RISK FACTORS.
−Removed: There were no material changes during the period covered by this Report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, other than those risks related to the COVID-19 pandemic as described below.
+Added: There were no material changes during the period covered by this Report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 22, 2021.
Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse effect on our business, financial condition and results of operations.
−Removed: The COVID-19 pandemic has adversely affected, and will likely continue to adversely affect, the U.S.
−Removed: economy, the mortgage REIT industry and our business.
−Removed: The COVID-19 pandemic and the related preventative measures are causing significant disruptions to the U.S.
−Removed: and global economies and have contributed to volatility and negative pressure in financial markets.
−Removed: Many businesses, particularly smaller ones within the service-sector, have been forced to close, furlough and/or lay off employees.
−Removed: As a result, U.S.
−Removed: unemployment claims remain at elevated levels.
−Removed: Other economic activity, including retail sales and industrial production, while rebounding since the onset of the COVID-19 pandemic, also remain well below pre-COVID levels.
−Removed: After a meaningful contraction in the second quarter of 2020, economic activity recovered sharply during the third quarter.
−Removed: However, the pace, timing and strength of the economic recovery going forward is still unknown and difficult to predict as the COVID-19 pandemic continues.
−Removed: Beginning in the first quarter of 2020, particularly in March, the COVID-19 pandemic began to adversely affect the mortgage REIT industry generally.
−Removed: In addition to negative general economic conditions, the impact of COVID-19 caused severe volatility across asset classes, including mortgage-related assets.
−Removed: Forced sales of the securities and other assets that secure repurchase and other financing arrangements due to drops in fair market value of such collateral have been, and may continue to be, on terms less favorable than might otherwise be available in a regularly functioning market and have, and may continue to generate higher than historical levels of margin calls.
−Removed: The conditions related to the COVID-19 pandemic discussed above have also adversely affected our business and we expect these conditions to continue during 2020.
−Removed: The significant decrease in economic activity and/or resulting decline in the real estate 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.
−Removed: Elevated levels of delinquency or default would have an adverse impact on the value of our mortgage related assets.
−Removed: In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants on our commercial property assets resulting in potential delinquencies, defaults or declines in asset values.
−Removed: To the extent current conditions persist or worsen, we expect there to be a negative effect on our results of operations, which may reduce earnings and, in turn, cash available for distribution to our stockholders.
−Removed: The continued spread of COVID-19 could also negatively impact the availability of our Manager’s key personnel necessary to conduct our business.
−Removed: In response to the COVID-19 pandemic, the U.S.
−Removed: government has taken various actions to support the economy and the continued functioning of the financial markets.
−Removed: The Federal Reserve has announced its commitment to purchase unlimited amounts of U.S.
−Removed: Treasuries, mortgage-backed securities, municipal bonds and other assets.
−Removed: In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments.
−Removed: There can be no assurance as to how, in the long term, these and other actions by the U.S.
−Removed: government will affect the efficiency, liquidity and stability of the financial and mortgage markets.
−Removed: To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations and financial condition may continue to be materially adversely affected.
−Removed: Our inability to access funding or the terms on which funding is available could have a material adverse effect on our results of operations and financial condition, particularly in light of ongoing market dislocations resulting from the COVID-19 pandemic.
−Removed: Our ability to fund our operations, meet financial obligations and finance asset acquisitions may be impacted by an inability to secure and maintain our repurchase agreements with counterparties.
−Removed: Because repurchase agreements are short-term commitments of capital, repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis maturing short-term financings and have and may continue to impose less favorable conditions when rolling such financings.
−Removed: If we are not able to renew or roll our repurchase agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly lower prices and at inopportune times, which could cause significant losses, and may also force us to limit our asset acquisition activities.
−Removed: Issues related to financing are heightened in times of significant volatility in the financial markets, such as those being experienced now in connection with the COVID-19 pandemic.
−Removed: It is possible that our financing counterparties will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed or markets are illiquid, which could cause significant losses.
−Removed: In addition, if the regulatory capital requirements imposed on our financing counterparties change, they may be required to significantly increase the cost of the financing that they provide to us, or to increase the amounts of collateral they require as a condition to providing us with financing.
−Removed: Our financing counterparties also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance or the terms of such financings, including increased haircuts and requiring additional cash collateral, based on, among other factors, the regulatory environment and their management of actual and perceived risk.
−Removed: Moreover, the amount of financing that we receive under our repurchase agreements will be directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing.
−Removed: Typically, repurchase agreements grant the repurchase agreement counterparty the absolute right to reevaluate the fair market value of the assets that cover the amount financed under the repurchase agreement at any time.
−Removed: If a repurchase agreement counterparty determines in its sole discretion that the value of the assets subject to the repurchase agreement financing has decreased, it has the right to initiate a margin call.
−Removed: These valuations may be different than the values that we ascribe to these assets and may be influenced by recent asset sales at distressed levels by forced sellers.
−Removed: A margin call requires us to transfer additional assets to a repurchase agreement counterparty without any advance of funds from the counterparty for such transfer or to repay a portion of the outstanding repurchase agreement financing.
−Removed: We would also be required to post additional collateral if haircuts increase under a repurchase agreement.
−Removed: In these situations, we could be forced to sell assets at significantly depressed prices to meet such margin calls or increased haircuts and to maintain adequate liquidity, which could cause significant losses.
−Removed: As a result of the ongoing COVID-19 pandemic, during the nine months ended September 30, 2020, we observed a mark-down of a portion of our mortgage assets by the counterparties to our financing arrangements, resulting in us having to post cash or securities to satisfy higher than historical levels of margin calls.
