What changed in this filing

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Item 1. Business

2023-02-24 compared with 2022-02-25 · 142 added, 99 removed, 199 unchanged (55% of the section changed)

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• “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 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;

• “business purpose loans” refers to (i) short-term loans that are collateralized by residential properties and are made to investors who intend to rehabilitate and sell the residential property for a profit or (ii) loans that 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 a 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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• “Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own or owned the first loss subordinated securities and certain IOs and senior securities that we consolidate in our financial statements in accordance with GAAP;

• “Consolidated Real Estate VIEs” refers to Consolidated VIEs that own multi-family properties;

• “Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE and that we consolidate in our financial statements in accordance with GAAP;

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• “IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans;

• “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments;

• “MBS” refers to mortgage-backed securities;

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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, 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.

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

Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest spread 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 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.

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.

Our targeted investments include (i) residential loans, including business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS, (v) CMBS, (vi) single-family rental properties and (vii) 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/or manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, Agency RMBS, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses.

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.

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Even if we maintain our qualification as a REIT, we expect to be subject to some federal, state and local taxes on our income generated in our TRSs.

Impacts on Business from COVID-19

The novel coronavirus (“COVID-19”) pandemic materially adversely impacted our business beginning in mid-March 2020, has contributed to significant volatility in global financial and credit markets and continues to adversely impact the U.S.

and world economies.

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 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.

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.

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, 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.

We define credit assets as (i) residential loans, including business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family investments 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 spread.

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

We also currently own and manage a portfolio of joint venture equity investments in 32 multi-family properties having an aggregate net equity carrying value of approximately $388.8 million.

In September 2022, we announced that our Board of Directors had approved a strategic repositioning of our business pursuant to which we will opportunistically dispose of these joint venture equity interests in multi-family properties over time and, following disposition, we will reallocate the capital associated with such assets to our targeted assets.

Beginning in 2020, we saw an attractive opportunity within the multi-family property sector to utilize our sourcing network and add common equity exposure to properties through joint venture equity investments.

Due to various factors, the multi-family property sector recorded historical increases in per unit rent in several targeted markets resulting in improved valuations that we believe are capable of achieving our targeted returns for such investments on an accelerated timeline.

As a result, we are considering various opportunities to monetize what we believe is appreciated value within our portfolio of multi-family joint venture equity investments.

We believe that through a well-navigated disposition process, we can rotate the portfolio over time to more attractive investments in a higher rate environment.

We expect to continue to invest in multi-family mezzanine lending going forward, which remains one of our targeted assets.

In light of current market and financing conditions, we are presently focused on acquiring assets with less price sensitivity to credit deterioration by targeting assets with shorter duration, significant discount-to-par pricing or minimal credit risk.

Shorter duration assets generate higher portfolio turnover that will better enable us to reposition our portfolio in a volatile and changing interest rate environment.

Assets with discount-to-par create a margin of safety on price to account for potential credit losses.

Selecting assets with lower credit exposure, either through agency guarantees, structure or collateral quality, can also reduce the overall risk profile of the portfolio.

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.

We also may manage for third parties investments that fall within our area of expertise that are not a focus of our Company or are less suitable to being owned in a REIT.

In these cases, we may agree to invest in these assets akin to a "general partner"-like capital contribution as part of the agreement to manage the assets.

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.

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.

Thus, our future investments may include asset types different from the targeted or other assets described in this Annual Report on Form 10-K.

Consistent with our strategy to produce returns through a combination of net interest spread 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.

Thus, our future investments may include asset classes or types different from the targeted or other assets described in this Annual Report on Form 10-K.

Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments.

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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 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.

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 with terms generally of 12 to 24 months that are collateralized by residential properties and made to investors who intend to rehabilitate and sell the property for a profit, or "business purpose bridge loans," (iv) business purpose loans that 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.

In connection with our acquisitions of residential loans, we or a third-party due diligence firm perform an independent review of the mortgage file to assess the state of mortgage loan files, the servicing of the mortgage loan, compliance with existing guidelines, as well as our ability to enforce the contractual rights in the mortgage.

We also obtain certain representations and warranties from each seller with respect to the mortgage loans, as well as the enforceability of the lien on the mortgaged property.

In addition, as part of our process, we focus on selecting a servicer with the appropriate expertise to mitigate losses and maximize our overall return on these residential loans.

This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis.

Investments in Non-Agency RMBS.

