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Item 1A. Risk Factors

2026-02-23 compared with 2025-02-21 · 169 added, 145 removed, 337 unchanged (48% of the section changed)

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

When the differential between the market yield on our assets and our interest rate hedges widens, our tangible net book value will typically decline, a dynamic we refer to as "spread risk." As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our business.

When the differential (or "spread") between the market yield on our assets and our interest rate hedges widens, our tangible net book value will typically decline, a dynamic we refer to as "spread risk." As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our business.

Although we use hedging instruments in an effort 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 actual or expected monetary policy actions by U.S.

Spreads may widen due to

numerous factors, including actual or expected monetary policy actions by U.S.

and foreign central banks;

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Elevated volatility amplifies market risks that affect the value of our assets and liabilities and can reduce earnings stability.

Increased volatility also heightens our exposure to margin calls, including higher risk-based margin requirements,

which may require us to post additional collateral, thereby reducing our unencumbered liquidity, limiting resources available for operational needs and further margin obligations.

Increased volatility also heightens our exposure to margin calls, including higher risk-based margin requirements, which may require us to post additional collateral, thereby reducing our unencumbered cash and other liquid assets (or “unencumbered liquidity”) and thus limiting resources available for operational needs and further margin obligations.

Volatility further increases the complexity and cost of hedging against interest rate fluctuations, which can adversely affect our profitability.

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Volatility may also diminish the effectiveness and accuracy of the predictive models we rely on for decision-making and risk management.

Sustained interest rate and spread volatility has the potential to materially impact our liquidity, increase our costs, and impair our ability to manage risk effectively.

Sustained interest rate and spread volatility has the potential to materially impact our unencumbered liquidity, increase our costs, and impair our ability to manage risk effectively.

While we actively monitor market conditions and adjust our strategies in response, there is no assurance that these measures will be sufficient to offset the negative effects of volatility on our business, 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’s (the "Fed") participation in the Agency RMBS market can materially impact mortgage market conditions, affecting supply, pricing, and returns.

Asset purchases by the Fed generally drive Agency RMBS values higher and tighten mortgage spreads, which increases our tangible net book value but reduces the return potential on new investments.

Conversely, actual or anticipated reductions in the amount of its Agency RMBS holdings typically lead to lower values and wider spreads, thereby lowering our tangible net book value while improving the return potential on new acquisitions.

The Fed first implemented large-scale asset purchases, known as quantitative easing ("QE"), during the 2008-2009 financial crisis to stabilize markets and support economic recovery.

In response to the COVID-19 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 Agency RMBS holdings rising to nearly one-third of all outstanding Agency RMBS.

Since 2022, the Fed has reduced these holdings by approximately $500 billion through prepayment runoff.

While the Fed currently favors gradual balance sheet reduction through prepayment runoff, there is no assurance that it will not undertake asset sales.

A faster-than-expected unwinding of Fed holdings could increase market volatility, reduce liquidity, and widen RMBS spreads, materially impacting our tangible net book value and financial condition.

The participation of the Fed and other government-related entities in the Agency mortgage market could have an adverse effect on our Agency RMBS investments.

Participation by the Federal Reserve (the "Fed") or other government-related entities in the Agency RMBS market can materially impact mortgage market conditions, affecting supply, pricing, and returns.

Asset purchases, particularly when undertaken on an uneconomic basis, by the Fed or other government-related entities generally would be expected to tighten mortgage spreads and thus drive Agency RMBS values higher, which would increase our tangible net book value but reduce the return potential on new investments.

Conversely, actual or anticipated reductions in Agency RMBS holdings by such entities would be expected to lead to lower values and wider spreads, thereby lowering our tangible net book value while improving the return potential on new investments.

The Fed first implemented large-scale asset purchases, known as quantitative easing ("QE"), during the 2008-2009 financial crisis to stabilize financial markets and support economic recovery.

In response to 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 Agency RMBS holdings rising to over $2.7 trillion, or nearly one-third of all Agency RMBS outstanding at the time.

Since 2022, the Fed has reduced its Agency RMBS holdings through prepayment runoff to approximately $2.1 trillion as of December 31, 2025.

While the Fed currently favors a gradual reduction of its balance sheet through prepayment runoff, there is no assurance that it will not alter its approach, including by undertaking asset sales.

A faster-than-expected reduction in the Fed's Agency RMBS holdings could increase market volatility, reduce liquidity, and widen RMBS spreads, which could materially adversely impact our tangible net book value and financial condition.

In addition, other government-related entities, including GSEs and U.S.

government agencies, may be significant participants in the Agency RMBS market.

In January 2026, President Trump announced he had instructed the GSEs to invest $200 billion in Agency RMBS;

however, the pace, nature, scope and duration of this initiative are not known.

Government entities may purchase or sell Agency RMBS for a variety of purposes, including implementing housing policy or other public policy objectives, supporting market liquidity, earning profits, responding to conditions in Agency RMBS markets or changes in public policy.

