4 unchanged sentences
Risks Related to Our Business
−Removed: • Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability.
+Added: • Declines in the market values of our investments may adversely affect periodic reported results and credit availability.
+Added: • Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates.
• We may experience losses if we inaccurately estimate the loss-adjusted yields of our investments in credit sensitive assets.
• Interest rate increases may decrease the availability of certain of our targeted assets.
−Removed: • Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates.
−Removed: • Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases our exposure to economic downturns and risks associated with the real estate and lending industries in general.
+Added: • Our investment portfolio may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases our exposure to economic downturns and risks associated with the real estate and lending industries in general.
+Added: • Prepayment rates can change, adversely affecting the performance of our assets.
• Our portfolio of business purpose loans exposes us to risks that are different from the risks involved with our traditional investments in residential mortgage loans.
• Our investments may include subordinated tranches of RMBS, CMBS and ABS, which are subordinate in right of payment to more senior securities that have greater risk of loss than other investments.
−Removed: • Prepayment rates can change, adversely affecting the performance of our assets.
• We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for the majority of our investments.
• The failure of third-party service providers to perform a variety of services on which we rely may adversely impact our business and financial results.
−Removed: • Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties.
−Removed: • Declining real estate valuations and impairment charges to real estate assets have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future.
−Removed: • Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure.
−Removed: • Our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders.
−Removed: • Our real estate and real estate-related assets are subject to risks particular to real property.
• Due diligence as a part of our acquisition or underwriting process may be limited, may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to material losses.
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• Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt.
+Added: • Our preferred equity investments involve greater risks of loss than more senior loans secured by income-producing properties.
+Added: • Our real estate and real estate-related assets are subject to risks particular to real property.
• Competition may prevent us from acquiring assets on favorable terms or at all.
21 unchanged sentences
• We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent.
−Removed: • Maintenance of our Investment Company Act exemption imposes limits on our operations.
+Added: • Maintenance of our Investment Company Act exemption imposes significant limits on our operations.
• The accrual of dividends on certain of our series of preferred stock at a floating rate in the future could adversely affect our ability to make cash distributions at our intended levels, or at all, or otherwise materially adversely affect our earnings, cash flows or financial condition.
9 unchanged sentences
• The failure of certain investments subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT.
−Removed: • We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans.
• We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us.
7 unchanged sentences
Risks Related to Our Business
−Removed: Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability, which may reduce our earnings, book value and the market value of our securities and, in turn, may constrain our liquidity and cash available for distribution to our stockholders.
−Removed: The market value of our investment portfolio may move inversely with changes in interest rates.
−Removed: We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio.
−Removed: Changes in the market values of assets in our investment portfolio where the Company elected the fair value option will be reflected in earnings and changes in the market values of assets in our investment portfolio where the Company did not elect the fair value option will be reflected in stockholders’ equity.
−Removed: As a result, a decline in market values of assets in our investment portfolio may reduce our earnings, book value and the market value of our securities.
+Added: Declines in the market values of our investments may adversely affect periodic reported results and credit availability, which may reduce our earnings, book value and the market value of our securities and, in turn, may constrain our liquidity and cash available for distribution to our stockholders.
+Added: The market value of our investments may move inversely with changes in interest rates.
+Added: We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investments.
+Added: Changes in the market values of our investments where the Company elected the fair value option will be reflected in earnings and changes in the market values of our investments where the Company did not elect the fair value option will be reflected in stockholders’ equity.
+Added: As a result, a decline in market values of our investments may reduce our earnings, book value and the market value of our securities.
+Added: From early 2022 through late 2024, the Federal Reserve significantly raised the target range for the federal funds rate and held the target range at such relatively elevated levels.
+Added: Such elevated interest rates contributed to valuation declines in certain portions of our investment portfolio during a portion of this period.
A decline in the market value of our interest-bearing assets may adversely affect us, particularly in instances where we have borrowed money based on the market value of those assets.
−Removed: If the market value of those assets declines, the lender may require us to post additional collateral to support the loan, which would reduce our liquidity and limit our ability to leverage our assets.
+Added: If the market value of those assets declines, the lender may require us to post additional collateral to support the loan, as has occurred in the past, which reduces our liquidity and may limit our ability to leverage our assets.
In addition, if we are, or anticipate being, unable to post the additional collateral, we may have to sell the assets at a time when we might not otherwise choose to do so.
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In the event that we underestimate the losses relative to the price we pay for a particular investment, we may experience material losses with respect to such investment.
−Removed: An increase in interest rates may cause a decrease in the availability of certain of our targeted assets and could cause our interest expense to increase, which could materially adversely affect our ability to acquire targeted assets that satisfy our investment objectives, our earnings and our ability to make distributions to our stockholders.
−Removed: A higher interest rate environment, which we have experienced since 2022, generally results in a reduction in the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
−Removed: A reduction in the volume of mortgage loans originated or in new construction, redevelopment or renovation of multi-family properties may affect the volume of targeted assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment and business objectives.
+Added: An increase in interest rates may cause a decrease in the availability of certain of our targeted assets, including Agency RMBS, and could cause our interest expense to increase, which could materially adversely affect our ability to acquire targeted assets that satisfy our investment objectives, our earnings and our ability to make distributions to our stockholders.
+Added: A higher interest rate environment, which we have experienced since 2022, generally results in a reduction in the demand for mortgage loans due to the higher cost of borrowing.
+Added: A reduction in the volume of mortgage loans originated may affect the volume of targeted assets available to us, including Agency RMBS, which could adversely affect our ability to acquire assets that satisfy our investment and business objectives.
We also expect that higher interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience, as certain of them did in 2024, a decline in their fair value and/or provide yields that are below prevailing market interest rates.
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As a result, our investment portfolio may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those asset types, sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
−Removed: As of December 31, 2024, 29.0%, 26.6% and 8.2% of the outstanding balance of our Mezzanine Lending investments were made on properties located in Florida, Texas and Arizona, respectively, and 44.7%, 31.1% and 10.0% of our joint venture equity investments owned multi-family properties located in Texas, Florida and Kentucky, respectively.
−Removed: Our direct and indirect investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property, which is impacted by numerous factors and developments, including many risks that affect real estate generally.
−Removed: See “-Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure” and “-Our business is subject to risks particular to real property and real estate-related assets.” To the extent any of these factors materially adversely impact the multi-family property sector or the geographic regions in which we invest, the market values of our multi-family assets and our business, financial condition and results of operations may be materially adversely affected.
Similarly, as of December 31, 2025, approximately 31% of our total investment portfolio was comprised of residential loans and non-Agency RMBS, and 63% was comprised of Agency RMBS.
−Removed: Moreover, as of December 31, 2024, significant portions of the properties that secure our residential loans, including loans that secure Consolidated SLST, were concentrated in California, Florida, Texas, New York, New Jersey, Pennsylvania and Illinois among other states.
