What changed in this filing

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Item 1A. Risk Factors

2022-02-18 compared with 2021-02-19 · 92 added, 82 removed, 547 unchanged (24% of the section changed)

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If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected, and the value of our common stock could decline.

The below listed risk factors should not be considered an all-inclusive list.

The risk factors listed below should not be considered an all-inclusive list.

New risk factors emerge periodically, and we cannot guarantee that the factors described below list all risks that may become material to us at any later time.

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The COVID-19 pandemic, the measures intended to prevent its spread and those government actions intended to mitigate its economic impact have had, and may continue to have, adverse effects, some of which may be material, on our business, results of operations and financial condition.

An economic slowdown, a lengthy or severe recession, declining real estate values, or changes in interest rates, including the potential replacement of LIBOR, could harm our operations, affect our ability to obtain financing on reasonable terms and have other adverse effects on us.

An economic slowdown, a lengthy or severe recession, declining real estate values, or changes in interest rates, including the continued transition from LIBOR, could harm our operations, affect our ability to obtain financing on reasonable terms and have other adverse effects on us.

If economic conditions deteriorate and/or we experience a turbulent economic environment, we will likely:

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and (iii) experience a decline in loan repayments.

If we are unable to invest excess equity capital on acceptable terms, or at all, it would likely result is a declining portfolio and would adversely affect the returns from our investments and our operating results.

If we are unable to invest excess capital on acceptable terms, or at all, it would likely result is a declining portfolio and would adversely affect the returns from our investments and our operating results.

The real estate investment business is highly competitive, and our success depends on our ability to compete, including attracting and retaining qualified loan originators to grow and maintain our relationships with key customers and with the GSEs, U.S.

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We satisfy most of our restricted liquidity requirements with Fannie Mae with a letter of credit issued by one of our lenders.

If the letter of credit was not renewed for any reason, we could suffer a significant reduction in our cash flow from operations, or we may breach our obligations to Fannie Mae, which would have a material adverse effect on our Agency Business.

If the letter of credit was not renewed for any reason, we could suffer a reduction in our cash flow from operations, or we may breach our obligations to Fannie Mae, which would have a material adverse effect on our Agency Business.

A significant portion of our Agency Business's revenue is derived from loan servicing fees.

Any declines in the value of our servicing portfolio, including agreement terminations from breaches of servicing agreements, or a reduction in the prices paid for the loans and services could have a material adverse effect on our results of operations and liquidity.

Any declines in the value of our servicing portfolio, including agreement terminations from breaches of servicing agreements, or a reduction in the fees paid for servicing the loans could have a material adverse effect on our results of operations and liquidity.

For most loans we service under the Fannie Mae and HUD programs, we are required to advance payments due to investors if the borrower is delinquent in making such payments, which requirement could adversely impact our liquidity and harm our results of operations.

Risks Related to Our Financing and Hedging Activities.

We finance a significant amount of our loans and investments through a variety of means, including CLOs, credit facilities, equity capital, senior and convertible debt instruments, and other structured financings.

These vehicles contain restrictive covenants and may require us to provide additional collateral or repurchase assets if the value of pledged assets, some of which we guarantee, decline in value.

We finance a significant amount of our loans and investments through a variety of means, including CLOs, securitizations, credit facilities, equity capital, senior and convertible debt instruments, and other structured financings.

These vehicles may contain restrictive covenants and may require us to provide additional collateral or repurchase assets if the value of pledged assets, some of which we guarantee, decline in value.

If we are unable to acquire eligible investments, find suitable replacement investments and access financing sources on favorable terms, or at all, we may not be able to obtain the level of leverage necessary to optimize our return on investment and cash available for distribution to our stockholders may decline.

In certain circumstances, we employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including interest rate swaps, caps, floors and other derivative products.

Our loans and investments may be subject to fluctuations in interest rates which may not be adequately protected, or protected at all, by our hedging strategies.

Hedging instruments often are not guaranteed by an exchange or its clearing house, involve risks and costs, and could expose us to contingent liabilities in the future.

Our loans and investments may be subject to fluctuations in interest rates which may not be adequately protected by our hedging strategies.

Hedging instruments involve risks and costs, and could expose us to contingent liabilities in the future.