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The underlying collateral of these securitizations are predominantly residential credit assets, which may be exposed to various macroeconomic and asset-specific credit risks.

These securities have varying levels of credit enhancement which provide some structural protection from losses within the portfolio.

These securities have varying levels of credit enhancement which provide some structural protection from losses within the securitization from which the securities are issued.

We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios.

In light of market and financing conditions, starting in the second quarter of 2020 and continuing to the present, we have elected to monetize the price recovery in a selection of these assets and are less inclined to build a levered position in these securities at this time.

As of December 31, 2022, we owned $260.1 million of non-Agency RMBS.

Investments in Agency RMBS.

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In managing our portfolio of Agency RMBS, we historically employ leverage through the use of repurchase agreements to generate risk-adjusted returns.

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 RMBS portfolio.

However, even prior to March 2020, the Company’s relative allocation to Agency Securities had declined in recent years as the opportunity in Agency RMBS became less compelling relative to other strategies of focus.

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

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.

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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.

We target PHAs with programs that help families with children move into high-opportunity neighborhoods with low poverty, high-performing schools, low crime and strong community resources in the following markets:

Chicago, IL, Baltimore, MD, Houston, TX and Pittsburgh, PA.

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.

As of December 31, 2022, we owned 491 single-family rental properties, the majority of which are located in Illinois and Maryland.

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 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.

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 properties, and multi-family CMBS.

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.

Our multi-family property investments are not limited to any particular geographic area in the United States, although our preferred and 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 approximately 150 to 600 units located in secondary and tertiary markets that might benefit from strategic value-added improvements.

In general terms, pending the disposition over time of our portfolio of joint venture equity investments, we expect that our multi-family credit investments going forward will principally be in the form of preferred equity investments in, and mezzanine loans to, owners of multi-family properties, and multi-family CMBS.

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 have generally pursued 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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As a capital partner, we generally seek experienced property-level operators or real estate entrepreneurs who have the ability to identify and manage strong investment opportunities.

We generally require our operating partners to maintain a material investment in every multi-family property in which we make a preferred or joint venture equity investment or provide mezzanine financing.

We generally require our operating partners to maintain a material investment in every multi-family property in which we make a preferred equity investment or to which we provide mezzanine financing.

Preferred Equity .

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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.

We have typically provided between 70% and 95% of the total common equity capital to our joint ventures, with our operating partner providing the balance of the common equity capital.

In some cases, we 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 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.

In December 2021, we entered into a joint venture that presently owns 13 multi-family properties in seven states, including Texas, Tennessee and Florida.

We are a co-manager of the joint venture and, as of December 31, 2022, owned an approximate 22% common equity interest in the joint venture.

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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.

We do not anticipate making additional joint venture equity investments in multi-family properties that make us a majority or significant minority common equity owner in the future in light of the strategic repositioning of our business discussed above.

However, we may agree to make common equity investments in multi-family properties akin to a "general partner"-like capital contribution in connection with one or more agreements to manage third party investments in multi-family properties.

Multi-Family CMBS.

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In response to the significant disruption in the financial markets in March 2020 associated with the COVID-19 pandemic, we sold our portfolio of first loss POs and have not re-entered the market for first loss POs since that time.

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 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.

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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 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.

The IOs that we owned represented a strip off the entire securitization allowing the Company to receive cash flows 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.

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Other Investments

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.

Although it represents a significantly smaller portion of our overall investment portfolio, we also own and have invested in 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 connection with investments in loan originators, we currently have and may in the future enter into flow agreements that allow or 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, and certain alternative investments not described here, subject to maintaining our qualification as a REIT and the maintenance of our exclusion from regulation as an investment company under the Investment Company Act 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, 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 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;

In the past, we have relied primarily on a combination of short-term and longer-termed repurchase agreements and structured financings, including CDOs issued by securitizations, longer termed senior and subordinated debt, and convertible notes.

As a result of the severe market dislocations in recent years and, more specifically, unavailability of repurchase agreement financing and illiquidity in securities markets during March 2020, we have placed, and expect to continue to place, a greater emphasis on procuring financing arrangements that provide longer tenor non-mark-to-market features, such as securitizations, term financings and corporate debt securities.

These types of financings provide less or no exposure to 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 that contain mark-to-market margin call risk, to represent a smaller percentage of our financing relative to historic levels.

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

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

In the near term, we intend to continue 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 other financing arrangements;

however, no assurance can be given that we will be able to access any such financing or the size, timing or terms thereof.

