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• “Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS;
−Removed: • “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S.
+Added: • “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S.
government, such as the Government National Mortgage Association ("Ginnie Mae");
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• “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, 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;
−Removed: • “CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a government sponsored enterprise (“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;
−Removed: • “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 the first loss subordinated securities and certain IOs that we consolidate in our financial statements in accordance with GAAP;
+Added: • “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;
• “Consolidated Real Estate VIEs” refers to Consolidated VIEs that own multi-family properties;
+Added: • “Consolidated SLST” refers to Freddie Mac-sponsored residential loan securitizations, comprised of seasoned re-performing and non-performing residential loans, of which we own the first loss subordinated securities and certain IOs, that we consolidate in our financial statements in accordance with GAAP;
• “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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• “MBS” refers to mortgage-backed securities;
−Removed: • “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments;
+Added: • “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments in multi-family properties;
+Added: • “MSRs” refers to mortgage servicing rights that represent the contractual right to service residential loans;
• “multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;
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We intend to focus on our core portfolio strengths of single-family and multi-family residential assets, which we believe will deliver better risk-adjusted returns over time.
−Removed: Due to current market conditions, we also intend to acquire and manage a portfolio of Agency RMBS.
−Removed: 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) Agency RMBS, (iv) non-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 .
−Removed: 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 or alternative investments 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, ABS and debt or equity investments in alternative assets or businesses.
+Added: Our targeted investments include (i) residential loans, including business purpose loans, (ii) Agency RMBS, (iii) non-Agency RMBS, (iv) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties and (v) 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 .
+Added: 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 or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, CMBS, collateralized mortgage obligations, MSRs, 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.
We have elected to be taxed as a REIT for U.S.
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Our strategy is to own and manage a portfolio of primarily mortgage-related single-family and multi-family residential assets that include elements of credit risk and/or interest rate risk.
−Removed: We have sought in past years, and intend to continue, subject to market conditions, to focus on constructing 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.
+Added: We intend to continue, subject to market conditions, to focus on assets, many of which we have originated or sourced through proprietary channels, that 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.
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We also own and manage a leveraged portfolio of Agency securities primarily comprised of Agency fixed-rate RMBS and Agency ARMs, and we may pursue opportunistic acquisitions of other types of assets that meet our investment criteria.
−Removed: We also currently own and manage a portfolio of joint venture equity investments in multi-family properties having an aggregate net equity carrying value of approximately $242.0 million.
−Removed: In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of our joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
−Removed: In 2023, joint venture entities in which we held a common equity interest sold five multi-family properties.
−Removed: In December 2023, we suspended the marketing of nine joint venture equity investments that were held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market.
−Removed: As of December 31, 2023, we continue to market for sale our joint venture equity investments in five multi-family properties.
−Removed: We can provide no assurance of the timing or success of our ultimate exit from our joint venture equity investments in multi-family properties or that the value of our interests in joint ventures will not decline further.
−Removed: In light of current market and financing conditions, we are presently focused on acquiring assets with less price sensitivity to credit deterioration, such as Agency RMBS and shorter duration assets that generate higher portfolio turnover that will better enable us to reposition our portfolio in a volatile and changing interest rate environment.
−Removed: Selecting assets with lower credit exposure, either through agency guarantees, structure or collateral quality, can also reduce the overall risk profile of the portfolio.
+Added: In light of current market and financing conditions, we are presently focused on acquiring assets with less price sensitivity to credit deterioration, such as Agency RMBS, and shorter duration assets that generate higher portfolio turnover, such as business purpose loans, that will better enable us to reposition our portfolio in a volatile and changing interest rate environment.
+Added: Selecting assets with lower credit exposure, either through agency guarantees, structure or collateral quality, can also reduce the overall risk profile of the portfolio and raise our interest income levels.
+Added: We expect to allocate more capital to investments in single-family credit assets relative to multi-family credit assets in 2025 and subsequent years, with multi-family assets becoming a smaller part of our balance sheet.
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.
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We have deep experience managing different whole loan strategies across the credit spectrum.
−Removed: 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, including through originators in which we hold an equity investment.
+Added: 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, which may occur through originators in which we hold an equity investment.
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 .
−Removed: 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.
+Added: Our portfolio of residential loans consists of (i) 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," (ii) 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," (iii) 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, (iv) 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 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 and compliance with existing guidelines, as well as our ability to enforce the contractual rights in the mortgage.
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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.
−Removed: Our leveraged Agency RMBS portfolio is comprised of Agency fixed-rate RMBS and Agency ARMs, the principal and interest of which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
+Added: Our leveraged Agency RMBS portfolio is primarily comprised of Agency fixed-rate RMBS and Agency ARMs, the principal and interest of which are guaranteed by Fannie Mae or Freddie Mac.
The Agency fixed-rate RMBS have been primarily backed by 15-year and 30-year residential fixed-rate mortgage loans, while the Agency ARMs have primarily included interest reset periods up to 120 months.
