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Item 1A. Risk Factors

2024-02-20 compared with 2023-02-17 · 110 added, 88 removed, 523 unchanged (27% of the section changed)

Our business is subject to various risks, including the risks listed below.

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.

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

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

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Risks Related to Our Business.

The ongoing COVID-19 pandemic has caused severe disruptions to the United States and global economy and may have an adverse impact 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 continued transition from LIBOR, could harm our operations, affect our ability to obtain financing on reasonable terms and have other adverse effects on us.

The COVID-19 pandemic caused severe disruptions to the U.S.

and global economies and may continue to have an adverse impact on our business, results of operations and financial condition.

An economic slowdown, a lengthy or severe recession, declining real estate values, major bank failures or changes in interest rates 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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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.

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.

In certain circumstances, we employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including treasury futures, interest rate and credit default 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 by our hedging strategies.

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Cybersecurity Risks.

If we are unable to safeguard against cybersecurity breaches and cyber-attacks with respect to our information systems, our business may be adversely affected.

If we are unable to safeguard against cybersecurity breaches and cyberattacks with respect to our information systems, our business may be adversely affected.

With cyber threats increasing in frequency and severity, potential breaches pose a significant threat to our operations, potentially leading to reputational damage, financial losses, and legal repercussions.

Risks Related to Our Corporate and Ownership Structure.

Our charter generally does not permit ownership in excess of 5% of our capital stock and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors.

Our charter generally does not permit anyone to own in excess of 5% of our capital stock and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors.

This, along with our staggered board and other provisions of our charter and bylaws, could discourage a change of control of us.

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(4) future terrorist attacks;

(5) military conflict;

and (6) changes to laws and regulations, including environmental, social and governance matters.

Risks Related to Our Business

The ongoing COVID-19 pandemic has caused severe disruptions to the United States and global economy and to our business and may continue to have an adverse impact on our business, results of operations and financial condition.

The ongoing effects of the COVID-19 pandemic have caused significant disruptions to the U.S.

The COVID-19 pandemic caused severe disruptions to the U.S.

and global economies and to our business and may continue to have an adverse impact on our business, results of operations and financial condition.

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

and global economies.

Although vaccine availability and usage have continued to increase, which has led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects on inflation, interest rates, capital markets, labor

shortages, property values and global supply chains continue to negatively impact many industries, including the U.S.

Although vaccine availability and its usage have led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects on inflation, interest rates, capital markets, labor shortages, property values and global supply chains continue to

negatively impact many industries, including the U.S.

commercial real estate market.

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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:

● 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 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;

• During the course of the pandemic, we experienced, and may experience in the future:

◦ 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;

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

◦ 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 have had, and may continue to have, a negative impact our ability to execute on securitizations, which may have an adverse effect on our liquidity and results of operations;

• Disruptions in the credit markets have had, and may continue to have, a negative impact on 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 estimated credit losses under CECL.

As a result of factoring in the ongoing macroeconomic effects of the COVID-19 pandemic to the forecast models used to estimate our credit losses, we may experience continued 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 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.

To the extent that pandemics adversely affect our business, results of operations, financial condition and cash flows, they may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

An economic slowdown, a lengthy or severe recession, or declining real estate values could harm our operations.

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Disruptions in the financial markets also may have a material adverse effect on the market value of our common stock.

Major bank failure or sustained financial market illiquidity could adversely affect our business, financial condition and results of operations.

We face certain risks in the event of a sustained deterioration of domestic or international financial market liquidity.

We may be unable to access funds in our deposit accounts on a timely basis.

Any resulting need to access other sources of liquidity or short-term borrowing would increase our costs.

In the event of a major bank failure, we could face major risks to the recovery of our bank deposits.

Separately, although a majority of our cash is currently on deposit with major financial institutions, our balances often exceed insured limits.

While we are not currently aware of any liquidity issues directly impacting the financial institutions where we hold cash deposits or securities, if financial liquidity deteriorates, there can be no assurance we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

Increases in loan loss reserves and other impairments are likely if economic conditions deteriorate.

A decline in economic conditions could negatively impact the credit quality of our loan and investment portfolio and could cause us to experience increases in loan loss reserves, defaulted loans and other asset impairment charges.

Loan loss reserves are particularly difficult to estimate in a turbulent economic environment.

We perform a quarterly evaluation of our loans to determine whether an impairment charge is necessary and adequate to absorb probable losses.

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 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.

Allowance for credit losses are particularly difficult to estimate in a turbulent economic environment.

We estimate allowances for credit losses on our loans and investments under the current expected credit loss (“CECL”) methodology based on current expected credit losses for the life of the loan and investment.

