. In pursuing this objective, we rely on our Manager's expertise to construct and manage a diversified mortgage investment portfolio by identifying asset classes that, when properly financed and hedged, are designed to produce attractive returns across a variety of market conditions and economic cycles, considering the risks associated with owning such investments.

We will elect to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As such, we are required to distribute annually at least 90% of our taxable net income. As long as we qualify as a REIT, we will generally not be subject to U.S. federal or state corporate taxes on our taxable net income to the extent that we distribute all of our annual taxable net income to our stockholders. It is our intention to distribute 100% of our taxable income, after application of available tax attributes, within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

6

Note 3. Summary of Significant Accounting Policies

Fair Value of Financial Assets

We have elected the option to account for all of our financial assets, including all mortgage-related investments, at estimated fair value, with changes in fair value reflected in income during the period in which they occur. In management's view, this election more appropriately reflects the results of our operations for a particular reporting period, as financial asset fair value changes are presented in a manner consistent with the presentation and timing of the fair value changes of economic hedging instruments. See Note 8 - Fair Value Measurements.

Interest Income

Interest income is accrued based on the outstanding principal amount of the securities and their contractual terms. Premiums and discounts associated with the purchase of agency securities and non-agency securities of high credit quality are amortized or accreted into interest income over the projected lives of the securities, including contractual payments and estimated prepayments, using the effective interest method. We estimate long-term prepayment speeds using a third-party service and market data.

The third-party service estimates prepayment speeds using models that incorporate the forward yield curve, current mortgage rates, current mortgage rates of the outstanding loans, loan age, volatility and other factors. We review the prepayment speeds estimated by the third-party service and compare the results to market consensus prepayment speeds, if available. We also consider historical prepayment speeds and current market conditions to validate the reasonableness of the prepayment speeds estimated by the third-party service, and based on our Manager’s judgment, we may make adjustments to their estimates. Actual and anticipated prepayment experience is reviewed at least quarterly and effective yields are recalculated when differences arise between the previously estimated future prepayments and the amounts actually received plus current anticipated future prepayments. If the actual and anticipated future prepayment experience differs from our prior estimate of prepayments, we are required to record an adjustment in the current period to the amortization or accretion of premiums and discounts for the cumulative difference in the effective yield through the reporting date.

At the time we purchase non-agency securities and loans that are not of high credit quality, we determine an effective interest rate based on our estimate of the timing and amount of future cash flows and our cost basis. Our initial cash flow estimates for these investments are based on our observations of current information and events and include assumptions related to interest rates, prepayment rates and the timing and amount of credit losses. On at least a quarterly basis, we review the estimated cash flows and make appropriate adjustments, based on input and analysis received from external sources, internal models, and our judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment as adjusted for credit impairment, if any.

Repurchase Agreements

We finance the acquisition of agency securities and certain non-agency securities for our investment portfolio through repurchase transactions under master repurchase agreements. Pursuant to Accounting Standards Codification ("ASC") Topic 860, Transfers and Servicing, we account for repurchase transactions, other than those treated as Linked Transactions (see Derivatives below), as collateralized financing transactions which are carried at their contractual amounts, including accrued interest, as specified in the respective transaction agreements. Repurchase agreements are carried at cost which approximates fair value due to their short-term nature.

Derivatives

We maintain a risk management strategy, under which we may use a variety of derivative instruments to economically hedge some of our exposure to market risks, including interest rate risk, prepayment risk and credit risk. The objective of our risk management strategy is to reduce fluctuations in net book value over a range of market conditions. The principal instruments that we currently use are interest rate swaps, to-be-announced forward contracts (“TBAs”), U.S. Treasury securities, and options to enter into interest rate swaps (“interest rate swaptions”). In the future, we may also use forward contracts for specified agency securities, U.S. Treasury futures contracts and put or call options on TBA securities. We may also invest in other types of mortgage derivatives, such as interest-only securities, credit default swaps and synthetic total return swaps.

We recognize all derivatives as either assets or liabilities on the balance sheet, measured at fair value. As we have not designated any derivatives as hedging instruments, all changes in fair value are reported in earnings in our consolidated statement of operations in unrealized loss on other derivatives and securities, net during the period in which they occur.

7

Derivatives in a gain position are reported as derivative assets at fair value and derivatives in a loss position are reported as derivative liabilities at fair value in our consolidated balance sheet.

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We attempt to minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings, monitoring positions with individual counterparties and adjusting posted collateral as required.

Interest rate swap agreements

We use interest rate swaps to hedge the variable cash flows associated with short-term borrowings made under our repurchase agreement facilities. We estimate the fair value of interest rate swaps based on inputs from a third-party pricing model. The third-party pricing model incorporates such factors as the Treasury curve, LIBOR rates, and the pay rate on the interest rate swap. We also incorporate both our own and our counterparties’ nonperformance risk in estimating the fair value of our interest rate swap and swaption agreements. In considering the effect of nonperformance risk, we consider the impact of netting and credit enhancements, such as collateral postings and guarantees, and have concluded that our own and our counterparty risk is not significant to the overall valuation of these agreements. The payment of periodic settlements of net interest on interest rate swaps are reported in realized loss on periodic settlements of interest rate swaps, net in our consolidated statement of operations. Cash payments received or paid for the early termination of an interest rate swap agreement are recorded as realized gain on other derivatives and securities, net in our consolidated statement of operations. Changes in fair value of our interest rate swap agreements are reported in unrealized loss on other derivatives and securities, net in our consolidated statement of operations.

Interest rate swaptions

We purchase interest rate swaptions to help mitigate the potential impact of increases or decreases in interest rates on the performance of our investment portfolio (referred to as "convexity risk"). The interest rate swaptions provide us the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The premium paid for interest rate swaptions is reported as a derivative asset in our consolidated balance sheets. The premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk, if any. The difference between the premium and the fair value of the swaption is reported in unrealized loss on other derivatives and securities, net in our consolidated statement of operations. If a swaption expires unexercised, the loss on the swaption would be equal to the premium paid and reported in realized gain on other derivatives and securities, net in our consolidated statement of operations. If we exercise a swaption, the realized gain or loss on the swaption would be equal to the difference between the fair value of the underlying interest rate swap and the premium paid and reported in realized gain on other derivatives and securities, net in our consolidated statement of operations.

We estimate the fair value of interest rate swaptions based on the fair value of the future interest rate swap that we have the option to enter into as well as the remaining length of time that we have to exercise the option.

TBA securities

A TBA security is a futures contract for the purchase or sale of agency securities at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed upon future date. The specific agency securities delivered under the contract on the settlement date, which is published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. Realized gains and losses associated with our TBA contracts are recognized on our consolidated statement of operations in the line item realized gain on other derivatives and securities, net, and unrealized gains and losses are recognized in unrealized loss on other derivatives and securities, net, in the period in which they occur. We estimate the fair value of TBA securities based on similar methods used to value agency securities.

Linked Transactions

If we finance the purchase of securities with repurchase agreements with the same counterparty from whom the securities are purchased and both transactions are entered into contemporaneously or in contemplation of each other, the transactions are presumed not to meet sale accounting criteria. We will account for the purchase of such securities and the repurchase agreement on a net basis and record a forward purchase commitment to purchase securities (each, a “Linked Transaction”) at fair value on our consolidated balance sheet in the line item Linked Transactions, at fair value. Changes in the fair value of the assets and liabilities underlying the Linked Transactions and associated interest income and expense are reported as unrealized gain and net interest income on linked transactions, net on our consolidated statement of operations.

Forward commitments to purchase or sell specified securities

8

We may enter into a forward commitment to purchase or sell specified securities as a means of acquiring assets or as a hedge against short-term changes in interest rates. Contracts for the purchase or sale of specified securities are accounted for as derivatives if the delivery of the specified security and settlement extends beyond the shortest period possible for that type of security. Realized gains and losses associated with forward commitments are recognized in the line item realized gain on other derivatives and securities, net and unrealized gains and losses are recognized in unrealized loss on other derivatives and securities, net on our consolidated statement of operations. We estimate the fair value of forward commitments to purchase or sell specified mortgage-backed securities based on similar methods used to value mortgage-backed securities, as well as the remaining length of time of the forward commitment.

U.S. Treasury securities

We may purchase or sell short U.S. Treasury securities and U.S. Treasury futures contracts to help mitigate the potential impact of changes in interest rates on the performance of our portfolio. We may borrow securities to cover short sales of U.S. Treasury securities under reverse repurchase agreements. We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on our consolidated balance sheet based on the value of the underlying borrowed securities as of the reporting date. Realized gains and losses associated with purchases and short sales of U.S. Treasury securities are recognized in realized gain on other derivatives and securities, net, and unrealized gains and losses are recognized in unrealized loss on other derivatives and securities, net, on our consolidated statement of operations.

Recent Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). The update requires new disclosures about balance sheet offsetting and related arrangements. For derivatives and financial assets and liabilities, the amendments require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to the offsetting requirements but not offset on the balance sheet. The guidance is effective December 1, 2013 and is to be applied retrospectively. This guidance does not amend the existing guidance on when it is appropriate to offset. As a result, we do not expect this guidance to have a material effect on our financial statements.

Note 4. Agency Securities

The following table summarizes our investments in agency securities as of March 31, 2012 and December 31, 2011(dollars in thousands):

	As of March 31, 2012
	Fannie Mae			Freddie Mac			Total
Fixed-rate agency securities:
Agency securities, par	$	3,015,151		$	659,517		$	3,674,668
Unamortized premium	118,771			33,485			152,256
Amortized cost	3,133,922			693,002			3,826,924
Gross unrealized gains	16,257			4,876			21,133
Gross unrealized losses	(2,522		)	(788		)	(3,310		)
Fixed-rate agency securities, at fair value	$	3,147,657		$	697,090		$	3,844,747
Weighted average coupon as of March 31, 2012	3.56		%	3.79		%	3.60		%
Weighted average yield as of March 31, 2012	2.92		%	2.88		%	2.92		%
Weighted average yield for the three months ended March 31, 2012	3.09		%	3.19		%	3.11		%

9

	As of December 31, 2011
	Fannie Mae			Freddie Mac			Total
Fixed-rate agency securities:
Agency securities, par	$	1,240,435		$	396,625		$	1,637,060
Unamortized premium	64,700			24,514			89,214
Amortized cost	1,305,135			421,139			1,726,274
Gross unrealized gains	11,260			2,923			14,183
Gross unrealized losses	(120		)	(246		)	(366		)
Fixed-rate agency securities, at fair value	$	1,316,275		$	423,816		$	1,740,091
Weighted average coupon as of December 31, 2011	3.95		%	4.19		%	4.01		%
Weighted average yield as of December 31, 2011	2.85		%	2.91		%	2.87		%
Weighted average yield for the three months ended December 31, 2011	2.88		%	2.94		%	2.90		%

Actual maturities of agency securities are generally shorter than the stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic principal payments and principal prepayments. The following table summarizes our agency securities as of March 31, 2012 and December 31, 2011 according to their estimated weighted average life classification (dollars in thousands):

	As of March 31, 2012						As of December 31, 2011
Weighted Average Life	Fair Value		Amortized Cost		Weighted Average Yield		Fair Value		Amortized Cost		Weighted Average Yield
Greater than one year and less than or equal to three years	—		—		—	%	55,582		55,260		2.17	%
Greater than three years and less than or equal to five years	282,266		277,754		2.56	%	425,251		422,406		2.49	%
Greater than five years	3,562,481		3,549,170		2.94	%	1,259,258		1,248,608		3.02	%
Total / weighted average	$	3,844,747	$	3,826,924	2.92	%	$	1,740,091	$	1,726,274	2.87	%

As of March 31, 2012 and December 31, 2011, the weighted average life of our agency security portfolio was 7.3 years and 5.9 years, respectively, which incorporates anticipated future prepayment assumptions. As of March 31, 2012 and December 31, 2011, our weighted average expected constant prepayment rate (“CPR”) over the remaining life of our aggregate agency investment portfolio was 7% and 11%, respectively. Our estimates differ materially for different types of securities and thus individual holdings have a wide range of projected CPRs. We estimate long-term prepayment assumptions for different securities using third-party services and market data. These third-party services estimate prepayment speeds using models that incorporate the forward yield curve, current mortgage rates, mortgage rates of the outstanding loans, loan age, volatility and other factors. We review the prepayment speeds estimated by the third-party services and compare the results to market consensus prepayment speeds, if available. We also consider historical prepayment speeds and current market conditions to validate reasonableness. As market conditions may change rapidly, we use our judgment in developing our estimates for different securities. Prepayments are dependent on many factors and actual prepayments could differ materially from our estimates. Various market participants could use materially different assumptions. Furthermore, changes in market conditions such as interest rates, housing prices, and broad economic factors such as employment can materially impact prepayments. Additionally, modifications to GSE underwriting criteria or programs, GSE policies surrounding the buyouts or modifications of delinquent loans or other factors could significantly change the prepayment landscape.

10

Realized Gains and Losses

The following table is a summary of our net realized gain from the sale of agency securities for the three months ended March 31, 2012 (dollars in thousands):

Proceeds from agency securities sold	$	571,428
Less decrease in receivable for agency securities sold	(198,598		)
Less agency securities sold, at cost	(366,859		)
Net realized gains on sale of agency securities	$	5,971
Gross realized gains on sale of agency securities	$	5,971
Gross realized losses on sale of agency securities	—
Net realized gains on sale of agency securities	$	5,971

Pledged Assets

The following tables summarize our agency securities pledged as collateral under repurchase agreements and derivative agreements by type as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	As of March 31, 2012
Agency Securities Pledged(1)	Fannie Mae		Freddie Mac		Total
Under Repurchase Agreements
Fair value	$	3,024,019	$	621,370	$	3,645,389
Amortized cost	3,010,573		617,521		3,628,094
Accrued interest on pledged agency securities	8,582		1,892		10,474
Under Derivative Agreements
Fair value	2,315		5,169		7,484
Amortized cost	2,366		5,196		7,562
Accrued interest on pledged agency securities	8		16		24
Total Fair Value of Agency Securities Pledged and Accrued Interest	$	3,034,924	$	628,447	$	3,663,371

	As of December 31, 2011
Agency Securities Pledged(1)	Fannie Mae		Freddie Mac		Total
Under Repurchase Agreements
Fair value	$	1,219,634	$	311,641	$	1,531,275
Amortized cost	1,208,426		309,958		1,518,384
Accrued interest on pledged agency securities	3,791		1,006		4,797
Under Derivative Agreements
Fair value	1,019		3,094		4,113
Amortized cost	1,006		3,072		4,078
Accrued interest on pledged agency securities	4		10		14
Total Fair Value of Agency Securities Pledged and Accrued Interest	$	1,224,448	$	315,751	$	1,540,199

—————— 

⁽¹⁾   Agency securities pledged do not include pledged amounts of $72.8 million and $269.5 million under repurchase agreements related to agency securities sold but not yet settled as of March 31, 2012 and December 31, 2011, respectively.

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The following table summarizes our agency securities pledged as collateral under repurchase agreements by remaining maturity as of March 31, 2012 and December 31, 2011(dollars in thousands):

	As of March 31, 2012						As of December 31, 2011
Remaining Maturity	Fair Value		Amortized Cost		Accrued Interest on Pledged Agency Securities		Fair Value		Amortized Cost		Accrued Interest on Pledged Agency Securities
30 days or less	$	2,144,523	$	2,132,334	$	6,417	$	961,430	$	952,684	$	3,052
31 - 59 days	484,272		482,917		1,323		441,167		437,969		1,347
60 - 90 days	837,109		834,543		2,198		53,265		53,082		129
Greater than 90 days	179,485		178,300		536		75,413		74,649		269
Total	$	3,645,389	$	3,628,094	$	10,474	$	1,531,275	$	1,518,384	$	4,797

Note 5. Non-Agency Securities

The following tables summarize our non-agency security investments as of March 31, 2012 (dollars in thousands):

Non-Agency Securities
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	78,702	$	76,702	$	109,897	1.64	%	7.20	%
Subprime	16,173		16,463		42,229		0.45	%	9.85	%
Re-REMIC	8,523		8,328		8,878		5.12	%	5.22	%
Option-Arm	25,543		25,310		38,267		0.57	%	6.64	%
Total/ Weighted Average	$	128,941	$	126,803	$	199,271	1.33	%	7.30	%
Non-Agency Securities Underlying Linked Transactions (3)
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	21,381	$	21,328	$	26,116	3.63	%	6.65	%
Subprime	7,893		8,332		29,295		0.37	%	8.97	%
Re-REMIC	8,418		8,645		9,291		2.76	%	5.34	%
Option-Arm	14,153		12,884		22,256		0.55	%	9.09	%
Total/ Weighted Average	$	51,845	$	51,189	$	86,958	1.65	%	7.42	%

————————

⁽¹⁾ As of March 31, 2012, the unrealized net gain of $2.1 million on non-agency securities is comprised of $3.4 million gross unrealized gain and $1.3 million gross unrealized loss. As of March 31, 2012, the unrealized net gain of $0.7 million on non-agency securities underlying Linked Transactions is comprised of $1.5 million gross unrealized gain and $0.8 million gross unrealized loss.

⁽²⁾  Weighted average coupon rates are floating, except for $21.8 million fair value of prime / Alt-A non-agency securities and $8.1 million fair value of prime / Alt-A securities underlying Linked Transactions as of March 31, 2012.

⁽³⁾  See Note 7 - Derivatives for composition of Linked Transactions.

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The following table summarizes our non-agency security investments as of December 31, 2011 (dollars in thousands):

Non-Agency Securities
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	10,966	$	10,788	$	17,090	3.75	%	8.44	%
Subprime	5,969		6,597		20,884		0.50	%	10.09	%
Re-REMIC	8,626		8,609		9,177		5.39	%	6.16	%
Total/ Weighted Average	$	25,561	$	25,994	$	47,151	2.63	%	8.10	%
Non-Agency Securities Underlying Linked Transactions (3)
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	27,488	$	28,084	$	36,934	3.38	%	6.04	%
Subprime	7,198		8,465		29,586		0.42	%	9.36	%
Re-REMIC	8,805		8,934		9,629		2.75	%	5.08	%
Option-Arm	6,702		6,567		12,522		0.66	%	11.31	%
Total/ Weighted Average	$	50,193	$	52,050	$	88,671	1.94	%	7.08	%

————————

⁽¹⁾ As of December 31, 2011, the unrealized net loss of $0.4 million on non-agency securities is comprised of $0.7 million gross unrealized loss and $0.3 million gross unrealized gain. As of December 31, 2011, the unrealized net loss of $1.9 million on non-agency securities underlying Linked Transactions is comprised of $2.2 million gross unrealized loss and $0.3 million gross unrealized gain.

⁽²⁾  Weighted average coupon rates are floating, except for $3.8 million fair value of prime / Alt-A non-agency securities and $8.4 million fair value for prime / Alt-A securities underlying Linked Transactions as of December 31, 2011.

⁽³⁾  See Note 7 - Derivatives for composition of Linked Transactions.

Prime / Alt-A non-agency securities as of March 31, 2012 and December 31, 2011 include senior tranches in securitization trusts issued between 2004 and 2006, and are collateralized by residential mortgages originated between 2002 and 2006. The loans were originally considered to be either prime or one tier below prime credit quality. Prime mortgage loans are residential mortgage loans that are considered to have the most stringent underwriting standards within the non-agency mortgage market, but do not carry any credit guarantee from either a U.S. government agency or GSE. These loans were originated during a period when underwriting standards were generally weak and housing prices have dropped significantly subsequent to their origination. As a result, there is still material credit risk embedded in these vintages. Alt-A, or alternative A-paper, mortgage loans are considered riskier than prime mortgage loans and less risky than sub-prime mortgage loans and are typically characterized by borrowers with less than full documentation, lower credit scores, higher loan-to-value ratios and a higher percentage of investment properties. The mortgages underlying our prime / Alt-A non-agency securities have both floating-rate and fixed-rate coupons, with weighted average coupons ranging from 3% to 6%. These securities are generally rated below investment grade as of March 31, 2012 and December 31, 2011.

Option ARM non-agency securities have origination and underwriting characteristics similar to Alt-A securities, with the added feature of providing underlying mortgage borrowers the option, within certain constraints, to make lower payments than otherwise required by the stated interest rate for a number of years, leading to negative amortization and increased loan balances. This additional feature can increase the credit risk of these securities. Our option ARM securities are rated below investment grade as of March 31, 2012 and December 31, 2011.

Re-REMIC non-agency securities as of March 31, 2012 and December 31, 2011 are resecuritizations of real estate mortgage investment conduits ("REMICs"), and are backed by non-agency securities originally issued between 2005 and 2007 that are generally backed by residential mortgage loans of poor credit quality, with floating rate coupons averaging 3% to 5%. The underlying REMIC non-agency securities were resecuritized during 2011 and 2012 to add an additional layer of credit enhancement. The Re-REMIC securities have not been rated by credit rating agencies as of March 31, 2012 and December 31, 2011.

Subprime non-agency securities as of March 31, 2012 and December 31, 2011include floating rate, senior tranches in securitization trusts that are currently rated below investment grade. These securities are collateralized by residential mortgages

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originated during 2006 and 2007 that were originally considered to be of lower credit quality. The underlying residential mortgages have both floating-rate and fixed-rate weighted-average coupons ranging from 5% to 8% as of March 31, 2012 and December 31, 2011.

Pledged Assets

Non-agency securities with fair value of $79.2 million and $8.6 million were pledged as collateral under repurchase agreements with a remaining maturity of less than 30 days, as of March 31, 2012 and December 31, 2011, respectively. Additionally, as of March 31, 2012 and December 31, 2011, there are non-agency securities with a fair value of $51.8 million and $50.2 million, respectively, underlying Linked Transactions.

Note 6. Repurchase Agreements

We pledge certain of our securities as collateral under repurchase arrangements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. Interest rates on these borrowings are generally based on LIBOR plus or minus a margin and amounts available to be borrowed are dependent upon the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. In response to declines in fair value of pledged securities, lenders may require us to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as margin calls. As of March 31, 2012 and December 31, 2011, we have met all margin call requirements. Repurchase agreements are carried at cost, which approximates fair value due to their short-term nature.

The following tables summarize our borrowings under repurchase arrangements and weighted average interest rates classified by original maturities as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	As of March 31, 2012					As of December 31, 2011
Original Maturity	Borrowings Outstanding		Weighted Average Interest Rate		Weighted Average Days to Maturity	Borrowings Outstanding		Weighted Average Interest Rate		Weighted Average Days to Maturity
Repurchase Agreements
30 days or less	$	809,081	0.43	%	18	$	77,073	0.40	%	10
31 - 60 days	704,460		0.38	%	23	346,201		0.43	%	19
61 - 90 days	703,285		0.37	%	42	372,217		0.39	%	31
91 - 180 days	1,057,375		0.36	%	57	774,594		0.34	%	37
Greater than 180 days	293,197		0.45	%	137	136,196		0.48	%	209
Total / Weighted Average	$	3,567,398	0.39	%	45	$	1,706,281	0.38	%	45
Repurchase Agreements Underlying Linked Transactions
30 days or less	$	11,176	2.17	%	16	$	9,509	2.04	%	$	14
31 - 60 days	18,224		1.96	%	12	13,397		1.98	%	8
61 - 90 days	6,165		2.25	%	45	2,857		2.36	%	18
91 - 180 days	—		—	%	—	10,791		2.07	%	47
Total / Weighted Average	$	35,565	2.06	%	19	$	36,554	2.05	%	$	22

As of March 31, 2012, we had repurchase agreements with 24 financial institutions. In addition, less than 8% of our equity at risk was with any one counterparty as of March 31, 2012 compared to 6% as of December 31, 2011, with the top five counterparties representing less than 22% of our equity at risk as of March 31, 2012 compared to 21% as of December 31, 2011.

We had agency securities with fair values of $3.7 billion and $1.5 billion and non-agency securities with fair values of $79.2 million and $8.6 million, respectively, as of March 31, 2012 and December 31, 2011, pledged as collateral against our repurchase agreements. Agency securities pledged do not include pledged amounts of $72.8 million and $269.5 million under repurchase agreements related to agency securities sold but not yet settled as of March 31, 2012 and December 31, 2011, respectively.

