What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-02-23 compared with 2021-02-26 · 176 added, 189 removed, 295 unchanged (55% of the section changed)

You should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K, including our annual consolidated financial statements and the related notes thereto before deciding to purchase our securities.

If any of the following risks were to occur, our business, financial condition or results of operations could be materially adversely affected.

Any of the following risks could materially affect our business, financial condition or results of operations.

If that happens, the trading price of our securities could decline, and you may lose all or part of your investment.

2 unchanged sentences

Risks Related to Our Investment and Portfolio Management Activities

Spread risk is inherent to our business as a levered investor in Agency RMBS.

When the spread between the market yield on our mortgage assets and benchmark interest rates widens, our tangible net book value will typically decline.

We refer to this as "spread risk".

As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our investment strategy.

Although we use hedging instruments to attempt to protect against moves in interest rates, our hedges will typically not protect us against spread risk.

Spreads may widen due to numerous factors, including changes in mortgage and fixed income markets due to actual or expected monetary policy actions by U.S.

and foreign central banks, market liquidity or changes in investor return requirements and sentiment.

Wider spreads can also occur independent of moves in interest rates.

For example, actions by the Federal Reserve to taper its purchases of Agency RMBS and to reduce its balance sheet will likely result in materially wider spreads.

The Fed’s participation in the Agency mortgage market could have an adverse effect on our Agency RMBS investments.

Since the onset of the COVID-19 financial crisis in March 2020, the Federal Reserve and the U.S.

Government have provided unprecedented amounts of monetary and fiscal stimulus in support of sustained economic growth.

As part of its monetary policy response, the Fed doubled the size of its balance sheet from the start of the crisis to nearly $9 trillion as of December 31, 2021, through the acquisition of U.S.

Treasuries and Agency RMBS.

As of December 31, 2021, the Fed’s holdings of Agency RMBS totaled $2.6 trillion, representing nearly a third of all outstanding Agency RMBS.

During the fourth quarter of 2021, with inflation well above the Fed’s 2% long-run target and the unemployment rate at levels indicative of maximum employment, the Fed began to shift towards a normalization of monetary policy, starting with its reduction in the amount of monthly asset purchases, which are expected to be completed March 2022.

The Fed also signaled its intent to begin to reduce the size of its balance sheet and has suggested that its asset holdings may decline sooner and at a faster pace than in the 2016-2020 time period following the prior quantitative easing cycle.

Accordingly, we expect the Fed to announce the passive contraction of its balance sheet by reducing reinvestments of proceeds from maturing U.S.

Treasury securities and Agency RMBS portfolio repayments by a predetermined amount comparatively soon after commencing increases in the Federal Funds interest rate.

As part of the Fed's overall monetary policy, it has participated in the Agency mortgage market since first conducting large scale asset purchases during the Great Financial Crisis in 2008.

The Fed’s participation in the mortgage market can materially impact the available supply, price and returns on Agency RMBS.

Thus, given the Fed's historic participation and the current scale of its balance sheet holdings, the effects of a shift in monetary policy may be material and difficult to predict, and we may be unable to mitigate potentially adverse effects on our portfolio and financial condition.

Furthermore, despite its stated preference for a passive balance sheet reduction, there is no guarantee the Fed will not conduct outright sales of Agency RMBS in the secondary market.

The Fed could also reduce or cease altogether monthly reinvestments, which could significantly increase the pace of their balance sheet reduction and lead to wider RMBS spreads to benchmark interest rates.

Spread widening is an inherent risk we take as a levered Agency mortgage investor, and our hedges are not designed to protect against this risk.

To mitigate some of the impact of spread widening, we may reduce our leverage below our normal operating levels, which may reduce our earnings potential relative to higher leverage operations.

The ongoing effects of Covid-19 on economic conditions and our business are uncertain

COVID-19 has resulted in, and may continue to result in, significant disruption of the global financial markets.

The Pandemic may lead to a deterioration of economic and financial conditions, including periods of extreme market volatility, illiquidity and adverse dislocations, potentially leading to an economic downturn, and/or a recession, at a domestic or global scale, which could materially affect our business.

There may also be unintended adverse consequences resulting from the magnitude of measures and actions taken by policymakers as a result of the Pandemic that could negatively impact our business and have lasting effects, which are difficult to predict.

With only 50 employees, we may also experience the absence of critical personnel should our employees contract COVID-19.

We may be unable to take actions necessary to mitigate these or other adverse consequences resulting from the Pandemic.

Consequently, our operating results may be impaired, and we could incur significant losses.

We may change our targeted investments, investment guidelines and other operational policies without stockholder consent.

3 unchanged sentences

Any such change may increase our exposure to risks described herein or expose us to new risks that are not currently contemplated, which could materially impair our operations and financial performance.

The human and economic impacts of the COVID-19 pandemic and related events are uncertain and may negatively impact our business.

The global outbreak of the COVID-19 pandemic has extracted a significant human toll and adversely affected both the U.S.

and global economies.

Our business was materially impacted by the severe market disruptions and volatility resulting from the Pandemic in March and April 2020.

(See Recent Trends and Market Impacts under Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K for additional information ) .

While the U.S.

government and the Fed have taken actions to reduce the negative impacts of the Pandemic, and several vaccines have begun to be deployed, the extent and rate at which these actions will be effective over the longer-term are unclear, and further fiscal, monetary or other actions may be required but are not assured.

Furthermore, if new, potentially more severe strains of the virus emerge, adverse conditions could persist or worsen leading to further economic and financial market instability.

There may also be unintended adverse consequences resulting from the magnitude of the Fed’s stimulative measures and other actions of other policy makers that could negatively impact our business.

• we may experience elevated rates of prepayments on our portfolio due to lower mortgage rates resulting from the Fed’s ongoing asset purchase program or buyouts of delinquent loans from the pools of mortgages underlying our Agency RMBS by Fannie Mae and Freddie Mac;

• an actual or anticipated reduction in the Fed’s asset purchase program or other stimulative policy measures may expose us to materially higher mortgage spread, interest rate and market volatility risks as well as lead to less favorable or potentially negative conditions in the TBA dollar roll and repo funding markets;

• we may be exposed to increased model and forecast risks due to a lack of relevant or reliable historical correlations due to the unprecedented conditions and policy measures associated with the Pandemic.

We may be unable to take actions necessary to mitigate these or other adverse consequences resulting from the Pandemic or they may be ineffective.

