2 unchanged sentences
Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.
−Removed: To achieve this objective, we have invested in the following:
+Added: To achieve this objective, we currently invest in the following:
• Residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S.
government agency such as the Government National Mortgage Association (“Ginnie Mae”) or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “Agency RMBS”);
−Removed: • Commercial mortgage-backed securities (“CMBS”) that are guaranteed by a U.S.
−Removed: government agency such as Ginnie Mae or a federally chartered corporation such as Fannie Mae or Freddie Mac (collectively “Agency CMBS”);
+Added: • Commercial mortgage-backed securities (“CMBS”) that are not guaranteed by a U.S.
+Added: government agency or a federally chartered corporation (“non-Agency CMBS”);
• RMBS that are not guaranteed by a U.S.
government agency or a federally chartered corporation (“non-Agency RMBS”);
−Removed: • CMBS that are not guaranteed by a U.S.
−Removed: government agency or a federally chartered corporation (“non-Agency CMBS”);
−Removed: • Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises (“GSE CRT”);
• To-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS;
−Removed: • Residential and commercial mortgage loans;
+Added: • Commercial mortgage loans;
• Other real estate-related financing arrangements.
+Added: We have also historically invested in:
+Added: • CMBS that are guaranteed by a U.S.
+Added: government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively “Agency CMBS”);
+Added: • Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises (“GSE CRT”);
+Added: • Residential mortgage loans.
+Added: We continuously evaluate new investment opportunities to complement our current investment portfolio by expanding our target assets and portfolio diversification.
We conduct our business through our wholly-owned subsidiary, IAS Operating Partnership L.P.
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To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually.
−Removed: We operate our business in a manner that permits our exclusion from the definition of an “Investment Company” under the 1940 Act.
−Removed: As a result of unprecedented market conditions associated with the COVID-19 pandemic, we sold a substantial portion of our MBS and GSE CRT portfolio in the first half of 2020 to generate liquidity and reduce leverage.
−Removed: During the third quarter of 2020, we resumed purchasing Agency RMBS and began investing in TBAs as an alternative means of investing in and financing Agency RMBS.
−Removed: We have largely completed our portfolio reallocation to Agency RMBS with approximately 98% of our investment portfolio, excluding TBAs, invested in Agency RMBS at year end.
−Removed: For a detailed discussion of the impact that the market disruption caused by the COVID-19 pandemic had on our financial condition and results of operations, refer to Item 7.
−Removed: “Management's Discussion of Financial Condition and Results of Operations” in Part II of this Report.
+Added: We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the 1940 Act.
Our Manager provides us with our management team, including our officers and appropriate support personnel.
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We have invested in a diversified pool of mortgage assets that generate attractive risk-adjusted returns.
−Removed: Our target assets generally include Agency RMBS, Agency CMBS, non-Agency RMBS, non-Agency CMBS, GSE CRT, TBAs, residential and commercial mortgage loans and other real estate-related financing arrangements.
+Added: Our current investment portfolio includes Agency RMBS, non-Agency RMBS, non-Agency CMBS, TBAs, and a commercial mortgage loan.
+Added: Our assets have also historically included, and may in the future include, Agency CMBS, GSE CRT, residential mortgage loans and other real estate-related investments.
+Added: We refer to all of these investment types collectively as our target assets.
In addition to direct purchases of our target assets, we also invest in ventures managed by an affiliate of our Manager, which, in turn, invest in our target assets.
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We take these factors into account when we make investments.
−Removed: Agency CMBS are structured pass-through certificates representing interests in pools of commercial loans that are secured by commercial property and issued by a U.S.
−Removed: government agency or federally chartered corporation.
−Removed: Types of Agency CMBS include Fannie Mae DUS (Delegated Underwriting and Servicing), Freddie Mac Multifamily Mortgage Participation Certificates, Ginnie Mae project loan pools, and/or CMOs structured from such collateral.
−Removed: government agency or federally chartered corporation sources these loans from a network of approved multifamily sellers/servicers and guarantees the timely payment of interest and principal on these investments.
−Removed: Unlike single family residential mortgages in which the borrower, generally, can prepay at any time, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection.
−Removed: Common restrictions include yield maintenance (a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date) and prepayment penalties.
−Removed: Additionally, Agency CMBS include Ginnie Mae Construction Loan Certificates (“CLCs”) and the resulting Project Loan Certificates (“PLCs”) when the construction project is complete.
−Removed: The investor in the CLC is committed to fund the full amount of the project;
−Removed: however, actual funding generally occurs monthly as construction progresses on the property.