This process utilizes information obtained from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts about the future and 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 several factors, including projected cash flows from the collateral securing our loans, debt 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.

Since the 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 estimated credit losses under CECL.

Loan repayments are less likely in a volatile market environment.

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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 continued transition from LIBOR could have an adverse effect on our net investment income.

Changes in interest rates 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.

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In addition, as interest rates rise, it is likely that income from our investment in a residential mortgage banking business would be adversely affected, since rising rates generally decrease the demand for residential real estate loans and the number of loan originations.

In 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published and will no longer be representative after June 30, 2023.

This coincides with an announcement made by the ICE Benchmark Administration Limited indicating that it would have to cease publication of LIBOR tenors immediately after the last publication on June 30, 2023, as a result of not having access to necessary input data to calculate such LIBOR tenors.

Therefore, the Federal Reserve, along with the Federal Deposit Insurance Corporation (“FDIC”) and Office of the Comptroller of the Currency issued supervisory guidance encouraging financial institutions to cease entering into new contracts that are indexed off U.S.

dollar LIBOR by December 31, 2021.

The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, announced replacement of U.S.

dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S.

Treasury securities called the Secured Overnight Financing Rate (“SOFR”).

In connection with such recommendations and developments, all variable rate loans originated by us beginning January 1, 2022 have been indexed to SOFR.

In addition, all of our historical loan origination contracts and credit facility agreements include provisions for determining an alternative base rate in the event that LIBOR is discontinued.

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 have 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 such transition.

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.

The discontinuation of LIBOR and changes in banks’ inter-bank lending rate reporting practices may adversely affect the value of the financial obligations to be held or issued by us.

We are subject to risks related to the cessation of the use of LIBOR as of June 30, 2023.

The publication of USD LIBOR for certain tenors and all non-USD LIBOR tenors ceased after December 31, 2021.

Banks reporting information used to set USD LIBOR for all other tenors were required to stop doing so after June 30, 2023.

We completed our transition away from LIBOR as of June 30, 2023.

As an alternative to LIBOR, in the U.S., the Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for U.S.

dollar-based LIBOR.

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

Treasury securities and is based on directly observable U.S.

Treasury-backed repurchase transactions.

There are inherent differences between LIBOR and SOFR, which may lead to uncertainties or risks related to the general acceptance of SOFR, the value of and market for securities linked to SOFR, or result in a reduction in our interest income.

We cannot predict the consequences of these developments or other market or regulatory changes related to the phase-out of LIBOR.

Switching existing financial instruments and

hedging transactions from LIBOR to SOFR required calculation of a spread.

Industry organizations attempted to structure the spread calculation in a manner that minimizes the possibility of value transfer between counterparties, borrowers and lenders by virtue of the transition, but there is no assurance that the calculated spread will be fair and accurate or that all asset types and all types of securitization vehicles will use the same spread.

We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging and risk management.

More generally, any of the above changes or any other consequential changes to SOFR, or any other “benchmark,” as a result of international, national or other proposals for reform or other initiatives or investigations, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on the value of and return on any securities based on or linked to a “benchmark.”

We may not be able to hire and retain qualified loan originators or grow and maintain our relationships with key customers, and if we are unable to do so, our ability to implement our business and growth strategies could be limited.

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In performing our diligence, we rely on the resources available to us and, in some cases, an investigation by third parties.

This process is particularly important and subjective with respect to newly organized entities because there may be little or no information publicly available about the entities.

This process is particularly important and sometimes, more subjective with respect to newly organized entities because there may be little or no information publicly available about the entities.

There can be no assurance that our due diligence process will uncover all relevant facts or that any investment will be successful.

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

We may invest in mezzanine loans which are subject to a greater risk of loss than loans secured by a first priority mortgage lien.

In our Structured Business, we may invest in mezzanine loans that are generally secured by a pledge of the ownership interests of the entity that directly or indirectly owns the property.

We invest in mezzanine loans which are subject to a greater risk of loss than loans secured by a first priority mortgage lien.

In our Structured Business, we invest in mezzanine loans that are generally secured by a pledge of the ownership interests of the entity that directly or indirectly owns the property.

Mezzanine loans have a higher degree of risk than senior mortgage loans because the investment may become unsecured as a result of foreclosure by the mortgage holder.

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.

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 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.

As a result, if a borrower defaults, there may not be sufficient funds remaining to pay the junior participation loan after payment of the senior note.

Since each transaction is privately negotiated, the structure of such loans can vary.

For example, as a holder of a junior participation loan, our rights to control the process following a borrower default may be limited.

A junior participation loan may not be liquid and, consequently, we may be unable to dispose of underperforming or non-performing investments.

The higher risks associated with a subordinate position in any investment we make could subject us to increased risk of losses.

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 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.

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 insurance, energy costs and real estate tax increases) 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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Under the Fannie Mae DUS program, our Agency Business originates and services multifamily loans for Fannie Mae without needing Fannie Mae’s prior approval, as long as the loans meet the underwriting guidelines set forth by Fannie Mae.

In return for such delegated authority and the commitment to purchase loans by Fannie Mae, we are required to share risk of loss on loans sold through Fannie Mae and we must provide collateral to Fannie Mae to secure any losses.

Under the full risk-sharing formula, we absorb the first 5% of any losses on the UPB of a loan at the time of loss settlement, and above 5% we share the loss with Fannie Mae, with our maximum loss capped at 20% of the original UPB of a loan.

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Our Agency Business sells loans directly to Freddie Mac who may choose to hold, sell or later securitize such loans.

We believe terms set by Freddie Mac are influenced by similar market factors as those that impact the price of Fannie Mae insured or Ginnie Mae securities, although the pricing process differs.

We believe terms set by Freddie Mac are influenced by similar market factors as those that impact the price of Fannie Mae insured or Ginnie Mae

securities, although the pricing process differs.

With respect to loans that are placed with institutional investors, the origination fees that we receive from borrowers are determined through negotiations, competition and other market conditions.

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The credit risk premium offered by Fannie Mae for new loans can change periodically but remains fixed once we enter into a commitment to sell the loan.

There can be no assurance that such fees will continue to remain at such levels or that such levels will be sufficient if delinquencies occur.

There can be no assurance that such fees will continue to remain at current levels or that such levels will be sufficient if delinquencies occur.

A significant portion of our Agency Business’s revenue is derived from loan servicing fees and declines in, or terminations of, servicing engagements, or breaches of servicing agreements, could have a material adverse effect on us.

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For most loans we service under the Fannie Mae DUS program, we are required to advance the principal and interest payments and tax and insurance escrow amounts if the borrower is delinquent in making loan payments.

After four continuous months of making advances on behalf of the borrower, we can submit a reimbursement claim to Fannie Mae, which Fannie Mae may approve at its discretion.

After four continuous months of making advances on behalf of the borrower, we can submit a reimbursement claim to Fannie Mae, which Fannie Mae may approve in its discretion.

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

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If these conditions deteriorate, there can be no assurance that any existing agreements will be renewed or extended at expiration and alternative sources of financing may not be available or may not accommodate our needs.

This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders, funds available for operations as well as for future business opportunities.

Credit facilities may contain restrictive covenants relating to our operations.

Credit facilities may contain various financial covenants and restrictions, including minimum net worth, liquidity and debt-to-equity ratios.

Other restrictive covenants may prohibit a change in control, disposing of or encumbering assets, limiting outstanding debt, and restrictions from making material amendments to underwriting guidelines without lender approval.

This could subject us to an increase in our recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders, funds available for operations as well as for future business opportunities.

Our credit and repurchase facilities and unsecured debt (senior and convertible notes) contain restrictive covenants relating to our operations.

Our credit and repurchase facilities and unsecured debt (senior and convertible notes) contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth requirements, minimum unencumbered asset requirements, as well as certain other debt service coverage ratios, debt to equity ratios and minimum servicing portfolio tests.

Other restrictive covenants include prohibiting a change in control, disposing of or encumbering assets, limiting outstanding debt, and restrictions from making material amendments to underwriting guidelines without lender approval.

While we actively manage our loan and investment portfolio, a weak economic environment may make compliance with these covenants more difficult.

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Moreover, we may be dependent upon a few lenders to provide financing under credit agreements for our origination or acquisition of loans and investments and there can be no assurance that these agreements will be renewed or extended at expiration.

Our ability to obtain financing through CLOs is subject to conditions in the debt capital markets which are impacted by factors beyond our control that may reduce the level of investor demand for such securities.

Our ability to obtain financing

through CLOs is subject to conditions in the debt capital markets which are impacted by factors beyond our control that may reduce the level of investor demand for such securities.

The debt facilities that we use to finance our investments may require us to provide additional collateral.

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Moreover, we may not be able to meet our debt service obligations and, in such event, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations.

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 and repurchase facilities, derivative agreements and unsecured indebtedness.

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

We 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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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, however, no strategy can completely insulate us from the risks associated with interest rate changes.

We may employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including treasury futures, interest rate and credit default 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.