The Company's policy for leverage is based on the type of asset, underlying collateral and overall market conditions, with the intent of obtaining more permanent, longer-term financing for our more illiquid assets.

Currently, we target maximum leverage ratios for each eligible investment, 8 to 1 in the case of our more liquid Agency securities, and 2 to 1 in the case of our more illiquid assets, such as our non-Agency RMBS and mezzanine CMBS.

Based on our current portfolio composition and market conditions, our target total debt leverage ratio is approximately 1 to 1.5 times.

We employ leverage as part of our financing strategy.

Our approach to leverage is based on the type of asset, underlying collateral and overall market conditions with the intent of obtaining more permanent, longer-term financing for our more illiquid assets.

Currently, we target maximum leverage ratios for each eligible investment, 8:1 in the case of more liquid Agency securities and between 4:1 and 6:1 in the case of our more illiquid assets, such as our non-Agency RMBS and mezzanine CMBS and 8:1 in the case of our residential loans.

Currently, our target total debt leverage ratio should not be greater than 3:1.

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

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.

As of December 31, 2022, our Company recourse leverage ratio, which represents our total recourse debt divided by our total stockholders' equity, was approximately 0.3 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 and non-recourse repurchase agreement financing.

Our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreements divided by our total stockholders' equity, was approximately 0.3 to 1 as of December 31, 2022.

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

With respect to our investments in credit assets that are not financed by short-term repurchase agreements, such as residential loans, we finance our investment in these assets through longer-term borrowings and working capital.

Our financings may include longer-term structured debt financing, such as longer-term repurchase agreement financing with terms of up to 24 months and non-mark-to-market repurchase agreement financing and CDOs where the assets we intend to finance are contributed to an SPE and serve as collateral for the financing.

We issue CDOs for the primary purpose of obtaining longer-term non-recourse financing on these assets.

With respect to our investments in credit assets that are not financed by short-term repurchase agreements, such as a portion of residential loans, we finance our investment in these assets through longer-term borrowings and working capital.

Our financings may include longer-term structured debt financing, such as longer-term repurchase agreement financing with terms of up to 24 months, non-mark-to-market repurchase agreement financing and CDOs where the assets we intend to finance are contributed to an SPE and serve as collateral for the financing.

We issue CDOs through securitizations for the primary purpose of obtaining longer-term non-recourse financing on these assets.

Pursuant to the terms of any longer-term debt financings we utilize, our ability to access the cash flows generated by the assets serving as collateral for these borrowings may be significantly limited and we may be unable to sell or otherwise transfer or dispose of or modify such assets until the financing has matured.

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, or an index that is expected over time to be closely correlated to changes in LIBOR.

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

In most cases under repurchase agreements, the financial institution that serves as a counterparty will generally agree to provide us with financing based on the market value of the securities that we pledge as collateral, less a “haircut.” The market value of the collateral represents the price of such collateral obtained from generally recognized sources or most recent closing bid quotation from such source plus accrued income.

Our repurchase agreements may require us to deposit additional collateral pursuant to a margin call if the market value of our pledged collateral declines as a result of market conditions or due to principal repayments on the mortgages underlying our pledged securities.

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 24 months and bear interest rates that are linked to the Secured Overnight Funding Rate (“SOFR”), a short-term market interest rate used to determine short term loan rates.

In most cases under repurchase agreements, the financial institution that serves as a counterparty will generally agree to provide us with financing based on the market value of the residential loans and investment securities that we pledge as collateral, less a “haircut.” The market value of the collateral represents the price of such collateral obtained from generally recognized sources or most recent closing bid quotation from such source plus accrued income.

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

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.

We have entered into three repurchase agreements with an aggregate outstanding balance of $446.8 million as of December 31, 2022 that are not subject to margin calls upon changes in market value of the pledged collateral.

We may consolidate certain multi-family joint venture equity 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.

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

For more information regarding our outstanding financing instruments at December 31, 2022, see Item 7.

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The Company enters into derivative instruments in connection with its risk management activities.

These derivative instruments may include interest rate swaps, swaptions, interest rate caps, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs.

These derivative instruments may include interest rate caps, interest rate swaps, swaptions, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs.

The Company and the entities that own multi-family properties in which the Company owns joint venture equity investments are exposed to risks arising from business operations, economic conditions and financial markets.

With respect to one of the Company's financings under repurchase agreements, the Company is required by the lender to enter into an interest rate cap contract.