Risks Relating to Regulatory Matters.

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We are also subject to changes in laws, regulations and existing GSE and HUD program requirements, including potential increases in reserve and risk retention requirements that could increase our costs and affect the way we conduct business, which could materially and adversely affect our financial results.

The changes and effects of government regulation, including the Investment Advisors Act and our exemption from the Investment Company Act, could negatively impact the market value of loans related to development projects or increase our costs, which could materially and adversely affect our financial results.

The changes and effects of government regulation, including the Investment Advisors Act and our exemption from the Investment Company Act, could negatively impact the market value of loans or increase our costs, which could materially and adversely affect our financial results.

A change to the conservatorship of Fannie Mae and Freddie Mac and related actions, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S.

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(iv) future terrorist attacks;

and (v) changes to laws and regulations.

and (v) changes to laws and regulations , including environmental, social and governance matters.

Risks Related to Our Business

The COVID-19 pandemic is causing significant disruptions to the U.S.

and global economies and has contributed to volatility and negative pressure in equity, credit and mortgage markets.

The COVID-19 pandemic has caused, and may continue to cause, significant disruptions to the U.S.

and global economies, as well as volatility and negative pressure in equity, credit and mortgage markets.

The outbreak has led the federal and state governments to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

The impact of the pandemic and measures to prevent its spread and limit the economic impact of the pandemic have negatively impacted us and could further negatively impact our business, perhaps in a material manner.

The impact of the pandemic and measures taken to prevent its spread and limit the economic impact of the pandemic have negatively impacted us and could further negatively impact our business, perhaps in a material manner.

More particularly, the consequences of the COVID-19 pandemic that have had, and may continue to have in the future, adverse impacts on our business are as follows:

● We have experienced, and may continue to experience:

o declines in the value of our assets, including our loan and securities portfolios, resulting in margin calls and other mandatory prepayments under the credit facilities we use to finance those assets;

● During the onset of the pandemic, we experienced, and may experience in the future:

o declines in the value of our assets, including our loan and securities portfolios, which could result in margin calls and other mandatory prepayments under the credit facilities we use to finance those assets;

o an increase in payment delinquencies from our borrowers resulting in additional credit losses;

o an increase in the cost to obtain financing and adverse effects of obtaining financing under terms and conditions that are less favorable to us, and if conditions worsen, could prevent us from obtaining financing at all;

● In the current environment, forced sales of the securities and other assets that secure our repurchase and other financing arrangements may be on terms less favorable to us than might otherwise be available under more normal conditions, which could result in losses;

● Continued disruptions in the credit markets may negatively impact our ability to execute on securitizations, which may have an adverse effect on our liquidity and results of operations;

● To the extent current conditions persist or worsen, there may be a materially negative effect on our results of operations, and, in turn, on cash available for distribution to our stockholders, on the value of our assets and on the market price of our common stock.

As a result of our adoption of the current expected credit loss (“CECL”) methodology for the recognition of credit losses on January 1, 2020, more fully described in Note 2, our financial results may be negatively affected when weak or deteriorating economic conditions are forecasted, which generally results in increases in credit losses under CECL.

As a result of factoring in the COVID-19 pandemic and having to estimate credit losses for the life of our investments under CECL, we incurred significant provision expense for credit losses in 2020 and we may experience increased volatility in our future provisions for credit losses.

o an increase in the cost to obtain financing and other adverse effects of obtaining financing under terms and conditions that are less favorable to us, and if conditions worsen, could prevent us from obtaining financing at all;

● In the event of any forced sales of the securities and other assets that secure our repurchase and other financing arrangements, such sales may be on terms less favorable to us than might otherwise be available under normal conditions, which could result in losses;

● Disruptions in the credit markets may negatively impact our ability to execute on securitizations, which may have an adverse effect on our liquidity and results of operations;

● To the extent conditions worsen, there may be a materially negative effect on our results of operations, and, in turn, on cash available for distribution to our stockholders, on the value of our assets and on the market price of our common stock.

Since the current expected credit loss (“CECL”) methodology for the recognition of credit losses estimates losses for the life of our investment, our financial results may be negatively affected when weak or deteriorating economic conditions are forecasted, which generally results in increases in credit losses under CECL.