+Added: Moreover, as of December 31, 2025, significant portions of the properties that secure our residential loans, including loans that secure Consolidated SLST, were concentrated in California, Florida, Texas, New York, New Jersey, Pennsylvania and Ohio among other states.
California is particularly susceptible to earthquake and wildfire risks while Florida and Texas are susceptible to hurricane, wind and flood risks.
2 unchanged sentences
Residential loans are subject to increased risks of loss.
−Removed: We acquire and manage residential loans, including performing, re-performing, non-performing and business purpose loans and loans that may not meet or conform to the underwriting standards of any GSE.
+Added: We acquire and manage residential loans, including performing, re-performing, non-performing and business purpose loans, which we also originate, and loans that may not meet or conform to the underwriting standards of any GSE.
Residential loans are subject to increased risks of loss.
15 unchanged sentences
In some cases, these liabilities may be "recourse liabilities" or may otherwise lead to losses in excess of the purchase price of the related mortgage or property.
−Removed: Our investments in a mortgage loan originator exposes us to additional risks.
−Removed: As of December 31, 2024, we owned a 50% equity interest in an entity that originates residential loans.
−Removed: Unlike our investments in residential mortgage loans and mortgage-backed securities (“MBS”), our investments in the loan originator are unsecured and not collateralized by any property of the originator.
−Removed: In addition, we do not manage the loan originator in which we have made investments, and because none of our investments give us a controlling stake in the loan originator, our ability to influence the business and operations of the originator is limited, in some instances significantly so.
−Removed: Also, because the loan originator is a private closely-held enterprise, there are significant restrictions on our ability to sell or otherwise transfer our investments (which are generally illiquid).
−Removed: In the event that the loan originator in which we have made investments should experience a significant decline in its business and operations or otherwise not be able to respond adequately to managerial, compliance or operational challenges that it may encounter, we may be required to write-down all or a portion of the applicable investment, which could have a material adverse impact on our results of operations and our book value.
Our portfolio of business purpose loans exposes us to risks that are different from the risks involved with our traditional investments in residential mortgage loans.
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Prepayment rates can change, adversely affecting the performance of our assets.
−Removed: The frequency at which prepayments (including both voluntary prepayments by the borrowers and liquidations due to defaults and foreclosures) occur on the residential loans we own and those that underlie our RMBS and some of the multi-family real estate investments and loans we originate or acquire is difficult to predict and is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal, legislative and other factors.
+Added: The frequency at which prepayments (including both voluntary prepayments by the borrowers and liquidations due to defaults and foreclosures) occur on the residential loans we own and those that underlie our RMBS and some of the multi-family investments we have originated or acquired is difficult to predict and is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal, legislative and other factors.
Generally, borrowers tend to prepay their mortgages when prevailing mortgage rates fall below the interest rates on their mortgage loans.
1 unchanged sentence
Generally, “discount” assets (assets whose principal or par amounts exceed their market values) are adversely affected by slower-than-anticipated prepayments.
−Removed: Because our portfolio is comprised of both discount assets and premium assets, our portfolio may be adversely affected by changes in prepayments in any interest rate environment.
+Added: Because our portfolio is comprised of both premium assets and discount assets, our portfolio may be adversely affected by changes in prepayments in any interest rate environment.
Although we estimate prepayment rates to determine the effective yield of our assets and valuations, these estimates are not precise and prepayment rates do not necessarily change in a predictable manner as a function of interest rate changes.
5 unchanged sentences
Therefore, if actual prepayment rates differ from anticipated prepayment rates, our business, financial condition and results of operations and ability to make distributions to our stockholders could be materially adversely affected.
−Removed: Some of the multi-family real estate investments and loans we may originate may allow the borrower to make prepayments without incurring a prepayment penalty and some may include provisions allowing the borrower or operating partner to extend the term of the loan or instrument beyond the originally scheduled maturity.
−Removed: Because the decision to prepay or extend such a multi-family loan or instrument is typically controlled by the borrower, we may not accurately anticipate the timing of these events, which could affect the earnings and cash flows we anticipate and could impact our ability to finance these assets.
+Added: Some of the multi-family investments we have originated and hold allow the borrower or operating partner to make prepayments without incurring a prepayment penalty and some may include provisions allowing the borrower or operating partner to extend the term of the instrument beyond the originally scheduled maturity.
+Added: Because the decision to prepay or extend such an instrument is typically controlled by the borrower or the operating partner, we may not accurately anticipate the timing of these events, which could affect the earnings and cash flows we anticipate and could impact our ability to finance these assets.
We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for the majority of our investments.
37 unchanged sentences
Any such reductions could materially and adversely affect the value of the residential loans in which we invest and, therefore, could have a material and adverse effect on our business, results of operations and financial condition and ability to make distributions to our stockholders.
−Removed: Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties.
−Removed: We own and make preferred equity investments in entities that own multi-family property.
−Removed: We have made in the past, and may originate in the future mezzanine loans, which are loans secured by a pledge of the ownership interests of either the entity owning the multi-family property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the multi-family property.
−Removed: These types of assets involve a higher degree of risk than senior mortgage lending secured by income-producing real property, because the loan may become unsecured or our equity investment may be effectively extinguished as a result of foreclosure by the senior lender.
−Removed: In addition, mezzanine loans and preferred equity investments are often used to achieve a very high leverage on large commercial projects, resulting in less equity in the property and increasing the risk of loss of principal or investment.
−Removed: If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan or preferred equity investment will be satisfied only after the senior debt, in the case of a mezzanine loan, or all senior and subordinated debt, in the case of a preferred equity investment, is paid in full.
−Removed: Where senior debt exists, the presence of intercreditor arrangements, which in this case are arrangements between the lender of the senior loan and the mezzanine lender or preferred equity investor that stipulate the rights and obligations of the parties, may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies or control decisions made in bankruptcy proceedings relating to borrowers or preferred equity issuers.
+Added: Our preferred equity investments involve greater risks of loss than more senior loans secured by income-producing properties.
+Added: We own preferred equity investments in entities that own one or more multi-family properties.
+Added: These types of assets involve a higher degree of risk than senior mortgage lending secured by income-producing real property because our equity investment may be effectively extinguished as a result of foreclosure by the senior lender.
+Added: In addition, preferred equity investments are often used to achieve a very high leverage on large commercial projects, resulting in less equity in the property and increasing the risk of loss of principal or investment.
+Added: If a borrower defaults on our preferred equity investment or debt senior to our loan, or in the event of an operating partner bankruptcy, our preferred equity investment will be satisfied only after all senior and subordinated debt is paid in full.
