What changed in this filing

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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-27 · 88 added, 88 removed, 390 unchanged (31% of the section changed)

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Spreads may widen due to numerous factors, including due to actual or expected monetary policy actions by U.S.

and foreign central banks, increased market volatility, a decline in market liquidity and changes in investor return requirements and sentiment.

and foreign central banks, increased market volatility, increased available supply of Agency RMBS, a decline in market liquidity and changes in investor return requirements and sentiment.

Interest rate and spread volatility represent significant risks to our business, potentially affecting our liquidity, increasing our costs, and impacting our ability to manage risks effectively.

Interest rate and spread volatility can have profound impacts on our business, financial condition, and operating results in several ways.

Such volatility amplifies market-based risks, affecting asset and liability values and potentially leading to less earnings stability.

Volatility increases our exposure to margin calls, including higher risk-based margin requirements, typically requiring us to post additional collateral, which could reduce our unencumbered liquidity and limit resources available for operational needs and further margin requirements.

The complexity and cost of hedging against interest rate fluctuations also rises with volatility, potentially impacting our profitability.

Volatility can also reduce liquidity in the mortgage market as mortgage investors reduce their exposure to this risk, making it more challenging to buy or sell assets without affecting their market price.

Volatility may also reduce the effectiveness and accuracy of the predictive models that we use to aid in our decision-making and risk management.

In summary, interest rate and spread volatility represent significant risks to our business, potentially affecting our liquidity, increasing our costs, and impacting our ability to manage risks effectively.

We continuously monitor these conditions and adjust our strategies accordingly, but there is no guarantee that these measures will be sufficient to mitigate the adverse effects of volatility on our operations and financial results.

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

The Federal Reserve (the "Fed") first used large-scale asset purchases of U.S.

Treasury securities and Agency RMBS, known as quantitative easing, or QE, during the 2008-2009 global financial crisis in an attempt to stabilize financial markets

and stimulate a sustained economic recovery.

In its most recent QE round, resulting from the Covid-19 financial crisis, the Fed’s balance sheet more than doubled from $4.2 trillion in March 2020 to $8.9 trillion in May 2022, with its holdings of Agency RMBS increasing to nearly a third of all outstanding Agency RMBS, when it announced that it would begin to reduce its holdings over time by not reinvesting proceeds of principal repayments, subject to monthly caps.

The Fed's participation in the Agency RMBS market can have a material impact on the mortgage market, altering the available supply, price and returns on Agency RMBS.

The Federal Reserve's (the “Fed”) participation in the Agency RMBS market can have a material impact on the mortgage market, altering the available supply, price and returns on Agency RMBS.

Its involvement in the mortgage market can result in increased market volatility and amplify the effects of market-related risks on our financial condition.

Generally, when the Fed conducts large-scale asset purchases, Agency RMBS values increase and mortgage spreads tighten, benefiting our tangible net book value, while the return potential on new asset purchases typically declines.

Conversely, actual or anticipated reductions of Fed asset purchases or its outright sale of assets, would generally be expected to result in a decline in asset values and wider mortgage spreads to benchmark interest rates, negatively impacting our tangible net book value, while the return potential on new asset purchases would typically increase.

Although the Fed has stated its preference for a passive reduction of its balance sheet through mortgage prepayment activity, there is no guarantee that it will not conduct outright asset sales in the future.

Assets sales, or a more rapid unwinding of its balance sheet than anticipated, could result in increased market volatility, reduced liquidity and an increase in Agency RMBS spreads to benchmark interest rates, causing a material decline in our tangible net book and negatively impacting our financial position.

Generally, when the Fed conducts large-scale asset purchases, Agency RMBS values increase and mortgage spreads tighten.

This scenario results in an increase in our tangible net book value, although the return potential on new asset purchases typically declines.

Conversely, actual or anticipated reductions of Fed asset purchases or its outright sale of assets, would generally be expected to result in a decline in asset values and wider mortgage spreads to benchmark interest rates, reducing our tangible net book value, while increasing the return potential on new asset purchases.

The Fed first used large-scale asset purchases of U.S.