The GSEs have also provided repo financing to Agency RMBS investors, and a reallocation of capital towards increased Agency RMBS purchases could reduce the availability of such financing and contribute to higher repo rates.

Changes in the investment or lending activities of these entities, including increased sales, reduced purchases or funding, or other shifts in demand, could materially affect Agency RMBS prices, spreads, and market liquidity, and could adversely affect our tangible net book value, results of operations, liquidity, and financial condition.

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

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In particular, the value of our long-term fixed-rate securities is highly sensitive to fluctuations in longer-term interest rates.

Additionally, market liquidity can significantly impact asset values, as reduced liquidity may lead to price declines and increased volatility.

Additionally, the amount of market liquidity can significantly impact asset values, as reduced liquidity may lead to wider mortgage spreads, price declines and increased volatility.

Several factors can negatively impact market liquidity, including shifts in macro-economic conditions, market uncertainties, changes in investor sentiment, reduced or negative global money flows into U.S.

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

Liquidity could also be affected by the Fed’s monetary policy, particularly if balance sheet reduction occurs more rapidly than expected, as well as by legislative, regulatory or other administrative actions that affect the Agency RMBS market or changes in fiscal policy that increase the federal budget deficit.

Liquidity could also be affected by the Fed's monetary policy, particularly if balance sheet reduction occurs more rapidly than expected, as well as by legislative, regulatory or other administrative actions that affect the Agency RMBS market, government entity participation in Agency RMBS or funding markets, or changes in fiscal policy that increase the federal budget deficit.

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

Our investment portfolio largely consists of securities backed by pools of mortgage loans, which receive payments related to the underlying mortgage loans.

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, 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.

Our investment portfolio largely consists of securities backed by pools of mortgage loans that receive payments related to the underlying mortgage loans.

When borrowers prepay their mortgage loans at rates faster or slower than anticipated, we are exposed 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, other factors can also affect prepayment rates, including loan age and size, loan-to-value ratios, housing price trends, general economic conditions, government policies that promote housing turnover or refinancings, and GSE buyouts of delinquent loans.

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

If the proceeds are reinvested at lower yields than our existing assets, our net interest margins would be negatively impacted.

We also amortize or accrete into interest income any premiums and discounts we pay or receive at purchase relative to the stated principal of our assets over their projected lives using the effective interest method.

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 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.

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 prepayment rates 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.

If the actual and estimated future prepayment experience differs from our prior estimates, we are required to record a current period 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, they may extend beyond their expected maturity, and we may be required to finance our investments for longer periods at potentially higher costs, without the ability to reinvest principal into higher-yielding securities.

Additionally, if prepayment rates decline more than expected due to a rising interest rate environment, the average life or duration of our fixed-rate assets would extend, while the maturities of our interest rate swaps would remain unchanged and, therefore, hedge a smaller portion of our funding exposure.

At the same time, the market value of our assets could decline, and our hedging instruments may not generate sufficient offsetting gains to fully mitigate the decline in asset values.

To the extent actual prepayment rates 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.

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 making less favorable investments.

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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 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, such as housing turnover, lending conditions and the availability of credit to homeowners, and GSE buyouts of delinquent loans from the underlying mortgage pool.

Our analysis is largely based on predictive models that rely on historical correlations between interest rates and other factors that influence prepayment rates.

However, unprecedented events, market dislocations, changes in housing or mortgage-related policies, advances in origination channel technologies, and other factors may impair the usefulness of these historical correlations or render them 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, such as housing turnover, lending conditions, the availability of credit to homeowners, government or GSE policy actions, and GSE buyouts of delinquent loans from the underlying mortgage pool.

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.

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The use of predictive models has inherent risks and may incorrectly forecast future behavior, leading to potential losses.

Furthermore, since predictive models are usually constructed based on historical trends using data supplied by third parties, the success of relying on such models depends heavily on the accuracy and reliability of the supplied historical data.

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 unanticipated and/or unprecedented financial or economic events, including any actual or anticipated shifts in monetary or fiscal policy resulting from these events.

Furthermore, since predictive models are typically constructed based on historical trends using data supplied by third parties, the success of relying on such models depends heavily on the accuracy and reliability of the underlying historical data.

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

We are at greater risk of this occurring during periods of high volatility or during unanticipated or unprecedented financial or economic events, including any actual or anticipated shifts in monetary or fiscal policy resulting from these events.

Further, the use of artificial intelligence ("AI")–based techniques associated with analytical models and third-party data may heighten these risks due to the rapidly evolving nature of AI technologies, including risks related to data quality or completeness, model accuracy, and bias.

Consequently, actual results could differ materially from our projections.

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

(iii) collateral or

bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different definitions of what constitutes a delinquent loan);

(iii) collateral or bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different definitions of what constitutes a delinquent loan);

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.