+Added: Where senior debt exists, the presence of intercreditor arrangements, which in this case are arrangements between the lender of the senior loan and the preferred equity investor that stipulate the rights and obligations of the parties, may limit our ability to amend our investment documents, assign or transfer our interests, accept prepayments, exercise our remedies or control decisions made in bankruptcy proceedings relating to preferred equity issuers.
As a result, we may not recover some or all of our investment, which could result in significant losses.
1 unchanged sentence
We periodically evaluate real estate assets for indicators of impairment, which include, among other indicators, deteriorating operational performance, declining market conditions, legal and environmental concerns, and our ability and intent to hold each asset.
−Removed: If impairment indicators exist for long-lived assets to be held and used, such as real estate held by our joint venture equity investments in multi-family properties or our single-family rental properties, we may record an impairment of real estate to reduce the carrying value of such asset to its estimated fair value.
−Removed: Real estate assets that are held for sale or in disposal group held for sale, such as those owned by certain of our joint venture equity investments in multi-family properties, are recorded at the lower of their net depreciated carrying amount or estimated net fair value.
+Added: If impairment indicators exist for long-lived assets to be held and used, we may record an impairment of real estate to reduce the carrying value of such asset to its estimated fair value.
+Added: Real estate assets that are held for sale are recorded at the lower of their net depreciated carrying amount or estimated net fair value.
In the event that the estimated net fair value of a real estate asset is determined to be less than its net depreciated carrying amount, an impairment of real estate is recorded on our consolidated statements of operations for the amount of the difference.
Subsequent decreases, if any, in the net fair value of the real estate assets held for sale are recorded as impairments of real estate.
−Removed: Further, if real estate or joint venture equity investments are determined to no longer meet the criteria to be accounted for as held for sale, they are returned to held and used at the lower of (a) their carrying amount before they were classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the assets remained in their previous classification, or (b) their fair value at the date of the subsequent decision not to sell the real estate or joint venture equity investment, and downward adjustments, if any, are reported in loss on reclassification of disposal group in the consolidated statements of operations.
+Added: Further, if real estate investments are determined to no longer meet the criteria to be accounted for as held for sale, they are returned to held and used at the lower of (a) their carrying amount before they were classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the assets remained in their previous classification, or (b) their fair value at the date of the subsequent decision not to sell the real estate or joint venture equity investment, and downward adjustments, if any, are reported in loss on reclassification of disposal group in the consolidated statements of operations.
We determine the fair value of real estate assets based upon discounted cash flow analyses using property financial information and assumptions regarding market rent, revenue and expense growth, capitalization rates and return rates.
2 unchanged sentences
For the years ended December 31, 2025 and 2024, we recognized net impairment losses of approximately $9.8 million and $48.9 million, respectively.
−Removed: Also in the years ended December 31, 2024 and 2023, we recognized losses on reclassification of disposal group of approximately $14.6 million and $16.2 million, respectively.
+Added: During the year ended December 31, 2024, we also recognized losses on reclassification of disposal group of approximately $14.6 million.
These losses have a direct, adverse impact on our net income because recording an impairment loss or loss on reclassification of disposal group results in an immediate negative adjustment to net income.
−Removed: Impairment charges, such as those incurred in 2024 and 2023, adversely affected our financial condition, results of operations, book value, cash available for distribution, including cash available for us to pay distributions to our stockholders, and per share trading price of our common stock.
+Added: Impairment charges, such as those incurred in recent years, adversely affected our financial condition, results of operations, book value, cash available for distribution, including cash available for us to pay distributions to our stockholders, and per share trading price of our common stock.
Such impairment charges could adversely affect our earnings and financial condition in the future.
18 unchanged sentences
• the risks particular to real property, including those described in “-Our business is subject to risks particular to real property and real estate-related assets.”
−Removed: In the event of any default under a loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the outstanding principal and accrued interest of the mortgage loan, and any such losses could have a material adverse effect on our cash flow from operations and our ability to make distributions to our stockholders.
−Removed: Similarly, the mezzanine loan and preferred and joint venture equity investments we own may be adversely affected by a default on any of the loans or other instruments that underlie those securities or that are secured by the related property.
+Added: The Mezzanine Lending investments we own may be adversely affected by a default on any of the loans or other instruments that underlie those securities or that are secured by the related property.
See “- Our investments may include subordinated tranches of RMBS, CMBS and ABS, which are subordinate in right of payment to more senior securities and have greater risk of loss than other investments.”
−Removed: In the event of the bankruptcy of a commercial mortgage loan borrower, the commercial mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the commercial mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
−Removed: Foreclosure of a commercial mortgage loan can be an expensive and lengthy process, which could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Actions of our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions that are in the best interests of our stockholders, which could result in lower investment returns to our stockholders.
−Removed: We make preferred equity investments in, and may in the future originate mezzanine loans to, owners of multi-family properties as part of our investment strategy and presently own joint venture equity investments in owners of multi-family properties.
−Removed: We consider such owners (or other owners in the case of joint venture equity investments) to be our operating partners with respect to the acquisition, improvement or financing of the underlying properties, as the case may be.
+Added: We own preferred equity investments in owners of multi-family properties as part of our investment strategy.
+Added: We consider such owners to be our operating partners with respect to the acquisition, improvement, operating or financing of the underlying properties, as the case may be.
We may also make indirect investments in properties through other arrangements.
−Removed: Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example:
−Removed: • operating partners may share or control certain approval rights over major decisions;
−Removed: • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals;
−Removed: • we may be limited in our ability to dispose of or refinance properties on a timely basis without financial penalty or at all;
−Removed: • our operating partner in a property might become insolvent, bankrupt or otherwise refuse or be unable to meet its obligations to us or the venture, which we have experienced in recent years;
−Removed: • we may incur liabilities as a result of an action taken by one of our operating partners;
−Removed: • one of our operating partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT;
−Removed: • disputes between us and our operating partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business;
−Removed: • our operating partners obtain blanket property casualty and business interruption insurance insuring properties we own jointly and other properties in which we have no ownership interest and as a result, claims or losses with respect to properties owned by our operating partners but in which we have no interest could significantly reduce or eliminate the insurance available to properties in which we have an interest;
−Removed: • our operating partners may not perform their property oversight responsibilities;
−Removed: • we rely on our operating partners to provide us with accurate financial information regarding the performance of the properties underlying our preferred equity, mezzanine loan and joint venture investments on a timely basis to enable us to satisfy our annual, quarterly and periodic reporting obligations under the Exchange Act and our operating partners and the entities in which we invest may have inadequate internal controls or procedures that could cause us to fail to meet our reporting obligations and other requirements under the federal securities laws.
−Removed: Actions by one of our operating partners or one of the property managers of the multi-family properties in which we invest, which are generally out of our control, might subject us to liabilities in excess of those contemplated and thus reduce our investment returns.
−Removed: If we have a right of first refusal or buy/sell right to buy out an operating partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so.