Treasury securities and Agency RMBS, known as quantitative easing, or QE, during the 2008-2009 global financial crisis in an attempt to stabilize financial markets and stimulate a sustained economic recovery.

In its most recent QE round, resulting from the Covid-19 financial crisis, the Fed’s balance sheet more than doubled from $4.2 trillion in March 2020 to $8.9 trillion in May 2022.

This included a significant increase in its Agency RMBS holdings, to nearly a third of all outstanding Agency RMBS by the time the Fed announced its intention to end QE and commence monetary tightening by, among other actions, gradually reducing its holdings of Agency RMBS over time by not reinvesting proceeds of principal repayments, subject to monthly caps.

Since the beginning of the Fed's current monetary tightening cycle in 2022, through fiscal year-end 2023, the Fed has reduced its Agency RMBS holdings by approximately $300 billion through mortgage prepayment activity.

Although the Fed currently favors a gradual reduction of its balance sheet through prepayment activity, subject to monthly caps, there is no guarantee that it will not conduct outright asset sales in the future or alter its monthly caps.

If the Fed were to conduct assets sales or allow a more rapid unwinding of its balance sheet than anticipated, Agency RMBS markets could experience increased market volatility, reduced liquidity and an increase in Agency RMBS spreads to benchmark interest rates, causing a material decline in our tangible net book and negatively impacting our financial position.

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

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As a result, we could be required to sell assets at adverse prices and our ability to maintain or grow our total comprehensive income could be reduced.

Asset values can decline for a variety of reasons.

Since we primarily invest in long-term fixed rate securities, our investment portfolio is particularly sensitive to changes in longer-term interest rates.

A decline in market liquidity can also have a significant impact on asset values and increase price volatility.

Numerous factors can reduce market liquidity, including macro-economic conditions, market uncertainty, changes in investor sentiment resulting in redemptions from fixed income funds, a decline in global money flows into U.S.

fixed income markets, and regulatory capital requirements that limit banks' and other financial institutions' ability to act as market makers.

Fed monetary policy and the unwinding of its balance sheet could also have a negative impact on asset values and market liquidity, especially if the unwinding occurs more rapidly than anticipated.

The value of our assets is influenced by multiple factors.

The value of our long-term fixed rate securities is particularly impacted by fluctuations in longer-term interest rates.

Additionally, market liquidity can significantly impact asset values, where a decrease in liquidity can lead to a decline in asset values and increased price volatility.

Factors that can reduce market liquidity include shifts in macro-economic conditions, market uncertainties, changes in investor sentiment, a decline in or negative global money flows to the U.S.

fixed income markets, and regulatory capital requirements that constrain the market-making or funding capabilities of banks and financial institutions.

Fed monetary policy and the pace of its balance sheet reduction could also negatively impact asset values and market liquidity, especially if this unwinding process occurs more rapidly than anticipated.

Changes in prepayment rates may adversely affect the return on our investments.

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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.

This situation may also cause the market value of our assets to decline, while most of our hedging instruments would not receive any incremental offsetting gains.

At the same time, the market value of our assets could decline, while most of our hedging instruments would not receive any incremental offsetting gains.

To the extent that actual rates of prepayment differ from our expectations, our operating results could be adversely affected, and we could be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses.

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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.

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.

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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.

Residential mortgage loans underlying non-Agency RMBS are secured by residential property and are subject to risks of delinquency, foreclosure and loss.

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, 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.

The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower.

If the net operating income of the property is reduced, the borrower's ability to repay the loan may be impaired.

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 and other factors.

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

Repayments by borrowers and the market value of the related assets underlying our investments are affected by national as well as local and regional economic and other conditions.

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, drought, hurricanes and certain climate risks) than properties in other areas;

Non-Agency RMBS are backed by residential mortgage loans, which carry the risk of delinquency, foreclosure and loss based on the borrower's ability to repay.

The ability to repay is primarily influenced by the borrower's income and assets.

Factors such as loss of employment, divorce, illness, acts of God, acts of war or terrorism, adverse changes in economic and

market conditions, declining home values, changes in laws and regulations, changes in fiscal policies and zoning ordinances, environmental hazards such as mold, and property losses (insured or not) can impede repayment.

