What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-20 · 127 added, 120 removed, 274 unchanged (47% of the section changed)

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You should read the following discussion in conjunction with the sections of this report entitled “Forward-Looking Statements” and”Risk Factors,” along with the historical consolidated financial statements including related notes, included in this report.

Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, SFR and commercial real estate markets, primarily consisting of bridge loans, in addition to mezzanine loans, junior participating interests in first mortgages and preferred and direct equity.

We also invest in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.

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We retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under the GSE and HUD programs.

We are an approved Fannie Mae DUS lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and SBL lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally.

We are an approved Fannie Mae DUS lender, seller/servicer nationally, a Freddie Mac Optigo ® Conventional Loan and SBL lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally.

We also originate and retain the servicing rights on permanent financing loans underwritten using the guidelines of our existing agency loans sold to the GSEs, which we refer to as “Private Label” loans and originate and sell finance products through CMBS programs.

We either sell the Private Label loans instantaneously or pool and securitize them and sell certificates in the securitizations to third party investors, while retaining the highest risk bottom tranche certificate of the securitization (“APL certificates”).

We conduct our operations to qualify as a REIT.

A REIT is generally not subject to federal income tax on its REIT-taxable income that is distributed to its stockholders, provided that at least 90% of its REIT-taxable income is distributed and provided that certain other requirements are met.

A REIT is generally not subject to federal income tax on its taxable income that is distributed to its stockholders;

provided that at least 90% of its taxable income is distributed and provided that certain other requirements are met.

Our operating performance is primarily driven by the following factors:

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Additionally, we also recognize revenue from originating, selling and servicing our Private Label loans.

One of our core business strategies is to generate additional agency lending opportunities by refinancing our multifamily balance sheet bridge loan portfolio when it is practical and appropriate to do so.

We execute this strategy by underwriting the multifamily bridge loans we originate to a potential future agency financing.

We then continue to work with our borrowers on this execution through the life cycle of the multifamily bridge loan.

When effective, this strategy allows us to recapture refinancing opportunities, deleverage our balance sheet, and generate additional income streams through our capital-light Agency Business.

Income earned from our structured transactions.

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Effective portfolio management is essential to maximize the performance and value of our loan and investment and servicing portfolios.

Maintaining the credit quality of the loans in our portfolios is of critical importance.

Maintaining the credit quality of the loans in our

portfolios is of critical importance.

Loans that do not perform in accordance with their terms may have a negative impact on earnings and liquidity.

COVID-19 Impact.

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 of the COVID-19 pandemic 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.

The extent and duration of the economic fallout from this pandemic to our business, particularly rising inflation, increasing interest rates and dislocation in capital markets, remains unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions.

Significant Developments During 2024

Financing and Capital Markets Activity.

• Raised $193.7 million of capital from issuances of approximately 13.1 million shares of common stock under our “At-The-Market” equity offering sales agreement;

• Unwound CLO 12 and 13, redeeming the remaining outstanding notes, which were repaid primarily from the refinancing of the remaining assets within our other CLO vehicles and credit and repurchase facilities;

• Raised $93.4 million from the issuance of our 7.75% senior unsecured notes and used $70.8 million of the net proceeds to redeem our 8.00% senior unsecured notes;

• Redeemed $78.9 million of our 5.625% senior unsecured notes at maturity with cash.

Share Repurchase Program.

We implemented a $50.0 million share repurchase program and repurchased approximately 3.5 million shares of our common stock at a total cost of $37.4 million and an average cost of $10.56 per share.

We subsequently increased the remaining availability under the share repurchase program to $150.0 million.

• Unwound CLO 15, redeeming the remaining outstanding notes, and paid down outstanding notes totaling $1.65 billion on our other securitizations;

• Entered into three new debt facilities totaling $900.0 million of warehouse capacity, amended existing facilities resulting in a net $50.0 million increase in the committed amounts of these facilities and terminated three facilities totaling $400.0 million;

• Raised $100.0 million from the issuance of our 9.00% senior notes and repaid our 4.75% and 5.75% senior notes totaling $200.0 million;

• Entered into a new equity distribution agreement with JMP to sell up to 30,000,000 shares of our common stock and raised $10.0 million of capital under the plan from the issuance of 661,708 shares at an average price of $15.16 per share;

• Repurchased $11.4 million of our common stock at an average price of $12.19 per share.

Structured Business Activity.