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Note 7. Derivatives

In connection with our risk management strategy, we economically hedge a portion of our exposure to market risks, including interest rate risk and prepayment risk, by entering into derivative and other hedging instrument contracts. We may enter into agreements for interest rate swap agreements, interest rate swaptions, interest rate cap or floor contracts and futures or forward contracts. We may also purchase or short TBA and U.S. Treasury securities, purchase or write put or call options on TBA securities or we may invest in other types of derivative securities, including interest-only securities, synthetic total return swaps and credit default swaps. Our risk management strategy attempts to manage the overall risk of the portfolio and reduce fluctuations in book value. We do not use derivative or other hedging instruments for speculative purposes. Derivatives have not been designated as hedging instruments. We do not offset our derivatives and related cash collateral with the same counterparties under any master netting arrangements. For additional information regarding our derivative instruments and our overall risk management strategy, please refer to the discussion of derivatives in Note 3- Summary of Significant Accounting Policies.

The following table summarizes information about our outstanding derivatives as of March 31, 2012 (in thousands):

Derivatives	Beginning Notional Amount			Additions/ Long Positions		Expirations/ Terminations/ Short Positions		Ending Notional Amount			Unrealized Gain (Loss) on Other Derivatives and Securities, net			Realized Gain (Loss) on Other Derivatives and Securities, Net			Realized Loss on Periodic Settlements of Interest Rate Swaps			Unrealized Gain and  Net Interest Income on Linked Transactions, net
Interest rate swaps	$	875,000		1,315,000		—		$	2,190,000		$	(5,271	)	$	—		$	(1,041	)	$	—
Interest rate swaptions	$	50,000		350,000		—		$	400,000		(413		)	—			—			—
TBA securities	$	(101,000	)	(1,397,000	)	1,135,600		$	(362,400	)	(2,056		)	(2,936		)	—			—
Short sales of U.S. Treasuries	$	(50,000	)	(1,101,000	)	1,028,000		$	(123,000	)	955			3,763			—			—
U.S. Treasuries	$	—		50,168		(50,168	)	$	—		—			(265		)	—			—
Linked Transactions (1)	$	88,671		10,254		(11,967	)	$	86,958		—			—			—			3,384
											$	(6,785	)	$	562		$	(1,041	)	$	3,384

————————

⁽¹⁾ The notional amount of Linked Transaction is represented by the current face amount of the underlying securities.

The table below presents fair value information about our derivatives outstanding as of March 31, 2012 and December 31, 2011(in thousands):

Derivative Type	Location on the Balance Sheet	As of March 31, 2012		As of December 31, 2011
Interest rate swaps	Derivative assets, at fair value	$	1,043	$	348
Interest rate swaptions	Derivative assets, at fair value	4,224		828
TBA securities	Derivative assets, at fair value	911		669
Derivative assets, at fair value		$	6,178	$	1,845
Interest rate swaps	Derivative liabilities, at fair value	$	7,990	$	3,734
TBA securities	Derivative liabilities, at fair value	4,276		1,935
Derivative liabilities, at fair value		$	12,266	$	5,669

Interest Rate Swap Agreements

As of March 31, 2012 and December 31, 2011, our derivative and other hedging instruments included interest rate swaps, which have the effect of modifying the repricing characteristics of our repurchase agreements and cash flows on such liabilities. Our interest rate swaps are used to manage the interest rate risk created by our variable rate short-term repurchase agreements. Under our interest rate swaps, we typically pay a fixed-rate and receive a floating rate based on LIBOR with terms usually ranging up to ten years.

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As of March 31, 2012 and December 31, 2011, we had interest rate swap agreements summarized in the tables below (dollars in thousands).

		As of March 31, 2012					As of December 31, 2011
Interest Rate Swaps	Balance Sheet Location	Notional Amount		Net Estimated Fair Value			Notional Amount		Net Estimated Fair Value
Interest rate swap assets	Derivative assets, at fair value	$	250,000	$	1,043		$	200,000	$	348
Interest rate swap liabilities	Derivative liabilities, at fair value	1,940,000		(7,990		)	675,000		(3,734		)
		$	2,190,000	$	(6,947	)	$	875,000	$	(3,386	)

As of March 31, 2012
Current Maturity Date for Interest Rate Swaps (1)	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Net Estimated Fair Value			Weighted Average Maturity (Years)
2014	$	100,000	0.64	%	0.49	%	$	(16	)	2.4
2015	450,000		0.85	%	0.49	%	(944		)	3.2
2016	250,000		1.23	%	0.50	%	(1,737		)	4.3
2017	990,000		1.39	%	0.47	%	(3,558		)	5.1
2018	25,000		1.73	%	0.55	%	(217		)	6.6
2019	350,000		1.81	%	0.47	%	(379		)	7.0
2021	25,000		2.30	%	0.47	%	(96		)	9.6
Total / weighted average	$	2,190,000	1.31	%	0.48	%	$	(6,947	)	4.9

As of December 31, 2011
Current Maturity Date for Interest Rate Swaps (2)	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Net Estimated Fair Value			Weighted Average Maturity (Years)
2014	$	100,000	0.64	%	0.50	%	$	217		2.7
2015	450,000		0.85	%	0.48	%	(418		)	3.4
2016	250,000		1.23	%	0.47	%	(2,166		)	4.5
2018	25,000		1.73	%	0.43	%	(257		)	6.8
2019	25,000		1.83	%	0.58	%	(494		)	7.1
2021	25,000		2.30	%	0.58	%	(268		)	9.9
Total / weighted average	$	875,000	1.03	%	0.48	%	$	(3,386	)	4.0

————————

⁽¹⁾  Includes swaps with an aggregate notional of $1.3 billion, with deferred start dates ranging from one to two months from March 31, 2012.

⁽²⁾  Includes swaps with an aggregate notional of $50.0 million, with deferred start dates ranging from two to five months from December 31, 2011.

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Interest Rate Swaption Agreements

Our interest rate swaption agreements provide us the option to enter into interest rate swap agreements in the future where we would pay a fixed rate and receive LIBOR. The following table presents certain information about our interest rate swaption agreements as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	Option					Underlying Swap
	Cost		Fair Value		Weighted Average Years to Expiration	Notional Amount		Pay Rate		Average Term (Years)
As of March 31, 2012	$	4,693	$	4,224	0.7	$	400,000	2.65	%	8.6
As of December 31, 2011	$	884	$	828	0.8	$	50,000	2.81	%	10.8

TBA Securities

As of March 31, 2012, and December 31, 2011, we had contracts to purchase (“long position”) and sell (“short position”) TBA securities on a forward basis. Following is a summary of our long and short TBA positions as of March 31, 2012 and December 31, 2011 (in thousands):

	As of March 31, 2012						As of December 31, 2011
Purchase and Sale Contracts for TBA Securities	Notional  Amount			Fair Value			Notional  Amount			Fair Value
Purchase of TBA securities	$	315,000		$	911		$	234,000		$	669
Sale of TBA securities	(677,400		)	(4,276		)	(335,000		)	(1,935		)
Total, net	$	(362,400	)	$	(3,365	)	$	(101,000	)	$	(1,266	)

Additionally, we had obligations to return treasury securities borrowed under reverse repurchase agreements accounted for as securities borrowing transactions with fair values of $121.9 million and $50.2 million, as of March 31, 2012 and December 31, 2011, respectively. The borrowed securities were collateralized by cash payments of $123.0 million and $50.6 million as of March 31, 2012 and December 31, 2011, respectively, which are presented as receivables under reverse repurchase agreements on the consolidated balance sheet. The change in fair value of the borrowed securities is recorded in unrealized gain (loss) on other derivatives and securities, net in our consolidated statement of operations.

Linked Transactions

Our Linked Transactions are evaluated on a combined basis, reported as forward (derivative) instruments and are reported on our consolidated balance sheets at fair value.  The fair value of Linked Transactions reflect the value of the underlying non-agency securities, net of repurchase agreement borrowings and accrued interest receivable and payable on such instruments.  The change in the fair value of our Linked Transactions is reported as unrealized gain and net interest income on linked transactions, net, a component of other gains, net in our consolidated statements of operations.

The following table presents the non-agency securities and repurchase agreements underlying our Linked Transactions at March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012			December 31, 2011
Linked non-agency securities (1)	$	51,845		$	50,193
Linked repurchase agreements	(35,565		)	(36,554		)
Accrued interest (payable) receivable, net	(39		)	32
Linked Transactions, at fair value	$	16,241		$	13,671

————————

⁽¹⁾ See Note 5 - Non-Agency Securities for a description of the non-agency securities within Linked Transactions and Note 6- Repurchase Agreements for a description of the repurchase agreements within Linked Transactions.

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The following table presents unrealized loss and net interest income on linked transactions for the three months ended March 31, 2012 (in thousands):

Coupon interest income	$	302
Discount accretion	590
Interest expense	(183		)
Unrealized gain, net (1)	2,675
Unrealized gain and net interest income on linked transactions, net	$	3,384

————————

⁽¹⁾  Unrealized net gain of $2.7 million on non-agency securities underlying Linked Transactions is comprised of $2.8 million gross unrealized gain and $0.1 million gross unrealized loss.

Credit Risk-Related Contingent Features

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties. In addition, we may be required to pledge assets as collateral for our derivatives, whose amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by a counterparty, we may not receive payments provided for under the terms of our derivative agreements, and may have difficulty obtaining our assets pledged as collateral for our derivatives. The cash and cash equivalents pledged as collateral for our derivative instruments is included in restricted cash and cash equivalents on our consolidated balance sheets.

Each of our ISDA Master Agreements contains provisions pursuant to which we are required to fully collateralize our obligations under the swap instrument if at any point the fair value of the swap represents a liability greater than the minimum transfer amount contained within our ISDA Master Agreements. We were also required to post initial collateral upon execution of certain of our swap transactions. If we breach any of these provisions, we will be required to settle our obligations under the agreements at their termination values.

Further, each of our ISDA Master Agreements also contains a cross default provision under which a default under certain of our other indebtedness in excess of a certain threshold causes an event of default under the agreement. Threshold amounts vary by lender. Following an event of default, we could be required to settle our obligations under the agreements at their termination values. Additionally, under certain of our ISDA Master Agreements, we could be required to settle our obligations under the agreements at their termination values if we fail to maintain either our REIT status or certain minimum stockholders’ equity thresholds, or comply with limits on our leverage above certain specified levels.

We had agency securities with fair values of $7.5 million and $4.1 million and restricted cash and cash equivalents of $7.8 million and $3.1 million pledged as collateral against our interest rate swaps as of March 31, 2012 and December 31, 2011, respectively.

Note 8. Fair Value Measurements

We have elected the option to account for all of our financial assets, including mortgage-backed securities, at fair value, with changes in fair value reflected in income during the period in which they occur. We have determined that this presentation will most appropriately represent our financial results and position. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the assumptions market participants would use when pricing an asset or liability.

We determine the fair value of our agency and non-agency securities including securities held as collateral, based upon fair value estimates obtained from multiple third party pricing services and dealers. In determining fair value, third party pricing sources use various valuation approaches, including market and income approaches. Factors used by third party sources in estimating the fair value of an instrument may include observable inputs such as recent trading activity, credit data, volatility statistics, and other market data that are current as of the measurement date. The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. Third party pricing sources may also use certain unobservable inputs, such as assumptions of future levels of prepayment, default and loss severity, especially when estimating fair values for securities with lower levels of recent trading activity. When possible, we hold conversations with third party pricing sources to understand their use of significant inputs and assumptions.

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We review the various third party fair value estimates and perform procedures to validate their reasonableness, including an analysis of the range of third party estimates for each position, comparison to recent trade activity for similar securities, and our manager's review for consistency with market conditions observed as of the measurement date. While we do not adjust prices we obtain from third party pricing sources, we will exclude third party prices for securities from our determination of fair value if we determine (based on our validation procedures and our manager's market knowledge and expertise) that the price is significantly different than observable market data would indicate and we cannot obtain an understanding from the third party source as to the significant inputs used to determine the price.

We utilize a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. We use the results of the validation procedures described above as part of our determination of the appropriate fair value measurement hierarchy classification. The three levels of hierarchy are defined as follows:

• Level 1 Inputs -    Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are accessible at the measurement date.

• Level 2 Inputs -    Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

• Level 3 Inputs -    Significant unobservable market inputs that are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities.

The following table presents our financial instruments carried at fair value as of March 31, 2012 and December 31, 2011, on the consolidated balance sheet by the valuation hierarchy, as described above (in thousands):

	As of March 31, 2012
	Level 1		Level 2		Level 3		Total
Assets
Agency securities	$	—	$	3,844,747	$	—	$	3,844,747
Non-agency securities	—		112,767		16,174		128,941
Linked transactions	—		13,841		2,400		16,241
Derivative assets	—		6,178		—		6,178
Total financial assets	$	—	$	3,977,533	$	18,574	$	3,996,107
Liabilities
Derivative liabilities	$	—	$	12,266	$	—	$	12,266
Total financial liabilities	$	—	$	12,266	$	—	$	12,266

	As of December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Agency securities	$	—	$	1,740,091	$	—	$	1,740,091
Non-agency securities	—		19,592		5,969		25,561
Linked transactions	—		11,925		1,746		13,671
Derivative assets	—		1,845		—		1,845
Total financial assets	$	—	$	1,773,453	$	7,715	$	1,781,168
Liabilities
Derivative liabilities	$	—	$	5,669	$	—	$	5,669
Total financial liabilities	$	—	$	5,669	$	—	$	5,669

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There were no transfers between hierarchy levels during the period ended March 31, 2012. The following table presents a summary of the changes in fair value for the three months ended March 31, 2012 of Level 3 assets carried at fair value as of March 31, 2012 (dollars in thousands):

	As of March 31, 2012
	Non-Agency Securities		Linked Transactions		Total
Balance as of December 31, 2011	$5,969		$1,746		$7,715
Unrealized gain	740		827		1,567
Unrealized loss	(401	)	—		(401	)
Total unrealized gain, net (1)	339		827		1,166
Purchases of securities	9,945		—		9,945
Principal repayments on securities	(345	)	(291	)	(636	)
Net change in borrowings on repurchase agreements underlying Linked Transactions	—		(48	)	(48	)
Discount accretion	266		159		425
Accrued interest on Linked Transactions	—		7		7
Balance as of March 31, 2012	$16,174		$2,400		$18,574

—————— 

⁽¹⁾ All unrealized gains and (losses) are recorded on the consolidated statement of operations.

Our agency securities and prime / Alt-A, option ARM and re-remic non-agency securities are valued using the various market data described above, which include inputs determined to be observable or whose significant value drivers are observable. Accordingly, our agency securities and prime / Alt-A, option ARM and re-remic non-agency securities are classified as Level 2 in the fair value hierarchy. While our subprime non-agency securities are valued using the same process with similar inputs, a significant amount of inputs have been determined to be unobservable due to relatively low levels of market activity. Accordingly, our subprime non-agency securities are classified as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of our level 3 assets include, prepayment rates, default rates, loss severities in the event of default, and discount rates. A change in any of these individual inputs could result in a change in fair value measurement of our level 3 assets. However, a change in an individual assumption is likely to be at least partially mitigated by offsetting changes in other assumptions.

The fair value of Linked Transactions is comprised of the fair value of the underlying securities, reduced by the repurchase agreement final settlement amount.  The fair value of Linked Transactions also includes accrued interest receivable on the non-agency securities and accrued interest payable on the underlying repurchase agreement borrowings. The non-agency securities underlying our Linked Transactions are valued using similar techniques to those used for our other non-agency securities, and as such, Linked Transactions are classified in the fair value hierarchy, based on the classification of the underlying category of non-agency securities.

We determine the fair value of our interest rate swaps and other derivatives considering valuations obtained from a third party pricing service and such valuations are tested with internally developed models that apply readily observable market parameters. In valuing our derivatives, we consider both our counterparties' and our creditworthiness, along with collateral provisions contained in each derivative agreement.  No credit valuation adjustments are made in determining the fair value for derivative agreements subject to bilateral collateral arrangements.  Our interest rate swaps and other derivatives are classified as Level 2 in the fair value hierarchy.

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Note 9. Stockholders’ Equity

Equity Offerings

During the three months ended March 31, 2012, we completed one follow-on public offering of shares of our common stock summarized in the table below (in thousands, except per share data):

Public Offering	Price Received per Share	Shares	Proceeds Net of Offering Costs
March 2012	$21.55	12,000	$258,321

In April 2012, our underwriters exercised their over-allotment option related to our March 2012 equity offering and we sold 1.6 million shares of our common stock for net proceeds of $34.5 million.

Dividends

During three months ended March 31, 2012, we declared dividends of $0.90 per share payable on April 27, 2012 to stockholders of record on March 15, 2012.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers of American Capital Mortgage Investment Corp.’s ("MTGE", the “Company”, “we”, “us” and “our”) consolidated financial statements a narrative from the perspective of management, and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2011. Our MD&A is presented in five sections:

• Executive Overview

• Financial Condition

• Results of Operations

• Liquidity and Capital Resources

• Forward-Looking Statements

EXECUTIVE OVERVIEW

We were incorporated in Maryland on March 15, 2011 and commenced operations on August 9, 2011 following the completion of our IPO. We invest in, finance and manage a leveraged portfolio of mortgage-related investments, which we define to include agency mortgage investments, non-agency mortgage investments and other mortgage-related investments. Agency mortgage investments include residential mortgage pass-through certificates and collateralized mortgage obligations (“CMOs”) structured from residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government-sponsored entity (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or by a U.S. Government agency, such as the Government National Mortgage Association ("Ginnie Mae”). Non-agency mortgage investments include residential mortgage-backed securities (“RMBS”) backed by residential mortgages that are not guaranteed by a GSE or U.S. Government agency. Non-agency mortgage investments may also include prime and non-prime residential mortgage loans. Other mortgage-related investments may include commercial mortgage-backed securities (“CMBS”), commercial mortgage loans, mortgage-related derivatives and other mortgage-related investments.

We operate so as to qualify to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As such, we will be required to distribute annually 90% of our taxable net income. As long as we qualify as a REIT, we will generally not be subject to U.S. federal or state corporate taxes on our taxable net income to the extent that we distribute all of our annual taxable net income to our stockholders.

We are externally managed by American Capital MTGE Management, LLC (our “Manager”), an affiliate of American Capital, Ltd. ("American Capital"). We do not have any employees.

Our Investment Strategy

Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term through a combination of dividends and net book value appreciation. In pursuing this objective, we rely on our Manager's expertise to construct and manage a diversified mortgage investment portfolio by identifying asset classes that, when properly financed and hedged, are designed to produce attractive returns across a variety of market conditions and economic cycles, considering the risks associated with owning such investments. Specifically, our investment strategy is designed to:

• manage a leveraged portfolio of mortgage-related investments to generate attractive risk-adjusted returns;

• capitalize on discrepancies in the relative valuations in the mortgage-related investments market;

• manage financing, interest, prepayment rate and credit risks;

• preserve our net asset value within reasonable bands;

• provide regular quarterly distributions to our stockholders;

• qualify as a REIT; and

• remain exempt from the requirements of the Investment Company Act.

The size and composition of our investment portfolio depends on investment strategies implemented by our Manager, the availability of investment capital and overall market conditions, including the availability of attractively priced investments

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and suitable financing to appropriately leverage our investment portfolio. Market conditions are influenced by, among other things, current levels of and expectations for future levels of, interest rates, mortgage prepayments, market liquidity, housing prices, unemployment rates, general economic conditions, government participation in the mortgage market, evolving regulations or legal settlements that impact servicing practices or other mortgage related activities.

Trends and Recent Market Impacts

Movements in interest rates impact the value of our securities and the amount of income we can generate from our portfolio of investments. Accordingly, one of the primary goals of our hedging activities is to protect our net asset value against significant fluctuations due to market risks, including interest rate and prepayment risk. We utilize a variety of strategies to aid us in this objective, which are summarized in Notes 3 and 7 of the accompanying consolidated financial statements.

The table below summarizes interest rates and prices of generic, fixed rate, agency securities as of March 31, 2012 and December 31, 2011.

Interest Rate/Security (1)	March 31, 2012	December 31, 2011	Change
LIBOR:
1-Month	0.24%	0.30%	(0.06)%
3-Month	0.47%	0.58%	(0.11)%
U.S. Treasury Securities:
2-Year U.S. Treasury	0.33%	0.24%	0.09%
5-Year U.S. Treasury	1.04%	0.83%	0.21%
10-Year U.S. Treasury	2.21%	1.88%	0.33%
Interest Rate Swap Rates:
2-Year Swap Rate	0.58%	0.73%	(0.15)%
5-Year Swap Rate	1.27%	1.22%	0.05%
10-Year Swap Rate	2.29%	2.03%	0.26%
30-Year Fixed Rate MBS Price
3.5%	102.72	102.88	(0.16)
4.0%	104.86	105.03	(0.17)
4.5%	106.38	106.42	(0.04)
15-Year Fixed Rate MBS Price
3.0%	103.56	103.28	0.28
3.5%	104.92	104.58	0.34
4.0%	106.00	105.50	0.50

 ________________________

⁽¹⁾  Price information is for generic instruments only and is not reflective of our specific portfolio holdings. Price information can vary by source. Prices in the table above obtained from a combination of Bloomberg and dealer indications. Interest rates obtained from Bloomberg.

Our Manager currently views maintaining a portfolio of securities with favorable prepayment characteristics (such as lower loan balance and HARP securities) and lower coupons as beneficial to returns in the current market and to maintaining reasonable performance in a variety of potential market scenarios. However, our Manager may reposition the portfolio if market conditions or valuations change. A summary of our MBS portfolio composition as of March 31, 2012 is included below under Financial Condition. As of March 31, 2012, our agency portfolio had a weighted average coupon of 3.60%, compared to 4.01% as of December 31, 2011. The table below summarizes the constant prepayment rates ("CPR") for our portfolio compared to the Fannie Mae and Freddie Mac fixed rate universe for the quarter ended March 31, 2012 and December 31, 2011.

Annualized Monthly Actual Constant Prepayment Rates	January 2012	February 2012	March 2012
Agency securities (1)	4%	6%	7%
Fannie Mae and Freddie Mac fixed rate universe (2)	23%	22%	24%

 ________________________

⁽¹⁾  Weighted average actual one-month annualized CPR released at the beginning of the month based on securities held as of the preceding month-end.

⁽²⁾  Source: JP Morgan

As of March 31, 2012, the weighted average projected prepayment rate on our agency portfolio was 7%, a decrease from 11% as of December 31, 2011. This decrease was primarily due to a combination of an increase in interest rates during the three months ended March 31, 2012, changes in our portfolio composition during the period and changes in our underlying prepayment model assumptions to reflect prepayment behaviors observed in the current market.

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The non-agency market environment showed significant signs of improvement with broad market participation during the three months ended March 31, 2012, as compared to the end of 2011. However, trading volumes remain below those experienced during the first half of 2011, and non-agency security liquidity remains a concern. While market sentiment concerning the general housing market has improved, we believe that any housing recovery will be uneven across the country and are cognizant that other events, such as additional U.S. regulatory actions or further economic weakness in Europe could have a material negative impact on the market for non-agency securities. As such, we will continue our selective approach to increasing our non-agency portfolio.

Summary of Critical Accounting Estimates

Our critical accounting estimates relate to the fair value of our investments, recognition of interest income, and derivatives. Certain of these items involve estimates that require management to make judgments that are subjective in nature. We rely on our Manager's experience and analysis of historical and current market data in order to arrive at what we believe to be reasonable estimates. Under different conditions, we could report materially different amounts using these critical accounting policies. All of our critical accounting policies are fully described in our MD&A in our Annual Report on Form 10-K for the year ended December 31, 2011. Our significant accounting policies are described in Note 3 to the consolidated financial statements included under Item 1 of this Quarterly Report on Form 10-Q.

We have elected the option to account for all of our financial assets, including all mortgage-related investments, at fair value, with changes in fair value reflected in income during the period in which they occur. We believe this election more appropriately reflects the results of our operations for a particular reporting period, as financial asset fair value changes are presented in a manner consistent with the presentation and timing of the fair value changes of economic hedging instruments.

FINANCIAL CONDITION

The following analysis of our financial condition should be read in conjunction with our interim consolidated financial statements and the notes thereto. The table below presents our condensed consolidated balance sheet as of March 31, 2012 and December 31, 2011 (dollars in thousands, except per share amounts):

	March 31, 2012	December 31, 2011
Balance Sheet Data:
Total assets	4,304,289	2,170,322
Repurchase agreements	3,567,398	1,706,281
Total liabilities	3,824,842	1,961,521
Total stockholders’ equity	479,447	208,801
Net asset value per common share (1)	21.78	20.87

————————

⁽¹⁾  Net asset value per common share was calculated by dividing our total stockholders' equity by the number of our common shares outstanding.