As a result of factoring in the COVID-19 pandemic to the forecasts used to estimate our credit losses, we incurred significant provision expense for credit losses in 2020, followed by reversals of provision expense in 2021, and we may experience increased volatility in our future provisions for credit losses.

To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also have the effect of heightening many of the other risks described in this ''Risk Factors'' section.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and as a result, the ultimate impact of the outbreak on our operations and financial results is highly uncertain and subject to change.

There are no comparable recent events that provide guidance as to the effect of COVID-19 as a global pandemic may have, other than what has transpired to date, and as a result, its ultimate impact on our operations and financial results remains highly uncertain and subject to change.

In response to the pandemic, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act.

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The CARES Act includes mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments.

In addition, the Federal Reserve has announced its

commitment to purchase U.S.

In addition, the Federal Reserve has announced its commitment to purchase U.S.

Treasury securities, asset backed securities, municipal bonds and other assets, in addition to making loans to and purchasing bonds from private companies.

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government will affect the efficiency, liquidity and stability of the financial and mortgage markets.

To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations, financial condition and liquidity may continue to be adversely affected, perhaps materially.

To the extent the financial or mortgage markets do

not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations, financial condition and liquidity may continue to be adversely affected, perhaps materially.

Due to the current stimulus actions of the U.S.federal government, the effect of the pandemic may not be fully reflected in our results of operations until future periods.

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● The COVID-19 pandemic may adversely impact the continued availability of our personnel, including our executive officers, and our ability to recruit, attract and retain skilled personnel;

● Operationally, we initiated a work-from-home policy at the start of the pandemic and have completed a phased-in approach to allow employees back into our offices, subject to appropriate safety protocols;

● If significant portions of our workforce, including key personnel, are unable to work effectively because of illness, government actions or other restrictions implemented in connection with COVID-19, the adverse impact on our business could be material;

● We have shifted our in-person customer events in 2020 through now to virtual-only experiences and we may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future.

● At the beginning of the COVID-19 pandemic, and in some cases we still, have shifted in-person customer events to virtual-only experiences and we may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future.

Our virtual customer, employee and industry events may not be as successful as in-person events.

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The valuation process requires certain estimates and judgments, which are more difficult to make during a period in which available commercial real estate credit is limited and commercial real estate transactions have decreased.

Our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our loans, loan structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at loan maturity, potential for refinancing by other lenders and expected market discount rates for varying property types.

Our estimates and

judgments are based on several factors, including projected cash flows from the collateral securing our loans, loan structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at loan maturity, potential for refinancing by other lenders and expected market discount rates for varying property types.

If our estimates and judgments are not correct, our results of operations and financial condition could be severely impacted.

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Further, in the event the commercial real estate finance market deteriorates, borrowers that have extension rights will be more likely to exercise such rights, which will further delay our ability to access liquidity through repayments.

We may be unable to invest excess equity capital on acceptable terms or at all, which would adversely affect our operating results.

We may be unable to invest excess capital on acceptable terms, or at all, which would adversely affect our operating results.

We may not be able to identify investments that meet our investment criteria and we may not be successful in closing the investments that we do identify.

In addition, the investments that we fund with our equity capital may not produce a satisfactory return on capital, which would adversely affect our operating results.

In addition, the investments that we fund with our capital may not produce a satisfactory return on capital, which would adversely affect our operating results.

A declining portfolio could adversely affect the returns from our investments.

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If we do not have the opportunity to originate quality investments to replace loans that are repaid, it will likely result in reduced returns from our investments.

Changes in interest rates and the potential replacement of LIBOR could have an adverse effect on our net investment income.

Changes in interest rates and the continued transition from LIBOR could have an adverse effect on our net investment income.

A significant portion of our loans and borrowings in our business are variable-rate instruments based on LIBOR.

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The first publication of SOFR was released in 2018.

Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR remains uncertain.

Operating ahead of the curve, and under the guidance of ARRC and the Federal Housing Finance Agency, Freddie Mac and Fannie Mae ceased purchases of LIBOR-based adjustable rate mortgages and issuance of LIBOR-based mortgage-backed securities as of January 1, 2021, but have not yet released guidance on the transition relative to portfolio loans.