Consequently, our operating results may be impaired, and we could incur significant losses.

Our active portfolio management strategy may expose us to greater losses and lower returns than compared to passive strategies.

4 unchanged sentences

Furthermore, because of our active strategy, investors may be unable to assess changes in our financial position solely by observing changes in the mortgage market.

The Fed’s participation in the Agency mortgage market could adversely affect the value of and returns on Agency RMBS.

In March 2020, the Fed launched a series of quantitative easing measures and began unprecedented large-scale purchases of U.S.

Treasury securities and Agency RMBS to restore proper market functioning and the flow of credit to U.S.

households and businesses disrupted by the COVID-19 financial crisis.

Although its position on these matters may change over time, the Fed has stated its intent to maintain accommodative monetary policies until its objectives of maximum employment and a long-term average target inflation rate of 2% are achieved and that it will continue to increase its holdings of Treasury securities and Agency RMBS until substantial further progress has been made towards these goals.

There is no certainty that these programs will be continued, and the Fed may determine to reduce its level of purchases, curtail reinvestment in Agency RMBS or engage in outright sales.

The Fed’s involvement in the Agency mortgage market can materially impact the availability, price and returns associated with Agency RMBS.

As of December 31, 2020, the Fed owned approximately 30% of all outstanding Agency RMBS.

When the Fed is actively purchasing securities, asset prices and liquidity typically increase, but we may simultaneously experience materially faster rates of prepayment and we may be unable to reinvest the repayments at acceptable yields.

The Fed’s participation may also adversely impact mortgage spreads.

For example, mortgage spreads could widen due to increased prepayment risk when the Fed is actively conducting asset purchases.

Mortgage spreads may also widen due to an actual or anticipated reduction in the Fed’s asset purchases, reinvestment rate or outright sales.

Given the scale of the Fed’s asset purchases, the adverse effects of the Fed’s involvement in the Agency mortgage market (and the timing and effects of any changes in Fed programs) may be difficult to predict and could result in a material decline in our financial position.

In an attempt to mitigate the impact of spread widening, we may reduce our leverage to below our normal target leverage range.

We may also attempt to adjust our asset and hedge composition, but these and other actions we may take could be ill timed or ineffective.

A decline in the fair value of our assets may adversely affect our financial condition and make it costlier to finance our assets.

9 unchanged sentences

When borrowers prepay their mortgage loans at rates faster or slower than anticipated, it exposes us to prepayment or extension risk.

Generally, prepayments increase during periods of falling mortgage interest rates and decrease during periods of rising mortgage interest rates.

However, this may not always be the case as other factors can affect the rate of prepayments, including loan age and size, loan-to-value ratios, housing price trends, general economic conditions and other factors.

Generally, prepayments increase during periods of falling mortgage interest rates and decrease during periods of rising mortgage interest rates, but other factors can also affect the rate of prepayments, including loan age and size, loan-to-value ratios, housing price trends, general economic conditions and GSE buyouts of delinquent loans.

If our assets prepay at a faster rate than anticipated, we may be unable to reinvest the repayments at acceptable yields.

2 unchanged sentences

If the actual and estimated future prepayment experience differs from our prior estimates, we are required to record an adjustment to interest income for the impact of the cumulative difference in the effective yield, which could negatively affect our interest income.

If our assets prepay at a slower rate than anticipated, our assets could extend beyond their expected maturities and we may have to finance our investments at potentially higher costs without the ability to reinvest principal into higher yielding securities.

If our assets prepay at a slower rate than anticipated, our assets could extend beyond their expected maturity and we may have to finance our investments at potentially higher costs without the ability to reinvest principal into higher yielding securities.

Additionally, if prepayment rates decrease due to a rising interest rate environment, the average life or duration of our fixed-rate assets would extend, but our interest rate swap maturities would remain fixed and, therefore, cover a smaller percentage of our funding exposure.

2 unchanged sentences

In addition, should significant prepayments occur, there is no certainty that we will be able to identify acceptable new investments, which could reduce our invested capital or result in us investing in less favorable securities.

Prepayment rates are difficult to predict, and market conditions and technology advancements in mortgage origination channels may disrupt the historical correlation between interest rate changes and prepayment trends.

Our success depends on our ability to predict prepayment behavior under a variety of economic conditions and particularly the relationship between changing interest rates and other market conditions and the rate of prepayments.

Prepayment rates are difficult to predict, and market conditions and other factors impacting mortgage origination channels may disrupt the historical correlation between interest rate changes and prepayment trends.

Our success depends in part on our ability to predict prepayment behavior over a variety of economic conditions.

As part of our overall portfolio risk management, we analyze interest rate changes and prepayment trends to assess their effects on our investment portfolio.

Our analysis is based on models that depend on multiple assumptions and inputs.

Many of the assumptions we use are based upon historical trends with respect to the relationship between interest rates and prepayments under normal market conditions, which may not correctly predict future prepayment activity.

Dislocations in the residential mortgage market and other developments may disrupt the relationship between the way that prepayment trends have historically responded to interest rate changes and our actual prepayment experience.

Prepayment rates are also impacted by other factors beyond interest rates, such as when borrowers sell their property and use the proceeds to prepay their mortgage or when borrowers default on their mortgages and the defaulted loans are either purchased from the RMBS trust or the mortgages are prepaid from the proceeds of a foreclosure sale of the property.

Historically, Fannie Mae and Freddie Mac repurchased mortgages that are 120 days or more delinquent from RMBS trusts.

However, in response to the unprecedented circumstances of COVID-19, the GSEs temporarily extended the timeline for repurchasing delinquent loans that are in forbearance.

The GSE delinquent loan buyout policy was further modified on September 30, 2020 to extend the timeline for its delinquent loan buyout trigger from 4 consecutively missed monthly payments to 24 consecutively missed monthly payments.

However, most delinquent loans are likely to be repurchased before

the 24-month period expires for numerous reasons, including repayment or satisfaction in full, debt forgiveness, repurchases by seller/servicers under their guidelines, loan modifications, short-sales or deeds in lieu of foreclosure or referrals of loans to foreclosure.

There is no guarantee that the GSEs will continue to defer buyouts of loans from the RMBS trusts during the forbearance period.

Thus, the large number of loans currently delinquent or in forbearance could accelerate prepayments on our investment portfolio.

Changes to or new U.S.

Government programs could also increase the availability of mortgage credit to homeowners, which could impact prepayment rates.