The following table summarizes certain characteristics of our investment portfolio as of March 31, 2012 (dollars in thousands):

	As of March 31, 2012
	Par Value		Amortized Cost Basis		Fair Value		Weighted Average
							Coupon		Yield (1)
Fannie Mae	$	3,015,151	$	3,133,922	$	3,147,657	3.56	%	2.92	%
Freddie Mac	659,517		693,002		697,090		3.79	%	2.88	%
Total / weighted average	3,674,668		3,826,924		3,844,747		3.60	%	2.92	%
Non-agency securities	199,271		126,803		128,941		1.33	%	7.30	%
Total / weighted average	3,873,939		3,953,727		3,973,688		3.48	%	3.05	%
Non-agency securities underlying Linked Transactions	86,958		51,189		51,845		1.65	%	7.42	%
Total / weighted average	$	3,960,897	$	4,004,916	$	4,025,533	3.45	%	3.12	%

————————

⁽¹⁾  The weighted average agency security yield incorporates an average future constant prepayment rate assumption of 7% as of March 31, 2012 based on forward rates. For non-agency securities, the weighted average yield incorporates expected credit losses.

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The following tables summarize certain characteristics of our agency securities portfolio as of March 31, 2012 (dollars in thousands):

	As of March 31, 2012
	Par Value		Amortized Cost Basis		Fair Value		Weighted Average
							Coupon		Yield		Projected CPR
HARP (1)	$	854,859	$	900,337	$	903,301	3.93	%	3.15	%	7	%
Lower Loan Balance (2)	1,208,118		1,266,562		1,277,107		3.68	%	2.79	%	8	%
Other	1,611,691		1,660,025		1,664,339		3.37	%	2.92	%	7	%
Total	$	3,674,668	$	3,826,924	$	3,844,747	3.60	%	2.92	%	7	%

————————

⁽¹⁾  Home Affordable Refinance Program ("HARP") securities are defined as 100% refinance loans with original LTVs greater than or equal to 80% and less than or equal to 125%.

(2) Lower loan balance securities represent pools with maximum original loan balances less than or equal to $150 thousand.

	As of March 31, 2012
	Par Value		Amortized Cost Basis		Fair Value		Weighted Average
							Yield		Projected CPR
15-Year
2.5%	$	231,991	$	236,205	$	235,616	2.13	%	7	%
3.0%	452,407		468,980		469,354		2.25	%	8	%
3.5%	333,340		348,094		353,182		2.52	%	9	%
4.0%	208,294		220,549		224,485		2.59	%	11	%
4.5%	23,159		24,870		25,256		2.78	%	10	%
Total	$	1,249,191	$	1,298,698	$	1,307,893	2.37	%	9	%
20-Year
3.5%	$	223,300	$	231,116	$	232,729	2.92	%	6	%
4.0%	55,012		57,555		58,396		3.06	%	10	%
5.0%	48,997		53,178		53,127		3.46	%	8	%
Total	$	327,309	$	341,849	$	344,252	3.03	%	7	%
30-Year
3.5%	$	1,165,121	$	1,196,171	$	1,198,325	3.17	%	6	%
4.0%	714,974		755,580		756,443		3.23	%	7	%
4.5%	140,750		150,600		152,852		3.45	%	8	%
5.0%	77,323		84,026		84,982		3.52	%	10	%
Total	$	2,098,168	$	2,186,377	$	2,192,602	3.22	%	6	%

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The following table summarizes certain characteristics of our investment portfolio as of December 31, 2011 (dollars in thousands):

	As of December 31, 2011
	Par Value		Amortized Cost Basis		Fair Value		Weighted Average
							Coupon		Yield (1)
Fannie Mae	$	1,240,435	$	1,305,135	$	1,316,275	3.95	%	2.85	%
Freddie Mac	396,625		421,139		423,816		4.19	%	2.91	%
Total / weighted average	1,637,060		1,726,274		1,740,091		4.01	%	2.87	%
Non-agency securities	47,151		25,994		25,561		2.63	%	8.10	%
Total / weighted average	1,684,211		1,752,268		1,765,652		3.97	%	2.94	%
Non-agency securities underlying Linked Transactions	88,671		52,050		50,193		1.94	%	7.08	%
Total / weighted average	$	1,772,882	$	1,804,318	$	1,815,845	3.87	%	3.06	%

————————

⁽¹⁾  The weighted average agency security yield incorporates an average future constant prepayment rate assumption of 11% as of December 31, 2011 based on forward rates. For non-agency securities, the weighted average yield incorporates expected credit losses.

The following tables summarize certain characteristics of our agency securities portfolio as of December 31, 2011 (dollars in thousands):

	As of December 31, 2011
	Par Value		Amortized Cost Basis		Fair Value		Weighted Average
							Coupon		Yield		Projected CPR
HARP	$	499,893	$	532,847	$	538,146	4.45	%	3.22	%	12	%
Lower Loan Balance	755,632		795,894		802,579		3.83	%	2.69	%	10	%
Other	381,535		397,533		399,366		3.79	%	2.74	%	13	%
Total	$	1,637,060	$	1,726,274	$	1,740,091	4.01	%	2.85	%	11	%

	As of December 31, 2011
	Par Value		Amortized Cost Basis		Fair Value		Weighted Average
							Yield		Projected CPR
15-Year
3.0%	$	51,448	$	53,082	$	53,265	2.35	%	8	%
3.5%	327,883		342,475		345,563		2.50	%	10	%
4.0%	230,404		244,080		245,936		2.48	%	13	%
4.5%	23,735		25,524		25,654		2.64	%	12	%
Total	$	633,470	$	665,161	$	670,418	2.48	%	11	%
20-Year
3.5%	$	180,216	$	186,333	$	187,075	2.88	%	8	%
4.0%	58,001		60,679		61,133		2.24	%	26	%
5.0%	50,174		54,427		54,421		2.95	%	15	%
Total	$	288,391	$	301,439	$	302,629	2.70	%	13	%
30-Year
4.0%	301,996		316,231		318,918		3.21	%	10	%
4.5%	303,853		324,686		328,106		3.33	%	11	%
5.0%	109,350		118,757		120,020		3.25	%	16	%
Total	$	715,199	$	759,674	$	767,044	3.22	%	11	%

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Actual maturities of MBS are generally shorter than stated contractual maturities primarily as a result of prepayments of principal of the underlying mortgages. The stated contractual final maturity of the mortgage loans underlying our portfolio of securities ranges up to 40 years, but the expected maturity is subject to change based on the actual and expected future prepayments of the underlying loans.

In determining the estimated weighted average years to maturity and yields on our agency MBS, we estimate the percentage of outstanding principal that is prepaid over a period of time on an annualized basis, or constant prepayment rate (“CPR”), based on assumptions for each security using a combination of third-party services, market data and internal models. The third-party services estimate prepayment speeds using models that incorporate the forward yield curve, mortgage rates, current mortgage rates of the outstanding loans, loan age, volatility and other factors. We have estimated that the CPR over the remaining projected life of our aggregate agency investment portfolio is 7% and 11% as of March 31, 2012 and December 31, 2011, respectively. Based on these prepayment assumptions, the weighted average expected life of our agency securities was 7.3 years and 5.9 years as of March 31, 2012 and December 31, 2011, respectively. We amortize or accrete premiums and discounts associated with purchases of our agency MBS into interest income over the estimated life of our securities based on projected CPRs, using the effective yield method. Since the weighted average cost basis of our agency MBS portfolio was 104.1% of par value as of March 31, 2012, slower actual and projected prepayments can have a meaningful positive impact on our asset yields, while faster actual or projected prepayments can have a meaningful negative impact on our asset yields.

The following table summarizes our agency securities at fair value, according to their estimated weighted average life classifications as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	As of March 31, 2012						As of December 31, 2011
Weighted Average Life	Fair Value		Amortized Cost		Weighted Average Yield		Fair Value		Amortized Cost		Weighted Average Yield
Greater than one year and less than or equal to three years	—		—		—	%	55,582		55,260		2.17	%
Greater than three years and less than or equal to five years	282,266		277,754		2.56	%	425,251		422,406		2.49	%
Greater than five years	3,562,481		3,549,170		2.94	%	1,259,258		1,248,608		3.02	%
Total / weighted average	$	3,844,747	$	3,826,924	2.92	%	$	1,740,091	$	1,726,274	2.87	%

Estimated weighted average yields on our non-agency MBS are based on our estimate of the timing and amount of future cash flows and our cost basis. Our cash flow estimates for these investments are based on our observations of current information and events and include assumptions related to interest rates, prepayment rates and the timing and amount of credit losses and other factors. The following table summarizes our non-agency securities (including those underlying Linked Transactions) at fair value, according to their estimated weighted average life classifications as of March 31, 2012 and December 31, 2011 (dollars in thousands): 

	As of March 31, 2012						As of December 31, 2011
Weighted Average Life	Fair Value		Amortized Cost		Weighted Average Yield		Fair Value		Amortized Cost		Weighted Average Yield
Less than or equal to five years	$	24,321	$	23,405	7.49	%	$	12,394	$	12,423	6.25	%
Greater than five years and less than or equal to seven years	132,896		131,087		7.40	%	63,360		65,621		7.64	%
Greater than seven years	23,569		23,500		6.83	%	—		—		—	%
Total/ weighted average (1)	$	180,786	$	177,992	7.34	%	$	75,754	$	78,044	7.42	%

————————

(1) The fair value of non-agency securities as of March 31, 2012 and December 31, 2011includes $51.8 million and $50.2 million of non-agency securities that are stated net of $35.6 million and $36.6 million in repurchase agreement funding on the consolidated balance sheet as Linked Transactions, at fair value of $16.2 million and $13.7 million, respectively.

Our non-agency securities are subject to risk of loss with regard to principal and interest payments and as of March 31, 2012 and December 31, 2011 have generally either been assigned below investment grade ratings by rating agencies, or have not been rated. We evaluate each investment based on the characteristics of the underlying collateral and securitization structure, rather than relying on the ratings assigned by rating agencies. Our non-agency securities (including non-agency

27

securities underlying Linked Transactions) had weighted average credit enhancements of 19% and 14%, as of March 31, 2012 and December 31, 2011, respectively. These securities were collateralized by mortgages with weighted average amortized loan to value ratios of 73% and 71%, as of March 31, 2012 and December 31, 2011, respectively. However, as the home values associated with these mortgages have generally experienced significant price declines since origination and the loan to value ratios are calculated based on the original home values, we believe that current market-based loan to value ratios would be significantly higher. Additionally, 24% and 25% of the mortgages underlying these securities, as of March 31, 2012 and December 31, 2011, respectively, are either 60 or more days delinquent, undergoing foreclosure or bankruptcy processes, or held as real estate owned by the trusts.

As of March 31, 2012 and December 31, 2011, we had repurchase agreements with 24 and 22 financial institutions, respectively, including repurchase agreements within Linked Transactions. In addition, less than 8% of our equity at risk was with any one counterparty as of March 31, 2012 compared to 6% as of December 31, 2011, with the top five counterparties representing less than 22% of our equity at risk as of March 31, 2012 compared to 21% as of December 31, 2011.

	As of March 31, 2012					As of December 31, 2011
Original Maturity	Borrowings Outstanding		Weighted Average Interest Rate		Weighted Average Days to Maturity	Borrowings Outstanding		Weighted Average Interest Rate		Weighted Average Days to Maturity
Repurchase Agreements
30 days or less	$	809,081	0.43	%	18	$	77,073	0.40	%	10
31 - 60 days	704,460		0.38	%	23	346,201		0.43	%	19
61 - 90 days	703,285		0.37	%	42	372,217		0.39	%	31
91 - 180 days	1,057,375		0.36	%	57	774,594		0.34	%	37
Greater than 180 days	293,197		0.45	%	137	136,196		0.48	%	209
Total / Weighted Average	$	3,567,398	0.39	%	45	$	1,706,281	0.38	%	45
Repurchase Agreements Underlying Linked Transactions
30 days or less	$	11,176	2.17	%	16	$	9,509	2.04	%	14
31 - 60 days	18,224		1.96	%	12	13,397		1.98	%	8
61 - 90 days	6,165		2.25	%	45	2,857		2.36	%	18
91 - 180 days	—		—	%	—	10,791		2.07	%	47
Total / Weighted Average	$	35,565	2.06	%	19	$	36,554	2.05	%	22

As of March 31, 2012 and December 31, 2011, we had interest rate swap agreements outstanding where we pay a fixed rate and receive a floating rate based on LIBOR, summarized in the tables below (dollars in thousands):

As of March 31, 2012
Current Maturity Date for Interest Rate Swaps (1)	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Net Estimated Fair Value			Weighted Average Maturity (Years)
2014	$	100,000	0.64	%	0.49	%	$	(16	)	2.4
2015	450,000		0.85	%	0.49	%	(944		)	3.2
2016	250,000		1.23	%	0.50	%	(1,737		)	4.3
2017	990,000		1.39	%	0.47	%	(3,558		)	5.1
2018	25,000		1.73	%	0.55	%	(217		)	6.6
2019	350,000		1.81	%	0.47	%	(379		)	7.0
2021	25,000		2.30	%	0.47	%	(96		)	9.6
Total / weighted average	$	2,190,000	1.31	%	0.48	%	$	(6,947	)	4.9

————————

⁽¹⁾  Includes swaps with an aggregate notional of $1.3 billion, with deferred start dates ranging from one month to two months from March 31, 2012.

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As of December 31, 2011
Current Maturity Date for Interest Rate Swaps (1)	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Net Estimated Fair Value			Weighted Average Maturity (Years)
2014	$	100,000	0.64	%	0.50	%	$	217		2.7
2015	450,000		0.85	%	0.48	%	(418		)	3.4
2016	250,000		1.23	%	0.47	%	(2,166		)	4.5
2018	25,000		1.73	%	0.43	%	(257		)	6.8
2019	25,000		1.83	%	0.58	%	(494		)	7.1
2021	25,000		2.30	%	0.58	%	(268		)	9.9
Total / weighted average	$	875,000	1.03	%	0.48	%	$	(3,386	)	4.0

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⁽¹⁾  Includes swaps with an aggregate notional of $50.0 million, with deferred start dates ranging from two to five months from December 31, 2011.

The following table presents certain information about our interest rate swaption agreements at March 31, 2012 and December 31, 2011(dollars in thousands):

	Option					Underlying Swap
	Cost		Fair Value		Weighted Average Years to Expiration	Notional Amount		Pay Rate		Average Term (Years)
As of March 31, 2012	$	4,693	$	4,224	0.7	$	400,000	2.65	%	8.6
As of December 31, 2011	$	884	$	828	0.8	$	50,000	2.81	%	10.8

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RESULTS OF OPERATIONS

The following analysis of our results of operations should be read in conjunction with our interim consolidated financial statements and the notes thereto. The table below presents our consolidated statement of operations for the three months ended March 31, 2012 (dollars in thousands, except per share amounts):

Interest income:
Agency securities	$	15,306
Non-agency securities	1,271
Other	25
Interest expense	(1,664		)
Net interest income	14,938
Other gains (losses):
Realized gain on agency securities, net	5,971
Realized loss on periodic settlements of interest rate swaps, net	(1,041		)
Realized gain on other derivatives and securities, net	562
Unrealized gain on agency securities, net	4,006
Unrealized gain on non-agency securities, net	2,411
Unrealized gain and net interest income on linked transactions, net	3,384
Unrealized loss on other derivatives and securities, net	(6,785		)
Total other gains, net	8,508
Expenses:
Management fees	1,082
General and administrative expenses	1,035
Total expenses	2,117
Income before excise tax	21,329
Excise tax	9
Net income	$	21,320
Net income per common share—basic and diluted	$	1.82

Interest Income and Asset Yield

Interest income of $16.6 millionfor the three months ended March 31, 2012 was comprised of the following (dollars in thousands):

Agency securities	$	15,306
Non-agency securities (1)	1,271
Other	25
Interest income	$	16,602

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⁽¹⁾  Interest income from non-agency securities of $1.3 million does not include $0.9 million of interest income related to Linked Transactions which is included in unrealized loss and net interest income on linked transactions, net on the consolidated statement of operations.

Our aggregate average asset yield was 3.36%for the three months ended March 31, 2012. For our agency investment portfolio, our average asset yield and average coupon were 3.11% and 3.84%, respectively, for the three months ended March 31, 2012. For our non-agency investment portfolio, including non-agency securities recorded as Linked Transactions, our average asset yield and average coupon were 8.05% and 1.62%, respectively, for the three months ended March 31, 2012.

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We amortize premiums and discounts associated with agency securities and non-agency securities of high credit quality into interest income over the life of such securities using the effective yield method. The effective yield (or asset yield) on our agency securities is based on actual CPRs realized for individual securities in our investment portfolio through the reporting date and assumes a CPR over the remaining projected life of our aggregate investment portfolio of 7% as of March 31, 2012. The actual CPR realized for individual agency securities in our investment portfolio was approximately 6%for the three months ended March 31, 2012.

Interest income from our agency securities for the three months ended March 31, 2012 is net of $2.7 million of net premium amortization expense. As of March 31, 2012, the amortized cost basis of our agency investments was 104.1% of par value and the unamortized premium balance of our aggregate agency portfolio was $152.3 million.

Leverage

Our leverage as of March 31, 2012 was 7.4x our stockholders’ equity. When adjusted for the net payables and receivables for unsettled securities and repurchase agreements underlying Linked Transactions, our leverage ratio was 7.6x our stockholders’ equity as of March 31, 2012. Our actual leverage will vary from time to time based on various factors, including our Manager’s opinion of the level of risk of our assets and liabilities, composition of our investment portfolio, our liquidity position, our level of unused borrowing capacity, over-collateralization levels required by lenders when we pledge securities to secure our borrowings and the current market value of our investment portfolio. In addition, certain of our master repurchase agreements and master swap agreements contain a restriction that prohibits our leverage from exceeding certain levels ranging from 10 to 12 times the amount of our stockholders' equity.

The table below presents our quarterly average and quarter end repurchase agreement balances outstanding and average leverage ratios for the three months ended March 31, 2012 and from commencement of operations on August 9, 2011 through December 31, 2011 (dollars in thousands):

	Repurchase Agreements (1)						Average Daily Interest Rate on Amounts Outstanding		Average Interest Rate on Ending Amount Outstanding		Average Leverage (2)	Leverage as of  Period End (3)	Adjusted Leverage as of Period End (4)
Period Ended	Average Daily Amount Outstanding		Maximum Daily Amount Outstanding		Ending Amount Outstanding
March 31, 2012	$	1,894,945	$	3,602,964	$	3,602,964	0.39	%	0.41	%	6.8x	7.4x	7.6x
December 31, 2011	$	1,516,506	$	1,743,886	$	1,742,835	0.40	%	0.42	%	7.5x	8.2x	8.0x
September 30, 2011	$	942,335	$	1,460,914	$	1,460,914	0.31	%	0.32	%	4.7x	7.3x	7.8x

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⁽¹⁾  Includes repurchase agreements within Linked Transactions, at fair value, on the consolidated balance sheet.

⁽²⁾  Average leverage for the period was calculated by dividing our daily weighted average repurchase agreements (including those within Linked Transactions) by our average month-ended stockholders’ equity for the period.

⁽³⁾  Leverage as of period end was calculated by dividing the amount outstanding under our repurchase agreements by our stockholders’ equity at period end.

⁽⁴⁾  Adjusted leverage as of period end was calculated by dividing the sum of the amounts outstanding under our repurchase agreements (including those within Linked Transactions) and net payables and receivables for unsettled securities by our total stockholders’ equity at period end.

Interest Expense and Cost of Funds

Interest expense of $1.7 millionfor the three months ended March 31, 2012 was comprised of interest expense on our repurchase agreements. We also incurred $0.2 million of expense for repurchase agreements reported as Linked Transactions, which is included in unrealized gain and net interest income on linked transactions, net on our consolidated statement of operations. In addition, we recorded $1.0 million of expense related to our interest rate swaps which is included in realized loss on periodic settlements of interest rate swaps, net, on our consolidated statement of operations.

For the three months ended March 31, 2012, including repurchase agreements underlying Linked Transactions, our average repurchase agreement balance outstanding was $1.9 billion with an average interest rate of 0.39%. Including the net impact of interest rate swaps, the cost of funds for the three months ended March 31, 2012 was 0.61%.

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Realized Gain on Securities, Net

The following table is a summary of our net realized gain on securities for the three months ended March 31, 2012 (dollars in thousands):

Proceeds from agency securities sold	$	571,428
Less decrease in receivable for agency securities sold	(198,598		)
Less agency securities sold, at cost	(366,859		)
Net realized gains on sale of agency securities	$	5,971
Gross realized gains on sale of agency securities	$	5,971
Gross realized losses on sale of agency securities	—
Net realized gains on sale of agency securities	$	5,971

Sales of securities are driven by our Manager’s execution of our active portfolio management strategy. Our strategy forthe period presented was largely focused on positioning our portfolio towards securities with attributes our Manager believes reduce the level of prepayment risk and overall exposure to interest rate risk in light of current and anticipated interest rates, federal government programs, general economic conditions and other factors.

Gain (Loss) on Derivatives and Other Securities, Net

The following table is a summary of our realized and unrealized gain (loss) on derivatives and other securities, net, for the three months ended March 31, 2012 (dollars in thousands):

Realized loss on periodic settlements of interest rate swaps, net	$	(1,041	)
Realized gain (loss) from other derivatives and securities:
TBA securities	$	(2,936	)
U.S Treasury securities sold short	3,763
U.S Treasury securities	(265		)
Total realized gain from other derivatives and securities, net	$	562
Unrealized gain (loss) from other derivatives and securities:
TBA securities	$	(2,056	)
Interest rate swaps	(5,271		)
Interest rate swaptions	(413		)
U.S Treasury securities sold short	955
Total unrealized loss from other derivatives and securities, net	$	(6,785	)
Unrealized gain and net interest income on Linked Transactions, net
Unrealized gain on Linked Transactions	$	2,675
Interest income on non-agency securities within Linked Transactions	892
Interest expense on repurchase agreements underlying Linked Transactions	(183		)
Total unrealized gain and net interest income on Linked Transactions, net	$	3,384

For further details regarding our derivatives and related hedging activity please refer to Notes 3 and 7 to our consolidated financial statements in this Quarterly Report on Form 10-Q.

Management Fees and General and Administrative Expenses

We pay our Manager a base management fee payable monthly in arrears in an amount equal to one twelfth of 1.50% of our Equity. Our Equity is defined as our month-end GAAP stockholders’ equity, adjusted to exclude the effect of any unrealized gains or losses included in retained earnings as computed in accordance with GAAP. There is no incentive compensation payable to our Manager pursuant to the management agreement. We incurred management fees of $1.1 millionfor the three months ended March 31, 2012.

General and administrative expenses were $1.0 millionfor the three months ended March 31, 2012. Our general and

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administrative expenses primarily consist of prime brokerage fees, information technology costs, research and data service fees, audit fees, Board of Director fees and insurance expenses.

Our total management fee and general and administrative expenses as a percentage of our average stockholders’ equity on an annualized basis was 3.0%for the three months ended March 31, 2012.

Dividends

For the three months ended March 31, 2012, we declared dividends of $0.90 per share. As a REIT, we are required to distribute annually 90% of our taxable income to maintain our status as a REIT and all of our taxable income to avoid Federal, state and local corporate income taxes. For the REIT distribution requirement, we can treat dividends declared by September 15 and paid by December 31 of the subsequent year as having been a distribution of our taxable income for our prior tax year. For excise tax purposes, dividends declared by December 31 and paid by January 31 are treated as having been a distribution of our taxable income for the prior tax year. As of March 31, 2012, we had an estimated $11.7 million (or $0.53 per share) of undistributed taxable income related to our 2012 tax year, net of the dividend payable as of March 31, 2012 of $9.0 million. Income as determined under GAAP differs from income as determined under tax rules because of both temporary and permanent differences in income and expense recognition. Examples include temporary differences related to unrealized gains and losses on derivative instruments and investment securities that are recognized in income for GAAP but are excluded from taxable income until realized or settled and temporary differences in the CPR used to amortize premiums or accrete discounts.