On July 29, 2021, ARRC formally announced that it recommends the forward-looking SOFR term rates for use in business loans, including securities backed by such assets.

However, forward-looking SOFR term rates will not be representative of three-month LIBOR, and there is no requirement to continue to publish forward-looking SOFR term rates, in which case we, our lenders, and our portfolio company borrowers may be required to use other measurements of SOFR, as applicable.

Providing some clarification, in November 2020, the ICE Benchmark Administration (“IBA”) announced that it will consult on its intentions to cease the publication of one week and two month USD LIBOR following the LIBOR publication on December 31, 2021, and to cease the publication of the remaining USD LIBOR settings following the LIBOR publication on June 30, 2023, effectively extending the transition timeline.

On or around the same date, the Federal Reserve, along with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued supervisory guidance encouraging financial institutions to cease entering into new contracts that are indexed off USD LIBOR by December 31, 2021.

At this time, it is unclear what LIBOR or new methods of calculating LIBOR will look like after 2021.

Our revolving credit facilities include provisions addressing the future discontinuation of LIBOR that are broadly consistent with the approach recommended by the ARRC.

Such provisions provide for a transition, upon the occurrence of certain triggers, to a SOFR-based interest rate or, under certain circumstances, interest rates based on another benchmark to be determined, together in each case with certain spread adjustments and other changes necessary to implement such replacement benchmark.

We will continue to follow industry announcements made by the Federal Reserve, ARRC, and IBA to secure appropriate guidance, To best prepare for the transition, we have formed an internal task force to oversee the coordination of our transition from LIBOR, which includes evaluating and mitigating the risks associated with the transition.

Key areas of focus for the task force include managing the transition for legacy transactions, updating agreements and contracts that use LIBOR as a reference rate, modifying policies and procedures to account for the transition, communicating with our internal and external stakeholders, and preparing for the risks associated with transitioning from LIBOR to a successor reference rate.

internal and external stakeholders, and preparing for the risks associated with transitioning from LIBOR to a successor reference rate.

Notwithstanding our efforts, the transition away from LIBOR may ultimately have a material adverse effect on our business, financial condition and results of operations, including the result of changes in interest rates payable to us by our borrowers or payable by us to our lenders.

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In the event of a bankruptcy of our borrower, we may not have full recourse to the assets of the borrower, or the borrower’s assets may not be sufficient to satisfy our mezzanine loan.

If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid.

If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our

mezzanine loan will be satisfied only after the senior debt is paid.

As a result, we may not recover some or all of our investment.

In addition, mezzanine loans may have higher loan to value ratios than mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

We invest in junior participation loans which may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

We may invest in junior participation loans which may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

In our Structured Business, we may invest in junior participation loans, which are mortgage loans typically secured by a first mortgage on a single commercial property or group of related properties but subordinated to a senior note secured by the same first mortgage on the same collateral.

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Volatility in values of multifamily and commercial properties may adversely affect our loans and investments.

Multifamily and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including fires and other casualties, natural disasters, acts of war and/or terrorism, adverse economic conditions, local real estate conditions (such as an oversupply of similar properties), changes or continued weakness in specific industry segments, construction quality, construction cost, age and design, demographic factors, retroactive changes to building or similar codes, increases in operating expenses (such as energy costs) and others that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investment.

Multifamily and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including fires and other casualties, natural disasters, acts of war and/or terrorism, adverse economic conditions, local real estate conditions (such as an oversupply of similar properties), changes or continued weakness in specific industry segments, construction quality, construction cost, age and design, demographic factors, retroactive changes to building or similar codes, increases in operating expenses (such as energy costs) and other factors that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investment.

In the event a property’s net operating income decreases, a borrower may have difficulty repaying our loan, which could result in losses to us.

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Given the transitional nature of many of the loans in our Structured Business portfolio, we often require borrowers to post reserves to cover interest and operating expenses until the property cash flows are projected to increase sufficiently to cover those costs.

We generally require the borrower to replenish reserves if they are depleted due to underperformance or if the borrower wants

to exercise extension options under the loan.

We generally require the borrower to replenish reserves if they are depleted due to underperformance or if the borrower wants to exercise extension options under the loan.

Revenues from the properties underlying these loans may decrease in an economic downturn, making it more difficult for borrowers to replenish the reserves, which could have an adverse impact on our operating results and cash flows.