• Reduced our structured loan and investment portfolio by 13% to $12.62 billion on loan runoff of $3.35 billion, which outpaced loan originations totaling $983.3 million;

• Received and recorded $26.7 million in income from equity affiliates from equity participation interests on properties that were sold and cash distributions from our Lexford joint venture.

We also received cash distributions totaling $15.0 million from our investment in a residential mortgage banking business;

• Settled the Extended Stay litigation (see Note 14).

• Reduced our balance sheet portfolio by 10% to $11.30 billion on loan runoff of $2.69 billion, which outpaced loan originations totaling $1.43 billion;

• Modified 106 loans with a total UPB of $4.12 billion.

Borrowers of 63 of these loans with a total UPB of $2.39 billion invested additional capital to recapitalize their deals in exchange for temporary rate relief, which we provided through a pay and accrual feature.

See Note 3 for details;

• Sold a real estate owned asset for $14.2 million and recognized a $3.8 million gain.

Agency Business Activity.

• Loan originations increased 7% to $5.11 billion, and includes $1.69 billion of new agency loans that were recaptured from our Structured Business runoff;

• Loan originations totaled $4.47 billion and includes $1.58 billion of new agency loans that were recaptured from our Structured Business runoff;

• Grew our fee-based servicing portfolio 8%, or $2.49 billion, to $33.47 billion.

We raised our quarterly common dividend twice during 2023 to an annual run rate of $1.72 per share, representing a 7.5% increase over the prior year.

Current Market Conditions, Risks and Recent Trends

The Federal Reserve raised interest rates throughout 2022 and 2023 to combat inflation and restore price stability.

As inflation begins to cool, it is possible that the Federal Reserve will pause on raising interest rates higher and potentially begin to lower rates during 2024.

We have been very successful in raising capital through various vehicles to grow our businesses.

Inflation, rising interest rates, bank failures, and geopolitical uncertainty has caused significant disruptions in many market segments, including the financial services, real estate and credit markets, which has, and may continue, to result in a further dislocation in capital markets and a continual reduction of available liquidity.

Instability in the banking sector, such as the recent bank failures and consolidations, further contributed to the tightening liquidity conditions in the equity and capital markets and has affected the availability and increased the cost of capital.

The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all.

Additionally, the recent turmoil in the banking sector and financial markets has resulted in multiple regional bank failures and consolidations.

Although the majority of our cash is currently on deposit with major financial institutions, our balances often exceed insured limits.

The Federal Reserve lowered the federal funds rate three times during 2024 for a total reduction of 100 basis points, which marks the first rate cuts since 2020, and it is possible that they will continue to reduce short term rates in 2025.

Although short term rates have declined 100 basis points, we currently remain in a high interest rate environment which could remain higher for longer than expected if inflation and other economic indicators do not continue to meet the Federal Reserve’s expectations.

These adverse economic conditions have resulted in, and may continue to result in, a dislocation in capital markets, declining real estate values of certain asset classes, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which has impacted, and may continue to impact, our future results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.

We employ rigorous risk management and underwriting practices to proactively maintain the quality of our loan portfolio and work very closely with borrowers to mitigate potential losses, while safeguarding the integrity of our portfolio, which may include modifying original loan terms.

Given the current elevated interest rate environment, we cannot guarantee that our loan portfolio will perform under the current loan terms.

Additionally, over the last several months the five and ten-year interest rates have increased substantially with the ten-year rate moving from a low of 3.60% in September 2024 to a high of 4.80% in January 2025 and the forward yield curve is predicting the ten-year rate will remain above 4.50% for the balance of 2025.

As discussed earlier, the short term rate curve is expected to continue to decrease in 2025, but only by a nominal additional 25 basis points.

This current interest rate environment is creating increased headwinds for commercial real estate and is likely to result in decreased origination volumes, especially in our GSE/Agency business in 2025, which is a highly profitable segment of our overall business.

This rate environment will also affect the ability for borrowers to refinance their balance sheet loans with fixed rate agency product, which could increase our delinquencies and defaults and reduce available liquidity.

This environment could also limit our ability to resolve delinquent loans, leading to potential additional foreclosures and REO assets on our balance sheet, all of which could have a material adverse effect on our future results of operations, financial condition, liquidity and our ability to make distributions to our stockholders.

Historically, the high interest rate environment has positively impacted our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating rate based on SOFR.

Additionally, since a greater portion of our debt consists of fixed-rate instruments (such as convertible and senior unsecured notes), as compared to our structured loan portfolio, the increase in interest income from high interest rates tends to outpace the rise in interest expense on our debt.

Furthermore, our earnings on escrows and cash balances also benefit from an elevated rate environment.