+Added: Actions by our operating partners or the property managers of the multi-family properties which underlie our investments are generally out of our control and may subject us to liabilities in excess of those contemplated and thus reduce our investment returns.
+Added: As such, these investments may involve risks not otherwise present when acquiring real estate directly, including, for example:
+Added: • operating partners may share or control certain approval rights over major decisions, which, among other things, may limit our ability to dispose of or refinance properties on a timely basis or at all;
+Added: • operating partners may have interests or goals that are or become inconsistent with our interests or goals;
+Added: • operating partners might become insolvent, bankrupt or otherwise refuse or be unable to meet their obligations to us or the venture, which we have experienced in recent years;
+Added: • operating partners may not perform their property oversight responsibilities or may take actions contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT;
+Added: • operating partners or the entities in which we invest may not timely provide us with accurate financial information or may have inadequate internal controls or procedures that could cause us to fail to meet our reporting obligations and other requirements under the federal securities laws.
+Added: Additionally, if we have a right of first refusal or buy/sell right to buy out an operating partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so.
If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase the interest of our operating partner that is subject to the buy/sell right, in which case we may be forced to sell our interest as a result of the exercise of such right when we would otherwise prefer to keep our interest.
−Removed: Pursuant to the operating agreement for one of our joint venture investments, third party investors have the ability to sell their ownership interests to us at their election once a year subject to annual minimum and maximum amount limitations and we are obligated to purchase such interests for cash.
+Added: Pursuant to the operating agreement for our cross-collateralized mezzanine lending investment, third party investors have the ability to sell their ownership interests to us at their election once a year subject to annual minimum and maximum amount limitations and we are obligated to purchase such interests for cash.
We may not have sufficient cash, available borrowing capacity or other capital resources to allow us to finance the purchase of such interests, which may cause us to breach our obligations under the operating agreement, or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so.
12 unchanged sentences
To the extent that due diligence is conducted as part of our acquisition or underwriting process, such due diligence may be limited, may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to material losses.
−Removed: As part of our acquisition or underwriting process for certain assets, including, without limitation, residential loans, direct and indirect multi-family property investments, non-Agency RMBS, CMBS, ABS or other mortgage-, residential housing- or other credit-related assets, we may conduct (either directly or using third parties) certain due diligence.
+Added: As part of our acquisition or underwriting process for certain assets, including, without limitation, residential loans, non-Agency RMBS, indirect multi-family property investments, CMBS, ABS or other mortgage-, residential housing- or other credit-related assets, we may conduct (either directly or using third parties) certain due diligence.
Such due diligence may include (i) an assessment of the strengths and weaknesses of the asset’s or underlying asset's credit profile, (ii) a review of all or merely a subset of the documentation related to the asset or underlying asset or (iii) other reviews that we may deem appropriate to conduct.
3 unchanged sentences
For example, certain of our assets may be securitized and are held in a securitization trust and may not be sold or transferred until the note issued by the securitization trust matures or is repaid.
−Removed: Similarly, our joint venture equity and Mezzanine Lending investments may require the consent of our operating partner or a lender to transfer or sell our investment and may also be less attractive to a buyer due to certain contractual provisions.
+Added: Similarly, our multi-family investments may require the consent of our operating partner or a lender to transfer or sell our investment and may also be less attractive to a buyer due to certain contractual provisions.
Moreover, because many of our assets are subordinated to more senior securities or loans or depend on the ability of a borrower, tenant or operating partner to meet their contractual obligations, any potential buyer of those assets may request to conduct due diligence on those assets, which may delay the sale or transfer of those assets.
2 unchanged sentences
If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our assets, as was the case in March 2020 when the COVID-19 pandemic caused significant turmoil in our markets.
−Removed: As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could materially adversely affect our results of operations and financial condition.
+Added: As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could materially adversely affect our results of operations, cash flow and financial condition.
The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information.
12 unchanged sentences
Our results of operations, financial condition and business could be materially adversely affected if our fair value determinations of these assets are materially higher than could actually be realized in the market.
−Removed: Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt.
−Removed: The inability of the borrower to do so could materially and adversely affect our liquidity and results of operations.
−Removed: The difficulty in valuation is particularly significant with respect to our less liquid investments such as our re-performing loans (“RPL”s) and non-performing loans (“NPL”s).
+Added: Our investments in residential loans are difficult to value and such valuations are dependent upon the borrower’s ability to service or refinance their debt and, in the case of business purpose loans made to borrowers who rent the respective collateral property, are also dependent upon such collateral property’s rental income.
+Added: The valuation of our investments in residential loans, our liquidity and results of operations could be materially and adversely affected by a residential loan borrower’s inability to service or refinance their loan and/or the inability of a collateral property to produce sufficient rental income.
+Added: The difficulty in valuation is particularly significant with respect to our less liquid investments such as our re-performing loans (“RPL”s) and non-performing loans (“NPL”s), among others.
RPLs are loans on which a borrower was previously delinquent but has resumed repaying.
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However, there may be impediments to executing a refinancing strategy for NPLs and RPLs.
−Removed: For example, a number of mortgage lenders have adjusted their loan programs and underwriting standards, which has reduced the availability of mortgage credit to prospective borrowers.
−Removed: This has resulted in reduced availability of financing alternatives for borrowers seeking to refinance their mortgage loans.
+Added: For example, mortgage lenders may have adjusted their loan programs or underwriting standards since the borrower first obtained their now NPL or RPL, which has in the past reduced and may in the future reduce the availability of mortgage credit to prospective borrowers and the availability of financing alternatives for borrowers seeking to refinance their mortgage loans.
In addition, the value of some borrowers’ homes may decline below the amount of the mortgage loans on such homes resulting in higher loan-to-value ratios, which may leave the borrowers with insufficient equity in their homes to permit them to refinance.
−Removed: With prevailing mortgage interest rates having risen in a meaningful way from their recent low levels, these risks may be exacerbated.
+Added: With prevailing mortgage interest rates remaining meaningfully elevated from their recent low levels in 2020 through part of 2022, these risks may be exacerbated.
The effect of the above would likely serve to make the refinancing of NPLs and RPLs potentially more difficult and less profitable for us.
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While we have security measures in place to protect this information and prevent security breaches, these security measures may be compromised as a result of third-party action, including intentional misconduct by computer hackers, cyber-attacks, “phishing” attacks, service provider or vendor error, or malfeasance or other intentional or unintentional acts by third parties and bad actors, including third-party service providers.
+Added: Threat actors continue to use increasingly sophisticated techniques and tools to gain unauthorized access to enterprise data and information systems, and the use of artificial intelligence may increase the effectiveness and harm caused by such attacks.
Furthermore, borrower data, including personally identifiable information, may be lost, exposed, or subject to unauthorized access or use as a result of accidents, errors, or malfeasance by our employees, independent contractors, or others working with us or on our behalf.