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While our Agency Business originates loans that meet the underwriting guidelines defined by Fannie Mae, in addition to our own internal underwriting guidelines, underwriting criteria may not always protect against loan defaults.

Other factors can lead to a to default on a loan, such as a decline in property value, cash flow, occupancy,

maintenance needs and other financing obligations.

Other factors can lead to a to default on a loan, such as a decline in property value, cash flow, occupancy, maintenance needs and other financing obligations.

If loan defaults increase, our risk-sharing obligation payments under the Fannie Mae DUS program may increase which could have a material adverse effect on our results of operations and liquidity.

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We satisfy most of our restricted liquidity requirements with Fannie Mae with a letter of credit issued by one of our lenders.

Our Agency Business is required to pledge restricted cash as collateral for our loss sharing obligations.

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As a result of the foregoing, a rise in delinquencies could have a material adverse effect on our Agency Business.

A reduction in the prices paid for the loans and services of our Agency Business or an increase in loan or security interest rates by investors could materially and adversely affect our results of operations and liquidity.

The Agency Business's results of operations and liquidity could be materially and adversely affected if the GSEs, HUD or institutional investors lower the price they are willing to pay for loans or services or adversely change the material terms of their loan purchases or servicing arrangements with us.

A reduction in the fees paid for servicing the loans of our Agency Business or an increase in loan or security interest rates by investors could materially and adversely affect our results of operations and liquidity.

The Agency Business's results of operations and liquidity could be materially and adversely affected if the GSEs, HUD or institutional investors lower the price they are willing to pay for loans , lower their servicing fees or adversely change the material terms of their loan purchases or servicing arrangements with us.

A number of factors determine the price we receive for our agency loans.

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Our Agency Business bears the risk that a borrower will choose not to close on a loan that has been pre-sold to an investor or that the investor will choose not to purchase a loan under certain circumstances, including, for example, a casualty event that impacts the condition of a property after we fund the loan and prior to the investor purchase date.

We also bear the risk of serious errors in loan documentation that prevent timely delivery of the loan prior to the investor purchase date.

We also bear the risk of serious errors in loan

documentation that prevent timely delivery of the loan prior to the investor purchase date.

A failure to deliver a loan could be a default under the warehouse facility we used to finance the loan.

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We are reimbursed by Fannie Mae for these advances in the event the loan is brought current.

In the event of a default,

any advances made by the Agency Business are used to reduce the proceeds required to settle any loss share.

In the event of a default, any advances made by the Agency Business are used to reduce the proceeds required to settle any loss share.

Our advances may also be reimbursed, to the extent that any recovery on the collateral exceeds the UPB.

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We may not be able to access financing sources on favorable terms, or at all, which could adversely affect our ability to execute our business plan.

We finance our Structured Business loans and investments through a variety of means, including CLOs, credit facilities, equity capital, senior and convertible debt instruments, and other structured financings.

We finance our Structured Business loans and investments through a variety of means, including CLOs, securitizations, credit facilities, equity capital, senior and convertible debt instruments, and other structured financings.

We finance our Agency Business loan originations, prior to sale to, or securitization by, an agency, through credit facilities provided by commercial banks.

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We may not have the funds available to pay down such future debt, which could result in defaults.

Posting additional collateral to support these credit facilities would reduce our

liquidity and limit our ability to leverage our assets.

Posting additional collateral to support these credit facilities would reduce our liquidity and limit our ability to leverage our assets.

In the event we do not have sufficient liquidity to meet such requirements, lenders can accelerate the indebtedness, increase interest rates and terminate our ability to borrow.

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Substantially all of our assets are pledged as collateral for our borrowings.

In addition, we may acquire real property subject to debt obligations.

In addition, we may acquire real property

subject to debt obligations.

The return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions increase our financing cost relative to the income that we can derive from our assets.

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We may guarantee some of the leverage and contingent obligations of our subsidiaries.

We may guarantee the performance of the obligations of our subsidiaries, including credit facilities, repurchase agreements, derivative agreements and unsecured indebtedness.

We may guarantee the performance of the obligations of our subsidiaries, including credit and repurchase facilities, derivative agreements and unsecured indebtedness.