CMBS are backed by commercial loans, secured by multifamily or other commercial properties.

These loans typically face higher risks of delinquency and loss compared to residential loans.

Repayment largely depends on the property's operational success.

Factors affecting the property's net operating income, such as occupancy rates, tenant mix, the success of tenant businesses, property management, location, condition, and economic conditions, can influence the borrower's repayment capacity.

Geographic concentration of our assets can heighten the risk of default and loss.

Both borrower repayment and the market value of the assets underlying our investments are affected by national, local and regional economic conditions.

As a result, concentrations of investments tied to geographic regions increase the risk that adverse conditions 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 environmental hazards (such as earthquakes, widespread fires, rising sea levels, disease, floods, drought, hurricanes and certain climate risks) than properties in other areas;

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.

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We incur this leverage by borrowing against a substantial portion of the market value of our assets.

Leverage, which is fundamental to our investment strategy, creates significant risks and amplifies our risk exposure to higher borrowing costs, changes in underlying asset values and other market factors.

Leverage also exposes us to the risk of margin calls and defaults under our funding agreements, which may result in forced sales of assets in adverse market conditions.

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• increases in the "haircut" lenders require on the value of our assets under repurchase agreements, resulting in higher collateral requirements;

• increases in member specific margin requirements assessed by the FICC for tri-party repo accessed by our wholly-owned captive broker-dealer subsidiary, BES, through the FICC's GCF Repo service;

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

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• circumstances that could result in 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;

• the inability of our wholly-owned captive broker-dealer 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 tri-party repo funding accessed through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity.

• the inability of BES to continually meet FINRA and FICC regulatory and membership requirements, which may change over time.

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.

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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.

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Our funding and derivative agreements require that we maintain certain levels of collateral with our counterparties and may result in margin calls initiated against us if, for example, the value of our collateral declines.

A margin call means that the counterparty requires us to pledge additional collateral to re-establish the required collateral level to protect them from loss in

the event we default on our obligations.

A margin call means that the counterparty requires us to pledge additional collateral to re-establish the required collateral level to protect them from loss in the event we default on our obligations.

The requirement to meet margin calls can create liquidity risks.

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Additionally, for cleared swaps and futures, the futures commission merchant, or FCM, that we transact through typically has the right to require more collateral than the clearinghouse requires.

Changes to FICC margin requirements could limit our ability to enter tri-party repo transactions with the FICC’s GCF Repo service and TBA transactions with the FICC’s MBSD

We finance a significant portion of our investments and execute TBA transactions through our wholly-owned captive broker-dealer subsidiary, BES.

As an eligible institution, BES accesses repo funding through the FICC’s GCF Repo service and central clearing in the TBA market through the FICC's Mortgage-Backed Securities Division (MBSD).

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

The FICC may also levy member specific margin requirements, including requirements related to a member's specific portfolio risk factors as a ratio to that member’s net capital, requirements related to "back-testing" failures of collected FICC margin requirements to cover losses from a simulated liquidation of a member’s portfolio, and other charges that the FICC has the ability to implement, in some cases without a significant notice period.

Increases in FICC margin requirements would have the effect of reducing our unencumbered assets and could potentially limit our ability to utilize tri-party repo funding through the FICC's GCF Repo service and engage in centrally-cleared TBA transactions through the FICC’s MBSD.

Furthermore, BES' inability to meet FICC margin requirements may result in the FICC declaring an event of default and ceasing to act for BES as a member along with a liquidation of any margin collateral as well as the portfolio of outstanding transactions for which the FICC serves as BES’ central counterparty, potentially in adverse market conditions.

If BES were to fail to continually meet FICC margin requirements and default on its obligations to the FICC it could have a material financial impact on our financial position.

Our repurchase agreements and agreements governing certain derivative instruments may contain financial and nonfinancial covenants subjecting us to the risk of default.

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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 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 (“LIBOR Based Preferred Stock”).

In addition, we also have certain investments that reference USD LIBOR (“LIBOR Based Investments”).

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.

Our LIBOR Based Preferred Stock and our LIBOR Based Investments typically contain various mechanisms to address circumstances where LIBOR becomes unavailable (so-called fallback language), but certain of these instruments do not contain fallback language specific to the permanent discontinuation of LIBOR.