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Key Statistics

The table below presents key statistics for the three months ended March 31, 2012 (dollars in thousands, except per share amounts):

Ending agency securities, at fair value	$	3,844,747
Ending agency securities, at cost	$	3,826,924
Ending agency securities, at par	$	3,674,668
Average agency securities, at cost	$	1,967,996
Average agency securities, at par	$	1,872,616
Ending non-agency securities, at fair value (1)	$	180,786
Ending non-agency securities, at cost (1)	$	177,992
Ending non-agency securities, at par (1)	$	286,229
Average non-agency securities, at cost (1)	$	107,491
Average non-agency securities, at par (1)	$	182,900
Average total assets, at fair value	$	2,269,192
Average repurchase agreements (1)	$	1,894,945
Average stockholders' equity	$	279,490
Average coupon (2)	3.64		%
Average asset yield (3)	3.36		%
Average cost of funds (4)	0.61		%
Average net interest rate spread (5)	2.75		%
Average actual CPR for agency securities held during the period	5.7		%
Average projected life CPR for agency securities as of period end	7.3		%
Leverage (average during the period) (6)	6.8x
Leverage (as of period end) (7)	7.6x
Expenses % of average total assets (8)	0.37		%
Expenses % of average stockholders' equity (9)	3.01		%
Net book value per common share as of period end (10)	$	21.78
Dividends declared per common share	$	0.90
Net return on average stockholders' equity (11)	30.60		%

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⁽¹⁾  If the Company purchases investment securities and finances the purchase with a repurchase agreement with the same counterparty that is entered into simultaneously or in contemplation of the purchase, the purchase commitment and repurchase agreement are recorded net for GAAP purposes on the financial statements as a derivative (“Linked Transaction”). Fair value of non-agency securities includes $52 million and $50 million, respectively, of non-agency securities recorded as Linked Transactions as of March 31, 2012 and December 31, 2011. The repurchase agreement balances include repurchase agreement financing recorded as Linked Transactions of $36 million and $37 million, respectively, as of March 31, 2012 and December 31, 2011.

⁽²⁾  Weighted average coupon for the period was calculated by dividing the Company's total stated coupon on securities by the Company's daily weighted average securities held.

⁽³⁾  Weighted average asset yield for the period was calculated by dividing the Company's total interest income on securities including interest income of securities classified as Linked Transactions on the consolidated statement of operations by the Company's daily weighted average securities held including securities classified as Linked Transactions on the consolidated balance sheet.

⁽⁴⁾  Weighted average cost of funds for the period was calculated by dividing the sum of the Company's total interest expense, interest expense on repurchase agreements underlying Linked Transactions on the consolidated statement of operations and periodic settlements of interest rate swaps, by the Company's daily weighted average repurchase agreements for the period, including repurchase agreements classified as Linked Transactions on the consolidated balance sheet.

⁽⁵⁾  Average net interest rate spread for the period was calculated by subtracting the Company's weighted average cost of funds from the Company's weighted average asset yield.     

⁽⁶⁾  Leverage during the period was calculated by dividing the Company's daily weighted average repurchase agreements (including those related to Linked Transactions), for the period by the Company's average month-ended stockholders' equity for the period.

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⁽⁷⁾  Leverage at period end was calculated by dividing the sum of the amount outstanding under the Company's repurchase agreements, amount outstanding under repurchase agreements recorded as Linked Transactions and the net receivable/payable for unsettled securities at period end by the Company's stockholders' equity at period end.

⁽⁸⁾  Expenses as a percentage of average total assets was calculated by dividing the Company's total expenses by the Company's average total assets for the period.

⁽⁹⁾  Expenses as a percentage of average stockholders' equity was calculated by dividing the Company's total expenses by the Company's average month-ended stockholders' equity.

⁽¹⁰⁾  Net book value per share was calculated by dividing the Company's total stockholders' equity by the Company's number of shares outstanding.

⁽¹¹⁾  Annualized net return on average stockholders' equity for the period was calculated by dividing the Company's net income by the Company's average month-ended stockholders' equity on an annualized basis.

Net Spread Income

GAAP interest income does not include interest earned on non-agency securities underlying our Linked Transactions, and GAAP interest expense does not include either interest related to repurchase agreements underlying our Linked Transactions, or periodic settlements associated with undesignated interest rate swaps. Interest income and expense related to Linked Transactions is reported within unrealized gain and net interest income on linked transactions, net and periodic interest settlements associated with undesignated interest rate swaps are reported in realized loss on periodic settlements of interest rate swaps, net on our consolidated statement of operations. As we believe that these items are beneficial to the understanding of our investment performance, we provide a non-GAAP measure called adjusted net interest income, which is comprised of net interest income plus the net interest income related to Linked Transactions, less net periodic settlements of interest rate swaps. Additionally, we present net spread income as a measure of our operating performance. Net spread income is comprised of adjusted net interest income, less total operating expenses. Net spread income excludes all unrealized gains or losses due to changes in fair value, realized gains or losses on sales of securities, realized losses associated with derivative instruments and income taxes. Net spread income does not include any impact from other hedging activities, such as the use of swaptions, U.S Treasuries and TBA positions.

The table below presents a reconciliation from GAAP net interest income to adjusted net interest income and net spread income (dollars in thousands):

	For the Three Months Ended March 31, 2012
Interest income:
Agency securities	$	15,306
Non-agency securities and other	1,296
Interest expense	(1,664		)
Net interest income	14,938
Interest income on non-agency securities underlying Linked Transactions	891
Interest expense on repurchase agreements underlying Linked Transactions	(183		)
Realized loss on periodic settlements of interest rate swaps, net	(1,041		)
Adjusted net interest income	14,605
Operating expenses	(2,117		)
Net spread income	$	12,488
Weighted average number of common shares outstanding - basic and diluted	11,724
Net spread income per common share – basic and diluted	$	1.07

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LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are borrowings under master repurchase agreements, equity offerings, asset sales and monthly principal and interest payments on our investment portfolio. Because the level of our borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on the balance sheet is significantly less important than the potential liquidity available under our borrowing arrangements. We currently believe that we have sufficient liquidity and capital resources available for the acquisition of additional investments, repayments on borrowings, maintenance of any margin requirements and the payment of cash dividends as required for our continued qualification as a REIT. To qualify as a REIT, we must distribute annually at least 90% of our taxable income. To the extent that we annually distribute all of our taxable income in a timely manner, we will generally not be subject to federal and state income taxes. We currently expect to distribute all of our taxable income in a timely manner so that we are not subject to Federal and state income taxes. This distribution requirement limits our ability to retain earnings and thereby replenish or increase capital from operations.

Equity Offerings

During the three months ended March 31, 2012, we completed one follow-on public offering of shares of our common stock summarized in the table below (in thousands, except per share data):

Public Offering	Price Received per Share	Shares	Proceeds Net of Offering Costs
March 2012	$21.55	12,000	$258,321

In April 2012, our underwriters exercised their over-allotment option related to our March 2012 equity offering and we sold 1.6 million shares of our common stock for net proceeds of $34.5 million.

Debt Capital

As part of our investment strategy, we borrow against our investment portfolio pursuant to master repurchase agreements. We expect that our borrowings pursuant to repurchase transactions under such master repurchase agreements generally will have maturities of less than one year. When adjusted for net payables and receivables for unsettled securities and repurchase agreement financing recorded as Linked Transactions, our leverage ratio was 7.6x the amount of our stockholders’ equity as of March 31, 2012. Our cost of borrowings under master repurchase agreements generally corresponds to LIBOR plus or minus a margin. We have master repurchase agreements with 24 financial institutions, which are described below. As of March 31, 2012, borrowings under repurchase arrangements secured by agency and non-agency securities (including those underlying Linked Transactions) totaled $3.5 billion and $82.7 million, respectively, with weighted average days to maturity of 45 and 18, respectively. As of March 31, 2012, we did not have an amount at risk with any counterparty greater than 8% of our equity, with exposure to our top five counterparties representing less than 22% of our equity. The table below includes a summary of our repurchase agreement funding by number of counterparties and counterparty region as of March 31, 2012. Refer to Note 6 to our consolidated financial statements in this Quarterly Report on Form 10-Q for further details regarding our borrowings under repurchase agreements and weighted average interest rates as of March 31, 2012.

	As of March 31, 2012
Counterparty Region	Number of Counterparties	Percent of Repurchase Agreement Funding
North America	13	57%
Asia	5	23%
Europe	6	20%
Total	24	100%

Amounts available to be borrowed under our repurchase agreements are dependent upon lender collateral requirements and the lender’s determination of the fair value of the securities pledged as collateral, based on recognized pricing sources agreed to by both parties to the agreement. Collateral fair value can fluctuate with changes in interest rates, credit quality and liquidity conditions within the investment banking, mortgage finance and real estate industries. Our counterparties also apply a "haircut” to the fair value of our pledged collateral, which reflects the underlying risk of the specific collateral and protects our counterparties against a decrease in collateral value, but conversely subjects us to counterparty risk and limits the amount we can borrow against our investment securities. Our master repurchase agreements do not specify the haircut, rather haircuts are determined on an individual repurchase transaction basis. Weighted average counterparty haircuts to the value of our agency

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securities and non-agency securities (including those underlying Linked Transactions) held as collateral as of March 31, 2012, were 5% and 28%, respectively. We did not experience significant volatility in the level of weighted average haircuts required by our lenders for the three months ended March 31, 2012.

In the event that the fair value of the existing pledged collateral under such agreements declines and such lenders demand additional collateral (a margin call), we may be required to pledge additional assets to the repurchase agreement counterparties (i.e., lenders) which may take the form of additional securities or cash. Similarly, if the estimated fair value of investment securities increases due to changes in the market interest rates, lenders may release collateral back to us. Specifically, margin calls would result from a decline in the value of the securities securing our repurchase agreements and prepayments on the mortgages securing such securities. As of March 31, 2012, we have met all margin requirements. We had unrestricted cash and cash equivalents of $79.2 million and unpledged securities of $133.2 million, excluding net unsettled purchases and sales of securities, available to meet margin calls on our repurchase agreements and derivative instruments as of March 31, 2012.

Although we believe that we will have adequate sources of liquidity available to us through repurchase agreement financing to execute our business strategy, there can be no assurances that repurchase agreement financing will be available to us upon the maturity of our current repurchase agreements to allow us to renew or replace our repurchase agreement financing on favorable terms or at all. If our repurchase agreement lenders default on their obligations to resell the underlying securities back to us at the end of the term, we could incur a loss equal to the difference between the value of the securities and the cash we originally received.

We maintain an interest rate risk management strategy under which we use derivative financial instruments to manage the adverse impact of interest rates changes on the value of our investment portfolio as well as our cash flows. In particular, we attempt to mitigate the risk of the cost of our short-term variable rate liabilities increasing at a faster rate than the earnings of our long-term assets during a period of rising interest rates. The principal derivative instruments that we use are interest rate swaps, supplemented with the use of TBA agency securities, interest rate swaptions, and other instruments.

We use interest rate swap agreements to effectively lock in fixed rates on a portion of our short-term borrowings because longer-term committed borrowings are not available at attractive terms. Refer to Note 7 to our consolidated financial statements in this Quarterly Report on Form 10-Q for further details regarding our outstanding interest rate swaps as of March 31, 2012 and the related activity for the period ended March 31, 2012.

Asset Sales and TBA Eligible Securities

We maintain a portfolio of highly liquid agency MBS securities. We may sell our securities through the TBA market by delivering securities into TBA contracts for the sale of securities, subject to "good delivery" provisions promulgated by the Securities Industry and Financial Markets Association ("SIFMA"). We may alternatively sell securities that have more unique attributes on a specified basis when such securities trade at a premium over generic TBA securities or if the securities are not otherwise eligible for TBA delivery. Since the TBA market is the second most liquid market (second to the U.S. Treasury market), maintaining a significant level of securities eligible for TBA delivery enhances our liquidity profile and provides price support for our TBA eligible securities in a rising interest rate scenario at or above generic TBA prices. As of March 31, 2012, approximately 98% of our agency MBS portfolio was eligible for TBA delivery.

Off-Balance Sheet Arrangements

As of March 31, 2012, we did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of March 31, 2012, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.

FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) that inherently involve risks and uncertainties. Our actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of our investments and other factors. These factors may include, but are not limited to, changes in general economic conditions, the availability of suitable investments from both an investment return and regulatory perspective, the availability of new investment capital, fluctuations in interest rates and levels of mortgage prepayments, deterioration in credit quality and ratings, the effectiveness of risk management strategies, the impact of leverage, liquidity of secondary markets and credit markets, increases in costs and other general competitive factors. They also include, among other things, statements concerning anticipated revenues, income or loss,

37

dividends, capital structure, or other financial terms, as well as statements regarding subjects that are forward-looking by their nature, such as:

• our business and financing strategy;

• our ability to obtain future financing arrangements;

• our understanding of our competition and our ability to compete effectively;

• our projected operating results;

• market and industry trends;

• estimates relating to our future dividends;

• our hedging activities;

• interest rates; and

• the impact of technology on our operations and business.

The forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account the information currently available to us. These beliefs, assumptions, and expectations may change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in our forward looking statements. You should carefully consider these risks when you make a decision concerning an investment in our common stock, along with the following factors, among others, that may cause actual results to vary from our forward-looking statements:

• general volatility of the securities markets in which we invest and the market price of our common stock;

• our lack of operating history;

• changes in our business or investment strategy;

• changes in interest rate spreads or the yield curve;

• availability, terms and deployment of debt and equity capital;

• availability of qualified personnel;

• the degree and nature of our competition;

• increased prepayments of the mortgage loans underlying our agency securities;

• risks associated with our hedging activities;

• changes in governmental regulations, tax rates and similar matters;

• defaults on our investments;

• changes in GAAP;

• legislative and regulatory changes (including changes to laws governing the taxation of REITs);

• availability of investment opportunities in mortgage-related investments;

• our ability to qualify and maintain our qualification as a REIT for federal income tax purposes and limitations imposed on our business by our status as a REIT;

• general volatility in capital markets;

• the adequacy of our cash reserves and working capital;

• the timing of cash flows, if any, from our investment portfolio; and

• other risks associated with investing in agency securities, including changes in our industry, interest rates, the debt securities markets, the general economy or the finance and real estate markets specifically.

When we use words such as "will likely result," "plan," "may," "shall," "believe," "expect," "anticipate," "project," "intend," "estimate," "goal," "objective," or similar expressions, we intend to identify forward-looking statements. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statement to reflect new information, future events, or otherwise, except as required under U.S. federal securities laws.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risks that we are exposed to are interest rate risk, prepayment risk, spread risk, liquidity risk, credit risk, extension risk and inflation risk.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with our interest-bearing liabilities, by affecting the spread between our interest-earning assets and interest bearing liabilities. Changes in the general level of interest rates can also affect our periodic settlements of interest rate swaps and the value of our interest rate swaps which impact our net income. Changes in the level of interest rates can also affect the rate of prepayments of our securities and the value of the securities that constitute our investment portfolio, which affects our net income and ability to realize gains from the sale of these assets and impacts our ability and the amount that we can borrow against these securities.

We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations, including interest rate swap agreements, interest rate swaptions, interest rate cap or floor contracts and futures or forward contracts. We may also purchase or short TBA securities, U.S. Treasury securities and U.S. Treasury futures contracts, purchase or write put or call options on TBA securities or we may invest in other types of mortgage derivative securities, such as interest-only securities, and synthetic total return swaps. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.

Our profitability and the value of our investment portfolio (including derivatives used for economic hedging purposes) may be adversely affected during any period as a result of changing interest rates including changes in forward yield curves.

A primary measure of an instrument's price sensitivity to interest rate fluctuations is its duration. We estimate the duration of our portfolio using both a third-party risk management system and market data. We review the duration estimates from the third-party model and may make adjustments based on our Manager's judgment. These adjustments are intended to, in our Manager's opinion, better reflect the unique characteristics and market trading conventions associated with certain types of

securities. These adjustments generally result in shorter durations than what the unadjusted third-party model would otherwise

produce. Without these adjustments, in rising rate scenarios, the longer unadjusted durations may underestimate price projections on certain securities with slower prepayment characteristics, such as HARP and lower loan balance securities, to a level below those of generic or TBA securities. However, in our Manager's judgment, because these securities are typically deliverable into TBA contracts, the price of these securities is unlikely to drop below the TBA price in rising rate scenarios. The accuracy of the estimated duration of our portfolio and projected agency securities prices depends on our Manager's assumptions and judgments. Our Manager may discontinue making these duration adjustments in the future or may choose to make different adjustments. Other models could produce materially different results.

The following table quantifies the estimated changes in net interest income (including the net interest income on Linked Transactions and periodic settlements of interest rate swaps) and the fair value of the investment portfolio (including derivatives used for economic hedging purposes) should interest rates go up or down by 50 and 100 basis points, assuming the yield curves of the rate shocks will be parallel to each other and the current yield curve.

All changes in income and value are measured as percentage changes from the projected net interest income and investment portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates as of March 31, 2012. Given the low level of interest rates, we also apply a floor of 0% for all anticipated interest rates included in our assumptions, such that any hypothetical interest rate decrease would have a limited positive impact on our funding costs beyond a certain level. However, because estimated prepayment speeds are impacted to a lesser degree by this floor, it is expected that an increase in our prepayment speeds as a result of a hypothetical interest rate decrease would result in an acceleration of our premium amortization and could result in reinvestment of such prepaid principal into lower yielding assets.

Actual results could differ materially from estimates, especially in the current market environment. To the extent that these estimates or other assumptions do not hold true, which is likely in a period of high price volatility, actual results will likely differ materially from projections and could be larger or smaller than the estimates in the table below. Moreover, if

39

different models were employed in the analysis, materially different projections could result. In addition, the table below also does not include the impact of leverage, which generally has the effect of increasing the impact of the percentage change in projected portfolio value on stockholders' equity by a factor of leverage plus one. Lastly, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio, we may from time to time sell any of our investment securities or reposition our economic hedges as a part of our overall management of our investment portfolio.

	Percentage Change in Projected
Change in Interest Rate	Net Interest Income (1)		Portfolio Value (2)		Net Asset Value (2)
+100 basis points	(12.0	)%	(1.0	)%	(8.3	)%
+50 basis points	(5.4	)%	(0.3	)%	(3.0	)%
-50 basis points	0.2	%	—	%	(0.4	)%
-100 basis points	(6.8	)%	(0.7	)%	(6.4	)%

————————

⁽¹⁾     Includes the effect on Linked Transactions and interest rate swaps.

⁽²⁾     Includes the effect of derivatives.

Prepayment Risk

Premiums and discounts associated with the purchase of agency securities and non-agency securities of higher credit quality are amortized or accreted into interest income over the projected lives of the securities, including contractual payments and estimated prepayments using the interest method. Changes to the GSEs' underwriting standards, further modifications to existing U.S. Government sponsored programs such as HARP, or the implementation of new programs could materially impact prepayment speeds. In addition, GSE buyouts of loans in imminent risk of default, loans that have been modified, or loans that have defaulted will generally be reflected as prepayments on agency securities and also increase the uncertainty around these estimates. Our policy for estimating prepayment speeds for calculating the effective yield is to evaluate published prepayment data for similar securities, market consensus and current market conditions. If the actual prepayment experienced differs from our estimate of prepayments, we will be required to make an adjustment to the amortization or accretion of premiums and discounts that would have an impact on future income.

Spread Risk

Our investment securities are reflected at their estimated fair value with unrealized gains and losses reported in earnings. As of March 31, 2012, the fair value of these securities was $4.0 billion. When the market spread between the yield on our mortgage-backed securities and U.S. Treasury securities or swap rates widens, the value of our net assets could decline, creating what we refer to as spread risk. The spread risk associated with our securities and the resulting fluctuations in fair value of these securities can occur independent of interest rates and may relate to other factors impacting the mortgage and fixed income markets such as liquidity changes in required rates of return on different assets, or changes in risk premiums associated with different types of assets.

Liquidity Risk

The primary liquidity risk for us arises from financing long-term assets with shorter-term borrowings in the form of repurchase agreements. Our assets that are pledged to secure repurchase agreements are mortgage-backed securities and cash.  As of March 31, 2012, we had unrestricted cash and cash equivalents of $79.2 million and unpledged securities of $133.2 million, excluding net unsettled purchases and sales of securities, available to meet margin calls on our repurchase agreements, derivative instruments and for other corporate purposes. However, should the value of our securities pledged as collateral suddenly decrease, margin calls relating to our repurchase agreements could increase, causing an adverse change in our liquidity position. As such, there is no assurance that we will always be able to renew (or roll) our repurchase agreements. In addition, our counterparties have the option to increase our haircuts (margin requirements) on the assets we pledge against repurchase agreements, thereby reducing the amount that can be borrowed against an asset even if they agree to renew or roll the repurchase agreement. Significantly higher haircuts can reduce our ability to leverage our investment portfolio or even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets.

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Credit Risk

We are exposed to credit risk related to our non-agency investments and certain derivative transactions. We accept credit exposure at levels we deem prudent as an integral part of our diversified investment strategy. Therefore, we may retain all or a portion of the credit risk on our non-agency investments. We seek to manage this risk through prudent asset selection, pre-acquisition due diligence, post-acquisition performance monitoring, sale of assets where we have identified negative credit trends and the use of various types of credit enhancements. We may also use non-recourse financing, which limits our exposure to credit losses to the specific pool of mortgages subject to the non-recourse financing. Our overall management of credit exposure may also include the use of credit default swaps or other financial derivatives that we believe are appropriate. Additionally, we intend to vary the percentage mix of our non-agency mortgage investments and agency mortgage investments in an effort to actively adjust our credit exposure and to improve the risk/return profile of our investment portfolio. There is no guarantee our efforts to manage credit risk will be successful and we could suffer significant losses if credit performance is worse than our expectations or if economic conditions worsen.

Extension Risk

The projected weighted-average life and the duration (or interest rate sensitivity) of our investments is based on our Manager’s assumptions regarding the rate at which the borrowers will prepay the underlying mortgage loans or default on their loans. In general, we use interest rate swaps to help manage our funding cost on our investments in the event that interest rates rise. These swaps allow us to reduce our funding exposure on the notional amount of the swap for a specified period of time by establishing a fixed rate to pay in exchange for receiving a floating rate that generally tracks our financing costs under our repurchase agreements.

However, if prepayment rates decrease in a rising interest rate environment, the average life or duration of our fixed-rate assets generally extends. This could have a negative impact on our results from operations, as our interest rate swap maturities are fixed and will, therefore, cover a smaller percentage of our funding exposure on our mortgage assets to the extent that their average lives increase due to slower prepayments. This situation may also cause the market value of our securities collateralized by fixed rate mortgages to decline by more than otherwise would be the case while most of our hedging instruments (with the exception of short TBA mortgage positions, interest-only securities and certain other supplemental hedging instruments) would not receive any incremental offsetting gains. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses.

Inflation Risk

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Further, our consolidated financial statements are prepared in accordance with GAAP and our distributions are determined by our Board of Directors based primarily on our net income as calculated for income tax purposes. In each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

Item 4.Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the "Exchange Act") reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" as promulgated under the Exchange Act and the rules and regulations thereunder. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting or in other factors that could significantly affect the internal controls over financial reporting during the quarter ended March 31, 2012.

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PART II

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2012, we had no legal proceedings.

Item 1A.Risk Factors

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 9B.Other Information

None.

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Item 6.Exhibits

(a)    Exhibits:

Exhibit No.	Description
*3.1	American Capital Mortgage Investment Corp. Articles of Amendment and Restatement, incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended September 30, 2011 (File No. 001-35260, filed November 14, 2011.
*3.2	American Capital Mortgage Investment Corp. Amended and Restated Bylaws, as amended by Amendment No. 1, incorporated herein by reference to Exhibit 3.2 to Amendment No. 4 to Form S-11 (Registration Statement No. 333-173238), filed July 29, 2011.
*4.1	Form of Certificate for Common Stock, incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to Form S-11 (Registration Statement No. 333-173238), filed July 20, 2011.
*4.2	Instruments defining the rights of holders of securities: See Article VI of our Articles of Amendment and Restatement, incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended September 30, 2011 (File No. 001-35260), filed November 14, 2011.
*4.3	Instruments defining the rights of holders of securities: See Article VII of our Amended and Restated Bylaws, as amended by Amendment No. 1, incorporated herein by reference to Exhibit 3.2 to Amendment No. 4 to Form S-11 (Registration Statement No. 333-173238), filed July 29, 2011.
10.1	Underwriting Agreement, dated March 13, 2012, by and among American Capital Mortgage Investment Corp., American Capital MTGE Management, LLC and Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities, Inc., UBS Securities LLC and Wells Fargo Securities, LLC, as representatives of the several underwriters named in Schedule I thereto, filed herewith.
31.1	Certification of CEO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2	Certification of CFO Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32	Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document

*    Fully or partly previously filed.

** This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		American Capital Mortgage Investment Corp.
Date:	May 11, 2012	By:	/s/    MALON  WILKUS
			Malon Wilkus Chair of the Board and Chief Executive Officer

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EX-10.1

EXHIBIT 10.1

UNDERWRITING AGREEMENT

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

(a Maryland corporation)

12,000,000 Shares of Common Stock

Dated: March 13, 2012

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

(a Maryland corporation)

12,000,000 Shares of Common Stock

(Par Value $0.01 Per Share)

UNDERWRITING AGREEMENT

March 13, 2012

Citigroup Global Markets Inc.