Non-performance on such obligations may cause losses to us in excess of the capital invested in our subsidiary and there is no assurance that we will have sufficient capital to cover any such losses.

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Our current investment strategy for our Structured Business emphasizes loans with both floating and fixed interest rates.

Floating rate investments earn interest at rates that adjust from time to time (typically monthly) based upon an index (typically LIBOR), allowing this portion of our portfolio to be insulated from changes in value due to changes in interest rates.

Floating rate investments earn interest at rates that adjust from time to time (typically monthly) based upon an index, allowing this portion of our portfolio to be insulated from changes in value due to changes in interest rates.

Fixed rate investments, however, may experience changes in value as interest rates change.

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However, depending on market conditions, fixed rate assets may become a greater portion of our new loan originations.

We may employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including interest rate swaps, caps, floors and other derivative products.

No strategy can completely insulate us from the risks associated with interest rate changes and there is a risk that they may provide no protection at all

and potentially compound the impact of changes in interest rates.

We may employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including interest rate swaps, caps, floors and other derivative products, however, no strategy can completely insulate us from the risks associated with interest rate changes.

Hedging involves certain additional risks such as counterparty risk, the legal enforceability of hedging contracts, the early repayment of hedged transactions and the risk that unanticipated and significant changes in interest rates may cause a significant loss of basis in the contract and a change in current period expense.

We cannot give assurances that we will be able to enter into hedging transactions or that such hedging transactions will adequately protect us against the foregoing risks.

In addition, cash flow hedges which are not perfectly correlated (and appropriately designated and documented as such) with a variable rate financing will impact our reported income as gains and losses on the ineffective portion of such hedges will be recorded on our statement of income.

Hedging instruments often are not guaranteed by an exchange or its clearing house and involve risks and costs.

In addition, hedges which are not highly correlated (and appropriately designated and documented as cash flow hedges) with a variable rate financing will impact our reported income as marked-to-market gains and losses will be recorded on our statement of income.

Hedging instruments may not be guaranteed by an exchange or its clearing house and involve risks and costs.

The cost of using hedging instruments increases during periods of rising and volatile interest rates and as the period covered by the instrument lengthens.

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The business failure of a hedging counterparty will most likely result in a default.

Default by our counterparty may result in the loss of unrealized profits and force us to cover our resale commitments, if any, at the then current market price.

Default by our counterparty may result in the loss of unrealized

profits and force us to cover our resale commitments, if any, at the then current market price.

Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the counterparty, and we may not be able to enter into an offsetting contract to cover our risk.

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Fannie Mae requires the Agency Business to maintain operational liquidity based on a formula that considers the balance of the loan and the level of credit loss exposure (level of risk-sharing).

Fannie Mae requires its DUS lenders to maintain collateral, which may include pledged securities, for their risk-sharing obligations.

Fannie Mae also requires its DUS lenders to maintain collateral, which may include pledged securities, for their risk-sharing obligations.

The amount of collateral required under the Fannie Mae DUS program is calculated at the loan level and is based on the balance of the loan, the level of risk-sharing, the seasoning of the loans and the rating of the Fannie Mae DUS lender.

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Current laws and regulations impose qualification and licensing obligations on our business, in addition to imposing requirements and restrictions affecting, among other things:

loan originations, interest rates, finance and other fees that we may charge, disclosures to borrowers, the terms of secured transactions, collection, repossession and claims handling procedures, personnel qualifications and other trade practices.

loan originations, interest rates, finance and other fees that we may charge, disclosures

to borrowers, the terms of secured transactions, collection, repossession and claims handling procedures, personnel qualifications and other trade practices.

Our business is also subject to inspection by certain state regulatory authorities.

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In addition, compliance with the Advisors Act may require us to incur additional costs, and these costs may be material.

The effects of government regulation could negatively impact the market value of loans related to development projects.

The effects of government regulation could negatively impact the market value of loans.

Loans related to development projects bear additional risk in that government regulation could impact the value of the project by limiting the development of the property.

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Conservatorships of the GSEs

The Federal Housing Finance Agency ("FHFA,") the GSEs' regulator, placed each GSE into conservatorship in 2008.

The Federal Housing Finance Agency (“FHFA,”) the GSEs' regulator, placed each GSE into conservatorship in 2008.