Furthermore, current and future technological advancements are expected to improve efficiencies in mortgage origination and servicing, which may reduce borrowing costs and increase the rate of prepayment activity.

The impacts of these factors are difficult to predict and may negatively affect our ability to assess prepayment risk or to implement effective hedging strategies and other techniques to reduce our exposure to prepayment risk.

Our analysis is largely based on predictive models and reliance on historical correlations between interest rates and other factors and the rate of prepayments.

However, unprecedented events, market dislocations, advances in origination channel technologies and other factors may impair the usefulness of these historical correlations or render them completely invalid, reducing our ability to accurately predict future prepayment activity.

Other factors beyond interest rates also impact the rate of prepayments and may be difficult to predict.

For example, Government programs or changes to GSE policies designed to increase the availability of credit to homeowners, when borrowers sell their property and use the proceeds to prepay their mortgage, or when borrowers default on their mortgages and the defaulted loans are either purchased from the RMBS trust or the mortgages are prepaid from the proceeds of a foreclosure sale of the property.

Fannie Mae and Freddie Mac typically repurchase mortgages that are 120 days or more delinquent from RMBS trusts.

However, during COVID-19, as a result of the GSEs granting qualified borrowers forbearance for a period of up to 18 months, they temporarily extended the timeline for repurchasing otherwise delinquent loans that are in forbearance.

Thus, to the extent that the number of delinquencies and loan modifications increase as a result of exiting forbearance or due to other factors, the amount of loans bought out from RMBS trusts may increase prepayments on our investment portfolio.

The analytical models and third-party data that we rely on to manage our portfolio and conduct our business objectives may be incorrect, misleading or incomplete.

We use analytical models, data and other information to value assets, assess potential asset purchases and in connection with our risk management and hedging activities.

We use analytical models, data and other information to value our assets and assess potential investment opportunities in connection with our risk management and hedging activities.

We may source our models and data from third-parties or develop them internally.

6 unchanged sentences

Additionally, multiple factors could disrupt the relationships between data and historical trends, reducing the ability of our models to predict future outcomes, or even render them invalid.

We are at greater risk of this occurring during periods of high volatility or unprecedented financial or economic events, such as during the COVID-19 pandemic.

We are at greater risk of this occurring during periods of high volatility or unanticipated and/or unprecedented financial or economic events, such as during the ongoing Pandemic.

A shift in Fed policy from a period of historic quantitative easing during 2020 and 2021 to a period of quantitative tightening and balance sheet normalization could also trigger significant volatility and reduce the predictive nature of our analytical models.

Consequently, actual results could differ materially from our projections.

2 unchanged sentences

If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect.

However, even if market data is inputted correctly, "model prices" may differ substantially from market prices, especially for securities with complex characteristics or illiquid instruments.

Analytical models and third-party data used to analyze securitizations backed by non-Agency and residential and commercial mortgages also expose us to the risk that the (i) collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled based on simplifying assumptions that lead to errors;

However, even if market data is input correctly, "model prices" may differ substantially from market prices, especially for securities with complex characteristics or illiquid instruments.

Analytical models and third-party data used to analyze securitizations backed by non-Agency and residential and commercial mortgages also expose us to the risk that the (i) collateral cash flows and/or liability structures may be incorrectly modeled in one or more scenarios, or may be modeled based on simplifying assumptions that lead to errors;

(ii) information about collateral may be incorrect, incomplete or misleading;

1 unchanged sentence

or (iv) collateral or bond information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the date information was last updated.

The models we use may include LIBOR as an input.

The expected transition away from LIBOR may require changes to these models that may change the underlying economic relationships being modeled and the models may be run with less historical data than is currently available for LIBOR.

Models may also include LIBOR as an input.

Thus, the transition away from LIBOR may require changes to the models and/or impair the historical relationships patterned within these models as a result of less historical data than is currently available for LIBOR.

The fair value of our investments may not be readily determinable or may be materially different from the value that we ultimately realize upon their disposal.

4 unchanged sentences

In general, pricing services and dealers heavily disclaim their valuations and we do not have recourse against them in the event of inaccurate price quotes or other inputs used to determine the fair value of our investments.

Depending on the complexity and illiquidity of a security, valuations of the same security can vary substantially from one pricing service or dealer to another.

Moreover, fair value and estimates of fair value may fluctuate over short periods of time.

Depending on the complexity and illiquidity of a security, valuations of the same security can vary substantially from one pricing source to another.

Moreover, values can fluctuate significantly, even over short periods of time.

For these reasons, the fair value at which our investments are recorded may not be an accurate indication of their realizable value.

The ultimate realization of the value of an asset depends on economic and other conditions that are beyond our control.

Consequently, if we were to sell an asset,

particularly in a forced liquidation, the realized value may be less than the amount at which the asset is recorded, which would negatively affect our results of operations and financial condition.

Consequently, if we were to sell an asset, particularly in a forced liquidation, the realized value may be less than the amount at which the asset is recorded, which would negatively affect our results of operations and financial condition.

The mortgage loans referenced by our CRT securities or that underlie our non-Agency securities may be or could become subject to delinquency or foreclosure, which could result in significant losses to us.

1 unchanged sentence

Government agency, subject us to the potential risk of loss of principal and/or interest due to delinquency, foreclosure and related losses on the underlying mortgage loans.

CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third-party market participants, that are designed to synthetically transfer mortgage credit risk from the issuing entity to private investors.

The transactions are structured as unsecured and unguaranteed bonds whose principal payments are determined by the delinquency and prepayment experience of a reference pool of mortgages guaranteed by Fannie Mae or Freddie Mac.

entity to private investors.

The transactions are structured as unguaranteed bonds whose principal payments are determined by the delinquency and prepayment experience of a reference pool of mortgages guaranteed by Fannie Mae or Freddie Mac.

An investor in CRT securities bears the risk that the borrowers in the reference pool of loans may default on their obligations to make full and timely payments of principal and interest.

1 unchanged sentence

The ability of a borrower to repay a loan secured by residential property is dependent upon the income or assets of the borrower.

Many factors could impair a borrower's ability to repay the loan, including loss of employment, divorce, illness, acts of God (including pandemics), acts of war or terrorism, adverse changes in economic and market conditions, changes in laws and regulations, changes in fiscal policies and zoning ordinances, costs of remediation and liabilities associated with environmental conditions such as mold, and the potential for uninsured or under-insured property losses.