Credit Suisse Securities (USA) LLC

Deutsche Bank Securities Inc.

UBS Securities LLC

Wells Fargo Securities, LLC

c/o Deutsche Bank Securities Inc.

60 Wall Street, 41st Floor

New York, NY 10005-2836

As Representatives of the several Underwriters

Ladies and Gentlemen:

American Capital Mortgage Investment Corp., a Maryland corporation (the “Company”) and American Capital MTGE Management, LLC, a Delaware limited liability company and manager of the Company (the “Manager”), confirm their agreement with each of the Underwriters named in Schedule I hereto (collectively, the “Underwriters,” which term shall also include any underwriter hereinafter substituted as provided in Section 10 hereof), for whom Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., UBS Securities LLC and Wells Fargo Securities, LLC are acting as representatives (in such capacity, if and as applicable, the “Representatives”), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of 12,000,000 shares of common stock, par value $0.01 per share, of the Company (“Common Stock”) and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of1,791,650 additional shares of Common Stock to cover over-allotments, if any. The aforesaid 12,000,000 shares of Common Stock (the “Initial Securities”) to be purchased by the Underwriters and all or any part of the 1,791,650 shares of Common Stock subject to the option described in Section 2(b) hereof (the “Option Securities”) are hereinafter called, collectively, the “Securities.”

The Company and the Manager understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.

Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A (“Rule 430A”) of the 1933 Act Regulations (as

defined below) and paragraph (b) of Rule 424 (“Rule 424(b)”) of the 1933 Act Regulations.

Section 1.Representations and Warranties.

(a)Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, as of the Applicable Time referred to in Section 1(a)(v) hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows:

(i)Compliance with Registration Requirements. The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S‑11 (File No. 333‑179647), including a related preliminary prospectus, for the registration of the Securities under the Securities Act of 1933, as amended (the “1933 Act”); the Company satisfies all eligibility requirements for use of Form S‑11 as contemplated by such registration statement and this Agreement; such registration statement, as amended on or prior to the Applicable Time (as defined below), has been declared effective by the Commission under the 1933 Act and the rules and regulations of the Commission under the 1933 Act (the “1933 Act Regulations”); the Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information with respect to such registration statement or otherwise; no stop order suspending the effectiveness of such registration statement or any part thereof has been issued and no proceeding for that purpose has been initiated or, to the knowledge of the Company, threatened by the Commission, and no notice of objection of the Commission to the use of such form of registration statement or any post-effective amendment thereto has been received by the Company; the various parts of such registration statement, including all exhibits thereto and any prospectus relating to the Securities that is filed with the Commission and deemed by virtue of Rule 430A under the 1933 Act to be part of such registration statement (any such information that was omitted from such registration statement at the time it became effective but that is deemed to be a part of and included in such registration statement pursuant to Rule 430A under the 1933 Act is referred to as “430A Information”), each as amended at each time such part of the registration statement became effective, are hereinafter collectively called the “Registration Statement”; each preliminary prospectus used in connection with the offering of the Securities that omitted Rule 430A Information is herein called, a “Preliminary Prospectus”; the final prospectus, and any amendments or supplements thereto, relating to the Securities prepared and filed with the Commission pursuant to Rule 424(b) under the 1933 Act is hereinafter called the “Prospectus”; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any post-effective amendment to the Registration Statement; any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the “Rule 462(b) Registration Statement,” and after such filing the term “Registration Statement” shall include the rule 462(b) Registration Statement.

(ii)No order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued by the Commission and no proceeding for any of those purposes have been instituted or are pending or, to the knowledge of the Company (without further inquiry), threatened. The Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto at the time of filing thereof and at the time each became effective, complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not, at the time of effectiveness for purposes of Section 11 of the 1933 Act, as such section applies to the Underwriters, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

(iii)Neither the Prospectus nor any supplements thereto (including any prospectus wrapper), at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(iv)Each Preliminary Prospectus, the Prospectus and any amendments or supplements thereto, at the time each was filed with the Commission, complied in all material respects with the 1933 Act and the 1933 Act Regulations and each Preliminary Prospectus delivered to the Underwriters for use in connection with this offering and the Prospectus was identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”), except to the extent permitted by Regulation S-T.

(v)For the purposes of this Agreement, the “Applicable Time” means 7:45 p.m. (New York City time) on March 13, 2012. The applicable Issuer General Use Free Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time and each Preliminary Prospectus issued at or prior to the Applicable Time, as most recently amended or supplemented immediately prior to the Applicable Time, taken together (collectively, and, with respect to any Securities, together with the information included on Schedule II hereto, all considered together, the “General Disclosure Package”), as of the Applicable Time, the Closing Time and each Date of Delivery (if any), do not and will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and any individual Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the General Disclosure Package, as of such Applicable Time, the Closing Time and each Date of Delivery (if any), does not and will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

As used in this subsection and elsewhere in this Agreement:

“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“Rule 433”), relating to the Securities that (i) is required to be filed with the Commission by the Company, (ii) is a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission or (iii) is exempt from filing pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company's records pursuant to Rule 433(g).

“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a Bona Fide Electronic Road Show (as defined below)), as evidenced by its being specified in Schedule III hereto.

“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement, the General Disclosure Package, the Prospectus or any

Issuer Free Writing Prospectus made in reliance upon and in conformity with the Underwriter Content (as hereinafter defined).

Any “bona fide electronic road show,” as defined in Rule 433, made available by the Company was in compliance with Rule 433(d)(8)(ii) (the “Bona Fide Electronic Road Show”) such that no filing of any “road show” (as defined in Rule 433(h)) is required in connection with the offering of the Securities.

(vi)Issuer Free Writing Prospectus. Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Securities or until any earlier date that the issuer notified or notifies the Representatives as described in Section 3(e), did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement, the General Disclosure Package or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified.

(vii)Incorporation of Documents by Reference. The documents incorporated or deemed to be incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, at the time they were or hereinafter are filed with the Commission, as the case may be, complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the rules and regulations of the Commission thereunder (the “1934 Act Regulations”).

(viii)Ineligible Issuer. At the time of filing the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and as of the date of this Agreement (with such date being used as the determination date for purposes of this clause), the Company was not and is not an ineligible issuer (as defined in Rule 405 under the 1933 Act), without taking account of any determination by the Commission pursuant to Rule 405 under the 1933 Act that it is not necessary that the Company be considered an ineligible issuer (as defined in Rule 405 under the 1933 Act).

(ix)Independent Accountants. Ernst & Young LLP, who certified the financial statements included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, is, and was during the period covered by its report, an independent public accounting firm as required by the 1933 Act and the 1933 Act Regulations, the 1934 Act, the 1934 Act Regulations, and the Public Company Accounting Oversight Board (United States).

(x)Financial Statements. The financial statements included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved. The selected financial data included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus present fairly the information shown therein and was compiled on a basis consistent with that of the audited financial statements included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus. Any disclosures contained in the

Registration Statement, the General Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G under the 1934 Act and Item 10 of Regulation S-K under the 1933 Act), to the extent applicable.

(xi)No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus (in each case exclusive of any amendments or supplements thereto subsequent to their respective dates), except as otherwise stated therein, as of the date hereof and the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery) (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings and business affairs or business prospects of the Company together with its subsidiaries, all of which are listed on Schedule IV attached hereto (each, a “Subsidiary,” and collectively, the “Subsidiaries”), considered as one enterprise, whether or not arising in the ordinary course of business (a “Material Adverse Effect”), (B) there have been no transactions entered into by the Company or any of its Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its Subsidiaries considered as one enterprise, (C) there has been no obligation, contingent or otherwise, directly or indirectly incurred by the Company or any of its Subsidiaries considered as one enterprise that would reasonably be expected to have a Material Adverse Effect and (D)  except for regular quarterly dividends on the Common Stock in amounts per share that are consistent with past practice, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock or repurchase or redemption by the Company of any class of its capital stock.

(xii)Good Standing of the Company. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland and has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure, individually or in the aggregate, so to qualify or to be in good standing would not result in a Material Adverse Effect.

(xiii)Good Standing of Subsidiaries. Each Subsidiary is duly incorporated or organized and is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with requisite power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus, and to consummate the transactions contemplated hereby. Each Subsidiary is duly qualified as a foreign corporation, limited liability company, partnership or trust to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, all of the issued and outstanding equity interests in each Subsidiary have been duly authorized and validly issued, are fully paid and non‑assessable and are owned by the Company, directly or indirectly, free and clear of any security interests, mortgages, pledges, liens, encumbrances, claims or equitable interests; none of the outstanding equity interests in any Subsidiary was issued in violation of, or subject to, any preemptive right, co‑sale right, registration right, right of first refusal or other similar rights of equity holders or any other person arising by operation of law, under the organizational

documents of each Subsidiary, under any agreement to which any Subsidiary is a party or otherwise. The Company does not own or control, directly or indirectly, any equity interest in any corporation, joint venture, limited liability company, association or other entity other than the Subsidiaries. The Company did not as of the date of its most recently filed balance sheet with the Commission, have any “significant subsidiaries” (as defined in Rule 1-02(w) of Regulation S-X).

(xiv)Capitalization. As of the date hereof, (A) 300,000,000 shares of Common Stock were authorized for issuance, of which 10,012,100 shares were issued and outstanding and (B) 50,000,000 shares of preferred stock, par value $0.01 per share, of the Company were authorized for issuance, none of which were issued or outstanding. The issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock was issued in violation of the preemptive or other similar rights of any securityholder of the Company. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there are no outstanding (A) securities or obligations of the Company or any of the Subsidiaries convertible into or exchangeable for any equity interests of the Company or any such Subsidiary, (B) warrants, rights or options to subscribe for or purchase from the Company or any such Subsidiary any such equity interests or any such convertible or exchangeable securities or obligations or (C) obligations of the Company or any such Subsidiary to issue any equity interests, any such convertible or exchangeable securities or obligation, or any such warrants, rights or options. The Company's Common Stock has been registered pursuant to Section 12(b) of the 1934 Act and is authorized for trading on the Nasdaq Global Select Market (“Nasdaq”), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration or the listing of the Common Stock with the Commission or Nasdaq, as the case may be, nor has the Company received any notification that the Commission or Nasdaq is contemplating terminating such registration or listing. The Company is in compliance with the current listing standards of Nasdaq.

(xv)Authorization and Description of Certain Agreements. This Agreement has been duly authorized, executed and delivered by the Company and is the valid and binding obligation of the Company enforceable in accordance with its terms, except as the enforcement thereof may be subject to (A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or thereafter in effect relating to creditors' rights generally and (B) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. This Agreement conforms in all material respects to the description thereof in the Registration Statement, the General Disclosure Package and the Prospectus.

(xvi)Authorization and Description of Securities. The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement, and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; the Securities conform in all material respects to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus and such descriptions conform to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder and the issuance of the Securities is not subject to any preemptive or other similar rights of any securityholder of the Company.

(xvii)Absence of Defaults and Conflicts. The Company is not in violation of its Articles of Amendment and Restatement (as amended or supplemented through the date of this Agreement, the “Charter”) or its Amended and Restated Bylaws (“Bylaws”). No Subsidiary is in violation of its

organizational documents (including, without limitation, partnership and limited liability company agreements). Neither the Company nor any of its Subsidiaries is in default in the performance or observance (nor has any event occurred which with notice, lapse of time or both would constitute a default in the observance or performance) of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (collectively, “Agreements and Instruments”), except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated herein (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Registration Statement, the General Disclosure Package and the Prospectus under the caption “Use of Proceeds”) and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the Charter or Bylaws of the Company or the organizational documents of any Subsidiary (including, without limitation, partnership and limited liability company operating agreements), any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations. As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any Subsidiary.

(xviii)Compliance with Applicable Laws, Rules and Regulations. The Company and each of its Subsidiaries are in compliance with all applicable federal, state, local and foreign laws, rules, regulations, orders, decrees and judgments, including those relating to transactions with affiliates, except where the failure to so comply would not, individually or in the aggregate, result in a Material Adverse Effect.

(xix)Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company (without further inquiry), threatened, against or affecting the Company or any Subsidiary, which is required to be disclosed in the Registration Statement, the General Disclosure Package or the Prospectus (other than as disclosed therein), or which would reasonably be expected to result in a Material Adverse Effect, or which would reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, would not, individually or in the aggregate, result in a Material Adverse Effect.

(xx)Accuracy of Exhibits. There are no contracts or documents that are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or the documents incorporated by reference therein or to be filed as exhibits to the Registration Statement which have not been described in all material respects or filed, as the case may be, as required by Item 601(b) of Regulation S‑K under the 1933 Act Regulations. The copies of all contracts, agreements, instruments and other documents (including governmental licenses, authorizations, permits, consents and approvals and all amendments or waivers relating to any of the foregoing) that have been furnished to the Underwriters or their counsel are complete and genuine (or copies of genuine documents) and include all material collateral and supplemental agreements thereto.

(xxi)Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is required in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except (a) such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws or the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and (b) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Securities are offered.

(xxii)Absence of Manipulation. Other than permitted activity pursuant to Regulation M under the 1934 Act, neither the Company nor any of its affiliates, as such term is defined in Rule 501(b) under the 1933 Act (each, an “Affiliate”), has taken, nor will the Company or any of its Affiliates take, directly or indirectly, any action that is designed to, has constituted or would be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.

(xxiii)Possession of Licenses and Permits. The Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them as described in the Registration Statement, the General Disclosure Package and the Prospectus (collectively, the “Intangibles”), except where the failure so to possess the same would not be reasonably expected to result, individually or in the aggregate, in a Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms and conditions of all such Intangibles, except where the failure so to comply would not result, individually or in the aggregate, in a Material Adverse Effect; all of the Intangibles are valid and in full force and effect, except when the invalidity of such Intangibles or the failure of such Intangibles to be in full force and effect would not be reasonably expected to result, individually or in the aggregate, in a Material Adverse Effect; the Company and its Subsidiaries have not received any written notice of proceedings relating to the revocation or modification of any such Intangibles which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would be reasonably expected to result in a Material Adverse Effect; the Company and its Subsidiaries have not violated or received written notice of any infringement of or conflict with (and the Company does not know, without further inquiry, of any such infringement of or conflict with) asserted rights of others with respect to any such Intangibles, except where any such infringement or conflict would not be reasonably expected to result, individually or in the aggregate, in a Material Adverse Effect.

(xxiv)Real Property; Personal Property. Neither the Company nor any Subsidiary owns any real property or holds any real property lease.The Company and its Subsidiaries have good title to all personal property, if any, owned by them, in each case, free and clear of all liens, security interests,

pledges, charges, encumbrances, mortgages and defects, except as are disclosed in the Registration Statement, the General Disclosure Package and the Prospectus or as would not be reasonably expected to result, individually or in the aggregate, in a Material Adverse Effect.

(xxv)Investment Company Act. Neither the Company nor any of its Subsidiaries is required to register as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”).

(xxvi)Registration Rights. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus or which have been waived, there are no persons with registration or other similar rights to have any equity or debt securities, including securities that are convertible into or exchangeable for equity securities, registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act; no person has a right of participation, first refusal or similar right with respect to the sale of the Securities by the Company.

(xxvii)Accounting Controls and Disclosure Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) receipts and expenditures are being made only in accordance with management's general or specific authorization; (D) access to assets is permitted only in accordance with management's general or specific authorization; and (E) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Company's most recent audited fiscal year, there has been (A) no material weakness in the Company's internal control over financial reporting (whether or not remediated) and (B) no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. The Company and its Subsidiaries, considered as one enterprise, have established and currently maintain disclosure controls and procedures that comply with Rule 13a-15 under the 1934 Act and the Company has determined that such disclosure controls and procedures are effective in compliance with Rule 13a-15 under the Exchange Act.

(xxviii)No Commissions. Neither the Company nor any of its Subsidiaries is a party to any contract, agreement or understanding with any person (other than as contemplated by this Agreement) that would give rise to a valid claim against the Company or any of its Subsidiaries or the Underwriters for a brokerage commission, finder's fee or like payment in connection with the offering and sale of the Securities by the Underwriters under this Agreement.

(xxix)Compliance with the Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or any of the Company's directors or officers, in their capacities as such, to comply in all material respects with any applicable provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 related to loans and Sections 302 and 906 related to certifications.

(xxx)Payment of Taxes. All tax returns of the Company and its Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which appeals have been or will be

promptly taken and as to which adequate reserves have been provided. The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are adequate to meet any assessments or re‑assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not result in a Material Adverse Effect.

(xxxi)Absence of Transfer Taxes. There are no transfer taxes or other similar fees or charges under federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the sale by the Company of the Securities under this Agreement.

(xxxii)Insurance. The Company and its Subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts and covering such risks as is generally maintained by companies of established repute engaged in the same or similar business, and all such insurance is in full force and effect. The Company has no reason to believe that it or any Subsidiary will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect. Neither the Company nor any Subsidiary has been denied any material insurance coverage which it has sought or for which it has applied.

(xxxiii)Statistical and Market-Related Data. The statistical and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate as of the respective dates of such documents, and the Company has obtained the written consent to the use of such data from such sources to the extent required.

(xxxiv)Foreign Corrupt Practices Act. None of the Company, any Subsidiary or, to the knowledge of the Company, any director, officer, agent, employee, Affiliate or other person acting on behalf of the Company or any of its Subsidiaries, is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA. The Company and the Subsidiaries have conducted their respective businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.

(xxxv)Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge

of the Company, threatened.

(xxxvi)OFAC. None of the Company, any Subsidiary or, to the knowledge of the Company, any director, officer, agent, employee, Affiliate or person acting on behalf of the Company or any of its Subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

(xxxvii)Related Party Transactions. No relationship, direct or indirect, exists between or among the Company or any of its Subsidiaries on the one hand, and the directors, officers, trustees, managers, stockholders, partners, customers or suppliers of the Company or any of the Subsidiaries on the other hand, which would be required by the 1933 Act or by the 1933 Regulations to be described in the Registration Statement, the General Disclosure Package and the Prospectus, which is not so described.

(xxxviii)Employment; Noncompetition; Nondisclosure. The Company has not been notified that (a) any executive officer of the Company or the Manager, (b) any key employee of the Manager, American Capital Mortgage Management, LLC (“ACM”) or American Capital, Ltd (“ACAS”), in each case, with significant responsibilities to the Company, or (c) a significant number of members of the investment team provided to the Manager by ACAS or ACM plans to terminate his, her or their employment with his, her or their current employer. Neither the Company nor any executive officer of the Company is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or similar arrangement that would be violated by the present or proposed business activities of the Company as described in the Registration Statement, the General Disclosure Package and the Prospectus, except where such violation would not constitute a Material Adverse Effect.

(xxxix)Pending Proceedings and Examinations. The Registration Statement is not the subject of a pending proceeding or examination under Section 8(d) or 8(e) of the 1933 Act, and the Company is not the subject of a pending proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities.

(xl)REIT Status. Commencing with its initial taxable year ended December 31, 2011, the Company has been organized and operated in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (collectively, the “Code”), and the Company's current and proposed method of operations as described in the Registration Statement, the General Disclosure Package and the Prospectus will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code for its taxable year ending December 31, 2012 and thereafter. No transaction or other event has occurred that could cause the Company to not be able to qualify as a REIT for its taxable year ending December 31, 2012 or future taxable years. Except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and each of its Subsidiaries have no intention of changing their operations or engaging in activities that would cause the Company to fail to qualify, or make economically undesirable the Company's continued qualification, as a REIT under the Code.

(xli)Tax Opinion. With respect to each legal opinion as to Federal income tax matters provided to the Underwriters pursuant to Section 5(b) hereof, the Company's representatives have

discussed with its counsel, Skadden, Arps, Slate, Meagher & Flom LLP, the officer's certificate supporting each such opinion, and where representations in such officer's certificate involve terms defined in the Code, the Treasury regulations thereunder, published rulings of the Internal Revenue Service or other relevant authority, the Company's representatives are satisfied after their discussions with their counsel in their understanding of such terms and are capable of making such representations.

(xlii)Description of Organization and Method of Operations. The description of the Company's organization and current and proposed method of operations and its qualification and taxation as a REIT set forth in the Registration Statement, the General Disclosure Package and the Prospectus is accurate in all material respects and presents fairly the matters referred to therein. The Company has no intention of changing its operations or engaging in activities which would cause it to fail to qualify, or make economically undesirable, its qualification as a REIT. The Company's conflicts of interest, operating policies, investment guidelines and operating restrictions described or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus accurately reflect in all material respects the guidelines and policies of the Company with respect to the operation of its business, and no material deviation from such guidelines or policies is currently contemplated.

(xliii)Director Independence. Each of the independent directors named in the Registration Statement, the General Disclosure Package and Prospectus satisfies the independence standards established by Nasdaq and, with respect to members of the Company's audit committee, the enhanced independence standards contained in Rule 10A-3(b)(1) promulgated by the Commission under the 1934 Act.

(xliv)Broker/Dealer Status. The Company is not required to register as a “broker” or “dealer” in accordance with the provisions of the rules and the 1934 Act Regulations and does not, directly or indirectly through one or more intermediaries, control or have any other association with (within the meaning of Article I of the By-laws of the FINRA) any member firm of the FINRA. No relationship, direct or indirect, exists between or among the Company, on the one hand, and the directors, officers or stockholders of the Company, on the other hand, which is required by the rules of the FINRA to be described in the Registration Statement, the General Disclosure Package and the Prospectus, which is not so described.

(xlv)Dividends/Distributions. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no Subsidiary is currently prohibited, directly or indirectly, from paying any dividends or distributions to the Company to the extent permitted by applicable law, from making any other distribution on such Subsidiary's issued and outstanding capital stock or other equity interests, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of the property or assets of such Subsidiary to the Company.

(xlvi)ACAS Statements and Information. To the knowledge of the Company, the statements and information in the Registration Statement, the General Disclosure Package and the Prospectus relating to ACAS are true, complete and accurate in all material respects.

(xlvii)Lending Relationships. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and, to the knowledge of the Company, its Affiliates (a) do not have any material lending or other relationship with any bank or lending affiliate of any Underwriter and (b) do not intend to use any of the proceeds from the sale of the Securities

to repay any outstanding debt owed to any affiliate of any Underwriter.

(b)Representations and Warranties by the Manager. The Manager represents and warrants to each Underwriter as of the date hereof, as of the Applicable Time, as of the Closing Time, and, as of each such Date of Delivery (if any) and agrees with each Underwriter, as follows:

(i)Good Standing of the Manager. The Manager has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware and has power and authority to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement; and the Manager is duly qualified as a foreign limited liability company to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.

(ii)Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Manager and constitutes a valid and binding agreement of the Manager enforceable in accordance with its terms, except in each case as may be limited by (A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or thereafter in effect relating to creditors' rights generally and (B) general equitable principles and the discretion of the court before which any proceeding therefor may be brought.

(iii)Absence of Violations, Defaults and Conflicts. The Manager is not in violation of its certificate of formation, limited liability company agreement or other organizational documents or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Manager is a party or by which it may be bound, or to which any of the property or assets of the Manager is subject (collectively, the “Manager Agreements and Instruments”), or in violation of any law, statute, rule, regulation, judgment, order or decree, except for such violations or except for such defaults that would not result in a material adverse effect on the condition, financial or otherwise, or in the business affairs, business prospects or regulatory status of the Manager, whether or not arising in the ordinary course of business, or that would otherwise prevent the Manager from carrying out its obligations under this Agreement (a “Manager Material Adverse Effect”). The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement, the General Disclosure Package and the Prospectus and compliance by the Manager with its obligations under this Agreement do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Manager pursuant to the Manager Agreements and Instruments, nor will such action result in any violation of the provisions of the limited liability company operating agreement or other organizational documents of the Manager or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Manager or any of its assets, properties or operations, except as would not result in a Manager Material Adverse Effect.

(iv)Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Manager, threatened, against or affecting the Manager, except for such matters that would not, individually or in the aggregate, result in a Manager Material Adverse Effect.

(v)Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is required in connection with the offering or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, (a) except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws or the rules of the FINRA and (b) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Reserved Securities are offered.

(vi)Financial Resources. The Manager has the financial and other resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement, the General Disclosure Package and the Prospectus and under this Agreement and the Management Agreement.