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Fair value is only an estimate based on good faith judgment of the price at which an investment can be sold since market prices of investments can only be determined by negotiation between a willing buyer and seller.

Our determination of the fair value of our investments includes inputs provided by pricing services and third-party dealers.

Valuations of certain investments in which we invest may be difficult to obtain or unreliable.

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 source to another.

Our determination of the fair value of our investments includes inputs from pricing services and third-party dealers.

Valuations of certain investments may be difficult to obtain or unreliable.

In general, pricing services and dealers disclaim responsibility for the accuracy, completeness or usefulness of 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 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.

As a result, 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 through 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 investment losses.

Investments in credit-oriented securities, such as CRT securities and non-Agency MBS, where repayment of principal and interest is not guaranteed by a GSE or U.S.

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.

Investments in credit-oriented securities, such as CRT securities and non-Agency MBS, for which repayment of principal and interest is not guaranteed by a GSE or U.S.

Government agency, expose 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.

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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.

Repayment largely depends on the operational performance of the underlying properties.

Factors affecting a 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.

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As a result, our target assets may not be available in sufficient supply or 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, which 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 enough target assets, we may be unable to achieve our investment objectives or maintain our REIT qualification status or exemption from regulation under the Investment Company Act.

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, which may have a lower cost of funds, access to funding sources not available to us, or other competitive advantages over us.

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

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

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We expect our leverage to vary with market conditions and our assessment of the tradeoffs between risk and return on investments.

We generally expect to maintain our leverage between six to twelve times the amount of our tangible stockholders' equity, but we may operate at levels outside of this range for extended periods.

We generally expect to maintain our leverage between six to ten times the amount of our tangible stockholders' equity, but we may operate at levels outside of this range for extended periods.

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, changes in mortgage spreads, 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.

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

The risks associated with leverage are more acute during volatile market environments and periods of reduced market liquidity.

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We rely primarily on short-term borrowings to finance our mortgage investments.

Consequently, our ability to achieve our investment objectives depends not only on our ability to borrow sufficient amounts and on favorable terms, but also our ability to renew or replace our maturing short-term borrowings on a continuous basis.

A variety of factors could prevent us from being able to achieve our intended borrowing and leverage objectives, including:

Consequently, our ability to achieve our investment objectives depends not only on our ability to borrow sufficient amounts on favorable terms, but also on our ability to renew or replace our maturing short-term borrowings on a continuous basis.

A variety of factors could prevent us from achieving our intended borrowing and leverage objectives, including:

• disruptions in the repo market generally or the infrastructure that supports it;

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• an exit by lenders from the market;

• 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;

• circumstances that could result in our failure to satisfy covenants, leverage limits, or other requirements imposed by our lenders, as a result of which our lenders may terminate and cease entering into repurchase transactions with us;

• 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.

If we cannot obtain sufficient funding on acceptable terms, we may have to sell assets possibly under adverse market conditions.

If we cannot obtain sufficient funding on acceptable terms, we may have to sell assets under adverse market conditions, and our ability to grow or execute our business strategy could be adversely affected.

Our borrowing costs may increase at a faster pace than the yield on our investments.

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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.

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

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, such as changes in the pace or manner of the Fed’s runoff of its portfolio of Agency RMBS or, if they occur, the Fed’s purchases or sales of Agency RMBS in the TBA market.

TBA dollar roll transactions include a deferred purchase price obligation on our part.

An inability or unwillingness to continue rolling forward our position has effects similar to a termination of financing.

In that circumstance, we would be required to settle the obligations for cash and would then take physical delivery of the underlying Agency RMBS.

We may not have sufficient funds or alternative financing sources available to settle such obligations.

Additionally, if we take delivery of the underlying securities, we can expect to receive the "cheapest to deliver" securities with the least favorable prepayment attributes that satisfy the terms of the TBA contract.

Further, the specific securities that we receive may include few, if any, "whole pool" securities, which could inhibit our ability to remain exempt from regulation as an investment company under the Investment Company Act (see " Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us " below).

TBA contracts also subject us to margin requirements as described further below.

Our inability to roll forward our TBA positions, failure to obtain adequate financing to settle our obligations, or failure to meet margin calls under our TBA contracts could force us to sell assets under adverse market conditions causing us to incur significant losses.

It may be uneconomical to roll our TBA dollar roll transactions, which could require us 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 alternative means of investing in and financing Agency RMBS.

These transactions represent a form of off-balance sheet financing, increase our "at risk" leverage, and subject us to margin requirements.

Market conditions, including changes in the pace or manner of the Fed's runoff of its Agency RMBS portfolio or, if they occur, the Fed's, GSE's or other government-entity purchases or sales of Agency RMBS in the TBA market, may make it uneconomical for us to roll our TBA positions prior to their settlement dates.