However, the prolonged period of elevated interest rates has led to an increase in loan delinquencies, a decrease in loan originations and lower cash and escrow balances, which is having, and may continue to have, a negative impact on our net interest income.

Additionally, the prolonged high interest rate

environment has contributed to a decline in certain commercial real estate values, leading to increased reserves, as the collateral value is insufficient to fully repay the loans.

As discussed earlier, the Federal Reserve began lowering short term interest rates in 2024 and may continue to cut interest rates during 2025.

These rate reductions have resulted in and will continue to result in a decrease in the net interest income on our floating rate loan book and reductions in the earnings on our cash and escrow balances.

For additional details, please see “Quantitative and Qualitative Disclosures about Market Risk” below.

Inflation, high interest rates, bank failures, and geopolitical uncertainty has caused significant disruptions in many market segments, including the financial services, real estate and credit markets, which has, and may continue to, result in a further dislocation in capital markets and a continued reduction of available liquidity.

Despite these periodic disruptions, we have been successful in raising capital through various vehicles, when needed, to continue to operate and strengthen our business.

Instability in the banking sector, such as the multiple regional bank failures and consolidations, further contributed to the tightening liquidity conditions in the equity and capital markets and has affected the availability, and increased the cost, of capital.

The increased cost of credit, or degradation in debt financing terms, has impacted, and may continue to impact, our ability to identify and execute investments on attractive terms, or at all.

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

We limit the exposure relating to these balances by diversifying them among various counterparties.

Generally, deposits may be redeemed upon demand and are maintained at financial institutions with reputable credit and therefore we believe bear minimal credit risk.

These current market conditions could continue to limit our ability to grow our Structured Business since this business is more reliant on the capital markets to grow, but can also present us with options to build on existing relationships or create new relationships with lenders.

Since our Agency Business requires limited capital to grow, as originations are financed through warehouse facilities for generally up to 60 days before the loans are sold, tightening liquidity conditions in equity and capital markets should not have a substantial impact on our ability to sustain this business.

These adverse economic conditions have resulted in, and may continue to result in, a dislocation in capital markets, declining real estate values of certain asset classes, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could have a significant impact on our future results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.

We are currently in a high interest rate environment and some of our borrowers have experienced, and may continue to experience, financial stress that have resulted in an increase to payment delinquencies, loan loss reserves and realized losses on certain loans within our portfolio.

We employ rigorous risk management and underwriting practices to proactively maintain the quality of our loan portfolio and work very closely with borrowers to mitigate potential losses while safeguarding the integrity of our portfolio.

Given the current elevated interest rate environment, we cannot guarantee that our loan portfolio will perform under the terms originally established.

Currently, the high interest rate environment positively impacts our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR.

In addition, a greater portion of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise.

Therefore, increases in interest income due to rising interest rates is likely to be greater than the corresponding increase in interest expense on our variable rate debt.

Additionally, we earn interest on our escrow and cash balances, so an increasing interest rate environment will increase our earnings on such balances.

See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details.

Conversely, such rising interest rates have negatively impacted real estate values and have limited certain borrowers abilities to make debt service payments, which may limit new mortgage loan originations and increase the likelihood of additional delinquencies and losses incurred on defaulted loans if the reduction in the collateral value is insufficient to repay their loans in full.

We are a national originator with Fannie Mae and Freddie Mac, and the GSEs remain the most significant providers of capital to the multifamily market.

In November 2023, FHFA set its 2024 Caps for Fannie Mae and Freddie Mac at $70 billion for each enterprise for a total opportunity of $140 billion, which is a decrease from its 2023 Caps of $75 billion for each enterprise.

FHFA set its 2025 Caps for Fannie Mae and Freddie Mac at $73 billion for each enterprise for a total opportunity of $146 billion, which is an increase from its 2024 Caps of $70 billion for each enterprise.

FHFA stated they will continue to monitor the market and reserves the right to increase the 2025 Caps if warranted, however, they will not reduce the 2025 Caps if the market is smaller than initially projected.

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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 FHFA will impose stricter limitations on GSE multifamily production volume in the future.

As discussed above, the current high interest rate environment could lead to a decline in our GSE originations, which could negatively impact our financial results.

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

Changes in Financial Condition

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Our Structured loan and investment portfolio balance was $11.30 billion and $12.62 billion at December 31, 2024 and 2023, respectively.

This decrease was primarily due to loan payoffs and paydowns exceeding loan originations by $2.37 billion.