For variable-rate mortgages payable on real estate, the joint venture entities are required by the lender to enter into interest rate cap contracts.

These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

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, 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.

Pursuant to these arrangements, the Company typically agrees to pay a fixed rate of interest and receive a variable interest 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, or SOFR, 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.

In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps and currently do not have any hedges in place.

In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps and currently do not have any interest rate swaps in place.

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

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Although TBAs are liquid and have quoted market prices and represent the most actively traded class of RMBS, the use of TBAs exposes us to increased market value risk.

In connection with our hedging strategy, we utilize a model-based risk analysis system to assist in projecting portfolio performances over a variety of different interest rates and market scenarios, such as shifts in interest rates, changes in prepayments and other factors impacting the valuations of our assets and liabilities.

However, given the uncertainties related to prepayment rates, it is not possible to perfectly lock-in a spread between the earnings asset yield and the related cost of borrowings.

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.

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.

We currently do not hold TBAs.

In connection with our hedging strategy, we utilize model-based risk analysis to assist in projecting individual asset price and cash flow sensitivities over a variety of different interest rates and market scenarios, such as shifts in interest rates, changes in prepayments and other factors impacting the valuations of our assets and liabilities.

We believe that our principal competitors in the business of acquiring and holding mortgage-related single-family and multi-family residential 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 exclusion from registration 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.

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Human Capital

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.

As of December 31, 2022, we had 74 full-time employees located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California.

We do not currently employ any temporary or seasonal employees and we do not expect such hiring to become a significant part of our workforce in the future.

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

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Moreover, our employees are offered regular opportunities to participate in professional development programs and opportunities that may improve employee engagement, effectiveness and well-being.

We endeavor to maintain workplaces that are inclusive and free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law.

We conduct annual training to prevent harassment and discrimination and monitor employee conduct in this regard.

We are committed to maintaining workplaces that are inclusive and free from discrimination or harassment based on age, disability, race, ethnicity, gender identification or expression, national origin, sexual orientation, religion, pregnancy, marital and familial status and other statuses protected by law.

We conduct annual required trainings for our employees, including those designed to prevent harassment and discrimination and direct compliance with ethics and laws and we monitor employee conduct, compliance and progress in this regard.

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.

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We also recognize the importance of experienced leadership.

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.

Among our engagement efforts, we conduct regular company-wide meetings where we update our full workforce on recent accomplishments and key initiatives, we regularly participate in various employee engagement surveys, participate in community fundraising for illness awareness and we sponsor various team building activities.

We also strive to provide pay, benefits and services that help meet the varying needs of our employees.

Our general total compensatory packages include market-competitive pay, performance-based annual bonus compensation paid frequently in a combination of cash and stock, time- and performance-based long-term incentive compensation for key employees, healthcare, paid time off, and family leave.

In addition, we pride ourselves on understanding and offering our employees great flexibility to meet their personal and family needs and believe that by supporting, recognizing, developing and investing in our employees, we are able to attract and retain a highly qualified and talented workforce.

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

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.

As of December 31, 2022, the average tenure for our team of executive officers was thirteen years.

Additionally, our Compensation Committee will take into account our ESG performance when assessing the performance of our Chief Executive Officer under the qualitative component of our executive compensation program.

We strive to provide pay, benefits and services that help meet the varying needs of our employees.

Our general total compensatory packages include market-competitive pay, performance-based annual bonus compensation paid in a combination of cash and stock, time- and performance-based long-term incentive compensation for key employees, employer-funded health insurance, paid time off, and family leave.

In addition, we pride ourselves on understanding and offering our employees great flexibility to meet their personal and family needs.

In 2022, we adopted a fully flexible workplace policy which presently allows all of our employees to determine whether to work from the office or remotely as frequently as the individual employee desires.

We believe that by supporting, recognizing, developing and investing in our employees, we are able to attract and retain a highly qualified and talented workforce.

COVID-19 Response.

We are committed to maintaining a healthy environment for our employees.

We continually assess and strive to enhance employee satisfaction and engagement.

This commitment continued in the face of the COVID-19 pandemic.

When COVID-19 forced a shift to a remote work environment, we commenced regular townhall style meetings where we update our full workforce on recent accomplishments and key initiatives and ensure regular communication between management and employees.

The Company has also provided greater flexibility in work hours and expectations in recognition of the challenges our employees face in the remote work environment and have taken steps to ensure that our employees have adequate resources and capabilities to work in a remote environment.