Because TBA dollar roll transactions include a deferred purchase price obligation, an inability or decision not to continue rolling forward our positions have effects similar to a termination of financing.

In such circumstances, we would be required to settle our obligations in cash and take physical delivery of the underlying Agency RMBS.

We may not have sufficient funds or alternative financing available to do so.

Additionally, upon settlement, we would generally receive the "cheapest to deliver" securities that satisfy the TBA contract.

"Cheapest to deliver" securities typically have the least favorable prepayment attributes and may include few, if any, "whole pool" securities.

As a result, taking delivery could adversely affect our returns and could limit our ability to remain exempt from regulation as an investment company under the Investment Company Act (see " Loss of our exemption from regulation pursuant to the Investment Company Act would adversely affect us " below).

Our inability to roll TBA positions, obtain adequate financing to settle our obligations, or meet margin calls could force us to sell assets under adverse market conditions, resulting in significant losses.

Our funding and derivative agreements subject us to margin calls that could result in defaults and force us to sell assets under adverse market conditions or through foreclosure.

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 it from loss in the event we default on our obligations.

The requirement to meet margin calls can create liquidity risks.

In the event of a margin call, we must generally provide additional collateral on the same business day.

If we fail to meet the margin call, we would be

in default, and our counterparty could terminate outstanding transactions, require us to settle our entire obligation under the agreement and enforce their interests against existing collateral.

Furthermore, we may also be subject to certain cross-default and acceleration rights, such that if we were to fail to meet a margin call under one agreement that failure could lead to defaults, accelerations, or other adverse events under other agreements, as well.

If we fail to meet the margin call, we would be in default, and our counterparty could terminate outstanding transactions, require us to settle our entire obligation under the agreement, and enforce their interests against existing collateral.

Furthermore, we may also be subject to certain cross-default and acceleration rights, such that if we were to fail to meet a margin call under one agreement that failure could also lead to defaults, accelerations, or other adverse events under other agreements.

The threat or occurrence of margin calls or the accelerated settlement of our obligations under our agreements could force us to sell our investments under adverse market conditions and result in substantial losses.

Our fixed-rate collateral is generally more susceptible to margin calls due to its price sensitivity to changes in interest rates.

In addition, some collateral may be less liquid than other instruments, which could cause it to be more susceptible to margin calls in a volatile market environment.

Furthermore, faster rates of prepayment increase the magnitude of potential margin calls as there is a time lag between the effective date of the prepayment and the date we receive the principal payment.

In addition, some collateral may be less liquid than other instruments, which could cause it to be more susceptible to margin calls during periods of heightened volatility.

Furthermore, faster rates of prepayment may increase the magnitude of potential margin calls as there is a time lag between the effective date of the prepayment and the date we receive the principal payment.

Our derivative agreements also subject us to margin calls.

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Thus, changes in clearinghouse rules and other regulations can increase our margin requirements and the cost of our hedges.

Our counterparties typically have the sole discretion to determine eligible collateral, the value of our collateral and, in the case of our derivative counterparties, the value of our derivative instruments.

Our counterparties typically have the sole discretion to determine eligible collateral, the value of our collateral and, in the case of our derivative counterparties, the value of our derivative

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.

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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.

Furthermore, BES's 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 and the portfolio of outstanding transactions for which the FICC serves as BES's 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.

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

A number of our bilateral repurchase agreements and derivative agreements require that we comply with certain financial and non-financial covenants.

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Any waiver or forbearance, if granted, could carry additional conditions that may be unfavorable to us.

Additionally, certain of our agreements contain cross-default, cross-acceleration or similar provisions, such that if we were to violate a covenant under one agreement, that violation could lead to defaults, accelerations, or other adverse events under other agreements, as well.

Our rights under repurchase and derivative agreements in the event bankruptcy or insolvency may be limited.

Our rights under repurchase and derivative agreements in the event of bankruptcy or insolvency may be limited.

In the event of our bankruptcy or insolvency, our repurchase agreements and hedging arrangements may qualify for special treatment under the U.S.

Bankruptcy Code, the effect of which, among other things, would be to allow the counterparty under the applicable agreement to avoid the automatic stay provisions of the U.S.

Bankruptcy Code, the effect of which, among other things, would be to allow the counterparty under the applicable agreement to be exempt from the automatic stay provisions of the U.S.

Bankruptcy Code and to foreclose on the collateral without delay.

In the event of an insolvency or bankruptcy of one of our repurchase agreement or derivative counterparties, the counterparty may be permitted, under applicable insolvency laws, to repudiate the contract, and our claim against the counterparty for damages may be treated simply as an unsecured creditor.

In addition, if the counterparty is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to recover our assets under our agreements or to be compensated for any damages resulting from the counterparty's insolvency may be further limited by those statutes.

Recoveries on these claims could be subject to significant delay and, if received, could be substantially less than the damages incurred.