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Any publicized security problems affecting our businesses and/or those of such third parties may negatively impact the market perception of our products and discourage market participants from doing business with us.
−Removed: These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity.
+Added: These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity tools.
We are highly dependent on information and communication systems and system failures and other operational disruptions could significantly disrupt our business, which may, in turn, materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
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If any of the foregoing were to occur, our investments in these entities could be lost in their entirety, and our financial condition, results of operations and cash flow could suffer as a result.
−Removed: Moreover, as a non-controlling equity investor in a residential loan originator, our investment in the loan originator, business and reputation could be negatively impacted if such originator fails to comply with federal, state and local laws, rules and regulations or receives negative media or marketing attention related to its operations.
+Added: It may be uneconomical to "roll" our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts.
+Added: From time to time, we enter into TBAs as an alternate means of investing in and financing Agency RMBS.
+Added: A TBA contract is an agreement to purchase or sell, for future delivery, an Agency RMBS with a specified issuer, term and coupon.
+Added: A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold.
+Added: The TBA contract settling in the later month typically prices at a discount to the earlier month contract with the difference in price commonly referred to as the “drop”.
+Added: The drop is a reflection of the expected net interest income from an investment in similar Agency RMBS, net of an implied financing cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month.
+Added: The drop between the current settlement month price and the forward settlement month price occurs because in the TBA dollar roll market, the party providing the implied financing is the party that would retain all principal and interest payments accrued during the financing period.
+Added: Consequently, dollar roll transactions and such forward purchases of Agency securities represent a form of off-balance sheet financing and increase our “at risk” leverage.
+Added: The economic return of a TBA dollar roll generally equates to interest income on a generic TBA-eligible security less an implied financing cost, and there may be situations in which the implied financing cost exceeds the interest income, resulting in a negative carry on the position.
+Added: If we roll our TBA dollar roll positions when they have a negative carry, the positions would decrease net income and amounts available for distributions to stockholders.
+Added: There may be situations in which we are unable or unwilling to roll our TBA dollar roll positions.
+Added: The TBA transaction could have a negative carry or otherwise be uneconomical due to market conditions, which can be impacted by a variety of factors, such as changes in the pace or manner of the Federal Reserve’s runoff of its portfolio of Agency RMBS or, if they occur, the Fed’s purchases or sales of Agency RMBS in the TBA market.
+Added: We may be unable to find counterparties with whom to trade in sufficient volume or we may be required to collateralize the TBA positions in a way that is uneconomical.
+Added: Because TBA dollar rolls represent implied financing, an inability or unwillingness to roll has effects similar to any other loss of financing.
+Added: If we do not roll our TBA positions prior to the settlement date, we would have to take physical delivery of the underlying securities and settle our obligations for cash.
+Added: We may not have sufficient funds or alternative financing sources available to settle such obligations.
+Added: Additionally, if we take delivery of the underlying securities, we can expect to receive the "cheapest to deliver" securities with the least favorable prepayment attributes that satisfy the terms of the TBA contract.
+Added: Further, the specific securities that we receive may include few, if any, "whole pool" securities, which could inhibit our ability to remain exempt from regulation as an investment company under the Investment Company Act.
+Added: TBA contracts also subject us to margin requirements.
+Added: Our inability to roll forward our TBA positions, failure to obtain adequate financing to settle our obligations, or failure to meet margin calls under our TBA contracts could force us to sell assets under adverse market conditions causing us to incur significant losses and negatively affect our liquidity.
+Added: Our acquisition of the remaining 50% ownership interest in Constructive not previously held by us, or future acquisition targets, could fail to improve our business or result in diminished returns and could increase our cost of doing business.
+Added: In July 2025, we completed the acquisition of the remaining 50% ownership interest in Constructive, a leading originator of business purpose loans for real estate investors.
+Added: In the future, we may engage in additional business acquisitions or investment activity.
+Added: If we experience challenges related to business acquisitions that we do not anticipate or cannot mitigate, including with respect to Constructive, the returns we expected with respect to these investments may not be generated.
+Added: If our assumptions are wrong, or if market conditions change, we may, as a result, not have capital available for deployment into more profitable businesses and investments.
+Added: Constructive’s loan origination business is dependent upon conditions in the investor real estate market, and conditions that negatively impact this market may reduce demand for its loans and adversely impact our business, results of operations and financial condition.
+Added: Constructive's borrowers are primarily investors in residential and multi-family properties for rental income and residential and multi-family properties for rehabilitation and subsequent resale or rental.
+Added: Accordingly, the success of Constructive's business is closely tied to the overall success of the investors and small business owners in these markets.
+Added: Various changes in real estate conditions may adversely impact this market.
+Added: Any negative trends in such real estate conditions may reduce demand for Constructive's products and services and, as a result, materially adversely affect our results of operations, financial condition and ability to make distributions to our stockholders.
+Added: Directly originating mortgage loans through Constructive could expose us to new or increased risks, including increased regulation, additional litigation, challenges in integrating operations, failure to maintain effective internal controls, and other unknown liabilities and increased expenses associated with the business of originating mortgage loans.
+Added: With our acquisition of Constructive, we commenced the operation of a new business segment, the direct origination of business purpose loans through a wholly-owned subsidiary.
+Added: Directly originating business purpose loans could expose us to new or increased risks compared to our historical business activities, including increased regulation by federal and state authorities, additional and different types of litigation, challenges in effectively integrating operations, failure to maintain effective internal controls, procedures and policies, and other unknown liabilities and unforeseen increased expenses or delays associated with the acquisition or the business of originating mortgage loans.
+Added: For example, we currently purchase a portion of the loans originated by Constructive, with Constructive selling the majority of its loans to third parties.
+Added: A reduction in demand among third parties for Constructive’s loans could negatively impact the value or the cost of the loans originated by Constructive, which could result in our experiencing material losses.
+Added: Moreover, Constructive’s loan sale agreements may require Constructive to repurchase or substitute loans or indemnify or reimburse purchasers for losses in the event Constructive breaches a representation or warranty made to the loan purchaser regarding, among other things, certain characteristics of those loans sold, including characteristics Constructive seeks to verify through its underwriting and due diligence efforts.
+Added: Financing for repurchased loans may be limited or unavailable, and may incur a steep discount to their repurchase price from financing counterparties.
+Added: Repurchased loans may also be sold at a significant discount to the loan's unpaid principal balance.
+Added: Significant repurchase activity could harm our business, cash flow, results of operations and financial condition.
+Added: Further, Constructive records a reserve for potential losses associated with its potential liabilities relating to representations and warranties based on historical experience and management’s assessment of incurred losses on previously sold loans that remain outstanding.