This decrease was primarily due to loan runoff exceeding loan originations by $1.27 billion.

See below for details.

Our portfolio had a weighted average current interest pay rate of 6.90% and 8.42% at December 31, 2024 and 2023, respectively.

Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.98% and 8.42% at December 31, 2023 and 2022, respectively.

Our debt that finances our loans and investment portfolio totaled $11.57 billion and $13.28 billion at December 31, 2023 and 2022, respectively, with a weighted average funding cost of 7.14% and 6.22%, respectively, which excludes financing costs.

Including certain fees earned and costs, the weighted average current interest rate was 7.80% and 8.98% at December 31, 2024 and 2023, respectively.

Our debt that finances our Structured loan and investment portfolio totaled $9.46 billion and $11.57 billion at December 31, 2024 and 2023, respectively, with a weighted average funding cost of 6.55% and 7.14%, respectively, which excludes financing costs.

Including financing costs, the weighted average funding rate was 6.88% and 7.45% at December 31, 2024 and 2023, respectively.

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Weighted average interest rate 8.51 % 9.21 %

Loans modified $ 4,118,117 $ 398,461

Number of Loans 106 5

Loans extended $ 5,998,103 $ 1,744,127

Number of loans 318 64

Loans held-for-sale from the Agency Business increased $197.6 million, primarily from loan originations exceeding sales by $217.6 million as noted in the following table.

Our GSE loans are generally sold within 60 days, while our Private Label loans are either sold instantaneously or pooled and securitized, or sold, within 180 days from the loan origination date.

Loans held-for-sale from the Agency Business decreased $115.9 million, primarily from loan sales exceeding originations as noted in the following table.

Activity from our Agency Business portfolio is comprised of the following (in thousands):

Year Ended December 31, 2024

Loan Originations Loan Sales

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Total $ 4,470,773 $ 4,609,686

Investments in equity affiliates remained relatively flat, primarily due to investments made in two new joint ventures, offset by distributions received on existing joint ventures.

Other assets increased $118.8 million, primarily due to an increase in interest receivable (from increases in benchmark index rates), the acquisition of an office property for full satisfaction of the underlying debt, and an increase in unsecured loan fundings.

Capitalized mortgage servicing r ights decreased $22.6 million, primarily due to amortization and prepayment write-downs totaling $76.9 million exceeding additions from new originations of $54.3 million.

Real estate owned, net increased $89.6 million, primarily from the foreclosure of three structured bridge loans where we took back the underlying collateral as REO assets.

Due from related party decreased $51.6 million, primarily due to funds from loan payoffs being remitted to us by our affiliated servicing operations related to real estate transactions.

Other assets increased $78.2 million, primarily due to additional fundings of unsecured line of credit loans totaling $41.7 million and an increase in deferred interest on modified loans.

Liabilities – Comparison of balances at December 31, 2024 to December 31, 2023:

Credit and repurchase facilities decreased $604.0 million, primarily due to runoff in our structured loan portfolio outpacing new originations.

Securitized debt decreased $914.3 million, primarily due to the unwind of two CLO vehicles totaling $842.1 million and paydowns on existing securitizations totaling $87.7 million.

Senior unsecured notes decreased $52.0 million, primarily due to the redemption of our 8.00% and 5.625% notes totaling $149.6 million, partially offset by our issuance of $95.0 million of 7.75% notes.

Due to borrowers increased $60.5 million, primarily due to unfunded commitments on new originations in our Structured Business, partially offset by the funding of previously committed loan originations.

Allowance for loss-sharing obligations increased $14.5 million, primarily due to increases in estimated losses under CECL.

During 2023, we sold 13,113,296 shares of our common stock through our “At-The-Market” equity agreement raising net proceeds totaling $193.7 million.

We also repurchased approximately 3.5 million shares of our common stock under our share repurchase program at a total cost of $37.4 million.

See Note 16 for details of our dividends declared and our deferred compensation transactions during 2023.

Credit and repurchase facilities increased $321.7 million, primarily due to refinancing loans from the unwind of CLOs in our Structured Business, substantially offset by loan sales exceeding originations in our Agency Business.

Securitized debt decreased $2.31 billion, primarily due to the unwind of CLO 15 and paydowns on existing securitizations totaling $1.65 billion.

Senior unsecured notes decreased $97.8 million, primarily due to the repayment of our 4.75% and 5.75% notes totaling $200.0 million, partially offset by the issuance of $100.0 million of our 9.00% notes.

Mortgage notes payable - real estate owned increased $30.6 million primarily due to financing placed on two new REO assets.