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We cannot assure that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.

We may enter into derivative contracts that could expose us to contingent liabilities in the future.

We enter into derivative contracts that could expose us to contingent liabilities in the future.

Subject to maintaining our qualification as a REIT, part of our investment strategy involves entering into derivative contracts that could require us to fund cash payments in the future under certain circumstances (e.g., the early termination of the derivative agreement caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the derivative contract).

The amount due would be equal to the unrealized loss of the open swap positions with the applicable counterparty and could also include other fees and charges.

The amount due would be equal to the unrealized loss of the open positions with the applicable counterparty and could also include other fees and charges.

These economic losses will be reflected in our financial results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

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Pursuant to Section 3(c)(5)(C) of the Act, entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate” are currently exempted from regulation thereunder.

The SEC has provided guidance on the availability of this exemption and generally requires an exempt company to maintain at least 55% of its assets directly in “qualifying real estate interests.” To be considered a qualifying real estate interest test, an investment must meet various criteria.

Loans that are secured by equity interests in entities that directly or indirectly own the underlying real property, rather than a mortgage on the underlying property itself, may not qualify for purposes of the 55% test.

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The SEC oversees our activities as a registered investment adviser under this regulatory regime.

A failure to comply with the obligations imposed by the Advisers Act, including record-keeping, advertising, operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result in fines, censure, suspensions of personnel or investing activities or other sanctions, including revocation of our registration as an investment adviser.

A failure to comply with the obligations imposed by the Advisers Act, including recordkeeping, advertising, operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result in fines, censure, suspensions of personnel or investing activities or other sanctions, including revocation of our registration as an investment adviser.

The regulations under the Advisers Act are designed to protect investors and other clients, and are not designed to protect holders of our publicly traded stock.

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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 2022, the FHFA announced that its 2023 loan origination caps for Fannie Mae and Freddie Mac will be $75 billion for each enterprise for a total opportunity of $150 billion (the “2023 Caps”), which has decreased from its 2022 loan origination caps of $78 billion for each enterprise.

The FHFA has stated that they will continue to monitor the market and reserves the right to increase the 2023 Caps if warranted, however, they will not reduce the 2023 Caps if the market is smaller than initially projected.

The 2023 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 has removed the requirement that at least 25% be affordable to residents at or below 60% of area median income (“AMI”) to reduce inconsistencies with their housing goals regulation.

Further, the FHFA has changed certain definitions of mission driven affordable housing and also allows loans to finance energy or water efficiency improvements with units affordable at or below 80% of AMI to be classified as mission-driven, up from 60% AMI in 2022.

This increase will allow the GSEs to expand their effort on energy and water conservation measures at workforce housing properties.

FHFA set its 2024 loan origination caps for Fannie Mae and Freddie Mac at $70 billion for each enterprise for a total opportunity of $140 billion (the “2024 Caps”), which is a decrease from its 2023 Caps of $75 billion for each enterprise.

FHFA stated they will continue to monitor the market and reserves the right to increase the 2024 Caps if warranted, however, they will not reduce the 2024 Caps if the market is smaller than initially projected.

To promote affordable housing preservation, loans classified as supporting workforce housing properties will be exempt from the 2024 Caps.

Workforce housing loans preserve rents at affordable levels in multifamily properties, typically without the use of public subsidies.

The 2024 Caps will continue to mandate that at least 50% be directed towards mission driven, affordable housing, with affordability levels corresponding to 80%-120% of area median income, depending on the market.

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.

Therefore, a decline in our GSE originations could negatively impact our financial results.

We are unsure whether the FHFA will impose stricter limitations on GSE multifamily production volume in the future.

We are unsure whether FHFA will impose stricter limitations on GSE multifamily production volume in the future.

Cybersecurity Risks

If we are unable to safeguard against cybersecurity breaches and cyber-attacks with respect to our information systems, our business may be adversely affected.

Cybersecurity incidents and cyber-attacks, which include malicious software, ransomware or terrorists attacks, unauthorized attempts to gain access to sensitive, confidential or otherwise protected information related to us and our customers, have been occurring globally at a more frequent and severe level and are expected to continue to increase in frequency and severity in the future.

If we are unable to safeguard against cybersecurity breaches and cyberattacks with respect to our information systems, our business may be adversely affected.

Cybersecurity incidents and cyberattacks, which include malicious software, ransomware or terrorists attacks, unauthorized attempts to gain access to sensitive, confidential or otherwise protected information related to us and our customers, have been occurring globally at a more frequent and severe level and are expected to continue to increase in frequency and severity in the future.