+Added: As a result, we may not have sufficient reserves relating to potential liabilities arising from a breach of a representation or warranty made by Constructive to a third party purchaser.
+Added: Additionally, due to the extensive governmental regulation of the mortgage industry, we and Constructive are required to comply with a wide array of laws, rules and regulations, including mortgage originator licensure and federal and state consumer lending regulations, which concern, among other things, the manner in which Constructive conducts its loan origination business and the collection, use, retention, protection, disclosure, transfer and processing of personal information by us and Constructive.
+Added: Constructive’s originations of business purpose loans may inadvertently fail to comply with state and federal regulatory regimes, which could cause fines, legal liability, or material negative impact to the origination business.
+Added: Governmental authorities and various U.S.
+Added: federal and state agencies may have broad oversight and supervisory authority over Constructive’s mortgage loan origination business.
+Added: These regulations require ongoing compliance, monitoring and internal and external compliance audits as they continue to evolve.
+Added: The risks of noncompliance with these laws and regulations include, among other things, the loss of licenses and approvals to engage in lending businesses, costs associated with defending investigations and enforcement actions or resulting administrative fines and penalties and civil and criminal liability, including class action lawsuits.
+Added: Noncompliance with laws or regulations or changes in laws or regulations could be detrimental to Constructive’s business and, as a result, adversely affect our results of operations, financial condition and ability to make distributions to our stockholders.
+Added: Further, our acquisition of Constructive increases our overall number of employees, including remote employees, and adds additional office locations.
+Added: We expect our general & administrative expense as a percentage of our stockholders’ equity to increase and we may be unable to effectively integrate the new team or manage the costs associated with this new business.
+Added: Moreover, in the future, we may originate other housing-related investments that could expose us to similar risks as those described above with respect to originating mortgage loans.
+Added: We can provide no assurance that we will be effective in managing these additional risks or that such risks will not materially adversely impact our business or our cost of doing business.
Risks Related to Debt Financing and Our Use of Hedging Strategies
Our access to financing sources, which may not be available on favorable terms, or at all, may be limited, and this may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
−Removed: We depend upon the availability of adequate capital and financing sources on acceptable terms to fund our operations, meet financial obligations, and finance asset acquisitions.
−Removed: However, the capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years that have generally negatively impacted the availability of credit from time-to-time.
−Removed: Continued volatility or disruption in the credit or finance markets or a downturn in the global economy could materially adversely affect one or more of our lenders and could cause lenders to be unwilling or unable to provide us with financing, to increase the costs of that financing or make the terms less attractive, or to become insolvent.
+Added: We depend upon the availability of adequate capital and financing sources on acceptable terms to fund our operations, meet financial obligations, and finance asset acquisitions and originations.
+Added: This includes financing arrangements used by Constructive, which relies on warehouse facilities to fund its operations.
+Added: The capital and credit markets have experienced significant levels of volatility and disruption in recent years that have generally negatively impacted the availability of credit from time-to-time.
+Added: Volatility or disruption in the credit or finance markets or a downturn in the global economy could materially adversely affect one or more of our lenders and could cause lenders to be unwilling or unable to provide us with financing, to increase the costs of that financing or make the terms less attractive, or to become insolvent.
Such volatility or disruption could also limit or halt our access to securitization financing.
−Removed: Although we finance some of our assets with longer-term financing, we have also historically relied on access to short-term borrowings in the form of repurchase agreements to finance our investments.
−Removed: Because our repurchase agreements typically have terms of one year or less, our repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis our maturing short-term financings and such counterparties have imposed and may in the future impose more onerous conditions when rolling such financings.
−Removed: If we are not able to renew or roll our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities.
+Added: Although we finance some of our assets with longer-term financing, we have also historically relied on access to short-term borrowings, including repurchase agreements to finance our investments and warehouse facilities in the case of Constructive to fund its operations.
+Added: Because these financing agreements typically have terms of one year or less, our counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis our maturing short-term financings and such counterparties have imposed and may in the future impose more onerous conditions when rolling such financings.
+Added: If we are not able to renew or roll our existing financing agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.
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We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders.
−Removed: We leverage our equity through borrowings, generally through the use of repurchase agreements, longer-term structured debt, such as CDOs and other forms of secured debt, or corporate-level debt, such as senior unsecured notes and convertible notes.
+Added: We leverage our equity through borrowings, generally through the use of repurchase agreements, warehouse facilities, longer-term structured debt, such as CDOs and other forms of secured debt, or corporate-level debt, such as senior unsecured notes and convertible notes.
We may, in the future, utilize other forms of borrowing.
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We have historically used leverage to increase the size of our portfolio in order to enhance our returns.
−Removed: The capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years that has generally negatively impacted the availability and/or terms of financing from time-to-time.
+Added: The capital and credit markets have experienced significant levels of volatility and disruption in recent years that has generally negatively impacted the availability and/or terms of financing from time-to-time.
If we are unable to leverage our equity to the extent we currently anticipate due to unavailability or less attractive terms or otherwise, the returns on our portfolio could be diminished, which may limit or eliminate our ability to make distributions to our stockholders.
We directly or indirectly utilize non-recourse securitizations and recourse structured financings and such structures expose us to risks that could result in losses to us.
−Removed: We sometimes utilize non-recourse securitizations and recourse structured financings of our investments in residential loans or investment securities to the extent consistent with the maintenance of our REIT qualification and exclusion from registration under the Investment Company Act in order to generate cash for funding new investments and/or to leverage existing assets.
+Added: We utilize non-recourse securitizations and recourse structured financings of our investments in residential loans or investment securities to the extent consistent with the maintenance of our REIT qualification and exclusion from registration under the Investment Company Act in order to generate cash for funding new investments and/or to leverage existing assets.
Some securitizations are treated as financing transactions for GAAP, while others are treated as sales.
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Negative impacts on our business may cause us to default on certain financial covenants contained in our financing arrangements.
−Removed: The repurchase agreements that finance a portion of our investment portfolio and certain of our other existing financing arrangements, including our senior unsecured notes, and those we enter into in the future, contain or may contain financial covenants.
+Added: The repurchase agreements that finance a portion of our investment portfolio and certain of our other existing financing arrangements, including our senior unsecured notes and Constructive's warehouse facilities, and those we enter into in the future, contain or may contain financial covenants.
Negative impacts on our business, including those caused by significant market disruptions or an economic downturn, have and/or may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
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Hedging against interest rate, credit and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
−Removed: Subject to compliance with the requirements to maintain our qualification as a REIT, we may engage in certain hedging transactions to limit our exposure to changes in interest rates and credit markets and therefore may expose ourselves to risks associated with such transactions.
−Removed: We may utilize instruments such as interest rate swaps, interest rate swaptions, interest rate caps, Eurodollars and U.S.
−Removed: Treasury futures to seek to hedge the interest rate risk associated with our portfolio.