Holders of depositary shares of our LIBOR Based Preferred Stock should refer to the relevant prospectus for each series to understand the LIBOR-cessation provisions applicable to it.

In 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) to provide a uniform, nationwide solution for replacing references to LIBOR in LIBOR based floating rate instruments.

The LIBOR Act and Federal Reserve rules promulgated pursuant to it create default rules that apply to fallback provisions of these instruments, and pursuant to the LIBOR Act, the Federal Reserve has adopted replacement benchmark rates for LIBOR contracts of various periods based on the Secured Overnight Financing Rate (“SOFR”) plus specified tenor spread adjustments (the “LIBOR Act Replacement Benchmark”).

These default rules will vary among LIBOR based instruments depending on the type of fallback language in them.

Generally, instruments with no fallback language or regulatorily insufficient fallback language must apply the LIBOR Act Replacement Benchmark after June 30, 2023 in lieu of any fallback process set forth in these instruments.

Instruments that expressly identify a non-LIBOR based replacement benchmark will apply that replacement benchmark after June 30, 2023.

Instruments that appoint an administrator to determine a benchmark replacement upon the cessation of LIBOR (other than by reference to LIBOR values (except as necessary to set a spread adjustment) or by conducting a poll or soliciting quotes for interbank lending rates) will apply a replacement benchmark selected by this administrator in accordance with the instrument for periods after June 30, 2023.

However, for instruments with a replacement benchmark set by an administrator, the LIBOR Act encourages selection of the LIBOR Act Replacement Benchmark by providing liability protections and other benefits.

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, and this spread (including the spread included in the LIBOR Act Replacement Benchmark) may not favor all parties equally.

Each series of our LIBOR Based Preferred Stock that is currently outstanding becomes callable at the same time it begins to pay a LIBOR-based (or replacement benchmark) 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 as provided under the LIBOR Act and related regulations.

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

Application of these LIBOR fallback provisions (as affected by the LIBOR Act and related regulations) or calling series of preferred stock may result in our incurring a higher cost of capital or potentially selling assets.

Risks Related to Our Business Operations

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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 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.

Our business heavily depends on information and communication systems, including services provided by third parties and cloud-based platforms.

A failure in these systems, or a failure by a third-party provider, could significantly disrupt our operations.

These systems may be subject to damage or interruption from, among other things, natural disasters, public health issues such as pandemics or epidemics, terrorist attack, rogue employees, power loss, telecommunications failures, internet disruptions, and other interruptions beyond our control.

Additionally, our reliance on these systems exposes us to risks of disruption or damage from cybersecurity risks, such as malware, virus, hacking, denial of service, ransomware, physical or electronic break-ins, insider threats, and phishing attacks, all of which are increasingly sophisticated and prevalent.

Our systems may be misconfigured or configured in a way that exacerbates our exposure to these risks.

Despite having no significant breaches detected so far, we regularly are targeted by threat actors, and completely preventing or detecting such incidents promptly is increasingly challenging.

The complex nature of cybersecurity threats means a breach could go undetected for a long time, if ever, and responding to such incidents may not always be immediate or sufficient.

Moreover, we depend on third-party vendors to implement security programs commensurate with their own risk.

They may not be successful at defending against or detecting cybersecurity threats and they may not be obligated to inform us of such incidents.

The consequences of a cyber-attack may include operational disruption, unauthorized access to sensitive data, regulatory fines, reputational damage, liability to third parties, and financial losses.

The impact of cybersecurity incidents is difficult to predict, and the evolving legal and regulatory environment around data privacy and security could lead to increased costs and stricter compliance requirements.

During an investigation of a cybersecurity incident, or a series of events, it is possible we may not necessarily know the extent of the harm or how to remediate it, which could further adversely impact us, and new regulations may also compel us to disclose information about a material cybersecurity incident before it has been mitigated or resolved, or even fully investigated.

Furthermore, whether a single or series of cyber events is material is often a matter of judgment rather than quantitative measures and might only be determinable well after the fact.

Despite our efforts to enhance our cybersecurity defenses, we cannot assure complete

protection against all cybersecurity threats.

A cybersecurity incident, if one were to occur, could adversely affect our business, results of operations, or financial condition.

Risks Related to Our Taxation as a REIT

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

For example, realized 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 remaining contract term of the instrument even if we have exited the instrument and settled such gains or losses for cash.

For example, realized 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 remaining contract term of the instrument even if we have exited the instrument and settled such gains or losses for cash.

We are also not allowed to reduce our taxable income for net capital losses incurred;

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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.

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.

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Although distributions with respect to our common stock generally do not constitute unrelated business taxable income, there are some circumstances where they may.

If (i) we generate "excess inclusion income" as a result of all or a portion of our assets being subject to rules relating to "taxable mortgage pools" or as a result of holding residual interests in a REMIC or (ii) we become a "pension held REIT," then a portion of the distributions to tax exempt investors may be subject to U.S.

If (i) we generate "excess inclusion income" as a result of all or a portion of our

assets being subject to rules relating to "taxable mortgage pools" or as a result of holding residual interests in a REMIC or (ii) we become a "pension held REIT," then a portion of the distributions to tax exempt investors may be subject to U.S.

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

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Failure to satisfy regulatory requirements of our captive broker-dealer subsidiary could result in our inability to access tri-party repo funding through the FICC’s GCF Repo service and could be harmful to our business operations.

BES is subject to ongoing membership and regulatory requirements as a member of the FICC and FINRA and as a registered broker-dealer that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees.

BES is subject to ongoing membership and regulatory requirements as a member of the FICC and FINRA and as an SEC registered broker-dealer that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees.

Additionally, as a self-clearing, registered broker-dealer, BES is subject to minimum net capital requirements.

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fiscal policy matters, including the U.S.

dept ceiling, could result in a wide range of negative economic effects, including increased financial market and interest rate volatility and wider market spreads

between mortgage assets and benchmark interest rates.

Additionally, new regulatory requirements, including the imposition of more stringent capital rules, could adversely affect the availability or terms of financing from our lending counterparties, reduce market liquidity, 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.

dept ceiling and the amount and tenor of U.S.

Treasury debt required to fund the government, could result in a wide range of negative economic effects, including increased financial market and interest rate volatility and wider market spreads between mortgage assets and benchmark interest rates.

Additionally, new regulatory requirements, including the imposition of more stringent bank capital rules and changes to the manner and timing of clearing U.S.

Treasury and Agency RMBS transactions, could adversely affect the availability or terms of financing from our lending counterparties, reduce market liquidity, 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.

For example, the Fed and Federal Deposit Insurance Commission have proposed amendments to the capital rules for banks subject to their supervision that would apply risk weights (and costs) to Agency RMBS that may, if adopted as proposed, impact the source, pricing, volume, financing, and nature of Agency RMBS, and the SEC Division of Trading and Markets has adopted regulations requiring the central clearing of U.S.

Treasury and U.S.

Treasury repo transactions that will require significant changes to trading operations and has the potential to adversely impact liquidity, funding and efficiency of these markets, which could adversely impact the cost and other terms or availability of financing and hedging arrangements for our business.

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

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.

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Since taking office, 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.

However, the FHFA has taken steps to implement portions of the regulatory capital requirements, including by permitting the GSEs to charge fees that seek to offset related capital charges on certain Agency RMBS.

Although the FHFA has adopted amendments to GSE regulatory capital requirements, it has also taken steps to implement them, including by permitting the GSEs to charge fees that seek to offset related capital charges on certain Agency RMBS.

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.

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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.

government guaranty, they could re-define what constitutes an Agency security and subject Agency RMBS to greater 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

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If the market price of our common stock declines significantly, stockholders may be unable to resell shares at a gain.

Furthermore, fluctuations in the trading price of our common stock may adversely affect the liquidity of our common stock and our ability to raise additional equity capital.

Furthermore, fluctuations in the trading price of our common stock may adversely affect the liquidity of our common stock and our ability to

raise additional equity capital.

Price fluctuations may result in our stock trading below our reported net tangible book value per share for extended periods of time.

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Such ownership limit could also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Unresolved Staff Comments

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