Due to borrowers decreased $74.1 million, primarily due to the funding of previously unfunded loan commitments in our Structured Business.

Other liabilities decreased $18.5 million, primarily due to a decrease in accrued interest payable as a result of the unwind of CLO 15 and paydowns on remaining securitizations, along with a decrease in deferred tax liabilities.

See Note 17 for details of our stock transactions, dividends declared and deferred compensation transactions during 2024.

Agency Servicing Portfolio

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At December 31, 2024 and 2023, delinquent loans totaled $524.5 million and $411.1 million, respectively.

At December 31, 2023, there were two loans totaling $4.8 million in bankruptcy and at both December 31, 2023 and 2022, there were no loans in foreclosure.

At December 31, 2024, there were two loans totaling $4.8 million in bankruptcy and six loans totaling $28.2 million have been foreclosed.

At December 31, 2023, there were two loans totaling $4.8 million in bankruptcy and no loans in foreclosure.

Our Agency Business servicing portfolio represents commercial real estate loans, which are generally transferred or sold within 60 days from the date the loan is funded.

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Servicing revenue, net 125,896 130,449 (4,553) (3) %

Property operating income 5,708 1,877 3,831 nm %

Gain (loss) on derivative instruments, net 6,763 26,609 (19,846) (75) %

Other income (loss), net 7,667 (17,563) 25,230 nm %

Property operating income 7,226 5,708 1,518 27 %

(Loss) gain on derivative instruments, net (8,543) 6,763 (15,306) nm

Other income, net 8,083 7,667 416 5 %

Total other revenue 258,866 293,021 (34,155) (12) %

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Depreciation and amortization 9,555 9,743 (188) (2) %

Provision for loss sharing (net of recoveries) 15,695 1,862 13,833 nm %

Provision for credit losses (net of recoveries) 73,446 21,169 52,277 nm %

Litigation settlement — 7,350 (7,350) nm %

Provision for loss sharing (net of recoveries) 11,782 15,695 (3,913) (25) %

Provision for credit losses (net of recoveries) 68,543 73,446 (4,903) (7) %

Total other expenses 333,899 315,829 18,070 6 %

Income before extinguishment of debt, income from equity affiliates and income taxes 405,183 361,997 43,186 12 %

Income before extinguishment of debt, gain on real estate, income from equity affiliates and income taxes 288,224 405,183 (116,959) (29) %

Loss on extinguishment of debt (412) (1,561) 1,149 (74) %

Gain on real estate 3,813 — 3,813 nm

Income from equity affiliates 5,772 24,281 (18,509) (76) %

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Bridge loans $ 11,593,718 $ 1,045,057 8.99 % $ 13,190,889 $ 1,208,180 9.16 %

Mezzanine / junior participation loans 224,784 23,939 10.65 % 202,484 19,473 9.62 %

Mezzanine 264,241 27,414 10.35 % 224,784 23,939 10.65 %

Preferred equity investments 117,131 9,082 7.73 % 90,960 5,892 6.48 %

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Net Interest Income

The increase in interest income was mainly due to a $375.8 million increase from our Structured Business, primarily due to a significant increase in the average yield on core interest-earning assets, as a result of increases in benchmark interest rates.

The increase in interest expense was mainly due to a $341.9 million increase from our Structured Business, primarily due to a significant increase in the average cost of our interest-bearing liabilities, mainly from increases in benchmark index rates.

The decrease in interest income was mainly due to a $166.7 million decrease from our Structured Business.

The decline was primarily from a decrease in the average balance of our core interest-earning assets as loan runoff exceeded loan originations, as well as a decrease in the average yield on core interest-earning assets from a rise in non-performing and other non-accrued loans.

The decrease in interest expense was mainly due to a $98.9 million decrease from our Structured Business, primarily due to a decline in the average balance of our interest-bearing liabilities from loan runoff and note paydowns in our securitizations and senior unsecured notes, partially offset by an increase in the average cost of interest-bearing liabilities, mainly from lower rate debt tranches being paid down from CLO runoff.

Agency Business Revenue

The increase in gain on sales, including fee-based services, net was primarily due to a 10% increase in the sales margin from 1.34% (which includes gains recognized on derivative instruments) to 1.48%, partially offset by a 10% decrease in loan sales volume ($549.4 million).

The increase in the sales margin was primarily driven by a higher percentage of Fannie Mae loans sold in 2023, which contain higher sales margins.

Overall, the income from MSRs remained relatively flat.