(vii)Possession of Licenses and Permits. The Manager possesses such Intangibles issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus, except where the failure so to possess would not be reasonably expected to result, individually or in the aggregate, in a Manager Material Adverse Effect; the Manager is in compliance with the terms and conditions of all such Intangibles, except where the failure so to comply would not result, individually or in the aggregate, in a Manager Material Adverse Effect; all of the Intangibles are valid and in full force and effect, except when the invalidity of such Intangibles or the failure of such Intangibles to be in full force and effect would not reasonably be expected to result, individually or in the aggregate, in a Manager Material Adverse Effect; and the Manager has not received any notice of proceedings relating to the revocation or modification of any such Intangibles which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to result in a Manager Material Adverse Effect.

(viii)Employment; Noncompetition; Nondisclosure. The Manager has not been notified that (a) any executive officer the Manager, (b) any key employee of the Manager, ACM or ACAS (in each case, with significant responsibility for the Company's operations) or (c) a significant number of members of the investment team provided to the Manager by ACAS or ACM plans to terminate his, her or their employment with his, her or their current employer. None of the Manager, any executive officer of the Manager or any key employee of the Manager, ACM or ACAS is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or similar agreement that would be violated by the present or proposed business activities of the Company or the Manager as described in the Registration Statement, the General Disclosure Package and the Prospectus, except where such violation would not constitute a Manager Material Adverse Effect.

(ix)Manager Statements and Information. The statements and information in the Registration Statement, the General Disclosure Package and the Prospectus relating to the Manager are true, complete and accurate in all material respects.

(x)Investment Advisers Act. The Manager is not prohibited by the Investment Advisers Act of 1940, as amended (the “Advisers Act”), or the rules and regulations thereunder, from performing its obligations under the Management Agreement as described in the Registration Statement, the General Disclosure Package and the Prospectus; and the Manager is not registered and is not required to register as an investment adviser under the Advisers Act.

Section 2.Sale and Delivery to Underwriters; Closing.

(a)Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at a price of $21.55 per share of Common Stock, the number of Initial Securities set forth in Schedule I opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional securities.

(b)Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 1,791,650 shares of Common Stock, at the price per share set forth in paragraph (a) above; provided that the price per share for any Option Securities shall be reduced by an amount per share equal to any dividends or distributions declared and payable by the Company on the Initial Securities but not payable on such Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part at any time on or before the 30th day after the date hereof only for the purpose of covering over-allotments, which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a “Date of Delivery”) shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule I opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.

(c)Payment. The Securities shall be delivered by the Company to the Representatives, including, at the option of the Representatives, through the facilities of DTC for the account of the Representatives, against payment by the Representatives of the purchase price therefor by wire transfer of immediately available funds to a bank account designated by the Company. The time and date of such delivery and payment for the Initial Securities shall be 10:00 a.m. (New York City time) on the third (fourth, if the pricing occurs after 4:30 p.m. (New York City time) on any given day) business day after the date hereof, or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called “Closing Time”).

In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for such Option Securities and delivery of such Option Securities through the facilities of DTC shall be made on each Date of Delivery as specified in the notice from the Representatives to the Company.

Section 3.Covenants of the Company and the Manager. The Company and, with respect to paragraphs (k) and (l) only, the Manager covenant with each Underwriter as follows:

(a)Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b) hereof, will comply with the requirements of Rule 430A and will notify the Representatives

promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall have been declared effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or of any order preventing or suspending the use of any Preliminary Prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities. The Company will effect the filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)). The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment.

(b)Filing of Amendments and Exchange Act Documents. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)) or any amendment, supplement or revision to any Preliminary Prospectus or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, and the Company will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object, except as required by law. The Company has given the Representatives notice of any filings made pursuant to the 1934 Act or 1934 Act Regulations within 48 hours prior to the execution of this Agreement; the Company will give the Representatives notice of its intention to make any such filing from the execution of this Agreement to the Closing Time and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object, except as required by law.

(c)Delivery of Registration Statements. Upon request, the Company will furnish or will deliver to the Representatives and counsel for the Underwriters, without charge, conformed copies of the Registration Statement and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein or otherwise deemed to be a part thereof) and conformed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

(d)Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S‑T.

(e)Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to comply with such requirements, the Company will use its best efforts to have such amendment declared effective as soon as practicable and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, the General Disclosure Package or the Prospectus, or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

(f)Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the date hereof; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

(g)Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its security holders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

(h)Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the General Disclosure Package and the Prospectus under “Use of Proceeds.”

(i)Listing. The Company will use its best efforts to effect and maintain the quotation of the Securities on Nasdaq.

(j)Restriction on Sale of Securities. During a period of 30 days from the date of the Prospectus, the Company will not, without the prior written consent of the Representatives, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock or file

any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the shares of Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of shares of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the (A) Securities to be sold hereunder, (B) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company, (C) any shares of Common Stock issued pursuant to any non-employee director stock plans or dividend reinvestment plans or (D) any shares of Common Stock issued in any merger or acquisition transaction. Notwithstanding the foregoing, if (1) during the last 17 days of the 30-day restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs or (2) prior to the expiration of the 30-day restricted period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 30-day restricted period, the restrictions imposed in this paragraph (j) shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

(k)Issuer Free Writing Prospectuses. Each of the Company and the Manager represents and agrees that, unless it obtains the prior consent of the Representatives, and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company, the Manager and the Representatives, it has not made and will not make any offer relating to the Securities that would constitute an “issuer free writing prospectus,” as defined in Rule 433, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the Commission. Any such free writing prospectus consented to by the Company, the Manager and the Representatives is hereinafter referred to as a “Permitted Free Writing Prospectus.” Each of the Company and the Manager represents that it has treated or agrees that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus,” as defined in Rule 433, and has complied and will comply with the requirements of Rule 433 applicable to any Permitted Free Writing Prospectus, including timely filing with the Commission where required, legending and record keeping.

(l)Share Price Manipulation. Each of the Company and the Manager agrees that it will not, and will cause its respective officers and directors (and in the case of the Manager, ACAS) and their respective subsidiaries not to, take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities to facilitate the sale or resale of the Securities, provided that the Company may bid for and purchase its Common Stock in accordance with Rule 10b-18 under the 1934 Act.

(m)REIT Qualification. The Company will use its best efforts to continue to meet the requirements for qualification and taxation as a REIT under the Code for its taxable year ending December 31, 2012 and, subject to any future determination by the Company's board of directors that it is no longer in the Company's best interests to qualify as a REIT, thereafter.

(n)Investment Company Act. The Company will use its best efforts to conduct its affairs and the affairs of its Subsidiaries in such a manner so as to ensure that neither the Company nor any of its Subsidiaries will be an “investment company” (as defined in the 1940 Act) or an entity “controlled” by an investment company that is required to be registered under the 1940 Act.

(o)Lock-up Agreements. The Company will use its best efforts to provide the Representatives, prior to the Applicable Time, with an agreement substantially in the form of Exhibit E signed by each of the persons and entities listed on Schedule V hereto.

(p)Undertakings. The Company will comply with all of the provisions of any undertakings in the Registration Statement.

(q)Transfer Agent. The Company has engaged and will maintain, at its sole expense, a registrar and transfer agent for the Securities.

(r)Liability Insurance. The Company will obtain or maintain, as appropriate, directors and officers liability insurance in an amount deemed advisable by the Company in its reasonable discretion.

Section 4.Payment of Expenses.

(a)Expenses. The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities, if any, to the Underwriters, including any applicable stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel and accountants, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of any Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each Preliminary Prospectus, any Permitted Free Writing Prospectus and of the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (vii) the fees and expenses of any transfer agent or registrar for the Securities, (viii) the reasonable costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the Securities, including, expenses associated with the production of road show slides and graphics, but excluding travel and reasonable lodging expenses of the Underwriters and representatives and officers of the Company (which shall be paid by the Underwriters), and (ix) any filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities (subject to a maximum of $10,000) and (x) the fees and expenses incurred in connection with the quotation of the Securities on Nasdaq.

(b)Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9 hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, (including the reasonable fees and disbursements of counsel for the Underwriters) actually incurred in connection with the proposed purchase and the public offering and sale of the Securities.

Section 5.Conditions of Underwriters' Obligations. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company and the Manager contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company or the Manager delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:

(a)Effectiveness of Registration Statement; Filing of Prospectus; Payment of Filing Fee. The Registration Statement, including any Rule 462(b) Registration Statement, shall have become effective and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been

issued under the 1933 Act or proceedings therefore initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time period required by Rule 424(b) without reliance on Rule 424(b)(8) (or a post-effective amendment providing such information shall have been filed and have been declared effective in accordance with the requirements of Rule 430A). The Company shall have paid the required Commission filing fees relating to the Securities within the time period required by the 1933 Act Regulations.

(b)Opinions of Counsel for the Company and the Manager. At Closing Time, the Representatives shall have received the favorable opinions, dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company and the Manager, in form and substance satisfactory to counsel for the Underwriters to the effect set forth in Exhibit A and Exhibit B hereto and to such further effect as counsel to the Underwriters may reasonably request. In addition, at Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel for the Company, in form and substance satisfactory to counsel for the Underwriters to the effect set forth in Exhibit C hereto and to such further effect as counsel to the Underwriters may reasonably request.

(c)Opinion of Maryland Counsel for the Company. At Closing time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Venable LLP, Maryland counsel for the Company, in form and substance satisfactory to counsel for the Underwriters to the effect set forth in Exhibit D hereto and to such further effect as counsel for the Underwriters may reasonably request.

(d)Opinion of Counsel for Underwriters. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Hunton & Williams LLP with respect to the matters the Underwriters reasonably request. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company, the Manager and certificates of public officials.

(e)Officers' Certificates. At Closing Time, there shall not have been, since the date hereof, since the Applicable Time or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any Material Adverse Effect or Manager Material Adverse Effect. The Underwriters shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such Material Adverse Effect, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to their knowledge, contemplated by the Commission. The Representatives shall have also received a certificate of the President of the Manager and of the Treasurer of the Manager, dated as of the Closing Time, to the effect that (i) there has been no Manager Material Adverse Effect,(ii) the representations and warranties in Section 1(b) hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time and (iii) the Manager has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time.

(f)Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letters for each of the

other Underwriters, containing statements and information of the type ordinarily included in accountants' “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus. Such letters shall address the audited financial statements, any unaudited interim financial statements (including a statement that such unaudited financial statements have been reviewed in accordance with the standards established under Statement on Auditing Standards No. 100) and any pro forma financial statements and also shall provide customary negative assurances.

(g)Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from Ernst & Young LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (f) of this Section 5, except that the specified date referred to shall be a date not more than three business days prior to Closing Time.

(h)Approval of Listing. At Closing Time, the Securities shall have been approved for quotation on Nasdaq.

(i)No Objection. At Closing Time, the FINRA shall not have raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.

(j)Lock up Agreements. At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit E signed by the persons and entities listed on Schedule V hereto.

(k)Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company and the Manager contained herein and the statements in any certificates furnished by the Company and the Manager hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:

(i)Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the Chief Financial Officer or chief accounting officer of the Company confirming that the certificate delivered by the Company at the Closing Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery.

(ii)Officers' Certificate. A certificate, dated such Date of Delivery, of the President of the Manager and of the Treasurer of the Manager confirming that the certificate delivered by the Manager at the Closing Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery.

(iii)Opinions of Counsel for the Company and the Manager. The favorable opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company and the Manager and tax counsel for the Company, each in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinions required by Section 5(b) hereof.

(iv)Opinions of Maryland Counsel for Company. The favorable opinion of Venable LLP, Maryland counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinions required by Section 5(c) hereof.

(v)Opinion of Counsel for Underwriters. The favorable opinion of Hunton & Williams LLP, special counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(d) hereof.

(vi)Bring-down Comfort Letter. A letter from Ernst & Young LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letters furnished to the Representatives pursuant to Section 5(g) hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than three days prior to such Date of Delivery.

(l)Additional Documents. At the Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling it to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Underwriters and counsel for the Underwriters.

(m)Termination of Agreement. If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to the Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party, except as provided in Section 4(b) and except that this paragraph and Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect.

Section 6.Indemnification.

(a)Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its Affiliates, its selling agents and each person, if any, who controls such Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

(i)against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), and including the Rule 430A Information, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact included in any Preliminary Prospectus and the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(ii)against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Issuer Limited Use Free Writing Prospectus or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(iii)against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(e) below) any such settlement is effected with the written consent of the Company;

(iv)against any and all expense (including the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;

provided, however, that this indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with the Underwriter Content.

(b)Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 6, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement, the General Disclosure Package or the Prospectus in reliance upon and in conformity with the Underwriter Content. The Company hereby acknowledges that the only information that the Underwriters have furnished to the Company expressly for use in the Registration Statement, the General Disclosure Package or the Prospectus are the statements set forth under the caption “Underwriting” in such documents as follows: paragraph four, the first and seventh sentence of paragraph eleven, the first sentence of paragraph twelve and the third and fourth sentences of paragraph thirteen, each relating to price stabilization activities, and paragraph fifteen relating to electronic prospectus delivery (collectively, the“Underwriter Content”).

(c)Actions Against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in

the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party, representing the indemnified parties who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party.

(d)Settlement without Consent if Failure to Reimburse. The indemnifying party under this Section 6 shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 6(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes (i) an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

Section 7.Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the difference between the aggregate

price to the public received by the Underwriters and the aggregate price paid by the Underwriters to the Company for the Securities bear to the aggregate price to the public received by the Underwriters.

The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, (i) no Underwriter shall be required to contribute an amount in excess of the underwriting discounts and commissions applicable to the Securities purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriter's Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company.

The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule I hereto and not joint.

Section 8.Representations, Warranties and Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or the Manager submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or Manager and (ii) delivery of and payment for the Securities.

Section 9.Termination of Agreement.

(a)Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the General Disclosure Package or the Prospectus (exclusive of any supplement thereto), any Material Adverse Effect or Manager Material Adverse Effect, the effect of which is such as to make it, in the judgment of the Representatives, impracticable

or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (ii) if there has occurred any material and adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or Nasdaq, or if trading generally on the New York Stock Exchange or The NASDAQ Stock Market, Inc. has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, FINRA or any other governmental authority, or (iv) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States such that settlement and clearance of the sale of the Securities is impracticable or impossible, or (v) if a banking moratorium has been declared by either federal or New York State authorities.

(b)Liabilities and Expenses. If this Agreement is terminated pursuant to this Section 9, (i) such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that this paragraph and Sections 1, 6, 7 and 9(a) shall survive such termination and remain in full force and effect, and (ii) the Underwriters shall only be entitled to receive out-of-pocket expenses actually incurred.

Section 10.Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the “Defaulted Securities”), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non‑defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24‑hour period, then:

(i)if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non‑defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non‑defaulting Underwriters, or

(ii)if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement, or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery, shall terminate without liability on the part of any non‑defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.

In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either (i) the Representatives or (ii) the Company shall have the right to postpone the Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term “Underwriter” includes any person substituted for an Underwriter

under this Section 10.

Section 11.Tax Disclosure. Notwithstanding any other provision of this Agreement, from the commencement of discussions with respect to the transactions contemplated hereby, the Company (and each employee, representative or other agent of the Company) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure (as such terms are used in Sections 6011, 6111 and 6112 of the U.S. Code and the Treasury Regulations promulgated thereunder) of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax structure.

Section 12.Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to Deutsche Bank Securities Inc., 60 Wall Street, New York, New York 10005, Attention: Equity Capital Markets Syndicate; facsimile: 212-797-9344, with a copy to (which shall not constitute notice) Hunton & Williams LLP, Bank of America Plaza, Suite 4100, Atlanta, Georgia 30308, Attention of Trevor K. Ross, Esq.; notices to the Company and the Manager shall be directed to each of them at 2 Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20814, attention of Secretary, each with a copy to (which shall not constitute notice) Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036, Attention of David J. Goldschmidt, Esq.

Section 13.No Advisory or Fiduciary Relationship. The Company acknowledges and agrees that (i) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the public offering price of the Securities and any related discounts and commissions, is an arm's-length commercial transaction between the Company and the Manager, on the one hand, and the several Underwriters, on the other hand, (ii) in connection with the offering contemplated hereby and the process leading to such transaction each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company, the Manager, or their respective stockholders, creditors, employees or any other party, (iii) each Underwriter has not assumed and will not assume an advisory or fiduciary responsibility in favor of the Company or the Manager with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether the Underwriter has advised or is currently advising the Company or the Manager on other matters) and each Underwriter has no obligation to the Company or the Manager with respect to the offering contemplated hereby except the obligations expressly set forth in this Agreement, (iv) the Underwriters and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of each of the Company and the Manager, and (v) the Underwriters and their respective agents have not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby and the Company and the Manager have consulted their own respective legal, accounting, regulatory and tax advisors to the extent each deemed appropriate.

Section 14.Research Analyst Independence. The Company acknowledges that the Underwriters' research analysts and research departments are required to be independent from its investment banking division and is subject to certain regulations and internal policies, and that Underwriter's research analysts may hold views and make statements or investment recommendations and/or publish research reports with respect to the Company and/or the offering that differ from the views of their respective investment banking divisions. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Underwriters with respect to any conflict of interest that may arise from the fact that the views expressed by its research analysts and research department may be different from or inconsistent with the views or advice communicated to the Company by Underwriters' investment banking division. The Company acknowledges that each Underwriter is a full service securities firm and as such from time to time, subject to applicable securities laws, may effect transactions for its own account or the

account of its customers and hold long or short positions in debt or equity securities of the Company and any other companies that may be the subject of the transactions contemplated by this Agreement.

Section 15.Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Manager and the Underwriters, or any of them, with respect to the subject matter hereof.

Section 16.Parties. This Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Company, the Manager and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company, the Manager and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company, the Manager and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.

Section 17.GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 18.TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

Section 19.Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.

Section 20.Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

[Signature Page Follows.]

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company and the Manager a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Company and the Manager in accordance with its terms.

Very truly yours,

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

By:/s/ Samuel A. Flax

Name:Samuel A. Flax

Title:Executive Vice President and Secretary

AMERICAN CAPITAL MTGE MANAGEMENT, LLC

By:/s/ Samuel A. Flax

Name:Samuel A. Flax

Title:Executive Vice President and Secretary

CONFIRMED AND ACCEPTED,

as of the date first above written:

For themselves and as Representatives of the several Underwriters named in Schedule I hereto.

Citigroup Global Markets Inc.

By:/s/ Christian Anderson

Name: Christian Anderson

Title: Managing Director

CREDIT SUISSE SECURITIES (USA) LLC

By:/s/ Marcin Urbaszek

Name: Marcin Urbaszek

Title: Director

DEUTSCHE BANK SECURITIES INC.

By:/s/ Neil Abromavage

Name: Neil Abromavage

Title: Managing Director

By:/s/ Frank Windels

Name: Frank Windels

Title: Managing Director

UBS SECURITIES LLC

By:/s/ Halle J. Benett

Name: Halle J. Benett

Title: Managing Director

By:/s/ Ethan Elzen

Name: Ethan Elzen

Title: Associate Director

WELLS FARGO SECURITIES, LLC

By:/s/ Richard Tobin

Name: Richard Tobin

Title: Managing Director

SCHEDULE I

Name of Underwriter	Number of Initial Securities
Citigroup Global Markets Inc.	2,400,000
Credit Suisse Securities (USA) LLC	2,400,000
Deutsche Bank Securities Inc.	2,400,000
UBS Securities LLC	2,400,000
Wells Fargo Securities, LLC	2,400,000
Total	12,000,000

SCHEDULE II

Information Conveyed at the Applicable Time

Price to Public: Variable

Number of Initial Securities: 12,000,000

Number of Option Securities: 1,791,650

SCHEDULE III

Issuer General Use Free Writing Prospectus

None

SCHEDULE IV

List of Subsidiaries

American Capital Mortgage Investment TRS, LLC, a Delaware limited liability company

SCHEDULE V

List of Persons and Entities Subject to Lock Up Agreements

American Capital MTGE Management, LLC

Malon Wilkus

John R. Erickson

Samuel A. Flax

Alvin N. Puryear

Morris A. Davis

Gary Kain

Randy E. Dobbs

Larry K. Harvey

Robert M. Couch

Peter J. Federico

Christopher Kuehl

Exhibit E

FORM OF LOCK‑UP AGREEMENT

TO BE DELIVERED PURSUANT TO SECTION 5(j)

March 13, 2012

Citigroup Global Markets Inc.

Credit Suisse Securities (USA) LLC

Deutsche Bank Securities Inc.

UBS Securities LLC

Wells Fargo Securities, LLC

c/o Deutsche Bank Securities Inc.

60 Wall Street, 41st Floor

New York, NY 10005-2836

As Representatives of the several Underwriters

Re: Proposed Public Offering by American Capital Mortgage Investment Corp.

Dear Sirs:

The undersigned, an officer and/or director, manager or affiliate of American Capital Mortgage Investment Corp., a Maryland corporation (the “Company”), understands that Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., UBS Securities LLC and Wells Fargo Securities, LLC (in such capacity, the “Representatives”) propose to enter into an Underwriting Agreement (the “Underwriting Agreement”) with the Company and American Capital MTGE Management, LLC, a Delaware limited liability company and manager of the Company (the “Manager”), providing for the public offering of shares of the Company's common stock, $0.01 par value per share (“Common Stock”). In recognition of the benefit that such an offering will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with the Representatives that, during a period of 30 days following the date of the Underwriting Agreement (subject to extensions as discussed below) (the “Lock-Up Period”), the undersigned will not, without the prior written consent of the Representatives, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any of the shares of Common Stock or any securities convertible into or exchangeable or exercisable for shares of Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file, or cause to be filed, any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing (collectively, the “Lock-Up Securities”) or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to

be settled by delivery of shares of Common Stock or other securities, in cash or otherwise.

Notwithstanding the foregoing, if:

(1)during the last 17 days of the Lock-Up Period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or

(2)prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the Lock-Up Period,

the restrictions imposed by this lock-up agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as applicable, unless the Representatives waive, in writing, such extension.

For the avoidance of doubt, nothing contained herein shall prevent the undersigned from or restrict the ability of the undersigned to (i) purchase shares of Common Stock or other securities of the Company or (ii) exercise any options or other convertible securities granted under any benefit plan of the Company; provided, that any shares of Common Stock received upon exercise of such options or other convertible securities shall be subject to the foregoing restrictions.

Notwithstanding the foregoing, the undersigned may make gifts or transfers of Common Stock to, or for the benefit of, family members, charitable institutions, and trusts, limited partnerships or other entities created for estate planning purposes, the principal beneficiaries of which are family members or charitable institutions, subject to the condition that any such family member or charitable institution or other holder shall execute an agreement with the Representatives stating that such transferee is receiving and holding the shares of Common Stock subject to the provisions of this lock-up agreement. In addition, if the undersigned is a corporation, partnership, limited liability company or other entity, the undersigned may transfer shares of Common Stock to persons or other entities that own equity interests in the undersigned, subject to the condition that the recipient shall execute an agreement with the Representatives stating that such recipient is receiving and holding the shares of Common Stock subject to the provisions of this lock-up agreement.

The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of the Lock-Up Securities, except in compliance with the foregoing instructions.

THIS LOCK-UP AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[Signature page follows.]

Very truly yours,

Signature:

Print Name:

Title:

EX-31.1

Exhibit 31.1

American Capital Mortgage Investment Corp.

Certification Pursuant to Section 302(a)

of the Sarbanes-Oxley Act of 2002

I, Malon Wilkus, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of American Capital Mortgage Investment Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (Reserved)

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 11, 2012	By:	/s/    MALON WILKUS
			Malon Wilkus Chair of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

American Capital Mortgage Investment Corp.

Certification Pursuant to Section 302(a)

of the Sarbanes-Oxley Act of 2002

I, John R. Erickson, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of American Capital Mortgage Investment Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (Reserved)

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 11, 2012	By:	/s/    JOHN R. ERICKSON
			John R. Erickson Chief Financial Officer and Executive Vice President

EX-32

Exhibit 32

American Capital Mortgage Investment Corp.