Our funding and derivative agreement counterparties may not fulfill their obligations to us as and when due.

In the event of the insolvency or bankruptcy of one of our repurchase agreement or derivative counterparties, the counterparty may be permitted, under applicable insolvency laws, to repudiate the contract with us, and our claim against the counterparty for damages may be treated as unsecured.

In addition, if the counterparty is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to recover assets under our agreements or to be compensated for damages resulting from the counterparty's insolvency may be further limited by those statutes.

Any recoveries on such claims could be subject to significant delay and, if received, could be substantially less than the damages incurred.

Our funding and derivative agreement counterparties may not fulfill their obligations to us when due.

If a repurchase agreement counterparty defaults on its obligation to resell collateral to us, we could incur a loss on the transaction equal to the difference between the value of our collateral and the amount of our borrowing.

Similarly, if a derivative agreement counterparty fails to return collateral to us at the conclusion of the derivative transaction or fails to pledge collateral to us or to make other payments we are entitled to under the terms of our agreement as and when due, we could incur a loss equal to the value of our collateral and other amounts due to us.

Similarly, if a derivative agreement counterparty fails to return collateral to us at the conclusion of the derivative transaction or fails to pledge

collateral to us or to make other payments we are entitled to under the terms of our agreement when due, we could incur a loss equal to the value of our collateral and other amounts due to us.

We attempt to limit our counterparty exposure by diversifying our funding across multiple counterparties and limiting our counterparties to registered central clearing exchanges and major financial institutions with acceptable credit ratings.

However, these measures may not sufficiently reduce our risk of loss.

Central clearing exchanges typically attempt to reduce the risk of default by requiring initial and daily variation margin from their clearinghouse members and maintain guarantee funds and other resources that are available in the event of default.

Nonetheless, we could be exposed to a risk of loss if an exchange or one or more of its clearing members defaults on its obligations.

Central clearing exchanges typically attempt to reduce the risk of default by requiring initial and daily variation margin from their clearinghouse members and maintaining guarantee funds and other resources that are available in the event of default.

Nonetheless, we could be exposed to the risk of loss if an exchange or one or more of its clearing members defaults on their obligations.

Most of the swaps and futures transactions that we enter into must be cleared by a Derivatives Clearing Organization, or DCO.

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 those of the DCO.

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

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Consequently, our hedging activities are generally designed to limit interest rate exposure, but not to eliminate it, and they are generally not designed to hedge against spread risk and other risks inherent to our business model.

Our hedging strategies may vary in scope based on our portfolio composition, liabilities and our assessment of the level and volatility of interest rates, expected prepayments, credit and other market conditions, and are expected to change over time.

We could inaccurately assess a risk or fail to recognize a risk entirely, leaving us exposed to losses without the benefit of any offsetting hedges.

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• the cost of interest rate hedges;

• the degree to which the interest rate hedge benchmark rate correlates to the interest rate risk being hedged;

• the degree to which the interest rate hedge benchmark rate correlates with the interest rate risk being hedged;

• the degree to which the duration of the hedge matches that of the related asset or liability, particularly as interest rates change;

• the amount of income that a REIT may earn from hedging transactions that do not satisfy certain requirements of the Internal Revenue Code or that are not done through a TRS;

• the degree to which the value of our interest rate hedges changes relative to our assets as a result of fluctuations in interest rates, passage of time, or other factors.

Additionally, regulations adopted by the CFTC and regulators of other countries could adversely affect our ability to engage in derivative transactions or impose increased margin requirements and require additional operational and compliance costs.

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 amount of income that a REIT may earn from hedging transactions that do not satisfy certain requirements of the Internal Revenue Code and that are not conducted through a TRS;

• the degree to which the value of our interest rate hedges changes relative to our assets as a result of fluctuations in interest rates, the passage of time, or other factors.

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

Risks Related to Our Business Operations

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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.

These systems may be subject to damage or interruption from, among other things, natural disasters, public health issues such as pandemics or epidemics, terrorist attacks, 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, viruses, 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.

Despite having no significant breaches detected to date, 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.

Such vendors 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 legal and regulatory requirements 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 we may be compelled 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.

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

Furthermore, whether a single cyber event or series of 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.

The use of artificial intelligence by us or our third-party vendors could expose us to additional risks.

We currently make limited use of AI technologies in our operations;

however, we may expand our use of AI over time, and certain third-party service providers on which we rely may also utilize AI in providing services to us.

AI technologies are rapidly evolving and may present risks related to data quality or completeness, model accuracy, cybersecurity, bias, explainability, intellectual property, and other operational, legal and business risks.

Increased use of AI, whether by us or our vendors, could require additional governance, controls, and oversight and may increase our reliance on third-party data and technology.

If AI-driven tools, models, or outputs are inaccurate, unreliable, misconfigured, or misused, or if we fail to appropriately manage risks associated with the use of AI by us or our vendors, our operations, results of operations, or financial condition could be adversely affected.