Many factors could impair a borrower's ability to repay the loan, including loss of employment, divorce, illness, acts of God, acts of war or terrorism, adverse changes in economic and market conditions, changes in laws and regulations, changes in fiscal policies and zoning ordinances, costs of remediation and liabilities associated with environmental conditions such as mold, and the potential for uninsured or under-insured property losses.

Commercial mortgage loans underlying CMBS are generally secured by multifamily or other commercial properties and are subject to risks of delinquency and foreclosure and risks of loss that are greater than similar risks associated with loans made on the security of residential property.

2 unchanged sentences

Net operating income of an income producing property can be affected by numerous factors, such as:

occupancy rates, tenant mix, success of tenant businesses, property management decisions, property location and condition, changes in economic or operating conditions (such as a pandemic) and other factors.

occupancy rates, tenant mix, success of tenant businesses, property management decisions, property location and condition, changes in economic or operating conditions and other factors.

Geographic concentration of our assets can expose us to greater risk of default and loss.

1 unchanged sentence

As a result, concentrations of investments tied to geographic regions increase the risk that adverse economic conditions or other developments affecting a region could increase the frequency and severity of losses on our investments.

Additionally, assets in certain regional areas may be more susceptible to certain hazards (such as earthquakes, widespread fires, rising sea levels, disease, floods, hurricanes and certain climate risks) than properties in other parts of the country, and assets located in coastal states may be more susceptible to hurricanes or sea level rise than properties in other parts of the country.

for example, assets located in coastal states may be more susceptible to hurricanes or sea level rise than properties in other parts of the country.

Areas affected by these types of events often experience disruptions in travel, transportation and tourism, loss of jobs, a decrease in consumer activity, and a decline in real estate-related investments, and their economies may not recover sufficiently to support income producing real estate at pre-event levels.

These types of occurrences may increase over time or become more severe due to changes in weather patterns and other climate changes.

Private mortgage insurance may not cover losses on loans referenced to or underlying our CRT and non-Agency RMBS.

In certain instances, mortgage loans referenced to our CRT securities or underlying our non-Agency RMBS may have private mortgage insurance.

This insurance is often structured to absorb only a portion of the loss if a loan defaults and, as such, we may be exposed to losses on these loans greater than the mortgage insurance.

Rescission and denial of mortgage insurance may affect the ability to collect on this insurance.

If private mortgage insurers fail to remit insurance payments for insured portions of loans when losses are incurred and where applicable, whether due to breach of contract or to an insurer's insolvency, we may experience a loss on related CRT or non-Agency RMBS securities for the amount that was insured by such insurers.

Private mortgage insurance may not cover losses on loans referenced by our CRT securities and underlying our non-Agency RMBS.

In certain instances, mortgage loans referenced by our CRT securities or underlying our non-Agency RMBS may have private mortgage insurance.

However, this insurance may not cover some or all of our potential loss if a loan defaults.

This may occur, for example, because it is frequently structured to absorb only a portion of the loss;

the insurance provider rescinds or denies coverage;

or the insurer's failure to satisfy its obligations under the insurance contract, whether due to breach of contract or to an insurer's insolvency.

Changes in credit spreads may adversely affect our profitability.

2 unchanged sentences

Credit spreads can be highly volatile and may fluctuate due to changes in economic conditions, liquidity, investor demand and other factors.

Credits spreads

typically widen in times of increased market uncertainty or when economic conditions have or are expected to deteriorate.

Credit spreads may also widen due to actual or anticipated rating downgrades on the securities we hold or similar securities.

Credits spreads typically widen in times of increased market uncertainty or when economic conditions have or are expected to deteriorate.

Credit spreads may also widen due to actual or anticipated rating downgrades on the securities or similar securities.

Hedging fair value changes associated with credit spreads can be inefficient and our hedging strategies are generally not designed to mitigate credit spread risk.

Consequently, changes in credit spreads could adversely affect our profitability and financial condition.

Actions of the U.S.

Government, including the U.S.

Congress, Fed, U.S.

Treasury, Federal Housing Finance Administration ("FHFA") and other governmental and regulatory bodies may adversely affect our business.

Government actions may have an adverse impact on the financial markets.

To the extent the markets do not respond favorably to any such actions or such actions do not function as intended, they could have broad adverse market implications and could negatively impact our financial condition and results of operations.

banking and financial regulators have begun to examine root causes of financial dislocations that occurred in March and April 2020 in response to the Pandemic and to identify areas for potential regulatory reforms that may be adopted in the future.

New regulatory requirements could adversely affect the availability or terms of financing from our lender counterparties, impose more stringent capital rules on financial institutions, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed securities and limit the trading activities of certain banking entities and other systemically significant organizations that are important to our business.

Together or individually these new regulatory requirements could materially affect our financial condition or results of operations in an adverse way.

Federal housing finance reform and potential changes to the Federal conservatorship of Fannie Mae and Freddie Mac or to laws or regulations affecting the relationship between the GSEs and the U.S.

Government may adversely affect our business.

The payments of principal and interest we receive on our Agency RMBS are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

The guarantees on Agency securities created by Ginnie Mae are explicitly backed by the full faith and credit of the U.S.

Government, whereas the guarantees on Agency securities created by Fannie Mae and Freddie Mac are not.

In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal regulator, pursuant to its powers under The Federal Housing Finance Regulatory Reform Act of 2008, a part of the Housing and Economic Recovery Act of 2008.

In addition to FHFA becoming the conservator of Fannie Mae and Freddie Mac, the U.S.

Department of the Treasury has provided a liquidity backstop to Fannie Mae and Freddie Mac to ensure their financial stability.

Shortly after the start of the federal conservatorships, the Secretary of the U.S.

Treasury suggested that the guarantee payment structure of Fannie Mae and Freddie Mac in the U.S.

housing finance market should be re-examined.

In 2019, the U.S.

Treasury Department and Department of Housing and Urban Development issued housing reform plans that expressed support for a future end to the conservatorships.

In November 2020, the FHFA promulgated regulations that established new regulatory capital requirements for Fannie Mae and Freddie Mac.

In January 2021, the U.S.

Treasury Department amended the terms of its liquidity backstop to enable Fannie Mae and Freddie Mac to retain a greater amount of capital in order to achieve these levels, subject to certain conditions.

These administrative actions may have significant impact on the source, pricing, volume and nature of Agency RMBS and other mortgage securities that Fannie Mae and Freddie Mac issue, which may reduce or otherwise impact their availability in the future.