The conservatorship is a statutory process designed to preserve and conserve the GSEs' assets and property and put them in a sound and solvent condition.

The conservatorships have no specified termination dates and there continues to be significant uncertainty regarding the future of the GSEs, including how long they will continue to exist in their current forms, the extent of their roles in the housing markets and whether they will continue to exist following conservatorship.

In 2014, the FHFA released its strategic plan for the GSEs, in which it changed its goal of "contraction"

of the GSEs' multifamily businesses to "maintaining"

the businesses.

In 2014, the FHFA released its strategic plan for the GSEs, in which it changed its goal of “contraction” of the GSEs' multifamily businesses to “maintaining” the businesses.

Housing Finance Reform

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We cannot predict the prospects for the enactment, timing or content of legislative proposals regarding the future status of the GSEs.

In November 2020, the FHFA released the GSE 2020 Scorecard (“2020 Scorecard”) which established Fannie Mae’s and Freddie Mac’s loan origination caps at $70 billion each, for a combined total opportunity of $140 billion (“2021 Caps”) and will run for a four-quarter period through the end of 2021.

The 2021 Caps apply to all multifamily business and has no exclusions.

In October 2021, the FHFA announced that its 2022 loan origination caps for Fannie Mae and Freddie Mac will be $78 billion for each enterprise for a total opportunity of $156 billion (the “2022 Caps”), which has increased from its 2021 loan origination caps of $70 billion for each enterprise.

The 2022 Caps will continue to apply to all multifamily business, have no exclusions and mandate that 50% be directed towards mission driven, affordable housing.

The FHFA will also require at least 25% be affordable to residents at or below 60% of area median income for 2022, up from 20% in 2021.

Our originations with the GSEs are highly profitable executions as they provide significant gains from the sale of our loans, non-cash gains related to MSRs and servicing revenues.

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We could also incur significant costs in implementing additional security measures and organizational changes, implementing additional protection technologies, training employees or engaging consultants.

In addition, we could become subject to litigation as a result of any cybersecurity breach.

In addition, we could become subject to litigation from any cybersecurity breach.

We have not experienced any material misappropriation, loss or unauthorized disclosure of confidential or personally identifiable information as a result of a cybersecurity breach or other act, however, a cybersecurity breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.

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ACM has approximately 8% of the voting power of our outstanding stock as of December 31, 2021.

As a result of our chief executive officer’s beneficial ownership of stock held by ACM, as well as his beneficial ownership of additional shares of our common stock, our chief executive officer has approximately 12% of the voting power of our outstanding stock as of December 31, 2020.

As a result of our chief executive officer’s beneficial ownership of stock held by ACM, as

well as his beneficial ownership of additional shares of our common stock, our chief executive officer has approximately 8% of the voting power of our outstanding stock as of December 31, 2021.

Because of his positions with us and ACM, and his ability to effectively vote a substantial minority of our outstanding stock, our chief executive officer has significant influence over our policies and strategy.

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Moreover, under the REIT asset tests, no more than 20% of our total gross assets may consist of the stock or other securities of one or more TRSs.

In addition, although

dividends payable by TRSs constitute qualifying income for purposes of the 95% REIT gross income test, they are non-qualifying income for purposes of the 75% REIT gross income test.

In addition, although dividends payable by TRSs constitute qualifying income for purposes of the 95% REIT gross income test, they are non-qualifying income for purposes of the 75% REIT gross income test.

Accordingly, if the value of our Agency Business or the income generated thereby increases relative to the value of our other, REIT-compliant assets and income, we or ARSR may fail to satisfy one or more of the Internal Revenue Code requirements applicable to REITs.

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In the event of a future downturn in our operating results and financial performance or unanticipated declines in the value of our asset portfolio, we may be unable to declare or pay quarterly dividends.

The timing and amount of dividends are in the sole discretion of our

Board of Directors, which considers, among other factors, our earnings, financial condition, debt service obligations and applicable debt covenants, REIT qualification requirements and other tax considerations and capital expenditure requirements as our board may deem relevant.

The timing and amount of dividends are in the sole discretion of our Board of Directors, which considers, among other factors, our earnings, financial condition, debt service obligations and applicable debt covenants, REIT qualification requirements and other tax considerations and capital expenditure requirements as our board may deem relevant.