The slight increase was primarily due to an increase in Fannie Mae loan commitment volume ($829.6 million), partially offset by a decrease in Freddie Mac loan commitment volume ($596.2 million).

The positive impact from the net increase in loan commitment volume was largely offset by a decrease in the Fannie Mae and Freddie Mac MSR rates, as a result of lower servicing rates on newer loans.

The increase in servicing revenue, net was primarily due to an increase in earnings on escrow balances as a result of increases in benchmark index rates, partially offset by less prepayment penalties received from early runoff.

The increase in gain on sales, including fee-based services, net was primarily due to a 10% increase in the sales margin from 1.48% to 1.63%, partially offset by a 6% decrease in loan sales volume ($279.5 million).

The decrease in income from MSRs was primarily due to a 15% decrease in loan commitment volume ($763.2 million) and a 14% decrease in the MSR rate from 1.34% to 1.15%.

The decrease in the MSR rate was primarily due to a higher percentage of Freddie Mac loan commitments, which contain lower servicing fees.

The decrease in servicing revenue, net was primarily due to a decrease in earnings on escrow balances from lower average balances and lower prepayment fees, partially offset by an increase in servicing fees due to growth in our servicing portfolio.

Other Income (Loss)

The gain (loss) on derivative instruments in both 2023 and 2022 were related to changes in the fair values of our forward sale commitments and treasury futures held by our Agency Business.

Other income (loss), net in 2023 primarily reflects $4.8 million of loan origination fees from our Structured Business and a $2.5 million mark-to-market recovery on Private Label and SFR loans in our Agency Business, while 2022 primarily reflects a $15.7 million unrealized impairment loss recorded on certain loans held-for-sale in our Agency Business and $11.2 million of losses recognized in 2022 related to sales of bridge loans in our Structured Business.

The (loss) gain on derivative instruments in both 2024 and 2023 were related to changes in the fair values of our forward sale commitments and swaps held by our Agency Business as a result of changes in market interest rates as well as from the timing of GSE Agency loan sales.

Other Expenses

The decrease in employee compensation and benefits expense was primarily due to a decrease in incentive compensation.

The decrease in selling and administrative expenses was primarily due to lower professional fees as a result of the settlement of the Extended Stay litigation in early 2023.

The increases in our CECL provisions were primarily due to the impact of a continued decline in the macroeconomic outlook for commercial real estate, including specifically identified impaired assets.

We recorded an accrual of $7.4 million in 2022 pertaining to the settlement of the Extended Stay litigation as described in Note 14.

The increase in employee compensation and benefits expense was primarily due to increases in incentive compensation and commissions from higher bonus allocation targets and annual merit increases.

The increase in selling and administrative expenses was primarily due to increases in professional and legal costs.

The decreases in our CECL provisions were primarily due to a decrease in general reserves as a result of a decline in the structured portfolio as well as general improvements in the forecasted outlook for commercial real estate, as compared to 2023.

Loss on Extinguishment of Debt

The loss on extinguishment of debt in both 2023 and 2022 represents deferred financing fees recognized in connection with the unwind of CLOs, along with the 2022 repurchase of our 4.75% convertible notes.

The loss on extinguishment of debt in both 2024 and 2023 represents deferred financing fees recognized in connection with the unwind of CLOs.

Gain on Real Estate

In 2024, we recorded a $3.8 million gain on real estate from the sale of an REO asset for $14.2 million.

Income from Equity Affiliates

Income from equity affiliates in 2023 primarily reflects $14.5 million received from equity participation interests on properties that were sold and $12.2 million in distributions received from our Lexford joint venture.

Income from equity affiliates in 2022 primarily reflects $11.1 million in distributions received from our Lexford joint venture, $4.9 million of income from our investment in a residential mortgage banking business and a $2.6 million equity participation interest on a property that was sold, partially offset by a $2.4 million other-than-temporary impairment in our North Vermont Avenue investment.

Income from equity affiliates in 2024 primarily reflects $9.0 million in distributions received from our Lexford joint venture, partially offset by losses totaling $3.5 million from our investments in AMAC III and a residential mortgage banking business.

Income in 2023 primarily reflects $14.5 million received from equity participation interests on properties that were sold and $12.2 million in distributions received from our Lexford joint venture.

Provision for Income Taxes

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In 2023, we recorded a tax provision of $27.3 million, which consisted of a current tax provision of $34.7 million and a deferred tax benefit of $7.3 million.

The increase in the tax provision was primarily due to an increase in income generated from our equity investments and an increase in the pre-tax income from our Agency Business.

Net Income Attributable to Noncontrolling Interest

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Sources of Liquidity.

Liquidity is a measure of our ability to meet our potential cash requirements, including ongoing commitments to repay borrowings, satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of Freddie Mac’s SBL program, operational liquidity requirements of the GSE agencies, fund new loans and

investments, fund operating costs and distributions to our stockholders, as well as other general business needs.

Our primary sources of funds for liquidity consist of proceeds from equity and debt offerings, proceeds from CLOs and securitizations, debt facilities and cash flows from operations.

We closely monitor our liquidity position and believe our existing sources of funds and access to additional liquidity will be adequate to meet our liquidity needs.

The ongoing adverse economic and market conditions, including inflation, high interest rate environment, bank failures and geopolitical uncertainty, continues to cause significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets.

These conditions have created, and may continue to create, a dislocation in capital markets and a continual reduction of available liquidity.

The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all.

The ongoing adverse economic and market conditions, including inflation, high interest rate environment, bank failures and geopolitical uncertainty, has caused significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets.

These conditions have created, and may continue to create, further dislocations in capital markets and a continual reduction of available liquidity.

Instability in the banking sector, such as the regional bank failures and consolidations, further contributed to the tightening liquidity conditions in the equity and capital markets and has affected the availability and increased the cost of capital.

The increased cost of credit, or degradation in debt financing terms, has impacted, and may continue to impact, our ability to identify and execute investments on attractive terms, or at all.

If our financing sources, borrowers and their tenants continue to be impacted by these adverse economic and market conditions, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.

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We had $9.54 billion in total structured debt outstanding at December 31, 2024.

Of this total, $8.74 billion, or 76%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes, the majority of which have maturity dates in 2025, or later.

The remaining $2.83 billion of debt is in credit and repurchase facilities with several different banks with which we have long-standing relationships.

Of this total, $6.32 billion, or 67%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes.

The remaining $3.22 billion of debt is in credit and repurchase facilities with several different banks that we have long-standing relationships with.

At December 31, 2024, we had $1.42 billion of debt from credit and repurchase facilities that were subject to margin calls related to changes in interest spreads.

As of February 18, 2024, we had approximately $1.00 billion in cash and approximately $600.0 million of replenishable cash available under our CLO vehicles, as well as other liquidity sources.

In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $30.98 billion agency servicing portfolio at December 31, 2023, which is mostly prepayment protected and generates approximately $121.1 million per year in recurring cash flow.

To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT-taxable income.

As of February 19, 2025, we had approximately $435 million in cash and liquidity.

In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $33.47 billion agency servicing portfolio at December 31, 2024, which is mostly prepayment protected and generates approximately $126.5 million per year in recurring gross cash flow.

To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our taxable income.

These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.

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Loan payoffs and paydowns from our Structured Business totaling $2.78 billion, net of originations of $1.60 billion, resulted in net cash inflows of $1.18 billion.

Cash flows used in financing activities totaled $1.83 billion during 2023 and consisted primarily of $929.8 million of payoffs and paydowns of securitized debt, net cash outflows of $598.8 million from debt facility activities (facility paydowns were greater than financed loan originations), $380.6 million of distributions to our stockholders and OP Unit holders and $54.6 million from senior unsecured notes activity, partially offset by $193.7 million of proceeds from the issuance of common stock.

Cash flows used in financing activities totaled $2.49 billion during 2024 and consisted primarily of $2.32 billion of payoffs and paydowns of securitized debt, $394.8 million of distributions to our stockholders and OP Unit holders and $100.0 million from senior unsecured notes activity, partially offset by net cash inflows of $325.4 million from debt facility activities (financed loan originations were greater than facility paydowns).

Agency Business Requirements.

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The following is a summary of our debt facilities (in thousands):

Debt Instruments December 31, 2023

Commitment UPB (1) Available Maturity Dates (2)

December 31, 2024

Debt Instruments Commitment UPB (1) Available Maturity Dates (2)

Structured Business

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Junior subordinated notes 154,336 154,336 — 2034 - 2037

Mortgage notes payable - real estate owned 74,897 74,897 — 2025

Structured Business total 13,660,064 9,539,233 4,120,831

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(2) See Note 15 for a breakdown of debt maturities by year.

These maturity dates exclude extension options.

(3) Maturity dates represent the weighted average remaining maturity based on the underlying collateral at December 31, 2024.

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At December 31, 2024, we had no off-balance-sheet arrangements.

The Federal Reserve raised interest rates throughout 2022 and 2023 to combat inflation and restore price stability.

As inflation begins to cool, it is possible that the Federal Reserve will pause on raising interest rates higher and potentially begin to lower rates during 2024.

Currently, rising interest rates will positively impact our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR.

In addition, a greater portion

of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise.

Therefore, increases in interest income due to rising interest rates is likely to be greater than the corresponding increase in interest expense on our variable rate debt.

Additionally, we earn interest on our escrow and cash balances, so an increasing interest rate environment will increase our earnings on such balances.

See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details.

Although rates have started to decline, we currently remain in a high interest rate environment which could remain higher for longer than expected if inflation and other

economic indicators do not continue to meet the Federal Reserve’s expectations.

If these rate reductions continue, this would likely lead to immediate decreases in net interest income on our floating rate loan book and reduce earnings on our cash and escrow balances.

However, if a prolonged rate cut occurs, this could lead to increases in our loan origination business and improved credit, resulting in decreases in delinquencies and potential future losses.

The short term rate curve is expected to continue to decrease in 2025, but only by a nominal additional 25 basis points.

For additional details, please see “Current Market Conditions, Risks and Recent Trends” above and “Quantitative and Qualitative Disclosures about Market Risk” below.

Derivative Financial Instruments

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Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements.

The accounting estimates requiring complex judgement that we consider to be most critical to an investor’s understanding of our financial results and condition are included in our allowance for credit losses and capitalized mortgage servicing rights accounting policies.

The accounting estimates requiring complex judgment that we consider to be most critical to an investor’s understanding of our financial results and condition are included in our allowance for credit losses accounting policy.

Each quarter, we assess these estimates and assumptions based on several factors, including historical experience, which we believe to be reasonable under the circumstances.

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Dividends are one of the principal reasons investors invest in REITs.

To maintain REIT status, REITs are required to distribute at least 90% of their REIT-taxable income.

To maintain REIT status, REITs are required to distribute at least 90% of their taxable income.

We consider distributable earnings in determining our quarterly dividend and believe that, over time, distributable earnings is a useful indicator of our dividends per share.

We define distributable earnings as net income (loss) attributable to common stockholders computed in accordance with GAAP, adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains/losses on derivative instruments primarily associated with Private Label loans not yet sold and securitized, changes in fair value of GSE-related derivatives that temporarily flow through earnings (net of any tax impact), deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), amortization of the convertible senior notes conversion option (for 2021 only) and gains/losses on the receipt of real estate from the settlement of loans (prior to the sale of the real estate).

We define distributable earnings as net income (loss) attributable to common stockholders computed in accordance with GAAP, adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains/losses on derivative instruments primarily associated with Private Label loans not yet sold and securitized, changes in fair value of GSE-related derivatives that temporarily flow through earnings, deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), and gains/losses on the receipt of real estate from the settlement of loans (prior to the sale of the real estate).

We also add back one-time charges such as acquisition costs and one-time gains/losses on the early extinguishment of debt and redemption of preferred stock.

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(1) when the loan receivable is settled (i.e., when the loan is repaid, or in the case of foreclosure, when the underlying asset is sold);

or (2) when we determine that it is nearly certain that all amounts due will not be collected.

or (2) when we determine that it is nearly certain that all amounts due will not be

The realized loss amount is equal to the difference between the cash received, or expected to be received, and the book value of the asset.

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Income from mortgage servicing rights (51,272) (69,912) (69,346)

Deferred tax (benefit) provision (7,349) (1,741) 10,892

Deferred tax benefit (11,613) (7,349) (1,741)

Amortization and write-offs of MSRs 76,922 77,829 104,378

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Stock-based compensation 14,232 14,940 14,973

Loss on redemption of preferred stock — — 3,479

Gain on real estate from settlement of loan — — (2,466)

Distributable earnings (1) $ 358,020 $ 452,479 $ 405,696

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The OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis.

(2) Beginning in the first quarter of 2022, the diluted weighted average shares outstanding were adjusted to exclude the potential shares issuable upon conversion and settlement of our convertible senior notes principal balance.

Excluding the effect of a potential conversion in shares until a conversion occurs is consistent with past treatment and other unrealized adjustments to distributable earnings.

(2) The diluted weighted average shares outstanding were adjusted to exclude the potential shares issuable upon conversion and settlement of our convertible senior notes principal balance.

No adjustment was necessary for the year ended December 31, 2024, as their effect was anti-dilutive and not reflected in the GAAP diluted weighted average shares outstanding.

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 7. Management’s Discussion and Analysis