Further administrative and/or legislative actions may be taken that affect structural GSE and federal housing reform, alter the amount or nature of the credit support provided by the U.S.

Treasury to Fannie Mae and Freddie Mac, or modify the future roles of Fannie Mae and Freddie Mac in housing finance.

Any legal or administrative actions affecting these GSEs may create market uncertainty, may have the effect of reducing the actual or perceived credit quality of securities issued or guaranteed by them or may otherwise impact the size and scope of the Agency RMBS markets.

Administrative or legislative action that would terminate the conservatorships without simultaneously providing for a sufficiently robust U.S.

government guaranty could re-define what constitutes an Agency security and have broad adverse implications for the mortgage markets and our business:

such changes could subject Agency RMBS to Fannie Mae or Freddie Mac credit risk, make them more difficult to finance, and cause their values to decline.

We may be unable to acquire desirable investments due to competition, a reduction in the supply of new production Agency RMBS having the specific attributes we seek, and other factors.

Our profitability depends on our ability to acquire our target assets at attractive prices.

We may seek assets that include specific attributes that affect their propensity for prepayment under certain market conditions or enable us to satisfy asset test requirements to maintain our REIT qualification status or exemption from regulation under the Investment Company Act (such as "whole pool" Agency RMBS).

The supply of our target assets may be impacted by policies and procedures adopted by the GSEs, such as pooling practices, or their regulator, the FHFA, or actions by other governmental agencies.

We may seek assets with specific attributes that affect their propensity for prepayment under certain market conditions or enable us to satisfy asset test requirements to maintain our REIT qualification status or exemption from regulation under the Investment Company Act (such as "whole pool" Agency RMBS).

The supply of our target assets may be impacted by policies and procedures adopted by the

GSEs, such as pooling practices, or their regulator, the FHFA, or actions by other governmental agencies.

Housing finance reform measures may also impact the supply and availability of our target assets.

Consequently, a sufficient supply of our target assets may not be available or available at attractive prices.

We may also compete for these assets with a variety of other

investors, including other REITs, specialty finance companies, public and private funds, government entities, banks, insurance companies and other financial institutions, who may have competitive advantages over us, such as a lower cost of funds and access to funding sources not available to us.

We may also compete for these assets with a variety of other investors, including other REITs, specialty finance companies, public and private funds, government entities, banks, insurance companies and other financial institutions, who may have competitive advantages over us, such as a lower cost of funds and access to funding sources not available to us.

If we are unable to acquire a sufficient supply of our target assets, we may be unable to achieve our investment objectives or to maintain our REIT qualification status or exemption from regulation under the Investment Company Act.

6 unchanged sentences

Because of our leverage, we may incur substantial losses if the value of our investments declines or if mortgage spreads widen and our investments underperform our interest rate hedges.

Spread risk is an inherent component of our business as a levered investor.

When the spread between the market yield on our mortgage assets and benchmark interest rates widens, our tangible net book value will typically decline.

We refer to this as "spread risk" or "basis risk." As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our investment strategy.

Although we use hedging instruments to attempt to protect against moves in interest rates, our hedges will typically not protect us against spread risk.

Spreads may widen due to numerous factors, including changes in mortgage and fixed income markets due to actual or expected monetary policy actions by U.S.

and foreign central banks, market liquidity or changes in investor return requirements and sentiment.

Wider spreads can occur independent of moves in interest rates.

We may be unable to procure adequate financing or to renew or replace existing financing as it matures.

3 unchanged sentences

• disruptions in the repo market that adversely impact the availability and cost of repo funding, including failure of the Fed and other policy makers to stabilize the repo market or a discontinuation of such stabilization measures;

• lenders require additional collateral to cover our borrowings, which we may be unable to deliver;

• lenders exit the market or are unwilling to make repurchase agreements or other financing arrangements available to us at acceptable rates and terms;

• lender requirements of additional collateral to cover our borrowings, which we may be unable to deliver;

• lender exits from the market or unwillingness to make repurchase agreements or other financing arrangements available to us at acceptable rates and terms;

• regulatory capital requirements or other limitations imposed on our lenders that may negatively impact their ability or willingness to lend to us;

• our failure to satisfy covenants, leverage limits, or other requirements imposed by our lenders, in which case our lenders may terminate and cease entering into repurchase transactions with us;

• our wholly-owned captive broker-dealer’s inability to continually meet FINRA and FICC regulatory and membership requirements, which may change over time, resulting in our inability to access triparty repo funding through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity.

• our wholly-owned captive broker-dealer’s inability to continually meet FINRA and FICC regulatory and membership requirements, which may change over time.

The FICC continually assesses potential changes to rules governing the calculation of margin and minimum margin requirements.

Increases in FICC margin requirements would have the effect of reducing our unencumbered assets and could potentially limit our ability to utilize triparty repo funding accessed through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity.

Because of these and other factors, there is no assurance that we will be able to secure financing on terms that are acceptable to us.

3 unchanged sentences

Consequently, our borrowing costs may rise at a faster pace or decline at a slower pace than the yield on our assets, negatively impacting our net interest margin.

In extreme scenarios, our net interest margin could even turn negative.

It may be uneconomical to roll our TBA dollar roll transactions and we may be required to take physical delivery of the underlying securities and fund our obligations with cash or other financing sources.

We utilize TBA dollar roll transactions as an alternate means of investing in and financing Agency RMBS, which represent a form of off-balance sheet financing and increase our "at risk" leverage.

It may become uneconomical for us to roll forward our TBA positions prior to their settlement dates due to market conditions, which can be impacted by a variety of factors including the Fed’s purchases and sales of Agency RMBS in the TBA market.

It may become uneconomical for us to roll forward our TBA positions prior to their settlement dates due to market conditions, which can be impacted by a variety of

factors including the Fed’s purchases and sales of Agency RMBS in the TBA market.

TBA dollar roll transactions include a deferred purchase price obligation on our part, and an inability or unwillingness to continue to roll forward our position has effects similar to a termination of financing:

31 unchanged sentences

DCOs are subject to regulatory oversight, use extensive risk management processes, and might receive "too big to fail" support from the government in the case of insolvency.

We access the DCO

through several FCMs, which may establish their own collateral requirements beyond that of the DCO.

We access the DCO through several FCMs, which may establish their own collateral requirements beyond that of the DCO.

Consequently, for any cleared swap, we bear the credit risk of both the DCO and the relevant FCM as to obligations under our swap agreements.

25 unchanged sentences

Consequently, our hedging strategies may fail to protect us from loss and could even result in greater losses than if we had not entered in the hedge transaction.

The discontinuation of LIBOR could negatively impact the dividends we pay on our fixed-to-floating rate cumulative redeemable preferred stock and the value of our variable rate financial instruments.

Our outstanding fixed-to-floating rate cumulative redeemable preferred stock agreements are indexed to three-month USD LIBOR.

In addition, we also have certain investments and interest rate derivatives that reference USD LIBOR.

In July 2017, the United Kingdom Financial Conduct Authority announced that it intends to phase out the use of LIBOR by the end of 2021.

In November 2020, ICE Benchmark Administration (IBA), the administrator of LIBOR, signaled a potential extension of USD LIBOR, announcing a December consultation on its intention to publish one-month and three-month USD LIBOR, along with three other tenors, through June 30, 2023.

The discontinuation of LIBOR could negatively impact the dividends we pay on our fixed-to-floating rate cumulative redeemable preferred stock and the value of our LIBOR-based financial instruments.

The stated dividend rate of each series of our outstanding fixed-to-floating rate cumulative redeemable preferred stock is indexed to three-month USD LIBOR following the applicable fixed rate period.

In addition, we also have certain investments that reference USD LIBOR.

The United Kingdom Financial Conduct Authority, or FCA, which regulates LIBOR, has announced that the USD LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.

The FCA's announcement coincided with the announcement of LIBOR's administrator, the ICE Benchmark Administration Limited, that it will cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023 as a result of not having sufficient data necessary to calculate LIBOR on a representative basis after such date.

These announcements mean that our LIBOR-based floating rate instruments outstanding beyond June 30, 2023 will need to be converted to alternative interest rates.

The Alternative Reference Rates Committee ("ARRC"), a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for USD LIBOR.

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

Treasury securities, and is

based on directly observable U.S.

Treasury-backed repurchase transactions.

Treasury-backed overnight repo market is highly liquid, but there is currently no robust market for determining forward-looking SOFR term rates.

Switching existing financial instruments from LIBOR to SOFR requires calculations of a fixed spread to account for differences between the two, which may not favor all parties equally.

Additionally, certain of our LIBOR based contracts may not contain fallback language for the permanent discontinuation of LIBOR, which may result in disputes or litigation over the appropriateness of the substitute index and fixed spread to LIBOR.

There are significant differences between LIBOR and SOFR.

LIBOR reflects the average rates at which major banks indicate they are willing to lend to one another on an unsecured basis for various terms.

Conversely, SOFR is a broad-based measure of the cost of borrowing cash overnight, on a secured basis, in the U.S.

Treasury-backed repurchase market.

Switching existing financial instruments from LIBOR to SOFR requires calculations of a fixed spread to account for such

differences, which may not favor all parties equally.

Additionally, certain of our LIBOR-based financial instruments may not contain fallback language specific to the permanent discontinuation of LIBOR.

These factors may result in disputes over the substitute dividend rates on our fixed-to-floating rate preferred stock in effect after the fixed dividend periods end and negatively impact the fair value of our LIBOR-based investments.

Holders of depositary shares of our fixed-to-floating preferred stock should refer to the relevant prospectus for each series to understand the LIBOR-cessation provisions applicable to it.

Each series of preferred stock that is currently outstanding becomes callable at the same time it begins to pay a LIBOR-based rate.

At the later of the end of the fixed-rate term or the cessation of LIBOR, we may set the stated dividend rate in the manner specified by the provisions applicable to such series.

Alternatively, at our option, we may call the shares of preferred stock.

Application of these LIBOR fallback provisions or calling series of preferred stock may result in our incurring a higher cost of capital or potentially selling assets.

Stockbrokers could also have restrictions on trading our preferred stock.

Risks Related to Our Business Operations

2 unchanged sentences

The departure of any of our executive officers and/or key personnel could have a material adverse effect on our operations and performance.

We are highly dependent on information systems and third-parties, and system failures or cybersecurity incidents incurred by us or the third-parties that we rely on could significantly disrupt our ability to operate our business.

Our business is highly dependent on communications and information systems.

Any failure or interruption of our systems or cyber-attacks or security breaches of our networks or systems could cause delays or other problems in our securities trading and risk management activities.

A disruption or breach could also lead to unauthorized access to and release, misuse, loss or destruction of our confidential information or confidential information of our employees or third parties, which could lead to regulatory fines, costs of remediating the breach, reputational harm, financial losses, litigation and increased difficulty doing business with third parties that rely on us to meet their own data protection requirements.

In addition, we also face the risk of operational failure, termination or capacity constraints of any of the third parties with which we do business or that facilitate our business activities, including clearing agents or other financial intermediaries we use to facilitate our securities transactions, if their respective systems experience failure, interruption, cyberattacks, or security breaches.

We may face increased costs as we continue to evolve our cyber defenses to contend with changing risks.

These costs and losses associated with these risks are difficult to predict and quantify but could have a significant adverse effect on our operating results.

Additionally, the legal and regulatory environment surrounding information privacy and security in the U.S.

and international jurisdictions is constantly evolving.

Computer malware, viruses, computer hacking and phishing attacks have become more prevalent in our industry and we are from time to time subject to such attempted attacks.

We rely heavily on financial, accounting and other data processing systems maintained by us and by third parties with whom we contract for information technology, network, data, storage and other related services.

We are highly dependent on information systems and third-party service providers to conduct our operations, and system failures, cybersecurity incidents or failure of our providers to fulfill their obligations to us could significantly disrupt our ability to operate our business.

Our business is highly dependent on communication and information systems.

We are dependent on third-parties to maintain many of our systems and to support our increasing reliance on cloud-based services and other services essential to operating our business.

A system failure or of a third-party provider to fulfill their obligations to us could significantly delay or prevent us from conducting critical operating activities.

Furthermore, our reliance on information systems, including remote access to such systems, exposes us to risks of a cybersecurity incident occurring, such as computer malware, virus, hacking, denial of service and phishing attacks, which have become more prevalent in our industry.

In addition to disrupting our operations, a cyber-attack or security breach could lead to unauthorized access to confidential information and the release, misuse, loss or destruction of such information, subjecting us to regulatory fines, remediation costs, reputational harm, financial loss, litigation and increased difficulty doing business with third-parties that may rely on us to meet their own data protection requirements.