+Added: Subject to compliance with the requirements to maintain our qualification as a REIT, we may engage in certain hedging transactions to manage our exposure to interest rate, credit, geopolitical and market risks.
+Added: These hedging instruments may include the use of interest rate swaps, interest rate swaptions, interest rate caps, Eurodollars and U.S.
+Added: Treasury futures to seek to hedge the interest rate risk, as well as credit default swaps, commodity futures and options contracts such as options on credit default swap indices, equity index options to manage credit, geopolitical and market risks that may impact our portfolio.
Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline.
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Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.
−Removed: Our hedging activity will vary in scope based on the composition of our portfolio, our market views, and changing market conditions, including the level and volatility of interest rates.
+Added: Our hedging activity will vary in scope based on the composition of our portfolio, our market views, and changing geopolitical and market conditions, including the level and volatility of interest rates.
When we do choose to hedge, hedging may fail to protect or could materially adversely affect us because, among other things:
2 unchanged sentences
• the hedging transactions may actually result in poorer overall performance for us than if we had not engaged in the hedging transactions;
−Removed: • interest rate hedging can be expensive, particularly during periods of volatile interest rates;
+Added: • hedging can be expensive, particularly during periods of volatility;
• available hedges may not correspond directly with the risks for which protection is sought;
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For these and other reasons, our hedging activity may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
+Added: Volatility in the market value of certain derivatives we use to manage exposures to geopolitical and general market risks may cause volatility in our net income.
+Added: From time to time, we use commodity futures to manage our exposure to geopolitical and general market risk.
+Added: We recognize gains and losses based on changes in the values of these commodity derivatives.
+Added: The Company elected not to apply hedge accounting for its derivative instruments;
+Added: accordingly, all changes in fair value are reported on the consolidated statements of operations as gains (losses) on derivative instruments, net.
+Added: Changes in the values of our commodity derivatives may cause volatility in our net income.
Risks Associated with Adverse Developments in the Mortgage, Real Estate, Credit and Financial Markets Generally
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Moreover, uncertainty with respect to the actions discussed above combined with uncertainty surrounding legislation, regulation and government policy at the federal, state and local levels have introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications.
−Removed: There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy.
−Removed: The potential for changes in policy and regulation is heightened by the change in the U.S.
−Removed: presidential administration at the start of 2025.
+Added: There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, and fiscal and monetary policy.
New legislative, regulatory or policy changes could significantly impact our business and the markets in which we operate.
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More recently, Fitch Ratings downgraded the U.S.'s long-term credit rating in August 2023 from “AAA” to “AA+” due primarily to expected fiscal deterioration and the erosion of governance that has led to repeated debt limit standoffs.
+Added: On May 16, 2025, Moody's Ratings downgraded the U.S.'s long-term issuer and senior unsecured ratings from “Aaa” to “Aa1” due, in part, to concerns that federal deficits will widen.
The impact of any further downgrades to the U.S.
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Government agency and its guarantees are backed by the full faith and credit of the United States.
−Removed: In September 2008, in response to the deteriorating financial condition of Fannie Mae and Freddie Mac, the U.S.
−Removed: Government placed Fannie Mae and Freddie Mac into the conservatorship of the Federal Housing Finance Agency (the “FHFA”), their federal regulator.
−Removed: Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the U.S.
−Removed: Treasury noted that the guarantee structure of Fannie Mae and Freddie Mac required examination and that changes in the structures of the entities were necessary to reduce risk to the financial system.
+Added: Government placed Fannie Mae and Freddie Mac into the conservatorship of the Federal Housing Finance Agency (the “FHFA”), their federal regulator in 2008.
+Added: Since that time, regulators and market participants have questioned the continuation of the guarantee structure and other aspects of Fannie Mae and Freddie Mac.
The future roles of Fannie Mae and Freddie Mac could be significantly reduced, and the nature of their guarantees could be considerably limited relative to historical measurements or even eliminated.
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Government in providing such financial support for the mortgage-related GSEs in particular, and for the mortgage and housing markets in general.
+Added: In October 2025, reports surfaced that investment banks have been in preliminary discussions with the current administration about potential public offerings of Fannie Mae and/or Freddie Mac securities.
To date, no definitive legislation has been enacted with respect to a possible unwinding of Fannie Mae or Freddie Mac or a material reduction in their roles in the U.S.
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Moreover, because our management has great latitude within our investment guidelines in determining the types and amounts of assets in which to invest and leverage to employ on our behalf, there can be no assurance that our management will not make or approve investments that result in returns that are substantially below expectations or result in losses, which would materially adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.
−Removed: Maintenance of our Investment Company Act exemption imposes limits on our operations.
−Removed: We have conducted and intend to continue to conduct our operations so as not to become regulated as an investment company under the Investment Company Act.
+Added: Maintenance of our exemption from registration as an investment company under the Investment Company Act imposes significant limits on our operations.
+Added: We have conducted and intend to continue to conduct our and our subsidiaries' operations so as not to become regulated as an investment company under the Investment Company Act.
We believe that there are a number of exclusions under the Investment Company Act that are applicable to us.
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On August 31, 2011, the SEC published a concept release entitled “Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments” (Investment Company Act Rel.
−Removed: This release suggests that the SEC may modify the exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities, although no such action has been taken at this time.
+Added: This release suggests that the SEC may modify the exclusion relied upon by companies similar to us that invest in mortgage loans and MBS, although no such action has been taken at this time.
If the SEC acts to narrow the availability of, or if we otherwise fail to qualify for, our exclusion, we could, among other things, be required either (a) to change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company, either of which could have a material adverse effect on our operations and the market price of our common stock.
+Added: Further, if we or any of our subsidiaries were deemed to be an unregistered investment company, we or our subsidiaries, as applicable, could be subject to monetary penalties and injunctive relief, we or our subsidiaries, as applicable, could be unable to enforce contracts with third parties, and third parties could seek to obtain rescission of transactions undertaken during the period in which we or any of our subsidiaries, as applicable, were deemed to be an unregistered investment company.
The accrual of dividends on certain of our series of preferred stock at a floating rate in the future could adversely affect our ability to make cash distributions at our intended levels, or at all, or otherwise materially adversely affect our earnings, cash flows or financial condition.
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Named defendants in these cases have included numerous participants within the secondary mortgage market.
−Removed: Moreover, as a non-controlling equity investor in a residential loan originator, our investment in the loan originator, business and reputation could be negatively impacted if such originator fails to comply with such federal, state and local laws, rules and regulations or receives negative media or marketing attention related to its operations.
+Added: Moreover, as an owner of a residential loan originator, our business and reputation could be negatively impacted if such originator fails to comply with such federal, state and local laws, rules and regulations or receives negative media or marketing attention related to its operations.