Among the factors that could adversely affect our results of operations and impair our ability to make distributions to our stockholders are:

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To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income.

In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

In addition, we

will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

From time to time, we may generate taxable income greater than our net income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to our stockholders.

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stockholders who are individuals, trusts or estates, and whose income exceeds certain thresholds, are required to pay a 3.8% medicare tax on our dividends and gain from the sale of our stock.

Furthermore, certain provisions of the Tax Reform Act and the recently enacted legislation including the CARES Act and the Consolidated Appropriations Act, 2021 still require guidance through the issuance of treasury regulations in order to assess their scope and impact to us.

Furthermore, certain provisions of the recently enacted legislation, including the CARES Act and the Consolidated Appropriations Act, may still require guidance through the issuance of treasury regulations in order to assess their full scope and impact to us.

There may be a substantial delay before the issuance of such treasury regulations, increasing the uncertainty as to the ultimate effect of the statutory amendments on us.

There may also be further technical corrections legislation proposed with respect to the provisions of the recently enacted legislation, the effect of which cannot be predicted and may be adverse to us or our stockholders.

The tax and economic policy proposals unveiled by the Biden administration during President Biden’s campaign for the U.S.

Presidency includes numerous provisions that would affect both individual and business taxes.

Among the known business tax proposals favored by the Biden administration is an increase in the corporate tax rate from the current corporate rate of 21% as enacted under the Tax Reform Act.

As the scope of the tax and economic policy agenda of the Biden administration is currently uncertain, we cannot determine how such proposals would impact us or our stockholders.

The Biden administration and the members of Congress have been negotiating its tax and economic policy bill that would affect both individual and business taxes.

As the scope of the tax and economic provisions previously proposed in the Build Back Better Act reconciliation bill currently remain uncertain and are subject to further negotiations by policy makers, we cannot determine how such proposals and the ensuing legislation, if any, would impact us or our stockholders.

General Risks

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It is difficult to predict the exact nature of any future legislative or regulatory initiatives and the extent to which they may impact our business, financial condition, or results of operations.

Environmental, social and governance matters may cause us to incur additional costs, make personnel changes, and affect the attractiveness of our stock to investors.

Shareholder, public and governmental expectations and pressure have been increasing with respect to corporate responsibility, sustainability, diversity and inclusion and other environmental, social and governance (“ESG”) matters.

Shareholder advisory services and other organizations have developed and publish, and others may in the future develop and publish, rating systems and other scoring and reporting mechanisms to evaluate and compare our ESG performance with that of others in our industry.

These ratings systems frequently change, and scores are often based on a relative ranking which may cause our scores to deteriorate if peer rankings improve.

In addition, current shareholders and prospective investors may use these ratings, and/or their own internal ESG benchmarks, to determine whether, and to what extent, they may choose to invest in our securities, engage with us to advocate for improved ESG performance or disclosure, make voting decisions as shareholders, or take other actions to hold us and our board of directors accountable with respect to ESG matters.

Some legislatures, government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate, certain ESG disclosure or performance.

For example, board diversity and inclusion is an ESG topic that is receiving heightened attention from lawmakers and listing exchanges.

If we are unable to recruit, attract and/or retain qualified members of our board of directors to maintain compliance with the diversity requirements of applicable mandates within the prescribed timelines, we could be exposed to costly fines and penalties.

In addition, the standards for tracking and reporting on ESG matters are relatively new, have not been harmonized, and continue to evolve.

As a result, our selection of ESG disclosure frameworks and topics may change from time to time, may result in a lack of comparative data from period to period, or differ from the expectations of our shareholders and other stakeholders.

We may also face reputational damage in the event our corporate responsibility initiatives or objectives, including with respect to board diversity, do not meet the standards or expectations of shareholders, prospective investors, lawmakers, listing exchanges or other stakeholders, or if we are unable to achieve acceptable ESG ratings from third party rating services.

Failure to comply with ESG-related laws, exchange policies or stakeholder expectations could materially and adversely impact the value of our stock and related cost of capital, and limit our ability to fund future growth, or result in increased investigations and litigation or threats thereof.

Unresolved Staff Comments

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors