What changed in this filing

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Item 1. Business

2022-02-25 compared with 2021-02-26 · 85 added, 59 removed, 213 unchanged (40% of the section changed)

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• “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by Fannie Mae or Freddie Mac, or an agency of the U.S.

government, such as Ginnie Mae;

government, such as the Government National Mortgage Association ("Ginnie Mae");

• “Agency securities” refers to Agency RMBS and/or Agency CMBS;

• “ARMs” refers to adjustable-rate residential loans;

• “business purpose loans” refers to short-term loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit;

• “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, multi-family loans held in the Consolidated K-Series and the Company's residential loans held in securitization trusts and non-Agency RMBS re-securitization that we consolidate in our financial statements in accordance with GAAP;

• “business purpose loans” refers to short-term loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit or loans which finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants;

• “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, multi-family loans held in the Consolidated K-Series, the Company's residential loans held in securitization trusts and non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP;

• “CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, as well as PO, IO, or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans;

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We are a real estate investment trust (“REIT”) for U.S.

federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets.

federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets, including joint venture equity investments in multi-family apartment communities.

Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest margin and capital gains from a diversified investment portfolio.

Our investment portfolio includes credit sensitive single-family and multi-family assets.

We intend to focus on our core portfolio strengths of single-family and multi-family residential credit assets, which we believe will deliver better risk adjusted returns over time, with a current focus on assets that may benefit from active management in a prolonged low interest rate environment.

Our targeted investments currently include (i) residential loans, second mortgages and business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, as well as joint venture equity investments in multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS, (v) CMBS and (vi) certain other mortgage-, residential housing- and credit-related assets.

Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related assets that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads and securities issued by newly originated securitizations, including credit sensitive securities from these securitizations.

In recent years, we have sought to internalize and expand our investment management platform through the addition of multiple teams of investment professionals with expertise in our targeted assets.

We intend to focus on our core portfolio strengths of single-family and multi-family residential credit assets, which we believe will deliver better risk adjusted returns over time, with a current focus on building out a low-levered, higher-yielding portfolio of these assets through proprietary sourcing channels.

Our targeted investments currently include (i) residential loans and business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, as well as joint venture equity investments in multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS, (v) CMBS and (vi) certain other mortgage-, residential housing- and credit-related assets and s trategic investments in companies from which we purchase, or may in the future purchase, our targeted assets .

Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related assets that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations.

In recent years, we have internalized and expanded our investment management platform through the addition of multiple teams of investment professionals with expertise in our targeted assets.

This includes the acquisition in 2016 of the external manager for our structured multi-family property investments and the addition of investment professionals in 2018 and 2019, which expanded our capabilities in self managing, sourcing and creating single-family credit assets.

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and world economies.

See “Executive Summary” and “Key Highlights – Year Ended December 31, 2020” in Item 7.

See “Executive Summary” in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

Our Investment Strategy

Our strategy is to construct a portfolio of mortgage-related single-family and multi-family residential assets that include elements of credit risk and interest rate risk.

We have sought over the past 10 years, and intend to continue, to focus on expanding our portfolio of “single-family and multi-family credit” assets, which we believe will deliver more attractive risk-adjusted returns over time.

We define credit assets as (i) residential loans, second mortgages, and business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family property investments and joint venture equity investments in multi-family properties and (iv) other mortgage-, residential housing- and credit-related assets that contain credit risk.

Our strategy is to construct a portfolio of primarily mortgage-related single-family and multi-family residential assets that include elements of credit risk and/or interest rate risk, complimented by a growing portfolio of direct investments in multi-family properties via joint venture equity investments.

We have sought over the past years, and intend to continue, to focus on expanding our portfolio of “single-family and multi-family credit” assets, many of which we have originated or sourced through proprietary channels, which we believe will deliver more attractive risk-adjusted returns over time.

In particular, we seek investment opportunities in markets where we believe we have a competitive advantage due to operational barriers to entry.

We define credit assets as (i) residential loans, second mortgages, and business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family investments, including joint venture equity investments in multi-family properties and (iv) other mortgage-, residential housing- and credit-related assets that contain credit risk.

In pursuing credit assets, we target assets that we believe will provide an attractive total rate of return, as compared to assets that strictly provide net interest margin.

We also owned and managed a leveraged portfolio of Agency securities primarily comprised of Agency fixed-rate RMBS, Agency ARMs, and Agency CMBS prior to our disposition of this portfolio in March 2020 in response to the significant market disruption associated with the COVID-19 pandemic.

Although we have re-entered the Agency RMBS market and again manage a modest portfolio of Agency RMBS, in light of the current market and financing conditions, we presently are more inclined to pursue credit assets that benefit from active management and less inclined to allocate a significant percentage of our capital to a levered bond strategy associated with Agency securities.

Finally, since our inception in 2003, we have benefitted from being able to flexibly move in and out of new niche investment opportunities as market conditions permit.

We also, from time to time, have owned and managed, and may in the future own and manage, a leveraged portfolio of Agency securities primarily comprised of Agency fixed-rate RMBS, Agency ARMs, and Agency CMBS.

In light of the severe market disruption that occurred during the initial months of the COVID-19 pandemic and current market and financing conditions, we are presently focused on the build out of a low-levered, higher-yielding portfolio of credit assets, including joint venture equity investments, through proprietary sourcing channels and less inclined to allocate a significant percentage of our capital to a levered bond strategy associated with RMBS, as we have done from time to time in the past.

Finally, since our inception in 2003, we have benefited from being able to flexibly move in and out of new niche investment opportunities as market conditions permit.

As a result, we may pursue opportunistic acquisitions of other types of assets not described above that meet our investment criteria.

Prior to deploying capital to any of the assets we target or determining to dispose of any of our investments, our management team will consider, among other things, the availability of suitable investments, the amount and nature of anticipated cash flows from the asset, our ability to finance or borrow against the asset and the terms of such financing, the related capital requirements, the credit risk, prepayment risk, hedging risk, interest rate risk, fair value risk and/or liquidity risk related to the asset or the underlying collateral, the composition of our investment portfolio, REIT qualification, the maintenance of our exclusion from registration as an investment company under the Investment Company Act and other regulatory requirements and future general market conditions.

Prior to deploying capital to any of the assets we target or determining to dispose of any of our investments, our management team will consider, among other things, the availability of suitable investments, the amount and nature of anticipated cash flows from the asset, our ability to finance or borrow against the asset and the terms of such financing, the related capital requirements, the credit risk, prepayment risk, hedging risk, interest rate risk, fair value risk and/or liquidity risk related to the asset or the underlying collateral, the composition of our investment portfolio, the background experience and track record of our partners (if applicable), REIT qualification, the maintenance of our exclusion from registration as an investment company under the Investment Company Act and other regulatory requirements and future general market conditions.

In periods where we have working capital in excess of our short-term liquidity needs, we may invest the excess in more liquid assets until such time as we are able to re-invest that capital in assets that meet our underwriting and return requirements.

Consistent with our strategy to produce returns through a combination of net interest margin and capital gains, we will seek, from time to time, to sell certain assets within our portfolio when we believe the combination of realized gains on an asset and reinvestment potential for the related sale proceeds are consistent with our long-term return objectives.

For example, starting in the second quarter of 2020 and continuing to the present, we sold certain non-Agency RMBS and mezzanine CMBS as we concluded that the potential return on reinvestment exceeded the potential non-levered return on these securities going forward.

Our investment strategy does not, subject to our investment guidelines, continued compliance with applicable REIT tax requirements and the maintenance of our exclusion from registration as an investment company under the Investment Company Act, limit the amount of our capital that may be invested in any of these investments or in any particular class or type of assets.

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As a result, we cannot predict the percentage of our capital that will be invested in any particular investment at any given time.

For more information regarding our portfolio as of December 31, 2020, see Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

For more information regarding our portfolio as of December 31, 2021, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

Investment Portfolio

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Single-Family Investments

We generally seek to acquire pools of single-family residential loans from select mortgage loan originators and secondary market institutions.

We have deep experience managing different whole loan strategies across the credit spectrum.

We generally seek to acquire pools of single-family residential loans through proprietary sourcing channels from select mortgage loan originators and secondary market institutions, including through bulk purchases and/or flow arrangements.

We do not directly service the mortgage loans we acquire, and instead contract with fully licensed third-party subservicers to handle substantially all servicing functions.

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Residential Loans.

Our portfolio of residential loans consist of (i) seasoned re-performing, non-performing and other delinquent mortgage loans secured by first liens on one- to four-family properties, which were purchased at a discount to the aggregate principal amount outstanding, which we believe provides us with downside protection while we work to rehabilitate these loans to performing status, (ii) performing residential mortgage loans that consist of GSE-eligible mortgage loans, non-QM loans that predominantly meet our underwriting guidelines, loans originally underwritten to GSE or another program's guidelines but are either undeliverable to the GSE or ineligible for a program due to certain underwriting or compliance errors, and investor loans generally underwritten to our program guidelines, (iii) short-term business purpose loans collateralized by residential properties made to investors who intend to rehabilitate and sell the property for a profit and (iv) second mortgages that had combined loan-to-value ratios of 95% at origination and predominantly met our underwriting guidelines.

Our portfolio of residential loans consists of (i) seasoned re-performing, non-performing and other delinquent mortgage loans secured by first liens on one- to four-family properties, which were purchased at a discount to the aggregate principal amount outstanding, which we believe provides us with downside protection while we work to rehabilitate these loans to performing status, (ii) performing residential mortgage loans that consist of GSE-eligible mortgage loans, non-QM loans that predominantly meet our underwriting guidelines, loans originally underwritten to GSE or another program's guidelines but are either undeliverable to the GSE or ineligible for a program due to certain underwriting or compliance errors, and investor loans generally underwritten to our program guidelines, (iii) short-term business purpose loans collateralized by residential properties made to investors who intend to rehabilitate and sell the property for a profit, or "business purpose bridge loans," (iv) business purpose loans which finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants, or "business purpose rental loans," and (v) second mortgages that had combined loan-to-value ratios of 95% at origination and predominantly met our underwriting guidelines.

Investments in Non-Agency RMBS.

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As we have in the past, we may use Agency securities as an incubator to redeploy capital into credit assets.

At this time, while we currently own Agency RMBS, we do not expect investment in Agency securities to comprise a significant part of our investment portfolio allocation.

At this time, we do not currently own Agency RMBS and do not expect investment in Agency securities to comprise a significant part of our investment portfolio allocation.

Single-Family Rental.

We also participate in the U.S.

Department of Housing and Urban Development Housing Choice Vouchers program administered by local public housing agencies (“PHAs”) in which we acquire and then rent single-family rental homes to families that are eligible.

We target PHA’s with programs that help families with children move into high-opportunity neighborhoods with low poverty, high-performing schools, low crime and strong community resources.

The goal of the program is to promote better health and life satisfaction for these families.

As of December 31, 2021, we owned 140 single-family rental properties, the majority of which are located in Illinois.

Multi-Family Investments

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Rather, we intend to participate at various levels within the capital structure of the properties, typically (i) as a “capital partner” by lending to or co-investing alongside a project-level sponsor that has already identified an attractive investment opportunity, or (ii) through a subordinated security of a multi-family loan securitization.

Our multi-family property investments are not limited to any particular geographic area in the United States, although our preferred and joint venture equity and mezzanine loan investments tend to be concentrated primarily in the southern and southeastern United States as these regions currently tend to benefit from growing demand.

In general terms, we expect that our multi-family credit investments will principally be in the form of preferred and joint venture equity investments in, and mezzanine loans to, owners of multi-family apartment properties, as well as multi-family CMBS.

With respect to our preferred and joint venture equity and mezzanine loan investments where we participate as a capital partner, we generally pursue multi-family properties with unique or compelling attributes that provide an opportunity for value creation and increased returns through the combination of better management or capital improvements that will lead to net cash flow growth and capital gains and which may benefit from the expertise of our asset management team.

Our multi-family property investments are not limited to any particular geographic area in the United States, although our preferred and joint venture equity and mezzanine loan investments tend to be concentrated primarily in the southern and southeastern United States, as these regions currently tend to benefit from growing demand and an acute shortage in housing.

We generally focus on middle market multi-family apartment communities with 150 to 300 units located in secondary and tertiary markets that might benefit from strategic value-added improvements.

With respect to our preferred equity and mezzanine loan investments (collectively, "Mezzanine Lending") and joint venture equity investments where we participate as a capital partner, we generally pursue multi-family properties with unique or compelling attributes that provide an opportunity for value creation and increased returns through the combination of better management or capital improvements that will lead to net cash flow growth and capital gains and which may benefit from the expertise of our asset management team.

Generally, we target investments in multi-family properties that are or have been:

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Preferred equity typically has loan-to-value ratios of 60% to 95% when combined with the first-mortgage loan amount.

We expect our preferred equity investments will have mandatory redemption dates that will generally be coterminous with the maturity date for the first-mortgage loan on the property, and we expect to hold these investments until the mandatory redemption date.

We expect our preferred equity investments will have mandatory redemption dates that will generally be coterminous with the maturity date for the first-mortgage loan on the property, and we intend to hold these investments until the mandatory redemption date.

Mezzanine Loans .

We currently own, and anticipate making in the future, mezzanine loans that are senior to the operating partner’s equity in, and subordinate to a first-mortgage loan on, a multi-family property.

We have made in the past, and may make in the future, mezzanine loans that are senior to the operating partner’s equity in, and subordinate to a first-mortgage loan on, a multi-family property.

These loans are secured by pledges of ownership interests, in whole or in part, in entities that directly or indirectly own the real property.

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Joint Venture Equity.

We have in the past made, and expect to make in the future, joint venture equity investments in entities that own multi-family properties.

As of December 31, 2021, we owned joint venture equity investments in entities that own multi-family properties.

Joint venture equity is a direct common equity ownership interest in an entity that owns a property.

In this type of investment, the return of capital to us is variable and is made on a pari passu basis between us and the other operating partners.

Typically we provide between 75% and 90% of the total equity capital for the joint venture, with our operating partner providing the balance of the equity capital.

We may also participate in these property investments as a general partner or co-general partner, which may provide us with the ability to earn a promote upon disposition of the asset.

In this type of investment, the return of capital to us is variable and is made on a pro rata basis between us and our operating partners.

Typically we provide between 70% and 95% of the total common equity capital for the joint venture, with our operating partner providing the balance of the common equity capital.

We may also participate in these property investments as a general partner or manager or co-general partner or manager, which may provide us with the ability to earn a promote upon disposition of the asset.

Due to certain control provisions, we may consolidate certain joint ventures into our consolidated financial statements in accordance with GAAP.

As a result, the real estate assets held by these entities, and the corresponding mortgages payable that finance the real estate assets, are included in our consolidated balance sheets.

In December 2021, we entered into a joint venture that presently owns 11 multi-family properties in seven states, including Texas, Florida, and Tennessee.

We are a co-manager of the joint venture and, as of December 31, 2021, owned an approximate 20% common equity interest in the joint venture.

We also held approximately $114.8 million of preferred equity interests in this joint venture as of December 31, 2021.

Pursuant to the terms of the operating agreement for the joint venture, subject to certain conditions, the other investors in the joint venture have the ability to sell their ownership interests to us, at their election, on an annual basis at the current fair value of the interests in the joint venture.

Multi-Family CMBS.

Our portfolio of multi-family CMBS has been comprised of (i) first loss PO securities issued by certain multi-family loan K-series securitizations sponsored by Freddie Mac and (ii) certain IOs and/or mezzanine securities issued by these securitizations, although currently we only own IO and mezzanine securities.

Prior to March 2020, our investments in first loss POs were a significant contributor to our earnings.

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However, should market and financing opportunities re-emerge making this asset class attractive again, we may again pursue these investments.

Our investments in these privately placed first loss POs generally represented 7.5% of the overall securitization which typically initially totals approximately $1.0 billion in multi-family residential loans consisting of 45 to 100 individual properties diversified across a wide geographic footprint in the United States.

Our investments in these privately placed first loss POs generally represented 7.5% of the overall securitization which typically initially totaled approximately $1.0 billion in multi-family residential loans consisting of 45 to 100 individual properties diversified across a wide geographic footprint in the United States.

Our first loss POs were typically backed by fixed-rate balloon non-recourse mortgage loans that provide for the payment of principal at maturity date, which is ten to fifteen years from the date the underlying mortgage loans are originated.

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We believe this right provided the Company with an opportunity to mitigate or reduce any possible loss associated with the distressed property.

The IOs that we own represent a strip off the entire securitization allowing the Company to receive cashflows over the life of the multi-family loans backing the securitization.

The IOs that we owned represented a strip off the entire securitization allowing the Company to receive cashflows over the life of the multi-family loans backing the securitization.

These investments range from 10 to 17 basis points and the underlying notional amount approximates $1.0 billion each.

We also invest in and own the mezzanine tranche of multi-family CMBS that sit below the more senior CMBS in terms of priority.

Our investment in these mezzanine securities may involve the use of some form of leverage in order to generate attractive risk-adjusted returns on these securities, although we currently are not leveraging these securities.

With respect to the multi-family CMBS owned by us, all of the loans that back the respective securitizations have been generally underwritten in accordance with Freddie Mac underwriting guidelines and standards;

We may also invest in and own the mezzanine tranche of multi-family CMBS that sit below the more senior CMBS in terms of priority.

Our investment in these mezzanine securities may involve the use of some form of leverage in order to generate attractive risk-adjusted returns on these securities.

With respect to the multi-family CMBS owned by us, all of the loans that back the respective securitizations were generally underwritten in accordance with Freddie Mac underwriting guidelines and standards;

however, these securities are not guaranteed by Freddie Mac.

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We have also invested in Agency CMBS, primarily comprised of senior securities issued by certain multi-family loan K-series securitizations sponsored and guaranteed by Freddie Mac.

In an effort to manage the Company’s portfolio through the significant disruption in the financial markets in March 2020 and to improve its liquidity, the Company liquidated its Agency CMBS portfolio.

As of December 31, 2021, we did not own any Agency CMBS.

Other Investments

We may also acquire investments that are structured with terms that reflect a combination of the investment structures described above.

We also may invest, from time to time, based on market conditions, in other multi-family investments, structured investments in other property categories, equity and debt securities issued by entities that invest in residential and commercial real estate or in other mortgage-, and real estate- and credit-related assets that enable us to qualify or maintain our qualification as a REIT or otherwise.

Although it represents a significantly smaller portion of our overall investment portfolio, we also own ABS, an equity investment in an entity that originates residential loans and an equity investment in an entity that owns and manages single-family rental properties.

We have made, and may in the future make, investments in the debt and/or equity of other entities engaged in single-family loan-related businesses, such as loan originators.

In connection with investments in loan originators, we may also enter into flow agreements that will allow us to purchase new loans from the loan originators in which we invest in accordance with the parameters set forth in the applicable flow agreement.

In the future, we may also acquire investments that are structured with terms that reflect a combination of the investment structures described above.

We also may invest, from time to time, based on market conditions, in other multi-family investments, structured investments in other property categories, equity and debt securities issued by entities that invest in residential and commercial real estate or in other mortgage-, real estate- and credit-related assets, subject to maintaining our qualification as a REIT or otherwise.

Our Financing Strategy

We strive to maintain and achieve a balanced and diverse funding mix to finance our assets and operations.

To achieve this, we have in the past relied primarily on a combination of short-term and longer-term repurchase agreements and structured financings, including CDOs, long-term subordinated debt, and convertible notes.

As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets during March 2020, looking forward, we expect to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as securitizations, term financings and corporate debt securities that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.

To achieve this, we have in the past relied primarily on a combination of short-term and longer-term repurchase agreements and structured financings, including CDOs, longer term senior and subordinated debt, and convertible notes.

As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets during March 2020, we have placed, and looking forward, expect to place, a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as securitizations, term financings and corporate debt securities that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.

We still expect to utilize some level of repurchase agreement financing as we do currently, but expect repurchase agreement financing, particularly short-term agreements to represent a smaller percentage of our financing relative to historic levels and/or to utilize facilities where the terms provide for less liquidity and financing risk.

While longer-termed financings may involve greater expense relative to repurchase agreement funding that exposes us to mark-to-market risks, we believe, over time, this weighting towards longer-termed financings may better allow us to manage our liquidity risk and reduce exposures to market events like those caused by the COVID-19 pandemic during March 2020.

To this end, we have completed three non-recourse securitizations and two non-mark-to-market repurchase agreement financings with new and existing counterparties since the first quarter of 2020.

To this end, we have completed seven non-recourse securitizations and two non-mark-to-market repurchase agreement financings with new and existing counterparties since the first quarter of 2020.

We intend to continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements;

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This target may be adjusted depending on the composition of our overall portfolio and market conditions.

As of December 31, 2020, our total debt leverage ratio, which represents our total debt divided by our total stockholders' equity, was approximately 0.3 to 1.

Our total debt leverage ratio does not include debt associated with the CDOs or other non-recourse debt, for which we have no obligation.

Our portfolio leverage ratio, which represents our outstanding repurchase agreements divided by our total stockholders' equity, was approximately 0.2 to 1 as of December 31, 2020.

As of December 31, 2021, our total company recourse leverage ratio, which represents our total debt divided by our total stockholders' equity, was approximately 0.4 to 1.

Our company recourse leverage ratio does not include debt associated with the CDOs or other non-recourse debt, such as mortgages payable on real estate, for which we have no obligation.

Our portfolio recourse leverage ratio, which represents our outstanding repurchase agreements divided by our total stockholders' equity, was approximately 0.2 to 1 as of December 31, 2021.

We monitor all at-risk or short-term borrowings to ensure that we have adequate liquidity to satisfy margin calls and liquidity covenant requirements.

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As part of our longer-term master repurchase agreements that finance certain of our credit assets, such as residential loans, we have provided a guarantee with respect to certain terms of some of these longer-term borrowings incurred by certain of our subsidiaries and we may provide similar guarantees in connection with future financings.

The repurchase agreements we have historically used to fund the purchase of residential loans and investment securities typically have terms ranging from 30 days to 12 months and bear interest rates that are linked to the London Interbank Offered Rate (“LIBOR”), a short-term market interest rate used to determine short term loan rates.

We currently have no outstanding repurchase agreements that finance our investment securities.

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Interest rates and haircuts will depend on the underlying collateral pledged.

As noted above, we have recently entered into two repurchase agreements that are not subject to margin calls upon changes in market value of the pledged collateral.

For more information regarding our outstanding financing instruments at December 31, 2020, see Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

As noted above, we have entered into two repurchase agreements that are not subject to margin calls upon changes in market value of the pledged collateral.

We may consolidate certain multi-family joint venture investments into our consolidated financial statements in accordance with GAAP.

As a result, the real estate assets held by these entities, and the corresponding mortgages payable that finance the real estate assets, are included in our consolidated balance sheets.

We have no obligation for repayment of the mortgages payable but, with respect to certain of the mortgages payable, we may execute a non-recourse guaranty related to commitment of bad acts.

For more information regarding our outstanding financing instruments at December 31, 2021, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

Our Hedging Strategy

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We may use interest rate swaps to hedge any variable cash flows associated with our borrowings.

We typically pay a fixed rate and receive a floating rate based on one or three month LIBOR, on the notional amount of the interest rate swaps.

We typically pay a fixed rate and receive a floating rate based on one- or three-month LIBOR, or an index that it expected over time to be closely correlated to changes in one- or three-month LIBOR, on the notional amount of the interest rate swaps.

The floating rate we receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of our financing arrangements.

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We may use TBAs, swaptions, futures and options on futures to hedge market value risk for certain of our strategies.

We have utilized TBAs as part of our Agency investment strategy to enhance the overall yield of the portfolio.

We have utilized TBAs as part of our Agency securities investment strategy to enhance the overall yield of the portfolio.

In a TBA transaction, we would agree to purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date.

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Nonetheless, through active management and the use of evaluative stress scenarios, we believe that we can mitigate a significant amount of both value and earnings volatility.

Our success depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs.

When we invest in mortgage-backed securities, mortgage loans and other investment assets, we compete with other REITs, investment banking firms, savings and loan associations, insurance companies, mutual funds, hedge funds, pension funds, banks and other financial institutions and other entities that invest in the same types of assets.

We believe that our principal competitors in the business of acquiring and holding residential mortgage assets of the types in which we invest are financial institutions, such as banks, specialty finance companies, insurance companies, institutional investors, including mutual funds and pension funds, hedge funds and other mortgage REITs.

Some of these entities may not be subject to the same regulatory constraints (i.e., REIT compliance or maintaining an exemption under the Investment Company Act) as we are.

In addition, many of these entities have greater financial resources and access to capital than we have.

The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets.

Human Capital

As of December 31, 2020, we have 56 full-time employees and one part-time employee located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California.

Our employees are comprised of accountants, investment portfolio and finance professionals, asset management and servicing professionals, analysts, administrative staff and the corporate management team.

As of December 31, 2021, we had 64 full-time employees and one part-time employee located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California.

Our employees include investment portfolio and finance professionals, asset management and servicing professionals, accountants, analysts, administrative staff and our corporate management team.

We believe that our employees are our greatest asset and recognize that our achievements and growth as a business are made possible by the recruitment, hiring, training, development and retention of our dedicated employees.

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We also strive to have a workforce that reflects the diversity of qualified talent that is available in the markets in which our offices are located.

As of December 31, 2020, women comprise 26% of our total workforce, while 35% of our employees self-identify as being ethnically diverse.

As of December 31, 2021, women comprised 25% of our total workforce, while 35% of our employees self-identify as being ethnically diverse.

In addition, 50% of our named executive officers are diverse based on gender or ethnicity and 50% of our Board of Directors is diverse based on gender, race or ethnicity.

We also recognize the importance of experienced leadership.

As of December 31, 2020, the average tenure for our team of executive officers was eleven years.

As of December 31, 2021, the average tenure for our team of executive officers was twelve years.

Additionally, our Compensation Committee will take into account our ESG performance when assessing the performance of our Chief Executive Officer and President and our Executive Chairman under the qualitative component of our 2022 Annual Incentive Plan, which is part of our executive compensation program.

We are committed to maintaining a healthy environment for our employees and continually assess and strive to enhance employee satisfaction and engagement.

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Fostering Company Culture and Providing Support to Employees During COVID-19 Pandemic.

In accordance with local and state government guidance and social distancing recommendations, almost all of our employees have worked remotely since March 2020.

We are committed to maintaining a healthy environment for employees and their families, which has continued in the face of the COVID-19 pandemic.

Unlike many companies across industries, since the pandemic began, the Company has not laid off or furloughed any employees or otherwise reduced employee compensation due to the COVID-19 pandemic.

In accordance with local and state government guidance and social distancing recommendations, a substantial majority of our employees have worked remotely since March 2020.

To protect and foster our corporate culture during the COVID-19 pandemic, we regularly schedule virtual company-wide meetings and host virtual team building activities.

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In recent years, legislators in the United States and in other countries have said that greater regulation of financial services firms is needed, particularly in areas such as risk management, leverage, and disclosure.

Moreover, the results of the 2020 U.S.

presidential and congressional elections could impact the regulatory environment for our business going forward.

While we expect that additional new legislative and regulatory reforms in these areas will be adopted and existing legislation and regulations may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects.

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• changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof;

• changes in our relationships with and/or the performance of our operating partners;

• our ability to predict and control costs;

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

What changed 10-K

Item 1. Business