Note 7. Commitments and Contingencies:

Contractual Obligations

The Company has contractual obligations to make future payments in connection with borrowings and non-cancelable lease agreements and other contractual commitments as well as uncalled capital commitments to various investment partnerships that may be called over the next ten years. The following table sets forth these contractual obligations by fiscal year:

	2012		2013		2014		2015		2016		Thereafter		Total
Borrowings(1)	$	-	$	-	$	-	$	-	$	-	$	15,000	$	15,000
Minimum rental and other contractual commitments(2)		274		-		-		-		-		-		274
Capital commitments(3)		-		-		-		-		-		-		-
	$	274	$	-	$	-	$	-	$	-	$	15,000	$	15,274

(1)

This table excludes interest payments to be made on the Company's long-term debt securities. Based on the weighted average interest rate of 3.15% as of December 31, 2011, approximately $118 in accrued interest on the current outstanding principal will be paid for the quarter ending March 31, 2012. Interest on the $15,000 of long-term debt is based on the 3-month LIBOR; therefore, actual coupon interest will likely differ from this estimate. These long-term debt securities mature beginning in October 2033 through July 2035.

(2)	Equipment and office rent expense for 2011, 2010 and 2009 was $173, $162 and $230, respectively.

(3)

The table above excludes $1,254 of uncalled capital commitments to various investment partnerships that may be called over the next ten years. This amount was excluded because the Company cannot currently determine when, if ever, the commitments will be called. Also, the table above does not include a liability for unrecognized income tax benefits of $12,810 that are not contractual obligations by nature. The Company cannot determine, with any degree of certainty, the amount that would be payable or the period of cash settlement to the respective taxing jurisdiction.

The Company also has short-term repurchase agreement liabilities of $647,977, as of December 31, 2011. See Note 4 for further information.

Litigation and Regulatory Actions

The Company received a “Wells Notice” (the “Notice”) from the staff of the SEC on January 26, 2012 indicating that the staff is considering recommending that the SEC bring a civil injunctive action or institute a public administrative proceeding alleging violations of the federal securities laws. The Company understands that the staff is considering the recommendation based on their belief that disclosures in the offering materials for an MBS offering sponsored in 2007 by a former non-broker-dealer subsidiary of the Company may have included material misstatements and/or omitted material information regarding the collateral for the securities issued. The Notice is not a formal allegation nor a finding of wrongdoing, and the Company have been cooperating with the SEC in this inquiry. In accordance with SEC procedures, the Company will have an opportunity to present its response to the Notice that an action is not warranted before any formal decision is made on an enforcement proceeding. The Company understands that Mr. Brian Bowers, our Chief Investment Officer and Portfolio Manager, received a similar Notice and that a former employee of the Company's former subsidiary has also received a Notice, in each case relating to the same offering. The Company understands that the SEC could seek various remedies, if they bring an enforcement proceeding, including but not limited to injunctive relief, disgorgement, civil penalties, and, in the case of Mr. Bowers, a bar from serving as a director or officer of a public company. The Company disagrees with the staff and intend to provide a written submission setting forth reasons why a formal proceeding should not be authorized by the SEC. The Company cannot predict whether or not any proceedings might be initiated, the amount of any claims that might be asserted or remedies that might be sought by the SEC, or the ultimate outcome of any proceedings that might be initiated.

On August 19, 2011, Hildene Capital Management, LLC filed a purported class action complaint captioned Hildene Capital Management, LLC v. Friedman, Billings, Ramsey Group, Inc. (d/b/a Arlington Asset Investment Corp.), FBR Capital Trust VI, FBR Capital Trust X, Wells Fargo Bank, N.A., as Trustee, and John and Jane Does 1 through 100, No. 11 Civ. 5832, in the United States District Court for the Southern District of New York. The complaint alleges unlawful acts by the Company in connection with the purchase of preferred securities issued by FBR Capital Trust VI and FBR Capital Trust X (the FBR Trusts) from two CDOs, Tropic IV CDO Ltd. and Soloso CDO 2005-1 Ltd. in September 2009. On November 9, 2011, the Company filed a motion to dismiss the complaint on behalf of the Company and the FBR Trusts. On December 14, 2011, the plaintiff filed an amended complaint. In the amended complaint, the plaintiff added Hildene Opportunities Master Fund, Ltd. as a plaintiff. The plaintiffs no longer assert class action claims, but have asserted derivative claims against Wells Fargo Bank, N.A., as trustee for Tropic III CDO Ltd., Tropic IV CDO Ltd., and Soloso CDO 2005-1 Ltd. On January 20, 2012, the Company filed a motion to dismiss the amended complaint on behalf of the Company and the FBR Trusts. Briefing on that motion has not yet been completed, and the motion remains pending. The likely outcome or impact of this action on the Company or its results of operations cannot be predicted at this time.

The Company cannot predict the ultimate outcome of the pending SEC investigation and the Hildene litigation, and cannot estimate the likelihood or potential dollar amount of any adverse results. The Company may be unable to accurately estimate the exposure to litigation risk when recording probable loss contingencies. As a result, any reserves the Company may establish to cover any settlements or judgments, if any, may not be sufficient to cover the actual financial exposure, which may have a material impact on the Company's results of operations or financial condition. In the event of an adverse judgment in any action or proceeding, the Company may be required to pay damages or penalties, or other remedies may be imposed upon the Company, which could have a material adverse impact upon the Company's financial position, results of operations and cash flows and could also cause the Company a significant reputational harm, which in turn could seriously harm the Company's business and prospects.