If loans in our portfolio or those originated by entities in which we have or have previously made an investment are found to have been originated in violation of predatory or abusive lending laws, we could incur losses that would materially adversely affect our business.
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Some of the laws, rules and regulations to which we are subject, including the Dodd-Frank Act and various predatory lending laws, are intended primarily to safeguard and protect consumers, rather than stockholders or creditors.
+Added: For example, during 2025, lawmaking bodies in several different states have proposed legislation intended to restrict certain business entities, pooled investment funds and institutional purchasers from acquiring, owning, or, in some cases, obtaining an interest in, single-family residential real estate within their state.
We are unable to predict whether United States federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
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Certain of our assets may generate substantial mismatches between REIT taxable income and available cash.
−Removed: Such assets could include mortgage-backed securities we hold that have been issued at a discount and require the accrual of taxable income in advance of the receipt of cash.
+Added: Such assets could include MBS we hold that have been issued at a discount and require the accrual of taxable income in advance of the receipt of cash.
As a result, our taxable income may exceed our cash available for distribution and the requirement to distribute a substantial portion of our net taxable income could cause us to:
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Further, our lenders could require us to enter into negative covenants, including restrictions on our ability to distribute funds or to employ leverage, which could inhibit our ability to satisfy the 90% distribution requirement.
−Removed: We may satisfy the 90% distribution test with taxable distributions of our stock or debt securities.
+Added: Under certain circumstances, taxable distributions of our stock or debt securities may entitle us to a dividends paid deduction and count toward satisfaction of the 90% distribution test.
Revenue Procedure 2017-45 authorized elective cash/stock dividends to be made by publicly offered REITs (i.e., REITs that are required to file annual and periodic reports with the SEC under the Exchange Act).
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However, to qualify for this deduction, the stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
−Removed: Without further legislative action, the 20% deduction applicable to ordinary REIT dividends will expire on January 1, 2026.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
−Removed: Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
+Added: Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments and rapid changes in the market value or income potential of our assets may make it more difficult for us to maintain our qualification as a REIT or our exclusion or exemption from regulation under the Investment Company Act.
To maintain our qualification as a REIT, we must continually satisfy various tests regarding the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock.
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Thus, compliance with the REIT requirements may hinder our investment performance.
+Added: If the market value or income potential of our assets declines, we may need to acquire additional assets and/or liquidate certain types of assets in order to maintain our REIT qualification or our exclusion or exemption from the Investment Company Act.
+Added: If the decline in the market value and/or income of our assets occurs quickly, this may be especially difficult to accomplish.
+Added: This difficulty may be exacerbated by the illiquid nature of the certain assets that we may own.
+Added: We may have to make investment decisions that we otherwise would not make absent the REIT qualification and Investment Company Act considerations, which could materially and adversely affect us.
Complying with REIT requirements may limit our ability to hedge effectively.
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It is possible, however, that the IRS could successfully assert that we do not own the investments during the term of the repurchase agreement, in which case our ability to continue to qualify as a REIT could be adversely affected.
−Removed: We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans.
−Removed: We have made in the past and may in the future originate or acquire, mezzanine loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of the real property.
−Removed: In Revenue Procedure 2003-65, the IRS established a safe harbor under which loans secured by a first priority security interest in ownership interests in a partnership or limited liability company owning real property will be treated as real estate assets for purposes of the REIT asset tests, and interest derived from those loans will be treated as qualifying income for both the 75% and 95% gross income tests, provided several requirements are satisfied.
−Removed: Although Revenue Procedure 2003-65 provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law.
−Removed: Moreover, our mezzanine loans typically do not meet all of the requirements for reliance on the safe harbor.
−Removed: Consequently, there can be no assurance that the IRS will not challenge our treatment of such loans as qualifying real estate assets, which could adversely affect our ability to continue to qualify as a REIT.
−Removed: We have invested, and will continue to invest, in mezzanine loans in a manner that will enable us to continue to satisfy the REIT gross income and asset tests.
We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us.
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Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity.
−Removed: We own preferred equity investments treated as partnership interests for U.S.
−Removed: federal income tax purposes, as well as certain non-managing member interests in partnerships and limited liability companies that are joint ventures, and we intend to continue to invest in preferred equity investments in the future.
+Added: We own preferred equity investments and a cross-collateralized mezzanine lending investment that are treated as partnership interests for U.S.
+Added: federal income tax purposes.
If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity.
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Moreover, even if the “protective” TRS election were to be effective in the event of the failure of our subsidiary REIT to qualify as a REIT, such subsidiary REIT would be subject to U.S.
−Removed: federal income tax and applicable state and local taxes on its taxable income at regular corporate rates and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.
+Added: federal income tax and applicable state and local taxes on its taxable income at regular corporate rates and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% (25% for taxable years beginning on or after January 1, 2026) of the value of our total assets may be represented by the securities of one or more TRSs.
In this event, we would fail to qualify as a REIT unless we or such subsidiary REIT could avail ourselves or itself of certain relief provisions.
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Prospective stockholders are urged to consult with their tax advisors with respect to potential changes to the tax laws and any other regulatory or administrative developments and proposals and their potential effect on investment in our common stock.
+Added: Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
+Added: We purchase and sell Agency RMBS through TBAs and recognize income or gains on the disposition of those TBAs, through dollar roll transactions or otherwise, and may continue to do so in the future.
+Added: There is no direct authority with respect to the qualification of TBAs as real estate assets or government securities for purposes of the 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property (including interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross income test.
+Added: However, we treat our TBAs as qualifying assets for purposes of the 75% asset test, and we treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, based on a legal opinion of Vinson & Elkins LLP (“V&E”) substantially to the effect that (i) our TBAs should be qualifying assets for purposes of the 75% asset test to the extent of the net positive value, if any, of a TBA and (ii) any gain recognized by us in connection with the settlement of our TBAs, whether physically settled or settled by an offsetting TBA, should be treated as qualifying income for purposes of the 75% gross income test.
+Added: Opinions of counsel are not binding on the Internal Revenue Service (“IRS”), and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in such opinion.
+Added: In addition, it must be emphasized that V&E's opinion is based on various assumptions relating to our TBAs and is conditioned upon fact-based representations and covenants made by our management regarding our TBAs.
+Added: No assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income.
+Added: If the IRS were to successfully challenge V&E's opinion, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.
General Risk Factors
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We are dependent on certain key personnel.
−Removed: We are a small company and are substantially dependent upon the efforts of our Chief Executive Officer, Jason T.
+Added: We are substantially dependent upon the efforts of our Chief Executive Officer, Jason T.
Serrano, our President, Nicholas Mah, and certain other key individuals employed by us.
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actual or anticipated changes in our current or future dividend yield;
+Added: changes in demand for the assets we acquire;
and changes in market interest rates and general market and economic conditions.
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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.