Although we have not detected a material cybersecurity breach to date, other financial services institutions have reported material breaches of their systems, some of which have been significant.

Even with all reasonable security efforts, not every breach can be prevented or even detected.

It is possible that we or the third parties with whom we contract have experienced an undetected breach.

There is no assurance that we, or the third parties that facilitate our business activities, have not or will not experience a breach.

It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance, reliability and security of our technical infrastructure, but such computer malware, viruses, and computer hacking and phishing attacks may negatively affect our operations.

It is possible that we or our third-party providers have experienced an undetected breach or may in the future.

It is difficult to determine what, if any, negative impact may directly result from any specific cyber-attack, security breach or other business interruption.

We may also face increased costs as we and our providers continue to evolve cyber defenses to contend with changing risks.

Additionally, the legal and regulatory environment surrounding information privacy and security in the U.S.

and international jurisdictions is constantly evolving potentially leading to increased regulatory requirements.

The cost associated with these risks are difficult to predict and quantify but could have a significant adverse effect on our operating results.

Risks Related to Our Taxation as a REIT

6 unchanged sentences

Additionally, our ability to satisfy the REIT asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.

Furthermore, the proper classification of an instrument as debt or equity for federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements.

also required to distribute to stockholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and by excluding any net capital gain).

Furthermore, the proper classification of an instrument as debt or equity for federal income tax

purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements.

We are also required to distribute to stockholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and by excluding any net capital gain).

If we fail to qualify as a REIT in any tax year, we would be subject to U.S.

1 unchanged sentence

Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first fail to qualify.

If we fail to qualify as a REIT, we would have to pay significant income taxes and would, therefore, have less money available for investments or for distributions to our stockholders.

If we fail to qualify as a REIT, we may have to pay significant income taxes and would, therefore, have less money available for investments or for distributions to our stockholders.

This would likely have a significant adverse effect on the value of our equity.

In addition, the tax law would no longer require us to make distributions to our stockholders.

If we should fail to satisfy one or more requirements for REIT qualification, we may still qualify as a REIT if there is reasonable cause for the failure and not due to willful neglect and other applicable requirements are met, including completion of applicable IRS filings.

It is not possible to state whether we would be entitled to the benefit of these relief provisions in all circumstances.

If we fail to satisfy one or more requirements for REIT qualification, we may still qualify as a REIT if there is reasonable cause for the failure and not due to willful neglect and other applicable requirements are met, including completion of applicable IRS filings.

It is not possible to state whether we would be entitled to the benefit of these relief provisions.

If these relief provisions are inapplicable, we will not qualify as a REIT.

Furthermore, if we satisfy the relief provisions and maintain our qualification as a REIT, we may be still subject to a penalty tax.

The amount of the penalty tax will be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the amount of net income generated by the assets in question multiplied by the highest U.S.

federal corporate tax rate in effect at the time of the failure if that amount exceeds $50,000 per failure, and, in case of income test failures, will be a 100% tax on an amount based on the magnitude of the failure, as adjusted to reflect the profit margin associated with our gross income.

New legislation or administrative or judicial action could make it more difficult or impossible for us to remain qualified as a REIT or it could otherwise adversely affect REITs and their stockholders.

The present U.S.

federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect our ability to maintain our REIT status and/or the federal income tax treatment of an investment in us.

The federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS and the U.S.

Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations.

Revisions in Federal tax laws and interpretations thereof could affect or cause us to change our investments and affect the tax considerations of an investment in us.

The amount of the penalty tax would be at least $50,000 per failure, and, in the case of certain asset test failures, would be determined as the amount of net income generated by the assets in question multiplied by the highest U.S.

federal corporate tax rate in effect at the time of the failure if that amount exceeds $50,000 per failure, and, in case of income test failures, would be a 100% tax on an amount based on the magnitude of the failure, as adjusted to reflect the profit margin associated with our gross income.

REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any net capital gain, for U.S.

federal and state corporate income tax not to apply to earnings that we distribute.

federal and state corporate income tax not to apply to earnings that we distribute and to retain our REIT status.

Distributions of our taxable income must generally occur in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the year and if paid with or before the first regular dividend payment after such declaration.

5 unchanged sentences

Furthermore, if we should fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed, (y) the amounts of income we retained and on which we have paid corporate income tax and (z) any excess distributions from prior periods.

We may generate taxable income greater than our reported income prepared in accordance with GAAP.

Differences in the timing of the recognition of taxable income and deductible expenses and the actual receipt or disbursement of cash may also occur.

Our taxable income will typically differ from income prepared in accordance with GAAP due to temporary and permanent differences.

For example, market gains and losses on our hedging instruments, such as interest rate swaps, may be deferred for income tax purposes and amortized into taxable income over the original contract term of the instrument even if we have exited the instrument and settled such gains or losses for cash.

1 unchanged sentence

instead, the net capital loss may be carried forward for a period of up to five years and applied against future capital gains subject to our ability to generate sufficient capital gains, which cannot be assured.

If we do not have funds available in these situations to meet our REIT distribution requirements or to avoid corporate income taxes or the 4% excise tax

altogether, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions.

Therefore, it is possible that our taxable income could be in excess of the net cash generated from our operations.

If we do not have funds available in these situations to meet our REIT distribution requirements or to avoid corporate and excise taxes altogether, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions.

We may choose to pay dividends in our own stock, in which case stockholders may be required to pay income taxes in excess of cash dividends received.

We may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder.

Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S.

We may in the future distribute taxable dividends that are payable at least in part in shares of our common stock.

Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the

extent of our current and accumulated earnings and profits for U.S.

federal income tax purposes.

15 unchanged sentences

• Penalty taxes and other fines for failure to satisfy one or more requirements for REIT qualification.

Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.

To remain qualified as a REIT for U.S.

federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts that we distribute to our stockholders and the ownership of our stock.

We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, and we may be unable to pursue investments that would be otherwise advantageous to us in order to remain qualified as a REIT.

Thus, compliance with the REIT requirements may hinder our ability to make and, in certain cases, to maintain ownership of, certain attractive investments.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

Complying with REIT requirements may cause us to liquidate or forgo attractive investment opportunities.

To remain qualified as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets.

2 unchanged sentences

If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

As a result, we may be required to sell otherwise attractive investments from our investment portfolio.

These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.