In 2021, we created a Business Continuity Planning Group to develop continuity plans and responses for a variety of potential crises in the long term.

Lastly, 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.

The health and safety of NYMT employees and their families continue to be of the highest priority for us.

Our commitment to the safety and health of our workforce has guided us as we addressed the unprecedented challenges of the global pandemic.

Governmental Regulation

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and (v) set refinancing, loan modification, servicing, collection, foreclosure, repossession, eviction and claims-handling procedures and other trade practices.

Some of the laws, rules and regulations to which we are subject are intended primarily to safeguard and protect consumers, rather than stockholders or creditors.

Although we do not originate or directly service residential loans, we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential loans, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.

Finally, we intend to conduct our business so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act.

Some of the laws, rules and regulations to which we are or may be subject are intended primarily to safeguard and protect consumers, rather than stockholders or creditors.

Although we do not directly originate or service residential loans, we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential loans, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.

In our judgment, existing statutes, rules and regulations have not had a material adverse effect on our business, although we do incur significant ongoing costs to comply with them.

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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.

Operating and Regulatory Structure

REIT Qualification

We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code.

Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares.

We believe that we are organized to comply with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT.

We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Internal Revenue Code.

Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio.

As a REIT, we generally are not subject to U.S.

federal income tax on our REIT taxable income that we distribute currently to our stockholders.

If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S.

federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification.

Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and our ability to pay distributions, if any, to our stockholders.

Investment Company Act Exclusion

We conduct our operations so that neither we nor any of our subsidiaries are considered an investment company under Section 3(a)(1)(C) of the Investment Company Act.

Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis, (the “40% test”).

“Investment securities” does not include, among other things, U.S.

government securities and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act.

If the value of securities issued by our subsidiaries that are excluded from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities we own, exceeds the 40% test under Section 3(a)(1)(C) of the Investment Company Act, or if one or more of such subsidiaries fail to maintain an exclusion or exception from the Investment Company Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) to effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) to register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions.

Our subsidiaries that invest in residential mortgage loans (whether through a consolidated trust or otherwise) rely upon the exemption from registration as an investment company under the Investment Company Act pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exemption generally requires that at least 55% of each of these subsidiaries’ assets be comprised of qualifying real estate assets and at least 80% of each of their portfolios be comprised of qualifying real estate assets and real estate-related assets under the Investment Company Act.

Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption.

All or substantially all of our residential mortgage loans are fully and exclusively secured by real property with a loan-to-value ratio of less than 100%.

As a result, we believe our residential mortgage loans that are fully and exclusively secured by real property meet the definition of qualifying real estate assets.

Corporate Offices

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• changes in our business and investment strategy;

• changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets;

• inflation and changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets;

• changes in credit spreads;

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• changes in prepayment rates on the loans we own or that underlie our investment securities;

• increased rates of default or delinquency and/or decreased recovery rates on our assets;

• increased rates of default, delinquency or vacancy and/or decreased recovery rates on or at our assets;

• our ability to identify and acquire our targeted assets, including assets in our investment pipeline;

• our ability to dispose of assets from time to time on terms favorable to us, including the disposition over time of our joint venture equity investments;

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

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• our ability to predict and control costs;

• changes in laws, regulations or policies affecting our business, including actions that may be taken to contain or address the impact of the COVID-19 pandemic;

• changes in laws, regulations or policies affecting our business, including actions that may be taken to contain or address the impact of the novel coronavirus ("COVID-19") and variants;

• our ability to make distributions to our stockholders in the future;

• our ability to maintain our qualification as a REIT for federal tax purposes;

• our ability to maintain our exemption from registration under the Investment Company Act of 1940;

• risks associated with investing in real estate assets, including changes in business conditions and the general economy, the availability of investment opportunities and the conditions in the market for Agency RMBS, non-Agency RMBS, ABS and CMBS securities, residential loans, structured multi-family investments and other mortgage-, residential housing- and credit-related assets, including changes resulting from the ongoing spread and economic effects of COVID-19;

• the impact of COVID-19 on us, our operations and our personnel.

• our ability to maintain our exemption from registration under the Investment Company Act;

These and other risks, uncertainties and factors, including the risk factors described herein, as updated by those risks described in our subsequent filings with the SEC under the Exchange Act, could cause our actual results to differ materially from those projected in any forward-looking statements we make.

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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