Risks Related to Our Taxation as a REIT

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At least 75% of our gross income must come from real estate sources, and 95% must come from real estate and certain other qualifying sources.

Our ability to satisfy the asset tests depends on determining the characterization and fair market value of our assets, which may not be precisely measurable and lack independent appraisals.

Additionally, the classification of certain instruments as debt or equity for tax purposes may be uncertain, which could impact the application of the REIT asset requirements.

Our ability to satisfy the asset tests depends on determining the characterization and fair market value of our assets, which may not be precisely measurable or may lack independent appraisals.

Additionally, the classification of certain instruments as debt or equity for tax purposes may be uncertain, which could adversely impact the application of the REIT asset requirements.

The distribution requirement mandates that we distribute at least 90% of our REIT taxable income to stockholders annually, determined without regard to the dividends paid deduction and excluding net capital gains.

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federal and state corporate income tax as a regular C corporation for any taxable year for which we did not qualify.

This could result in substantial tax liabilities and reduce funds available for investments and distributions, likely adversely impacting our stock value.

This could result in substantial tax liabilities and reduce funds available for investments and distributions, likely adversely impacting our stock price.

Additionally, we would no longer be required to make stockholder distributions.

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.

Relief provisions may be available if we fail to meet the REIT requirements, provided the failure was due to reasonable cause, not willful neglect, and we satisfy other requirements, including completion of applicable IRS filings.

It is not possible to predict if we would be entitled to benefit from such provisions.

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

It is not possible to predict whether we would be entitled to benefit from such provisions.

Even if we were to qualify for relief, we may still incur penalty taxes.

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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.

We may also elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains if required, in which case, we could elect for our stockholders to include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we paid.

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 -paid with or before the first regular dividend payment after such declaration.

We may also elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains if required, in which case, we could designate for our stockholders to include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we paid.

Our stockholders would then increase the adjusted basis of their stock by the difference between (a) the amounts of capital gain dividends that we designated and that they include in their taxable income, minus (b) the tax that we paid on their behalf with respect to that income.

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federal and state corporate income tax on our undistributed taxable income.

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.

Furthermore, if we failed 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.

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

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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.

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

federal income tax purposes.

As a result, stockholders may be required to pay income taxes with respect to such dividends that are in excess of the cash dividends received.

stockholder sells the stock that it receives as a dividend to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale.

As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received.

stockholder sells the stock received as a dividend to pay these taxes, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of sale.

Furthermore, with respect to certain non-U.S.

stockholders, we may be required to withhold U.S.

tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

tax on such dividends, including on all or a portion of any dividend that is payable in stock.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

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federal and state corporate income taxes on any undistributed taxable income, including undistributed net capital gains.

• A non-deductible 4% excise tax if the actual amount distributed to our stockholders in a calendar year is less than a minimum amount specified under Federal tax laws.

• A non-deductible 4% excise tax if the amount distributed to our stockholders in a calendar year is less than the required amount specified under federal tax law.

• Corporate income taxes on the earnings of subsidiaries, to the extent that such subsidiaries are subchapter C corporations and are not qualified REIT subsidiaries or other disregarded entities for federal income tax purposes.

• A 100% tax on certain transactions between us and our TRSs that do not reflect arm's-length terms.

• If we acquire appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Internal Revenue Code) in a transaction in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation, we may be subject to tax on such appreciation at the highest corporate income tax rate then applicable if we subsequently recognize a gain on a disposition of any such assets during the five-year period following their acquisition from the subchapter C corporation.

• If we acquire appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Internal Revenue Code) in a nontaxable transaction, we may be subject to tax on such appreciation at the highest applicable corporate income tax rate if we were to dispose of the assets in a taxable transaction during the five-year period following the acquisition.

• A 100% tax on net income and gains from "prohibited transactions."

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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.

The remainder of our investments in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.

The remainder of our investments in securities (other than government securities and qualified real estate assets) generally cannot include securities possessing more than 10% of the outstanding voting power of any one issuer or having a value of more than 10% of the total value of the outstanding securities of any one issuer.

In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs.

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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.

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

Thus, the potential returns on our investment portfolio may be lower than they would be 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.

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

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 ("qualified hedges").

Any income from a properly designated hedging transaction to manage the 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 ("qualified hedges").

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.

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Government securities for purposes of the 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property or other qualifying income for purposes of the 75% gross income test.

However, we treat our TBAs as qualifying assets for purposes of the REIT 75% asset test, and we treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, based on a legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of the underlying Agency RMBS, and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in

connection with the settlement of our TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS.

However, we treat our TBAs as qualifying assets for purposes of the REIT 75% asset test, and we treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, based on a legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership

of the underlying Agency RMBS (i.e., real estate assets), and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of our TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS.

Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in such opinions.

