2 unchanged sentences
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.
−Removed: For additional discussion of market risk associated with the COVID-19 pandemic, see Item Part II.
−Removed: Item 1A - Risk Factors of this Quarterly Report.
+Added: For additional discussion of market risk associated with the COVID-19 pandemic, see Part I.
+Added: Item 1 - Risk Factors of our annual report on Form 10-K for the year ended December 31, 2020.
Interest Rate Risk
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Our repurchase agreements are typically short-term in nature and are periodically refinanced at current market rates.
−Removed: We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agre ements, futures, and TBAs.
−Removed: We resumed purchasing 30 year fixed-rate Agency RMBS in July 2020 and financed these purchases with repurchase agreement borrowings.
−Removed: We entered into interest rate swaps to mitigate our interest rate risk associated with these borrowings.
+Added: We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agre ements, futures contracts and TBAs.
Interest Rate Effect on Net Interest Income
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This increase in borrowing costs results in the narrowing of the net interest spread between the related assets and borrowings and may even result in losses.
−Removed: Further, during this portion of the interest rate and credit cycles, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results.
+Added: Further, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results.
Such delinquencies or defaults could also have an adverse effect on the spread between interest-earning assets and interest-bearing liabilities.
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We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and maintaining adequate liquidity.
−Removed: Changes in spreads impact our book value and our liquidity and could cause us to sell assets and to change our investment strategy in order to maintain liquidity and preserve book value.
−Removed: Uncertainties related to the COVID-19 pandemic caused credit spreads to widen significantly in the second half of March 2020 and into April 2020.
−Removed: Unprecedented government responses, including fiscal stimulus, monetary policy actions, and various purchase and financing programs have had and will continue to impact credit spreads.
+Added: Changes in spreads impact our book value and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value.
+Added: Unprecedented government responses to the COVID-19 pandemic, including fiscal stimulus, monetary policy actions, and various purchase and financing programs have impacted and will continue to impact credit spreads.
Prepayment Risk
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Market Value Risk
−Removed: Our available-for-sale securities are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income pursuant to ASC Topic 320.
+Added: Our available-for-sale securities are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income under ASC Topic 320.
The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors.
4 unchanged sentences
As a result, if these market conditions persist, margin call risk remains elevated and our operating results and financial condition may be materially impacted.
−Removed: The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, including net interest paid or received under interest rate swaps, at September 30, 2020, assuming a static portfolio and constant financing and credit spreads.
−Removed: When evaluating the impact of changes in interest rates, prepayment assumptions and
−Removed: principal reinvestment rates are adjusted based on our Manager’s expectations.
+Added: The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, including net interest paid or received under interest rate swaps, at March 31, 2021, assuming a static portfolio and constant financing and credit spreads.
+Added: When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations.
The analysis presented utilized assumptions, models and estimates of our Manager based on our Manager’s judgment and experience.
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Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes.
−Removed: The base interest rate scenario assumes interest rates at September 30, 2020.
+Added: The base interest rate scenario assumes interest rates at March 31, 2021.
Furthermore, while we generally expect to retain such assets and the associated interest rate risk to maturity, future purchases and sales of assets could materially change our interest rate risk profile.
1 unchanged sentence
Treasury yields.
−Removed: Given the relatively low interest rates at September 30, 2020, to be consistent, we also applied a floor of 0% for all related funding costs.
+Added: Given the relatively low interest rates at March 31, 2021, to be consistent, we also applied a floor of 0% for all related funding costs.
Due to this floor, we anticipate that declines in funding costs resulting from a significant interest rate decrease would be limited.
7 unchanged sentences
national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors);
−Removed: local real estate conditions (such as the supply of housing stock);
+Added: local real estate conditions (such as the supply of housing stock or other property sectors);
changes or continued weakness in specific industry segments;
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In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.
−Removed: We retain the risk of potential credit losses on all our residential and commercial mortgage investments.
+Added: We retain the risk of potential credit losses on all of our residential and commercial mortgage investments.
We seek to manage this risk through our pre-acquisition due diligence process.
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The significant decrease in economic activity and/or resulting decline in the housing market could have an adverse effect on the value of our investments in mortgage real estate-related assets.
−Removed: Further, in light of the COVID-19 pandemic’s impact on the overall economy, such as rising unemployment levels or changes in consumer behavior related to loans as well as government policies and pronouncements, borrowers may experience difficulties meeting their obligations or seek to forbear or further forbear payment on or refinance their mortgage loans to avail themselves of lower rates.
+Added: Further, because of the COVID-19 pandemic’s impact on the overall economy, such as rising unemployment levels or changes in consumer behavior related to loans as well as government policies and pronouncements, borrowers may experience difficulties meeting their obligations or seek to forbear or further forbear payment on or refinance their mortgage loans to avail themselves of lower rates.
In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants underlying our commercial property assets resulting in potential delinquencies, defaults or declines in asset values.
4 unchanged sentences
Foreign Exchange Rate Risk
−Removed: We have an investmen t of €13.1 million in an unconsolidated joint venture whose net assets and results of operations are exposed to foreign currency translation risk when trans lated in U.S.
+Added: We have an investment of €11.4 million in an unconsolidated joint venture whose net assets and results of operations are exposed to foreign currency translation risk when translated in U.S.
dollars upon consolidation.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.