−Removed: Significant margin calls had and could have in the future a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and caused and could cause in the future the value of our common stock to decline.
−Removed: We may be and have been forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity.
−Removed: If these trends continue, it will continue to have a negative adverse impact on our liquidity.
−Removed: Our ability to make distributions to our stockholders has been and may continue to be adversely affected by the COVID-19 pandemic.
−Removed: The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors.
−Removed: The payment of dividends may be more uncertain during severe market disruption in the mortgage, real estate or related sectors, such as those being experienced now as a result of the COVID-19 pandemic.
−Removed: Additionally , the Internal Revenue Service issued a revenue procedure permitting “publicly offered” REITs, such as us to pay dividends in a mixture of stock and cash, with at least 10% of the total distribution being paid in cash, to satisfy their REIT distribution requirements.
−Removed: Pursuant to this revenue procedure, we have elected and may elect again in the future to make distributions of our taxable income to common stockholders in a mixture of our common stock and cash.
−Removed: As a result, common stockholders may be required to pay income taxes with respect to such dividends in excess of cash received.
−Removed: stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale.
−Removed: Furthermore, with respect to certain non-U.S.
−Removed: stockholders, we or the applicable withholding agent may be required to
−Removed: withhold U.S.
−Removed: tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock.
−Removed: In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
−Removed: We have experienced, and may continue to experience, significant changes in our portfolio during times of severe market disruption in the mortgage, real estate or related sectors, such as those being experienced now as a result of the COVID-19 pandemic.
−Removed: Consistent with current market conditions related to the COVID-19 pandemic and our intention to enhance our liquidity and strengthen our cash position, during the nine months ended September 30, 2020, we have reduced leverage and taken other steps to manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, including completing various transactions to reposition our portfolio.
−Removed: Stockholders may not agree with, nor are required to consent to, significant changes to our portfolio.
−Removed: The COVID-19 pandemic has created an uncertain and volatile interest rate environment, which could adversely affect our business.
−Removed: The COVID-19 pandemic has created an uncertain and volatile interest rate environment and general fixed income patterns have deviated widely from historical trends, which have and may continue to adversely affect our business.
−Removed: We have experienced historically larger spreads to benchmark rates in the repurchase markets and, in some cases, availability of repurchase financing has been limited or not available.
−Removed: Further, in response to the COVID-19 pandemic, significant government programs, stimulus plans as well as government purchase and finance programs have had and will continue to have an impact on interest rates and fair values of fixed income assets.
−Removed: It is unclear what the impact of these actions will be and how long they will continue to drive the interest rate environment.
−Removed: With respect to prepayments, given the combination of low interest rates, government stimulus and high unemployment, and other disruptions related to the COVID-19 pandemic, it has become more difficult to predict prepayment levels for the securities in our portfolio.
−Removed: Actual prepayment results may be materially different than the assumptions we use.
−Removed: We use interest rate swaps to manage our exposure to interest rate movements.
−Removed: However, there is no guarantee these interest rate swaps will cover all risk.
−Removed: Market disruptions caused by the COVID-19 pandemic have made it more difficult for us to determine the fair value of our investments.
−Removed: As discussed in Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, market-based inputs are generally the preferred source of values for purposes of measuring the fair value of many of our assets under U.S.
−Removed: The markets for our investments have experienced, and continue to experience, extreme volatility, reduced transaction volume and liquidity, and disruption as a result of the ongoing COVID-19 pandemic, which has made it more difficult for us, and for the providers of third-party valuations that we use, to rely on market-based inputs in connection with the valuation of many of our assets under U.S.
−Removed: In the absence of market inputs, U.S.
−Removed: GAAP permits the use of management assumptions to measure fair value.
−Removed: However, the considerable market volatility and disruption caused by the COVID-19 pandemic and the considerable uncertainty regarding the ultimate impact and duration of the pandemic have made it more difficult for our management to formulate assumptions to measure the fair value of certain of our assets.
−Removed: The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.
−Removed: The value of our common stock and preferred stock could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.
−Removed: We have experienced, and may experience in the future, a decline in the fair value of our investments as a result of the COVID-19 pandemic, which could materially and adversely affect us.
−Removed: During the nine months ended September 30, 2020 , w e experienced a significant amount of realized and unrealized losses on our assets.
−Removed: A future decline in the fair value of our investments as a result of the COVID-19 pandemic may require us to recognize an impairment under U.S.
−Removed: GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets.
−Removed: If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date
−Removed: they are considered to be impaired.
−Removed: Such impairment charges reflect non-cash losses at the time of recognition.
−Removed: The subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale.
−Removed: If we experience a decline in the fair value of our investments, it could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.
−Removed: Measures intended to prevent the spread of COVID-19 could disrupt our operations.
−Removed: In response to the outbreak of COVID-19 and the federal and state mandates implemented to control its spread, the majority of our Manager’s employees are working remotely.
−Removed: If our Manager’s employees are unable to work effectively as a result of the COVID-19 pandemic , including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.
−Removed: Further, remote work arrangements may increase the risk of cyber-security incidents and cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in the operation of our business and damage to our reputation.
−Removed: We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.
−Removed: The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions, and could lead to material adverse declines in the market values of our assets, illiquidity in our investment and financing markets and negatively impact our ability to effectively conduct our business.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
−Removed: During the three months ended September 30, 2020, we did not repurchase any shares of our common stock.
+Added: During the three months ended March 31, 2021, we did not repurchase any shares of our common stock.
DEFAULTS UPON SENIOR SECURITIES.
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