In addition, it must be emphasized that Skadden's opinion is based on various assumptions relating to our TBAs and is conditioned upon fact-based representations and covenants made by our management regarding our TBAs.

No assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income.

Accordingly, no assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income.

If the IRS were to successfully challenge Skadden's opinion, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.

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Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions on a continuous basis for which only limited judicial and administrative authorities exist.

Our application of such provisions may be dependent on interpretations of the provisions by the staff of the Internal Revenue Service, which may change over time.

Our application of such provisions may be dependent on interpretations of the provisions by the Internal Revenue Service, which may change over time.

Even a technical or inadvertent violation of the Internal Revenue Code provisions could jeopardize our REIT qualification.

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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.

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 U.S.

In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship under the FHFA.

In addition, the U.S.

Treasury Department provided a liquidity backstop to ensure their financial stability.

Over time, efforts to end the conservatorships and modify the existing guarantee-payment structure have garnered attention from U.S.

Government policymakers.

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

In the final months of 2020 and early 2021, the Director of the FHFA was reported to have considered various actions to bring a prompt end to the conservatorships.

During the final year of the first Trump Administration, FHFA established new regulatory capital requirements for an exit from conservatorship, and the Treasury Department amended the terms of its liquidity backstop to enable Fannie Mae and Freddie Mac to retain additional capital to meet these requirements, subject to certain conditions.

In late 2020 and early 2021, the Director of the FHFA was reported to have considered various actions to bring a prompt end to the conservatorships.

The Biden Administration and the FHFA delayed implementation or reversed many of these initiatives and took steps intended to advance other housing finance policy objectives.

In the final month of the Biden Administration, the FHFA and Department of Treasury further amended the liquidity backstop to, among other things, require the written consent of the Department of Treasury after a period of public notice and opportunity to comment prior to

terminating the conservatorships (other than through receivership) and would further require that Fannie Mae and Freddie Mac achieve sufficient capital levels prior to being released from conservatorship.

Since the 2024 election, speculation has grown that the Trump Administration or Congress would take actions to bring an end to the conservatorships although it is not clear what form any such actions may take or what the timeline would be to implement them, and it is possible that the Department of Treasury and FHFA will further amend the liquidity backstop to eliminate or modify provisions that would otherwise slow or add conditionality to an end to the conservatorships.

These or other administrative and/or legislative actions may be taken that affect the GSEs or the housing finance system, alter the amount or nature of the credit support provided by the U.S.

Treasury to Fannie Mae and Freddie Mac, modify the future roles of Fannie Mae and Freddie Mac in housing finance or otherwise impact the value or relative fungibility of Agency RMBS issued by each GSE.

Such actions may create market uncertainty, may have the effect of reducing the actual or perceived credit quality of securities issued or guaranteed by the GSEs, may impact the ability of banks, foreign investors, mutual funds or others to own Agency RMBS, or may otherwise impact the liquidity, size and scope of the Agency RMBS markets.

Actions that would terminate the conservatorships without also providing for sufficiently robust U.S.

government backing to preserve their government-like status or otherwise retain the functionality, scale and efficiency of the primary and secondary mortgage markets as they exist today could re-define what constitutes an Agency security.

This could subject Agency RMBS to greater credit risk, make them more difficult to finance or less liquid, and cause their values to decline, all of which could have broad adverse implications for primary and secondary mortgage markets and our business.

In the final month of the Biden Administration, the FHFA and the Treasury Department further amended the liquidity backstop, among other things, to require the written consent of the Treasury Department after a period of public notice and opportunity to comment prior to terminating the conservatorships

(other than through receivership) and to require that Fannie Mae and Freddie Mac achieve sufficient capital levels prior to being released from conservatorship.

During 2025, the Trump Administration indicated that it was actively considering the capital structure and status of the GSEs, which could include stock offerings, a recapitalization, or a re-listing of their common stock, and expressed a desire to end the conservatorships at some time in the future.

Nonetheless, Administration officials have stated that any such actions would be pursued in a manner intended to preserve mortgage market stability and not lead to higher mortgage rates.

It is unclear what actions, if any, may be taken, or the form, nature, scope, timing, or the effects of any such actions.

Administrative or legislative actions affecting the GSEs or the housing finance system could alter the amount or nature of the credit support provided by the U.S.

Treasury to Fannie Mae and Freddie Mac, modify their roles in housing finance or otherwise affect the value or relative fungibility of Agency RMBS issued by each GSE.

Such actions could create market uncertainty, reduce the actual or perceived credit quality of GSE securities, limit the ability of banks, foreign investors, mutual funds or others to own Agency RMBS, or otherwise adversely impact the liquidity, size and scope of the Agency RMBS market.

Actions that terminate the conservatorships without providing sufficiently robust U.S.

government support to preserve their government-like status or otherwise retain the functionality, scale, or efficiency of the primary and secondary mortgage markets as they exist today could redefine what constitutes an Agency security.