+Added: We also own Agency IOs that represent the right to receive the interest portion of the cash flow from a pool of mortgage loans issued or guaranteed by Freddie Mac or Ginnie Mae.
In managing our portfolio of Agency RMBS, we expect to employ leverage through the use of repurchase agreements to generate risk-adjusted returns, subject to general and capital market conditions, among other factors.
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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.
−Removed: As of December 31, 2023, we owned $181.6 million of non-Agency RMBS.
Single-Family Rental.
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Multi-Family Investments
−Removed: We first began investing in multi-family credit assets in 2011.
We seek to position our multi-family credit investment platform in the marketplace as a real estate investor focused on debt and equity transactions.
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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.
−Removed: 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 a 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.
−Removed: 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.
+Added: In general terms, we expect that the multi-family credit investments we fund going forward will principally be in the form of preferred equity investments in, and mezzanine loans to, owners of multi-family properties.
+Added: We anticipate allocating less capital to multi-family investments going forward.
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 we believe will lead to net cash flow growth and capital gains and which may benefit from the expertise of our asset management team.
−Removed: Generally, we target investments in multi-family properties that are or have been:
−Removed: • located in a particularly dynamic submarket with strong prospects for rental growth;
−Removed: • located in smaller markets that are underserved and more attractively priced;
−Removed: • poorly managed by the previous owner, creating an opportunity for overall net income growth through better management practices;
−Removed: • undercapitalized and may benefit from an investment in physical improvements;
−Removed: • highly stable and are suitably positioned to support high-yield preferred equity or mezzanine debt within their capital structure.
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.
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Preferred Equity .
−Removed: We currently own, and expect to originate in the future, preferred equity investments in entities that directly or indirectly own multi-family properties.
+Added: We currently own, and may originate in the future, preferred equity investments in entities that directly or indirectly own multi-family properties.
Preferred equity is not secured, but holders have priority relative to the common equity on cash flow distributions and proceeds from capital events.
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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.
−Removed: 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.
−Removed: 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.
−Removed: In December 2021, we entered into a joint venture that presently owns 13 multi-family properties in seven states, including Texas, Tennessee and Florida.
+Added: In December 2021, we entered into a joint venture that presently owns 10 multi-family properties in six states, including Texas, Florida and Kentucky.
We are a co-manager of the joint venture and, as of December 31, 2024, owned an approximate 27% 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.
+Added: In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of certain joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
+Added: Since then, we have disposed of our joint venture equity investments in 15 multi-family properties, generating net gains attributable to us of approximately $16.0 million.
+Added: As of December 31, 2024, we have reduced exposure in this disposal group of multi-family investments to $19.5 million over two multi-family properties.
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 make additional protective capital contributions to our existing joint venture equity investments in accordance with agreements to which we are a party and 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.
−Removed: Multi-Family CMBS.
−Removed: We have invested in, and may in the future invest in, multi-Family CMBS comprised of (i) first loss PO securities issued by multi-family loan securitizations and (ii) certain IOs and/or mezzanine securities issued by these securitizations.
Other Investments
−Removed: 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.
+Added: Although it represents a significantly smaller portion of our overall investment portfolio, we also own and/or 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.
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We employ leverage as part of our financing strategy and strive to maintain and achieve a balanced and diverse funding mix to finance our assets and operations.
−Removed: To achieve this, we rely 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.
+Added: To achieve this, we rely primarily on a combination of short-term and longer-termed repurchase agreements and structured financings, including CDOs issued by securitizations and longer-termed senior and subordinated debt.
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.
−Removed: Currently, we target maximum leverage ratios for each eligible investment, 10:1 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.
−Removed: Currently, our target total debt leverage ratio should not be greater than 4:1.
+Added: Currently, our maximum leverage ratios for each eligible investment are (i) 15:1 in the case of more liquid Agency securities, (ii) between 4:1 and 6:1 in the case of our more illiquid assets, such as our non-Agency RMBS and (iii) 8:1 in the case of our residential loans.
+Added: Our target total debt leverage ratio should not be greater than 4:1.
This target may be adjusted from time to time by our Board of Directors depending on the composition of our overall portfolio, market conditions and such other factors deemed relevant by our Board of Directors.
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We monitor all at-risk or short-term borrowings to ensure that we have adequate liquidity to satisfy margin calls and liquidity covenant requirements.
−Removed: We rely on repurchase agreements to fund the purchase of investment securities, residential loans and single-family rental properties.
−Removed: These repurchase agreements 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.
+Added: We rely on repurchase agreements to fund the purchase of investment securities, a portion of our residential loans and single-family rental properties.
+Added: The repurchase agreements 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 assets 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 the most recent closing bid quotation from such source plus accrued income.
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Interest rates and haircuts will depend on the underlying collateral pledged.
−Removed: We have entered into three repurchase agreements with an aggregate outstanding balance of $179.1 million as of December 31, 2023 that are not subject to margin calls upon changes in market value of the pledged collateral.