To remain qualified as a REIT, we must comply with requirements regarding the composition of our assets and our sources of income.

If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

We must also satisfy tests concerning the sources of our income and the amounts that we distribute to our stockholders.

Complying with these requirements may prevent us from acquiring certain attractive investments or we may be required to sell otherwise attractive investments.

Thus, the potential returns on our investment portfolio may be lower than if we were not subject to such requirements.

Additionally, if we must liquidate our investments to repay our lenders or to satisfy other obligations, we may be unable to comply with these requirements, potentially jeopardizing our qualification as a REIT.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Internal Revenue Code could substantially limit our ability to hedge our liabilities.

Any income from a properly designated hedging transaction to manage risk of interest rate changes with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets generally does not constitute "gross income" for purposes of the 75% or 95% gross income tests.

To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests.

The REIT provisions of the Internal Revenue Code could substantially limit our ability to hedge our risks.

To the extent that we enter into other types of hedging transactions, or fail to properly designate qualified hedges, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests.

As such, we may have to limit our use of advantageous hedging techniques or implement those hedges through a TRS.

This could increase the cost of our hedging activities as our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.

This could increase the cost of our hedging activities as our TRS would be subject to tax on gains or expose us to greater risks than we would otherwise want to bear.

In addition, losses in a TRS will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRS.

24 unchanged sentences

federal income tax as unrelated business taxable income under the Code.

Risks Related to Our Business Structure

Legislative and Regulatory Risks

Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us.

3 unchanged sentences

The specific real estate related assets that we acquire are limited by the provisions of the Investment Company Act and the rules and regulations promulgated thereunder.

In satisfying the 55% requirement, we treat Agency RMBS issued with respect to an underlying pool of mortgage loans in which we directly or indirectly hold all the certificates issued by the pool ("whole pool" securities) as qualifying real estate interests based on pronouncements of the SEC staff.

In satisfying the 55% requirement, we treat Agency RMBS issued with respect to an underlying pool of mortgage loans in which we directly or indirectly hold all the certificates issued by the pool

("whole pool" securities) as qualifying real estate interests based on pronouncements of the SEC staff.

We treat partial pool securities, CRT and other mortgage related securities as real estate-related assets.

2 unchanged sentences

Additionally, if the SEC determines that any of our securities are not qualifying interests in real estate or real estate-related assets, otherwise believes we do not satisfy the above exceptions or changes its interpretation with respect to these securities or the above exceptions, we could be required to restructure our activities or sell certain of our assets.

As such, we cannot guarantee that we will be able to acquire or hold enough whole pool securities to maintain our exemption under the Investment Company Act, and our compliance with these requirements may at times lead us to adopt less efficient methods of financing certain of our investments or to forego acquiring higher yielding securities.

As such, we cannot guarantee that we will be able to acquire or hold enough whole pool securities to maintain our exemption under the Investment Company Act, and our compliance with these requirements may at times lead us to adopt less efficient methods of investing in certain securities or to forego acquiring more desirable securities.

Importantly, if we fail to qualify for this exemption, our ability to use leverage would be substantially reduced and we would be unable to conduct our business as we currently conduct it, which could materially and adversely affect our business.

The present U.S.

The federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS and the U.S.

Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations.

Revisions in Federal tax laws and interpretations thereof could affect or cause us to change our investments and affect the tax considerations of an investment in us.

Actions of the U.S.

Government, including the U.S.

Congress, Fed, U.S.

Treasury, Federal Housing Finance Administration ("FHFA") and other governmental and regulatory bodies may adversely affect our business.

Government actions may have an adverse impact on the financial markets.

New regulatory requirements, should they be imposed, could adversely affect the availability or terms of financing from our lender counterparties, impose more stringent capital rules on financial institutions, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed securities and limit the trading activities of certain banking entities and other systemically significant organizations that are important to our business.

Together or individually new regulatory requirements could materially affect our financial condition or results of operations in an adverse way.

Federal housing finance reform and potential changes to the Federal conservatorship of Fannie Mae and Freddie Mac or to laws or regulations affecting the relationship between the GSEs and the U.S.

Government may adversely affect our business.

The payments of principal and interest we receive on our Agency RMBS are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

The guarantees on Agency securities created by Ginnie Mae are explicitly backed by the full faith and credit of the U.S.

Government, whereas the guarantees on Agency securities created by Fannie Mae and Freddie Mac are not.

In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal regulator.

In addition to the conservatorships, the U.S.

Department of the Treasury has provided a liquidity backstop to Fannie Mae and Freddie Mac to ensure their financial stability.

Over time, efforts to end the conservatorships and the guarantee-payment structure of Fannie Mae and Freddie Mac have garnered attention from the U.S.

During the final year of the Trump Administration, FHFA established new regulatory capital requirements necessary for Fannie Mae and Freddie Mac to exit conservatorship, and the U.S.

During 2021, the Biden Administration, and the FHFA, have delayed implementation or reversed some of these initiatives, and have taken steps intended to advance other housing finance policy objectives.

These or future administrative actions may significantly impact the source, pricing, volume and nature of Agency RMBS and other mortgage securities that Fannie Mae and Freddie Mac issue, which may impact the supply of Agency RMBS available in the future.

Further administrative and/or legislative actions may be taken that affect structural GSE and federal housing finance reform, alter the amount or nature of the credit support provided by the U.S.

Treasury to Fannie Mae and Freddie Mac, or modify the future roles of Fannie Mae and Freddie Mac in housing finance.

Such actions may create market uncertainty, may have the effect of reducing the actual or perceived credit quality of securities issued or guaranteed by them or may otherwise

impact the size and scope of the Agency RMBS markets.

To the extent such actions would terminate the conservatorships without also providing for a sufficiently robust U.S.

government guaranty, they could re-define what constitutes an Agency security and subject Agency RMBS to Fannie Mae or Freddie Mac credit risk, make them more difficult to finance, and cause their values to decline, all of which could have broad adverse implications for the mortgage markets and our business.

Risks Related to Our Common Stock

6 unchanged sentences

Variations may also occur due to a variety of factors unrelated to our financial performance, such as:

• general market and economic conditions;

• general market and economic conditions, including actual and anticipated changes in interest rates and mortgage spreads;

• changes in government policy, rules and regulations applicable to mortgage REITs, including tax laws, financial accounting and reporting standards, and exemptions from the Investment Company Act of 1940, as amended;

25 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.

What changed 10-K

Item 1A. Risk Factors