Such actions could subject Agency RMBS to greater credit risk, make them more difficult to finance or less liquid, and cause their values to decline, all of which could have broad adverse implications for primary and secondary mortgage markets and our business.

Actions of the U.S.

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Treasury, FHFA and other governmental and regulatory bodies may adversely affect our business.

Government legislative and administrative actions may have an adverse impact on financial markets for fixed income securities, including Agency RMBS.

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.

For example, the actual or anticipated actions or inaction on U.S.

fiscal policy matters, including the U.S.

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 or demand for Agency RMBS, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed securities, or limit the trading activities of certain banking entities and other systemically significant organizations that are important to our business.

Government legislative and administrative actions may have an adverse impact on financial markets for Agency RMBS.

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 and adverse market implications and could negatively impact our financial condition and results of operations.

In recent years, the U.S.

Government has sought to advance housing policy objectives through the GSEs.

In 2025, the Trump Administration increased its focus on housing affordability, including the cost of home mortgages.

In January 2026, President Trump stated that he had instructed the GSEs to acquire approximately $200 billion of Agency MBS to lower mortgage rates and improve housing affordability.

The Administration has also solicited input from industry groups, think tanks, and other market participants regarding potential measures to reduce the cost of homeownership.

A number of these proposals would be expected to have a benign or only modest effect on the Agency RMBS market or on our business, financial condition, or results of operations.

However, certain of these proposals (or other future proposals), if implemented, could have broad adverse implications for Agency RMBS markets and our business by significantly changing prepayment speeds, artificially altering mortgage spreads on an unsustainable basis, or purporting to modify the terms of existing mortgages and existing Agency RMBS in a manner unfavorable to holders of Agency RMBS.

Such proposals (or other future proposals), if adopted, could lead to reduced investor interest in Agency RMBS, lower market liquidity, increased Agency RMBS volatility, wider mortgage spreads, and as a result higher mortgage lending rates for homeowners.

It is unclear whether the Trump Administration or Congress will seek to implement any of these or any other proposals or what the form, nature, scope, implementation timeline or effects of such actions could be.

Actual or anticipated actions or inaction on U.S.

fiscal policy matters, including the amount and tenor of U.S.

Treasury debt required to fund the government and the U.S.

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

Additionally, new regulatory requirements, including changes to the manner and timing of clearing U.S.

Treasury and Agency RMBS transactions or the imposition of greater regulatory constraints on banks, could adversely affect the availability or terms of financing from our lending counterparties, reduce market liquidity or demand for Agency RMBS, restrict the origination of residential mortgage loans and the formation of new issuances of mortgage-backed securities, or limit the trading activities of certain banking entities and other systemically significant organizations that are important to our business.

In 2023, the FDIC and Fed proposed revisions to bank capital rules that would have applied risk weights (and costs) to Agency RMBS that, if adopted, might have impacted the source, pricing, volume, financing, and nature of Agency RMBS.

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

Our ability to access tri-party repo funding through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity, and our ability to conduct self-clearing of our investment and funding activity through BES are reliant on BES' ability to continually meet these regulatory and membership requirements.

Our ability to access tri-party repo funding through the FICC's GCF Repo service, which represents a significant portion of our total borrowing capacity, and our ability to conduct self-clearing of our investment and funding activity through BES are reliant on BES's ability to continually meet these regulatory and membership requirements.

If BES were to lose its memberships in FICC and FINRA or its status as a self-clearing registered broker-dealer, we may be unable to find alternative sources of financing on favorable terms and we may experience business interruptions as we attempt to transfer custody and clearing activities to alternative providers that would be harmful to our business.

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Our certificate of incorporation generally does not permit ownership of more than 9.8% of our common or capital stock and attempts to acquire amounts above this limit will be ineffective unless an exemption is granted by our Board of Directors.

For the purpose of complying with REIT ownership limitations under the Internal Revenue Code, our amended and restated certificate of incorporation generally prohibits beneficial or constructive ownership by any person of more than 9.8% of our common or capital stock (by value or by number of shares, whichever is more restrictive), unless exempted by our Board.

Such constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity.

As a result, the acquisition of 9.8% or less of the outstanding stock by an individual, entity or group could result in constructive ownership greater than 9.8% and thus be subject to our amended and restated certificate of incorporation's ownership limit.

Any attempt to own or transfer shares of our common or preferred stock more than the ownership limit without the consent of the Board will result in the shares being automatically transferred to a charitable trust or, if the transfer to a charitable trust would not be effective, such transfer being treated as invalid from the outset.

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.

Any attempt to own or transfer shares of our common or preferred stock more than the ownership limit without the consent of the Board will result in the shares being automatically transferred to a charitable trust or, if the transfer to a charitable trust would not be effective, the transfer will be treated as invalid from the outset.

This 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.

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