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

We, Malon Wilkus, Chief Executive Officer and Chair of the Board of Directors, and John R. Erickson, Executive Vice President and Chief Financial Officer of American Capital Mortgage Investment Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:

1. The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 11, 2012	By:	/s/    MALON WILKUS
			Malon Wilkus Chair of the Board and Chief Executive Officer
Date:	May 11, 2012	By:	/s/    JOHN R. ERICKSON
			John R. Erickson Chief Financial Officer and Executive Vice President

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Agency Securities

3 Months Ended

Mar. 31, 2012

Agency Securities [Abstract]

Agency Securities

Agency Securities

The following table summarizes our investments in agency securities as of March 31, 2012 and December 31, 2011(dollars in thousands):

	As of March 31, 2012
	Fannie Mae			Freddie Mac			Total
Fixed-rate agency securities:
Agency securities, par	$	3,015,151		$	659,517		$	3,674,668
Unamortized premium	118,771			33,485			152,256
Amortized cost	3,133,922			693,002			3,826,924
Gross unrealized gains	16,257			4,876			21,133
Gross unrealized losses	(2,522		)	(788		)	(3,310		)
Fixed-rate agency securities, at fair value	$	3,147,657		$	697,090		$	3,844,747
Weighted average coupon as of March 31, 2012	3.56		%	3.79		%	3.60		%
Weighted average yield as of March 31, 2012	2.92		%	2.88		%	2.92		%
Weighted average yield for the three months ended March 31, 2012	3.09		%	3.19		%	3.11		%

	As of December 31, 2011
	Fannie Mae			Freddie Mac			Total
Fixed-rate agency securities:
Agency securities, par	$	1,240,435		$	396,625		$	1,637,060
Unamortized premium	64,700			24,514			89,214
Amortized cost	1,305,135			421,139			1,726,274
Gross unrealized gains	11,260			2,923			14,183
Gross unrealized losses	(120		)	(246		)	(366		)
Fixed-rate agency securities, at fair value	$	1,316,275		$	423,816		$	1,740,091
Weighted average coupon as of December 31, 2011	3.95		%	4.19		%	4.01		%
Weighted average yield as of December 31, 2011	2.85		%	2.91		%	2.87		%
Weighted average yield for the three months ended December 31, 2011	2.88		%	2.94		%	2.90		%

Actual maturities of agency securities are generally shorter than the stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic principal payments and principal prepayments. The following table summarizes our agency securities as of March 31, 2012 and December 31, 2011 according to their estimated weighted average life classification (dollars in thousands):

	As of March 31, 2012						As of December 31, 2011
Weighted Average Life	Fair Value		Amortized Cost		Weighted Average Yield		Fair Value		Amortized Cost		Weighted Average Yield
Greater than one year and less than or equal to three years	—		—		—	%	55,582		55,260		2.17	%
Greater than three years and less than or equal to five years	282,266		277,754		2.56	%	425,251		422,406		2.49	%
Greater than five years	3,562,481		3,549,170		2.94	%	1,259,258		1,248,608		3.02	%
Total / weighted average	$	3,844,747	$	3,826,924	2.92	%	$	1,740,091	$	1,726,274	2.87	%

As of March 31, 2012 and December 31, 2011, the weighted average life of our agency security portfolio was 7.3 years and 5.9 years, respectively, which incorporates anticipated future prepayment assumptions. As of March 31, 2012 and December 31, 2011, our weighted average expected constant prepayment rate (“CPR”) over the remaining life of our aggregate agency investment portfolio was 7% and 11%, respectively. Our estimates differ materially for different types of securities and thus individual holdings have a wide range of projected CPRs. We estimate long-term prepayment assumptions for different securities using third-party services and market data. These third-party services estimate prepayment speeds using models that incorporate the forward yield curve, current mortgage rates, mortgage rates of the outstanding loans, loan age, volatility and other factors. We review the prepayment speeds estimated by the third-party services and compare the results to market consensus prepayment speeds, if available. We also consider historical prepayment speeds and current market conditions to validate reasonableness. As market conditions may change rapidly, we use our judgment in developing our estimates for different securities. Prepayments are dependent on many factors and actual prepayments could differ materially from our estimates. Various market participants could use materially different assumptions. Furthermore, changes in market conditions such as interest rates, housing prices, and broad economic factors such as employment can materially impact prepayments. Additionally, modifications to GSE underwriting criteria or programs, GSE policies surrounding the buyouts or modifications of delinquent loans or other factors could significantly change the prepayment landscape.

Realized Gains and Losses

The following table is a summary of our net realized gain from the sale of agency securities for the three months ended March 31, 2012 (dollars in thousands):

Proceeds from agency securities sold	$	571,428
Less decrease in receivable for agency securities sold	(198,598		)
Less agency securities sold, at cost	(366,859		)
Net realized gains on sale of agency securities	$	5,971
Gross realized gains on sale of agency securities	$	5,971
Gross realized losses on sale of agency securities	—
Net realized gains on sale of agency securities	$	5,971

Pledged Assets

The following tables summarize our agency securities pledged as collateral under repurchase agreements and derivative agreements by type as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	As of March 31, 2012
Agency Securities Pledged(1)	Fannie Mae		Freddie Mac		Total
Under Repurchase Agreements
Fair value	$	3,024,019	$	621,370	$	3,645,389
Amortized cost	3,010,573		617,521		3,628,094
Accrued interest on pledged agency securities	8,582		1,892		10,474
Under Derivative Agreements
Fair value	2,315		5,169		7,484
Amortized cost	2,366		5,196		7,562
Accrued interest on pledged agency securities	8		16		24
Total Fair Value of Agency Securities Pledged and Accrued Interest	$	3,034,924	$	628,447	$	3,663,371

	As of December 31, 2011
Agency Securities Pledged(1)	Fannie Mae		Freddie Mac		Total
Under Repurchase Agreements
Fair value	$	1,219,634	$	311,641	$	1,531,275
Amortized cost	1,208,426		309,958		1,518,384
Accrued interest on pledged agency securities	3,791		1,006		4,797
Under Derivative Agreements
Fair value	1,019		3,094		4,113
Amortized cost	1,006		3,072		4,078
Accrued interest on pledged agency securities	4		10		14
Total Fair Value of Agency Securities Pledged and Accrued Interest	$	1,224,448	$	315,751	$	1,540,199

—————— 

⁽¹⁾   Agency securities pledged do not include pledged amounts of $72.8 million and $269.5 million under repurchase agreements related to agency securities sold but not yet settled as of March 31, 2012 and December 31, 2011, respectively.

The following table summarizes our agency securities pledged as collateral under repurchase agreements by remaining maturity as of March 31, 2012 and December 31, 2011(dollars in thousands):

	As of March 31, 2012						As of December 31, 2011
Remaining Maturity	Fair Value		Amortized Cost		Accrued Interest on Pledged Agency Securities		Fair Value		Amortized Cost		Accrued Interest on Pledged Agency Securities
30 days or less	$	2,144,523	$	2,132,334	$	6,417	$	961,430	$	952,684	$	3,052
31 - 59 days	484,272		482,917		1,323		441,167		437,969		1,347
60 - 90 days	837,109		834,543		2,198		53,265		53,082		129
Greater than 90 days	179,485		178,300		536		75,413		74,649		269
Total	$	3,645,389	$	3,628,094	$	10,474	$	1,531,275	$	1,518,384	$	4,797

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Fair Value of Financial Assets

We have elected the option to account for all of our financial assets, including all mortgage-related investments, at estimated fair value, with changes in fair value reflected in income during the period in which they occur. In management's view, this election more appropriately reflects the results of our operations for a particular reporting period, as financial asset fair value changes are presented in a manner consistent with the presentation and timing of the fair value changes of economic hedging instruments. See Note 8 - Fair Value Measurements.

Interest Income

Interest income is accrued based on the outstanding principal amount of the securities and their contractual terms. Premiums and discounts associated with the purchase of agency securities and non-agency securities of high credit quality are amortized or accreted into interest income over the projected lives of the securities, including contractual payments and estimated prepayments, using the effective interest method. We estimate long-term prepayment speeds using a third-party service and market data.

The third-party service estimates prepayment speeds using models that incorporate the forward yield curve, current mortgage rates, current mortgage rates of the outstanding loans, loan age, volatility and other factors. We review the prepayment speeds estimated by the third-party service and compare the results to market consensus prepayment speeds, if available. We also consider historical prepayment speeds and current market conditions to validate the reasonableness of the prepayment speeds estimated by the third-party service, and based on our Manager’s judgment, we may make adjustments to their estimates. Actual and anticipated prepayment experience is reviewed at least quarterly and effective yields are recalculated when differences arise between the previously estimated future prepayments and the amounts actually received plus current anticipated future prepayments. If the actual and anticipated future prepayment experience differs from our prior estimate of prepayments, we are required to record an adjustment in the current period to the amortization or accretion of premiums and discounts for the cumulative difference in the effective yield through the reporting date.

At the time we purchase non-agency securities and loans that are not of high credit quality, we determine an effective interest rate based on our estimate of the timing and amount of future cash flows and our cost basis. Our initial cash flow estimates for these investments are based on our observations of current information and events and include assumptions related to interest rates, prepayment rates and the timing and amount of credit losses. On at least a quarterly basis, we review the estimated cash flows and make appropriate adjustments, based on input and analysis received from external sources, internal models, and our judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment as adjusted for credit impairment, if any.

Repurchase Agreements

We finance the acquisition of agency securities and certain non-agency securities for our investment portfolio through repurchase transactions under master repurchase agreements. Pursuant to Accounting Standards Codification ("ASC") Topic 860, Transfers and Servicing, we account for repurchase transactions, other than those treated as Linked Transactions (see Derivatives below), as collateralized financing transactions which are carried at their contractual amounts, including accrued interest, as specified in the respective transaction agreements. Repurchase agreements are carried at cost which approximates fair value due to their short-term nature.

Derivatives

We maintain a risk management strategy, under which we may use a variety of derivative instruments to economically hedge some of our exposure to market risks, including interest rate risk, prepayment risk and credit risk. The objective of our risk management strategy is to reduce fluctuations in net book value over a range of market conditions. The principal instruments that we currently use are interest rate swaps, to-be-announced forward contracts (“TBAs”), U.S. Treasury securities, and options to enter into interest rate swaps (“interest rate swaptions”). In the future, we may also use forward contracts for specified agency securities, U.S. Treasury futures contracts and put or call options on TBA securities. We may also invest in other types of mortgage derivatives, such as interest-only securities, credit default swaps and synthetic total return swaps.

We recognize all derivatives as either assets or liabilities on the balance sheet, measured at fair value. As we have not designated any derivatives as hedging instruments, all changes in fair value are reported in earnings in our consolidated statement of operations in unrealized loss on other derivatives and securities, net during the period in which they occur. Derivatives in a gain position are reported as derivative assets at fair value and derivatives in a loss position are reported as derivative liabilities at fair value in our consolidated balance sheet.

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We attempt to minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings, monitoring positions with individual counterparties and adjusting posted collateral as required.

Interest rate swap agreements

We use interest rate swaps to hedge the variable cash flows associated with short-term borrowings made under our repurchase agreement facilities. We estimate the fair value of interest rate swaps based on inputs from a third-party pricing model. The third-party pricing model incorporates such factors as the Treasury curve, LIBOR rates, and the pay rate on the interest rate swap. We also incorporate both our own and our counterparties’ nonperformance risk in estimating the fair value of our interest rate swap and swaption agreements. In considering the effect of nonperformance risk, we consider the impact of netting and credit enhancements, such as collateral postings and guarantees, and have concluded that our own and our counterparty risk is not significant to the overall valuation of these agreements. The payment of periodic settlements of net interest on interest rate swaps are reported in realized loss on periodic settlements of interest rate swaps, net in our consolidated statement of operations. Cash payments received or paid for the early termination of an interest rate swap agreement are recorded as realized gain on other derivatives and securities, net in our consolidated statement of operations. Changes in fair value of our interest rate swap agreements are reported in unrealized loss on other derivatives and securities, net in our consolidated statement of operations.

Interest rate swaptions

We purchase interest rate swaptions to help mitigate the potential impact of increases or decreases in interest rates on the performance of our investment portfolio (referred to as "convexity risk"). The interest rate swaptions provide us the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The premium paid for interest rate swaptions is reported as a derivative asset in our consolidated balance sheets. The premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk, if any. The difference between the premium and the fair value of the swaption is reported in unrealized loss on other derivatives and securities, net in our consolidated statement of operations. If a swaption expires unexercised, the loss on the swaption would be equal to the premium paid and reported in realized gain on other derivatives and securities, net in our consolidated statement of operations. If we exercise a swaption, the realized gain or loss on the swaption would be equal to the difference between the fair value of the underlying interest rate swap and the premium paid and reported in realized gain on other derivatives and securities, net in our consolidated statement of operations.

We estimate the fair value of interest rate swaptions based on the fair value of the future interest rate swap that we have the option to enter into as well as the remaining length of time that we have to exercise the option.

TBA securities

A TBA security is a futures contract for the purchase or sale of agency securities at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed upon future date. The specific agency securities delivered under the contract on the settlement date, which is published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. Realized gains and losses associated with our TBA contracts are recognized on our consolidated statement of operations in the line item realized gain on other derivatives and securities, net, and unrealized gains and losses are recognized in unrealized loss on other derivatives and securities, net, in the period in which they occur. We estimate the fair value of TBA securities based on similar methods used to value agency securities.

Linked Transactions

If we finance the purchase of securities with repurchase agreements with the same counterparty from whom the securities are purchased and both transactions are entered into contemporaneously or in contemplation of each other, the transactions are presumed not to meet sale accounting criteria. We will account for the purchase of such securities and the repurchase agreement on a net basis and record a forward purchase commitment to purchase securities (each, a “Linked Transaction”) at fair value on our consolidated balance sheet in the line item Linked Transactions, at fair value. Changes in the fair value of the assets and liabilities underlying the Linked Transactions and associated interest income and expense are reported as unrealized gain and net interest income on linked transactions, net on our consolidated statement of operations.

Forward commitments to purchase or sell specified securities

We may enter into a forward commitment to purchase or sell specified securities as a means of acquiring assets or as a hedge against short-term changes in interest rates. Contracts for the purchase or sale of specified securities are accounted for as derivatives if the delivery of the specified security and settlement extends beyond the shortest period possible for that type of security. Realized gains and losses associated with forward commitments are recognized in the line item realized gain on other derivatives and securities, net and unrealized gains and losses are recognized in unrealized loss on other derivatives and securities, net on our consolidated statement of operations. We estimate the fair value of forward commitments to purchase or sell specified mortgage-backed securities based on similar methods used to value mortgage-backed securities, as well as the remaining length of time of the forward commitment.

U.S. Treasury securities

We may purchase or sell short U.S. Treasury securities and U.S. Treasury futures contracts to help mitigate the potential impact of changes in interest rates on the performance of our portfolio. We may borrow securities to cover short sales of U.S. Treasury securities under reverse repurchase agreements. We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on our consolidated balance sheet based on the value of the underlying borrowed securities as of the reporting date. Realized gains and losses associated with purchases and short sales of U.S. Treasury securities are recognized in realized gain on other derivatives and securities, net, and unrealized gains and losses are recognized in unrealized loss on other derivatives and securities, net, on our consolidated statement of operations.

Recent Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). The update requires new disclosures about balance sheet offsetting and related arrangements. For derivatives and financial assets and liabilities, the amendments require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to the offsetting requirements but not offset on the balance sheet. The guidance is effective December 1, 2013 and is to be applied retrospectively. This guidance does not amend the existing guidance on when it is appropriate to offset. As a result, we do not expect this guidance to have a material effect on our financial statements.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets:
Agency securities, at fair value (including pledged securities of $3,652,873 and $1,535,388, respectively)	$ 3,844,747	$ 1,740,091
Non-agency securities, at fair value (including pledged securities of $79,202 and $8,626, respectively)	128,941	25,561
Linked transactions, at fair value	16,241	13,671
Cash and cash equivalents	79,161	57,428
Restricted cash	21,187	3,159
Interest receivable	11,103	5,566
Derivative assets, at fair value	6,178	1,845
Receivable for agency securities sold	73,251	271,849
Receivable under reverse repurchase agreements	122,994	50,563
Other assets	486	589
Total assets	4,304,289	2,170,322
Liabilities:
Repurchase agreements	3,567,398	1,706,281
Payable for agency securities purchased	111,404	189,042
Derivative liabilities, at fair value	12,266	5,669
Dividend payable	9,011	8,005
Obligation to return securities borrowed under reverse repurchase agreements, at fair value	121,889	50,154
Accounts payable and other accrued liabilities	2,874	2,370
Total liabilities	3,824,842	1,961,521
Stockholders' equity:
Preferred stock, $0.01 par value; 50,000 shares authorized, 0 shares issued and outstanding, respectively	0	0
Common stock, $0.01 par value; 300,000 and 22,012 and 10,006 shares issued and outstanding, respectively	220	100
Additional paid-in capital	457,255	199,038
Retained earnings	21,972	9,663
Total stockholders' equity	479,447	208,801
Total liabilities and stockholders' equity	$ 4,304,289	$ 2,170,322

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Consolidated Statement Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income	$ 21,320
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of premiums and discounts, net	1,238
Unrealized gain on securities and derivatives, net	(2,307)
Realized gain on agency securities, net	(5,971)
Realized loss on other derivatives and securities, net	(562)
Increase in interest receivable	(5,537)
Decrease in other assets	103
Increase in accounts payable and other accrued liabilities	504
Stock-based compensation	16
Net cash provided by operating activities	8,804
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of agency securities	(2,585,473)
Purchases of non-agency securities	(96,074)
Proceeds from sale of agency securities	571,428
Principal collections on agency securities	37,667
Principal collections on non-agency securities	2,151
Purchases of non-agency securities underlying linked transactions	(6,589)
Principal collections on non-agency securities underlying linked transactions	1,987
Purchases of U.S. Treasury securities sold, not yet settled	(1,015,802)
Proceeds from sale of U.S. Treasury securities sold, not yet settled	1,092,521
Payments of reverse repurchase agreements	(368,914)
Proceeds from reverse repurchase agreements	296,483
Purchases of U.S. Treasury securities	(50,167)
Proceeds from sale of U.S. Treasury securities	49,902
Payment of premiums for interest rate swaptions	(3,881)
Increase (Decrease) in Restricted Cash	(18,028)
Net payments on other derivatives	(4,727)
Net cash flows used in investing activities	(2,097,516)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(8,005)
Proceeds from common stock offerings, net of offering costs	258,321
Proceeds from repurchase agreements	4,225,558
Repayments on repurchase agreements	(2,368,087)
Proceeds from repurchase agreements underlying linked transactions	91,735
Repayments of repurchase agreements underlying linked transactions	(89,077)
Payment of premiums for interest rate swaptions	(3,881)
Increase in restricted cash	(18,028)
Net cash flow from financing activities	2,110,445
Net increase in cash and cash equivalents	21,733
Cash and cash equivalents at beginning of period	57,428
Cash and cash equivalents at end of period	$ 79,161

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Organization

3 Months Ended

Mar. 31, 2012

Organization [Abstract]

Organization

Organization

We were incorporated in Maryland on March 15, 2011 and commenced operations on August 9, 2011 following the completion of our initial public offering (“IPO”) of 8.0 million shares of common stock. Concurrent with our IPO, American Capital, Ltd. ("American Capital") purchased 2.0 million shares of our common stock in a private placement. We are externally managed by American Capital MTGE Management, LLC (our “Manager”), an affiliate of American Capital. We do not have any employees. Our common stock is traded on the NASDAQ Global Select Market under the symbol “MTGE.”

We invest in, finance and manage a leveraged portfolio of mortgage-related investments, which we define to include agency mortgage investments, non-agency mortgage investments and other mortgage-related investments. Agency mortgage investments include residential mortgage pass-through certificates and collateralized mortgage obligations (“CMOs”) structured from residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government-sponsored entity (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or by a U.S. Government agency, such as the Government National Mortgage Association ("Ginnie Mae”). Non-agency mortgage investments include residential mortgage-backed securities (“RMBS”) backed by residential mortgages that are not guaranteed by a GSE or U.S. Government agency. Non-agency mortgage investments may also include prime and non-prime residential mortgage loans. Other mortgage-related investments may include commercial mortgage-backed securities (“CMBS”), commercial mortgage loans, mortgage-related derivatives and other mortgage-related investments.

Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term through a combination of dividends and net book value appreciation. In pursuing this objective, we rely on our Manager's expertise to construct and manage a diversified mortgage investment portfolio by identifying asset classes that, when properly financed and hedged, are designed to produce attractive returns across a variety of market conditions and economic cycles, considering the risks associated with owning such investments.

We will elect to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As such, we are required to distribute annually at least 90% of our taxable net income. As long as we qualify as a REIT, we will generally not be subject to U.S. federal or state corporate taxes on our taxable net income to the extent that we distribute all of our annual taxable net income to our stockholders. It is our intention to distribute 100% of our taxable income, after application of available tax attributes, within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

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Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Agency securities, pledged assets	$ 3,652,873	$ 1,535,388
Non agency securities, pledged assets	$ 79,202	$ 8,626
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	50,000	50,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300,000	300,000
Common stock, shares issued	22,012	10,006
Common stock, shares outstanding	22,012	10,006

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 01, 2012
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Entity Registrant Name	American Capital Mortgage Investment Corp.
Entity Central Index Key	0001516973
Entity Filer Category	Non-accelerated Filer
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		23,612,100
Trading Symbol	MGTE

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Consolidated Statement Of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	May 01, 2012
Interest income:
Agency securities	$ 15,306
Non-agency securities	1,271
Other	25
Interest expense	(1,664)
Net interest income	14,938
Other gains (losses):
Realized gain on agency securities, net	5,971
Realized loss on periodic settlements of interest rate swaps, net	(1,041)
Realized gain on other derivatives and securities, net	562
Unrealized gain on agency securities, net	4,006
Unrealized gain on non-agency securities, net	2,411
Unrealized gain and net interest income on linked transactions, net	3,384
Unrealized loss on other derivatives and securities, net	(6,785)
Total other gains, net	8,508
Expenses:
Management fees	1,082
General and administrative expenses	1,035
Total expenses	2,117
Income before excise tax	21,329
Excise tax	9
Net income	$ 21,320
Net income per common share—basic and diluted	$ 1.82
Weighted average number of common shares outstanding—basic and diluted		11,724
Dividends declared per common share	$ 0.90

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Derivatives

3 Months Ended

Mar. 31, 2012

Derivative Instruments [Abstract]

Derivatives

Derivatives

In connection with our risk management strategy, we economically hedge a portion of our exposure to market risks, including interest rate risk and prepayment risk, by entering into derivative and other hedging instrument contracts. We may enter into agreements for interest rate swap agreements, interest rate swaptions, interest rate cap or floor contracts and futures or forward contracts. We may also purchase or short TBA and U.S. Treasury securities, purchase or write put or call options on TBA securities or we may invest in other types of derivative securities, including interest-only securities, synthetic total return swaps and credit default swaps. Our risk management strategy attempts to manage the overall risk of the portfolio and reduce fluctuations in book value. We do not use derivative or other hedging instruments for speculative purposes. Derivatives have not been designated as hedging instruments. We do not offset our derivatives and related cash collateral with the same counterparties under any master netting arrangements. For additional information regarding our derivative instruments and our overall risk management strategy, please refer to the discussion of derivatives in Note 3- Summary of Significant Accounting Policies.

The following table summarizes information about our outstanding derivatives as of March 31, 2012 (in thousands):

Derivatives	Beginning Notional Amount			Additions/ Long Positions		Expirations/ Terminations/ Short Positions		Ending Notional Amount			Unrealized Gain (Loss) on Other Derivatives and Securities, net			Realized Gain (Loss) on Other Derivatives and Securities, Net			Realized Loss on Periodic Settlements of Interest Rate Swaps			Unrealized Gain and  Net Interest Income on Linked Transactions, net
Interest rate swaps	$	875,000		1,315,000		—		$	2,190,000		$	(5,271	)	$	—		$	(1,041	)	$	—
Interest rate swaptions	$	50,000		350,000		—		$	400,000		(413		)	—			—			—
TBA securities	$	(101,000	)	(1,397,000	)	1,135,600		$	(362,400	)	(2,056		)	(2,936		)	—			—
Short sales of U.S. Treasuries	$	(50,000	)	(1,101,000	)	1,028,000		$	(123,000	)	955			3,763			—			—
U.S. Treasuries	$	—		50,168		(50,168	)	$	—		—			(265		)	—			—
Linked Transactions (1)	$	88,671		10,254		(11,967	)	$	86,958		—			—			—			3,384
											$	(6,785	)	$	562		$	(1,041	)	$	3,384

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⁽¹⁾ The notional amount of Linked Transaction is represented by the current face amount of the underlying securities.