In the course of our business, we gather, transmit and retain confidential information through our information systems.

Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could penetrate our security systems and access sensitive information about our business and employees.

Any misappropriation, loss or unauthorized disclosure of confidential information gathered, stored or used by us could have a material impact on the operation of our business, including damaging our reputation with our borrowers, employees, third parties and investors.

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ACM has approximately 6% of the voting power of our outstanding stock at December 31, 2023.

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 7% of the voting power of our outstanding stock at December 31, 2022.

outstanding stock at December 31, 2023.

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.

Our charter generally does not permit ownership in excess of 5% of our capital stock, and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors which could discourage a change of control of us.

Our charter generally does not permit anyone to own in excess of 5% of our capital stock, and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors which could discourage a change of control of us.

In order to qualify as a REIT, not more than 50% of the value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of a taxable year.

8 unchanged sentences

Our Board of Directors is divided into three classes of directors.

The current terms of the Class II, Class III and Class I directors will expire in 2023, 2024 and 2025, respectively.

The current terms of the Class III, Class I and Class II directors will expire in 2024, 2025 and 2026, respectively.

Directors of each class are chosen for three-year terms upon the expiration of their current terms, and each year one class of directors is elected by the stockholders.

33 unchanged sentences

The “taxable mortgage pool” rules may limit the manner in which we effect future securitizations.

Certain of our securitization and other financing transactions could result in us, or a portion of our assets, to be treated as a taxable mortgage pools for federal income tax purposes.

Certain of our securitization and other financing transactions could result in us, or a portion of our assets, to be treated as a taxable mortgage pool for federal income tax purposes.

If we enter into such transactions, we could be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for tax purposes.

56 unchanged sentences

The price of our common stock may be volatile.

The trading price of our common stock may be highly volatile and could be subject to a number of factors beyond our control, including (1) the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies, (2) our financial performance, (3) coordinated buying and selling activity by market participants, including market manipulation, (4) publication of information in the media, including online blog and social media about our Company by third parties, and (5) general stock and bond market conditions.

The trading price of our common stock may be highly volatile and could be subject to a number of factors beyond our control, including (1) the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies, (2) our financial performance, (3) coordinated buying and selling activity by market participants, including market manipulation and short-seller reports, (4) publication of information in the media, including online blog and social media about our Company by third parties, and (5) general stock and bond market conditions.

The market value of our stock is based primarily on the market’s perception of our growth potential and our current and future earnings and dividends.

30 unchanged sentences

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.

Shareholder advisory services and other organizations have developed and published, 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.

7 unchanged sentences

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

Our principal corporate offices are located in leased space at 333 Earle Ovington Boulevard, Uniondale, New York, 11553.

Legal Proceedings

Information with respect to certain legal proceedings is set forth in Note 14 and is incorporated herein by reference.

Climate change could have an adverse effect on both our borrowers and our financial condition and results of operations.

As we operate nationwide, the activities of our borrowers could be adversely affected by climate change.

Climate change could manifest as a financial risk to us, either through changes in the physical climate or from the process of transitioning to a lower-carbon economy.

Both physical risks and transition risks associated with climate change could have negative impacts on the financial condition or creditworthiness of our borrowers, and on our overall exposure.

Climate-related physical risks include the increased frequency or severity of acute weather events, such as floods, wildfires and tropical storms, and chronic shifts in the climate, such as persistent changes in precipitation levels, rising sea levels, or increases in average ambient temperature.

Potential adverse impacts of climate-related physical risks include:

• Declination in asset values, due to, amongst other events, the destruction or degradation of property;

• Reduced availability or increased cost of insurance for our borrowers;

• Interruptions to business operations, including supply chain disruption.

Transition risks arise from shifts to a lower-carbon and more climate-friendly future, such as changes in public policy, adoption of new technologies, or changes in demand for more eco-friendly living environments.

Examples of such are as follows:

• Increased operational and compliance costs driven by changes in climate-related policy;

• Increased energy costs driven by governmental actions and initiatives such as decarbonization policies;

• Damage to our reputation, including due to any perception that our business practices are contrary to the preferences of different stakeholders.

Our business could be harmed if we are unable to effectively develop artificial intelligence.

Our industry is marked by rapid technological developments and innovations, such as the use of artificial intelligence, and evolving industry standards, best practices, and related regulations.

If we are unable to remain competitive by developing and providing enhancements, new features, and integrations for our existing technology offerings and platform, our business could be harmed.

addition to competitive risks, the incorporation of artificial intelligence into our technological framework poses ethical and cybersecurity risks, as well as the regulatory risks associated with compliance with state and national laws and regulations.

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