−Removed: With respect to our investments in credit assets that are not financed by short-term repurchase agreements, such as a portion of our residential loans, we finance our investment in these assets through longer-term borrowings and working capital.
−Removed: 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.
+Added: Our financings for residential loans and investment securities may also include longer-term structured debt financing, such as CDOs where the assets we intend to finance are contributed to a special purpose entity (“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.
−Removed: 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.
+Added: Securitizations provide less or no exposure to collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
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.
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Our Hedging Strategy
−Removed: The Company enters into derivative instruments in connection with its risk management activities.
−Removed: These derivative instruments may include interest rate swaps, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures.
−Removed: The Company may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S.
+Added: We enter into derivative financial instruments in connection with our risk management activities.
+Added: These derivative instruments may include interest rate swaps, interest rate caps, credit default swaps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures.
+Added: We may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S.
Treasury futures or invest in other types of mortgage derivative securities.
−Removed: 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.
−Removed: For variable-rate mortgages payable on real estate, the joint venture entities are required by the lender to enter into interest rate cap contracts.
−Removed: In addition, 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.
−Removed: 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.
−Removed: The Company uses interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings.
−Removed: Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount.
−Removed: Notwithstanding the foregoing, in order to manage its position with regard to its liabilities, the Company may enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount.
−Removed: The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements.
+Added: We use interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings.
+Added: Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for us making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount.
+Added: Notwithstanding the foregoing, in order to manage our position with regard to our liabilities, we may also enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount.
+Added: The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of our financing arrangements.
We may use TBAs, swaptions, futures and options on futures to hedge market value risk for certain of our strategies.
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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.
−Removed: The Company typically does not take delivery of TBAs, but rather settles with its trading counterparties on a net basis prior to the forward settlement date.
+Added: We typically do not take delivery of TBAs, but rather settle with our trading counterparties on a net basis prior to the forward settlement date.
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.
We currently do not hold TBAs.
−Removed: The Company may also purchase equity index put options that gives the Company the right to sell or buy the underlying index at a specified strike price, as well as credit default swap index options that allow the Company to enter into a fixed rate payor position in the underlying credit default swap index at the agreed strike level.
+Added: Treasury future contracts that obligate us to sell or buy U.S.
+Added: Treasury securities for future delivery.
+Added: We have purchased credit default swap index contracts under which a counterparty, in exchange for a premium, agrees to compensate us for the financial loss associated with the occurrence of a credit event in relation to a notional value of an index.
+Added: We may purchase equity index put options that give us the right to sell or buy the underlying index at a specified strike price.
+Added: We may also purchase credit default swap index options that allow us to enter into a fixed rate payor position in the underlying credit default swap index at the agreed-upon strike level.
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.
+Added: As it relates to the variable-rate mortgages payable in our Consolidated Real Estate VIEs, the joint venture entities may be required by the lender to enter into interest rate cap contracts.
+Added: In addition, with respect to one of our financings under repurchase agreements, the lender has, in the past, required us to enter into an interest rate cap contract.
+Added: 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 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.
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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.
−Removed: 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 (the “Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.
+Added: 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, residential loans and MSRs, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “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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Investment Company Act Exclusion
−Removed: 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.
+Added: We conduct our operations so that neither we nor any of our subsidiaries are required to register as an “investment company” under the Investment Company Act.
+Added: We and certain of our subsidiaries 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.
+Added: We have in the past and may in the future conduct our operations so that we are not considered an investment company under Section 3(a)(1)(C) of the Investment Company Act.
+Added: We and 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 our and each of these subsidiaries’ assets be comprised of qualifying real estate assets and at least 80% of our and each of their portfolios be comprised of qualifying real estate assets and real estate-related assets under the Investment Company Act.
+Added: We classify our assets and those of our subsidiaries relying on the Section 3(c)(5)(C) exemption from the Investment Company Act based upon no-action positions taken by the Securities and Exchange Commission (“SEC”) staff and interpretive guidance provided by the SEC and its staff.
+Added: Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption.
+Added: 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%.
+Added: 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.
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.
−Removed: government securities and cash items) on an unconsolidated basis, (the “40% test”).
+Added: government securities and cash items) on an unconsolidated basis.
“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.
−Removed: 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.
−Removed: 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.
−Removed: Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption.
−Removed: 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%.
−Removed: 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.
+Added: If we or one or more of our 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.
Corporate Offices
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• our ability to identify and acquire our targeted assets, including assets in our investment pipeline;
−Removed: • 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;
+Added: • our ability to dispose of assets from time to time on terms favorable to us;
• changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof;
8 unchanged sentences
• our exposure to liquidity risk, risks associated with the use of leverage, and market risks;
−Removed: • 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.
+Added: • 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 markets for residential loans, mortgage-backed securities, structured multi-family investments and other assets in which we invest.
These and other risks, uncertainties and factors, including the risk factors and other information 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.
3 unchanged sentences
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.