The table below presents fair value information about our derivatives outstanding as of March 31, 2012 and December 31, 2011(in thousands):

Derivative Type	Location on the Balance Sheet	As of March 31, 2012		As of December 31, 2011
Interest rate swaps	Derivative assets, at fair value	$	1,043	$	348
Interest rate swaptions	Derivative assets, at fair value	4,224		828
TBA securities	Derivative assets, at fair value	911		669
Derivative assets, at fair value		$	6,178	$	1,845
Interest rate swaps	Derivative liabilities, at fair value	$	7,990	$	3,734
TBA securities	Derivative liabilities, at fair value	4,276		1,935
Derivative liabilities, at fair value		$	12,266	$	5,669

Interest Rate Swap Agreements

As of March 31, 2012 and December 31, 2011, our derivative and other hedging instruments included interest rate swaps, which have the effect of modifying the repricing characteristics of our repurchase agreements and cash flows on such liabilities. Our interest rate swaps are used to manage the interest rate risk created by our variable rate short-term repurchase agreements. Under our interest rate swaps, we typically pay a fixed-rate and receive a floating rate based on LIBOR with terms usually ranging up to ten years.

As of March 31, 2012 and December 31, 2011, we had interest rate swap agreements summarized in the tables below (dollars in thousands).

		As of March 31, 2012					As of December 31, 2011
Interest Rate Swaps	Balance Sheet Location	Notional Amount		Net Estimated Fair Value			Notional Amount		Net Estimated Fair Value
Interest rate swap assets	Derivative assets, at fair value	$	250,000	$	1,043		$	200,000	$	348
Interest rate swap liabilities	Derivative liabilities, at fair value	1,940,000		(7,990		)	675,000		(3,734		)
		$	2,190,000	$	(6,947	)	$	875,000	$	(3,386	)

As of March 31, 2012
Current Maturity Date for Interest Rate Swaps (1)	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Net Estimated Fair Value			Weighted Average Maturity (Years)
2014	$	100,000	0.64	%	0.49	%	$	(16	)	2.4
2015	450,000		0.85	%	0.49	%	(944		)	3.2
2016	250,000		1.23	%	0.50	%	(1,737		)	4.3
2017	990,000		1.39	%	0.47	%	(3,558		)	5.1
2018	25,000		1.73	%	0.55	%	(217		)	6.6
2019	350,000		1.81	%	0.47	%	(379		)	7.0
2021	25,000		2.30	%	0.47	%	(96		)	9.6
Total / weighted average	$	2,190,000	1.31	%	0.48	%	$	(6,947	)	4.9

As of December 31, 2011
Current Maturity Date for Interest Rate Swaps (2)	Notional Amount		Weighted Average Fixed Pay Rate		Weighted Average Receive Rate		Net Estimated Fair Value			Weighted Average Maturity (Years)
2014	$	100,000	0.64	%	0.50	%	$	217		2.7
2015	450,000		0.85	%	0.48	%	(418		)	3.4
2016	250,000		1.23	%	0.47	%	(2,166		)	4.5
2018	25,000		1.73	%	0.43	%	(257		)	6.8
2019	25,000		1.83	%	0.58	%	(494		)	7.1
2021	25,000		2.30	%	0.58	%	(268		)	9.9
Total / weighted average	$	875,000	1.03	%	0.48	%	$	(3,386	)	4.0

————————

⁽¹⁾  Includes swaps with an aggregate notional of $1.3 billion, with deferred start dates ranging from one to two months from March 31, 2012.

⁽²⁾  Includes swaps with an aggregate notional of $50.0 million, with deferred start dates ranging from two to five months from December 31, 2011.

Interest Rate Swaption Agreements

Our interest rate swaption agreements provide us the option to enter into interest rate swap agreements in the future where we would pay a fixed rate and receive LIBOR. The following table presents certain information about our interest rate swaption agreements as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	Option					Underlying Swap
	Cost		Fair Value		Weighted Average Years to Expiration	Notional Amount		Pay Rate		Average Term (Years)
As of March 31, 2012	$	4,693	$	4,224	0.7	$	400,000	2.65	%	8.6
As of December 31, 2011	$	884	$	828	0.8	$	50,000	2.81	%	10.8

TBA Securities

As of March 31, 2012, and December 31, 2011, we had contracts to purchase (“long position”) and sell (“short position”) TBA securities on a forward basis. Following is a summary of our long and short TBA positions as of March 31, 2012 and December 31, 2011 (in thousands):

	As of March 31, 2012						As of December 31, 2011
Purchase and Sale Contracts for TBA Securities	Notional  Amount			Fair Value			Notional  Amount			Fair Value
Purchase of TBA securities	$	315,000		$	911		$	234,000		$	669
Sale of TBA securities	(677,400		)	(4,276		)	(335,000		)	(1,935		)
Total, net	$	(362,400	)	$	(3,365	)	$	(101,000	)	$	(1,266	)

Additionally, we had obligations to return treasury securities borrowed under reverse repurchase agreements accounted for as securities borrowing transactions with fair values of $121.9 million and $50.2 million, as of March 31, 2012 and December 31, 2011, respectively. The borrowed securities were collateralized by cash payments of $123.0 million and $50.6 million as of March 31, 2012 and December 31, 2011, respectively, which are presented as receivables under reverse repurchase agreements on the consolidated balance sheet. The change in fair value of the borrowed securities is recorded in unrealized gain (loss) on other derivatives and securities, net in our consolidated statement of operations.

Linked Transactions

Our Linked Transactions are evaluated on a combined basis, reported as forward (derivative) instruments and are reported on our consolidated balance sheets at fair value.  The fair value of Linked Transactions reflect the value of the underlying non-agency securities, net of repurchase agreement borrowings and accrued interest receivable and payable on such instruments.  The change in the fair value of our Linked Transactions is reported as unrealized gain and net interest income on linked transactions, net, a component of other gains, net in our consolidated statements of operations.

The following table presents the non-agency securities and repurchase agreements underlying our Linked Transactions at March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012			December 31, 2011
Linked non-agency securities (1)	$	51,845		$	50,193
Linked repurchase agreements	(35,565		)	(36,554		)
Accrued interest (payable) receivable, net	(39		)	32
Linked Transactions, at fair value	$	16,241		$	13,671

————————

⁽¹⁾ See Note 5 - Non-Agency Securities for a description of the non-agency securities within Linked Transactions and Note 6- Repurchase Agreements for a description of the repurchase agreements within Linked Transactions.

The following table presents unrealized loss and net interest income on linked transactions for the three months ended March 31, 2012 (in thousands):

Coupon interest income	$	302
Discount accretion	590
Interest expense	(183		)
Unrealized gain, net (1)	2,675
Unrealized gain and net interest income on linked transactions, net	$	3,384

————————

⁽¹⁾  Unrealized net gain of $2.7 million on non-agency securities underlying Linked Transactions is comprised of $2.8 million gross unrealized gain and $0.1 million gross unrealized loss.

Credit Risk-Related Contingent Features

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties. In addition, we may be required to pledge assets as collateral for our derivatives, whose amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by a counterparty, we may not receive payments provided for under the terms of our derivative agreements, and may have difficulty obtaining our assets pledged as collateral for our derivatives. The cash and cash equivalents pledged as collateral for our derivative instruments is included in restricted cash and cash equivalents on our consolidated balance sheets.

Each of our ISDA Master Agreements contains provisions pursuant to which we are required to fully collateralize our obligations under the swap instrument if at any point the fair value of the swap represents a liability greater than the minimum transfer amount contained within our ISDA Master Agreements. We were also required to post initial collateral upon execution of certain of our swap transactions. If we breach any of these provisions, we will be required to settle our obligations under the agreements at their termination values.

Further, each of our ISDA Master Agreements also contains a cross default provision under which a default under certain of our other indebtedness in excess of a certain threshold causes an event of default under the agreement. Threshold amounts vary by lender. Following an event of default, we could be required to settle our obligations under the agreements at their termination values. Additionally, under certain of our ISDA Master Agreements, we could be required to settle our obligations under the agreements at their termination values if we fail to maintain either our REIT status or certain minimum stockholders’ equity thresholds, or comply with limits on our leverage above certain specified levels.

We had agency securities with fair values of $7.5 million and $4.1 million and restricted cash and cash equivalents of $7.8 million and $3.1 million pledged as collateral against our interest rate swaps as of March 31, 2012 and December 31, 2011, respectively.

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Repurchase Agreements

3 Months Ended

Mar. 31, 2012

Repurchase Agreements [Abstract]

Repurchase Agreements

Repurchase Agreements

We pledge certain of our securities as collateral under repurchase arrangements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. Interest rates on these borrowings are generally based on LIBOR plus or minus a margin and amounts available to be borrowed are dependent upon the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. In response to declines in fair value of pledged securities, lenders may require us to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as margin calls. As of March 31, 2012 and December 31, 2011, we have met all margin call requirements. Repurchase agreements are carried at cost, which approximates fair value due to their short-term nature.

The following tables summarize our borrowings under repurchase arrangements and weighted average interest rates classified by original maturities as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	As of March 31, 2012					As of December 31, 2011
Original Maturity	Borrowings Outstanding		Weighted Average Interest Rate		Weighted Average Days to Maturity	Borrowings Outstanding		Weighted Average Interest Rate		Weighted Average Days to Maturity
Repurchase Agreements
30 days or less	$	809,081	0.43	%	18	$	77,073	0.40	%	10
31 - 60 days	704,460		0.38	%	23	346,201		0.43	%	19
61 - 90 days	703,285		0.37	%	42	372,217		0.39	%	31
91 - 180 days	1,057,375		0.36	%	57	774,594		0.34	%	37
Greater than 180 days	293,197		0.45	%	137	136,196		0.48	%	209
Total / Weighted Average	$	3,567,398	0.39	%	45	$	1,706,281	0.38	%	45
Repurchase Agreements Underlying Linked Transactions
30 days or less	$	11,176	2.17	%	16	$	9,509	2.04	%	$	14
31 - 60 days	18,224		1.96	%	12	13,397		1.98	%	8
61 - 90 days	6,165		2.25	%	45	2,857		2.36	%	18
91 - 180 days	—		—	%	—	10,791		2.07	%	47
Total / Weighted Average	$	35,565	2.06	%	19	$	36,554	2.05	%	$	22

As of March 31, 2012, we had repurchase agreements with 24 financial institutions. In addition, less than 8% of our equity at risk was with any one counterparty as of March 31, 2012 compared to 6% as of December 31, 2011, with the top five counterparties representing less than 22% of our equity at risk as of March 31, 2012 compared to 21% as of December 31, 2011.

We had agency securities with fair values of $3.7 billion and $1.5 billion and non-agency securities with fair values of $79.2 million and $8.6 million, respectively, as of March 31, 2012 and December 31, 2011, pledged as collateral against our repurchase agreements. Agency securities pledged do not include pledged amounts of $72.8 million and $269.5 million under repurchase agreements related to agency securities sold but not yet settled as of March 31, 2012 and December 31, 2011, respectively.

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Unaudited Interim Consolidated Financial Statements

3 Months Ended

Mar. 31, 2012

Unaudited Interim Consolidated Financial Statements [Abstract]

Unaudited Interim Consolidated Financial Statements [Text Block]

Unaudited Interim Consolidated Financial Statements

The interim consolidated financial statements of American Capital Mortgage Investment Corp. (together with its consolidated subsidiary, American Capital Mortgage Investment TRS, LLC, is referred to throughout this report as the “Company”, “we”, “us” and “our”) are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Our interim unaudited consolidated financial statements include the accounts of our wholly-owned subsidiary, American Capital Mortgage Investment TRS, LLC. As of March 31, 2012, there has been no activity in American Capital Mortgage Investment TRS, LLC.

In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim period have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Disclosures [Text Block]

Fair Value Measurements

We have elected the option to account for all of our financial assets, including mortgage-backed securities, at fair value, with changes in fair value reflected in income during the period in which they occur. We have determined that this presentation will most appropriately represent our financial results and position. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the assumptions market participants would use when pricing an asset or liability.

We determine the fair value of our agency and non-agency securities including securities held as collateral, based upon fair value estimates obtained from multiple third party pricing services and dealers. In determining fair value, third party pricing sources use various valuation approaches, including market and income approaches. Factors used by third party sources in estimating the fair value of an instrument may include observable inputs such as recent trading activity, credit data, volatility statistics, and other market data that are current as of the measurement date. The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. Third party pricing sources may also use certain unobservable inputs, such as assumptions of future levels of prepayment, default and loss severity, especially when estimating fair values for securities with lower levels of recent trading activity. When possible, we hold conversations with third party pricing sources to understand their use of significant inputs and assumptions.

We review the various third party fair value estimates and perform procedures to validate their reasonableness, including an analysis of the range of third party estimates for each position, comparison to recent trade activity for similar securities, and our manager's review for consistency with market conditions observed as of the measurement date. While we do not adjust prices we obtain from third party pricing sources, we will exclude third party prices for securities from our determination of fair value if we determine (based on our validation procedures and our manager's market knowledge and expertise) that the price is significantly different than observable market data would indicate and we cannot obtain an understanding from the third party source as to the significant inputs used to determine the price.

We utilize a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. We use the results of the validation procedures described above as part of our determination of the appropriate fair value measurement hierarchy classification. The three levels of hierarchy are defined as follows:

• Level 1 Inputs -    Quoted prices (unadjusted) for identical unrestricted assets and liabilities in active markets that are accessible at the measurement date.

• Level 2 Inputs -    Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

• Level 3 Inputs -    Significant unobservable market inputs that are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities.

The following table presents our financial instruments carried at fair value as of March 31, 2012 and December 31, 2011, on the consolidated balance sheet by the valuation hierarchy, as described above (in thousands):

	As of March 31, 2012
	Level 1		Level 2		Level 3		Total
Assets
Agency securities	$	—	$	3,844,747	$	—	$	3,844,747
Non-agency securities	—		112,767		16,174		128,941
Linked transactions	—		13,841		2,400		16,241
Derivative assets	—		6,178		—		6,178
Total financial assets	$	—	$	3,977,533	$	18,574	$	3,996,107
Liabilities
Derivative liabilities	$	—	$	12,266	$	—	$	12,266
Total financial liabilities	$	—	$	12,266	$	—	$	12,266

	As of December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Agency securities	$	—	$	1,740,091	$	—	$	1,740,091
Non-agency securities	—		19,592		5,969		25,561
Linked transactions	—		11,925		1,746		13,671
Derivative assets	—		1,845		—		1,845
Total financial assets	$	—	$	1,773,453	$	7,715	$	1,781,168
Liabilities
Derivative liabilities	$	—	$	5,669	$	—	$	5,669
Total financial liabilities	$	—	$	5,669	$	—	$	5,669

There were no transfers between hierarchy levels during the period ended March 31, 2012. The following table presents a summary of the changes in fair value for the three months ended March 31, 2012 of Level 3 assets carried at fair value as of March 31, 2012 (dollars in thousands):

	As of March 31, 2012
	Non-Agency Securities		Linked Transactions		Total
Balance as of December 31, 2011	$5,969		$1,746		$7,715
Unrealized gain	740		827		1,567
Unrealized loss	(401	)	—		(401	)
Total unrealized gain, net (1)	339		827		1,166
Purchases of securities	9,945		—		9,945
Principal repayments on securities	(345	)	(291	)	(636	)
Net change in borrowings on repurchase agreements underlying Linked Transactions	—		(48	)	(48	)
Discount accretion	266		159		425
Accrued interest on Linked Transactions	—		7		7
Balance as of March 31, 2012	$16,174		$2,400		$18,574

—————— 

⁽¹⁾ All unrealized gains and (losses) are recorded on the consolidated statement of operations.

Our agency securities and prime / Alt-A, option ARM and re-remic non-agency securities are valued using the various market data described above, which include inputs determined to be observable or whose significant value drivers are observable. Accordingly, our agency securities and prime / Alt-A, option ARM and re-remic non-agency securities are classified as Level 2 in the fair value hierarchy. While our subprime non-agency securities are valued using the same process with similar inputs, a significant amount of inputs have been determined to be unobservable due to relatively low levels of market activity. Accordingly, our subprime non-agency securities are classified as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of our level 3 assets include, prepayment rates, default rates, loss severities in the event of default, and discount rates. A change in any of these individual inputs could result in a change in fair value measurement of our level 3 assets. However, a change in an individual assumption is likely to be at least partially mitigated by offsetting changes in other assumptions.

The fair value of Linked Transactions is comprised of the fair value of the underlying securities, reduced by the repurchase agreement final settlement amount.  The fair value of Linked Transactions also includes accrued interest receivable on the non-agency securities and accrued interest payable on the underlying repurchase agreement borrowings. The non-agency securities underlying our Linked Transactions are valued using similar techniques to those used for our other non-agency securities, and as such, Linked Transactions are classified in the fair value hierarchy, based on the classification of the underlying category of non-agency securities.

We determine the fair value of our interest rate swaps and other derivatives considering valuations obtained from a third party pricing service and such valuations are tested with internally developed models that apply readily observable market parameters. In valuing our derivatives, we consider both our counterparties' and our creditworthiness, along with collateral provisions contained in each derivative agreement.  No credit valuation adjustments are made in determining the fair value for derivative agreements subject to bilateral collateral arrangements.  Our interest rate swaps and other derivatives are classified as Level 2 in the fair value hierarchy.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2012

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' Equity

Stockholders’ Equity

Equity Offerings

During the three months ended March 31, 2012, we completed one follow-on public offering of shares of our common stock summarized in the table below (in thousands, except per share data):

Public Offering	Price Received per Share	Shares	Proceeds Net of Offering Costs
March 2012	$21.55	12,000	$258,321

In April 2012, our underwriters exercised their over-allotment option related to our March 2012 equity offering and we sold 1.6 million shares of our common stock for net proceeds of $34.5 million.

Dividends

During three months ended March 31, 2012, we declared dividends of $0.90 per share payable on April 27, 2012 to stockholders of record on March 15, 2012.

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Consolidated Statement of Stockholders' Equity (USD $) In Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings (Accumulated Deficit) [Member]
Beginning Balance, Date Operations Commenced at Dec. 31, 2011	$ 208,801
Balance, Common Stock, shares at Dec. 31, 2011	10,006
Preferred Stock, Shares Outstanding at Dec. 31, 2011	0
Net income	21,320			21,320
Issuance of common stock, shares		12,000
Issuance of common stock, value		120	258,201
Issuance of restricted stock, shares		6
Stock-based compensation			16
Common dividends declared				9,011
Balance at Mar. 31, 2012	$ 479,447	$ 220	$ 457,255	$ 21,972
Preferred Stock, Shares Outstanding at Mar. 31, 2012	0
Balance, Common Stock, shares at Mar. 31, 2012	22,012	22,012

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Non-Agency Securities

3 Months Ended

Mar. 31, 2012

Non-agency Securities [Abstract]

Non-Agency Securities

Non-Agency Securities

The following tables summarize our non-agency security investments as of March 31, 2012 (dollars in thousands):

Non-Agency Securities
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	78,702	$	76,702	$	109,897	1.64	%	7.20	%
Subprime	16,173		16,463		42,229		0.45	%	9.85	%
Re-REMIC	8,523		8,328		8,878		5.12	%	5.22	%
Option-Arm	25,543		25,310		38,267		0.57	%	6.64	%
Total/ Weighted Average	$	128,941	$	126,803	$	199,271	1.33	%	7.30	%
Non-Agency Securities Underlying Linked Transactions (3)
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	21,381	$	21,328	$	26,116	3.63	%	6.65	%
Subprime	7,893		8,332		29,295		0.37	%	8.97	%
Re-REMIC	8,418		8,645		9,291		2.76	%	5.34	%
Option-Arm	14,153		12,884		22,256		0.55	%	9.09	%
Total/ Weighted Average	$	51,845	$	51,189	$	86,958	1.65	%	7.42	%

————————

⁽¹⁾ As of March 31, 2012, the unrealized net gain of $2.1 million on non-agency securities is comprised of $3.4 million gross unrealized gain and $1.3 million gross unrealized loss. As of March 31, 2012, the unrealized net gain of $0.7 million on non-agency securities underlying Linked Transactions is comprised of $1.5 million gross unrealized gain and $0.8 million gross unrealized loss.

⁽²⁾  Weighted average coupon rates are floating, except for $21.8 million fair value of prime / Alt-A non-agency securities and $8.1 million fair value of prime / Alt-A securities underlying Linked Transactions as of March 31, 2012.

⁽³⁾  See Note 7 - Derivatives for composition of Linked Transactions.

The following table summarizes our non-agency security investments as of December 31, 2011 (dollars in thousands):

Non-Agency Securities
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	10,966	$	10,788	$	17,090	3.75	%	8.44	%
Subprime	5,969		6,597		20,884		0.50	%	10.09	%
Re-REMIC	8,626		8,609		9,177		5.39	%	6.16	%
Total/ Weighted Average	$	25,561	$	25,994	$	47,151	2.63	%	8.10	%
Non-Agency Securities Underlying Linked Transactions (3)
Category	Fair   Value(1)		Amortized Cost		Par/ Current Face		Weighted Average Coupon (2)		Weighted Average Yield
Prime / Alt-A	$	27,488	$	28,084	$	36,934	3.38	%	6.04	%
Subprime	7,198		8,465		29,586		0.42	%	9.36	%
Re-REMIC	8,805		8,934		9,629		2.75	%	5.08	%
Option-Arm	6,702		6,567		12,522		0.66	%	11.31	%
Total/ Weighted Average	$	50,193	$	52,050	$	88,671	1.94	%	7.08	%

————————

⁽¹⁾ As of December 31, 2011, the unrealized net loss of $0.4 million on non-agency securities is comprised of $0.7 million gross unrealized loss and $0.3 million gross unrealized gain. As of December 31, 2011, the unrealized net loss of $1.9 million on non-agency securities underlying Linked Transactions is comprised of $2.2 million gross unrealized loss and $0.3 million gross unrealized gain.

⁽²⁾  Weighted average coupon rates are floating, except for $3.8 million fair value of prime / Alt-A non-agency securities and $8.4 million fair value for prime / Alt-A securities underlying Linked Transactions as of December 31, 2011.

⁽³⁾  See Note 7 - Derivatives for composition of Linked Transactions.

Prime / Alt-A non-agency securities as of March 31, 2012 and December 31, 2011 include senior tranches in securitization trusts issued between 2004 and 2006, and are collateralized by residential mortgages originated between 2002 and 2006. The loans were originally considered to be either prime or one tier below prime credit quality. Prime mortgage loans are residential mortgage loans that are considered to have the most stringent underwriting standards within the non-agency mortgage market, but do not carry any credit guarantee from either a U.S. government agency or GSE. These loans were originated during a period when underwriting standards were generally weak and housing prices have dropped significantly subsequent to their origination. As a result, there is still material credit risk embedded in these vintages. Alt-A, or alternative A-paper, mortgage loans are considered riskier than prime mortgage loans and less risky than sub-prime mortgage loans and are typically characterized by borrowers with less than full documentation, lower credit scores, higher loan-to-value ratios and a higher percentage of investment properties. The mortgages underlying our prime / Alt-A non-agency securities have both floating-rate and fixed-rate coupons, with weighted average coupons ranging from 3% to 6%. These securities are generally rated below investment grade as of March 31, 2012 and December 31, 2011.

Option ARM non-agency securities have origination and underwriting characteristics similar to Alt-A securities, with the added feature of providing underlying mortgage borrowers the option, within certain constraints, to make lower payments than otherwise required by the stated interest rate for a number of years, leading to negative amortization and increased loan balances. This additional feature can increase the credit risk of these securities. Our option ARM securities are rated below investment grade as of March 31, 2012 and December 31, 2011.

Re-REMIC non-agency securities as of March 31, 2012 and December 31, 2011 are resecuritizations of real estate mortgage investment conduits ("REMICs"), and are backed by non-agency securities originally issued between 2005 and 2007 that are generally backed by residential mortgage loans of poor credit quality, with floating rate coupons averaging 3% to 5%. The underlying REMIC non-agency securities were resecuritized during 2011 and 2012 to add an additional layer of credit enhancement. The Re-REMIC securities have not been rated by credit rating agencies as of March 31, 2012 and December 31, 2011.

Subprime non-agency securities as of March 31, 2012 and December 31, 2011include floating rate, senior tranches in securitization trusts that are currently rated below investment grade. These securities are collateralized by residential mortgages originated during 2006 and 2007 that were originally considered to be of lower credit quality. The underlying residential mortgages have both floating-rate and fixed-rate weighted-average coupons ranging from 5% to 8% as of March 31, 2012 and December 31, 2011.

Pledged Assets

Non-agency securities with fair value of $79.2 million and $8.6 million were pledged as collateral under repurchase agreements with a remaining maturity of less than 30 days, as of March 31, 2012 and December 31, 2011, respectively. Additionally, as of March 31, 2012 and December 31, 2011, there are non-agency securities with a fair value of $51.8 million and $50.2 million, respectively, underlying Linked Transactions.