−Removed: Ginnie Mae guarantees the timely payment of principal and interest on each CLC and PLC.
−Removed: Ginnie Mae CLCs pay interest only during construction, while PLCs pay principal and interest.
−Removed: The mortgage loans underlying the PLCs generally contain a lock-out and prepayment penalty period of 10 years.
−Removed: Ginnie Mae does not guarantee the payment of prepayment penalties.
+Added: Substantially all of our current investments in Agency RMBS are FRMs.
Non-Agency CMBS
1 unchanged sentence
government agency or federally chartered corporation.
−Removed: Like Agency CMBS, non-Agency CMBS are securities backed by obligations (including certificates of participation in obligations) that are principally secured by commercial mortgages on real property or
−Removed: interests therein having a multifamily or commercial use, such as regional malls, retail space, office buildings, industrial or warehouse properties, hotels, apartments, nursing homes and senior living facilities.
+Added: Like Agency CMBS, non-Agency CMBS are securities backed by obligations (including certificates of participation in obligations) that are principally secured by commercial mortgages on real property or interests therein having a multifamily or commercial use, such as regional malls, retail space, office buildings, industrial or warehouse properties, hotels, apartments, nursing homes and senior living facilities.
Non-Agency CMBS are typically issued in multiple tranches whereby the more senior classes are entitled to priority distributions to make specified interest and principal payments on such tranches.
7 unchanged sentences
government agency or federally chartered corporation underwriting guidelines due to certain factors including mortgage balance in excess of such guidelines, borrower characteristics, loan characteristics and level of documentation.
−Removed: We have invested in securities collateralized by the following types of residential mortgage loans:
+Added: Our current investments in non-Agency RMBS are collateralized by prime, jumbo prime and Alt-A mortgage loans.
+Added: We have also historically invested in non-Agency RMBS collateralized by subprime and reperforming mortgage loans.
Prime and Jumbo Prime Mortgage Loans
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A Re-REMIC is a transaction in which an existing security or securities is transferred to a special purpose entity that has formed a securitization vehicle that has issued multiple classes of securities secured by and payable from cash flows on the underlying securities.
−Removed: Government-Sponsored Enterprises Credit Risk Transfer Securities
−Removed: GSE CRTs are unsecured general obligations of the GSEs that are structured to provide credit protection to the issuer with respect to defaults and other credit events within pools of mortgage loans secured by single family properties that collateralize Agency RMBS issued and guaranteed by the GSEs or within pools of mortgage loans secured by multifamily properties that collateralize Agency CMBS issued and guaranteed by the GSEs.
−Removed: This credit protection is achieved by allowing the GSEs to reduce the outstanding class principal balance of the securities as designated credit events on the loans arise.
−Removed: The GSEs make monthly coupon payments of interest and periodic payments of principal based on prepayments to the holders of the securities.
−Removed: To date, all GSE CRTs have paid a floating interest rate benchmarked to one-month LIBOR.
TBAs are forward contracts to purchase or sell Agency RMBS.
13 unchanged sentences
Mezzanine loans usually have maturities that match the maturity of the related mortgage loan but may have shorter or longer terms.
−Removed: Loan Participation Interest
−Removed: In August 2018, we invested in a loan participation interest in a secured loan to a non-bank servicer that is collateralized by mortgage servicing rights associated with Fannie Mae, Freddie Mac, and Ginnie Mae loans.
−Removed: Mortgage servicing rights represent the right to perform and control the servicing of mortgage loans in exchange for a fee.
−Removed: We sold our loan participation interest in April 2020.
Unconsolidated Ventures
2 unchanged sentences
Under the equity method of accounting, the initial investment is increased each period for additional capital contributions and a proportionate share of the entity’s earnings and decreased for cash distributions and a proportionate share of the entity’s losses.
+Added: Agency CMBS are structured pass-through certificates representing interests in pools of commercial loans that are secured by commercial property and issued by a U.S.
+Added: government agency or federally chartered corporation.
+Added: Types of Agency CMBS include Fannie Mae DUS (Delegated Underwriting and Servicing), Freddie Mac Multifamily Mortgage Participation Certificates, Ginnie Mae project loan pools, and/or CMOs structured from such collateral.
+Added: government agency or federally chartered corporation sources these loans from a network of approved multifamily sellers/servicers and guarantees the timely payment of interest and principal on these investments.
+Added: Unlike single family residential mortgages in which the borrower, generally, can prepay at any time, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection.
+Added: Common restrictions include yield maintenance (a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date) and prepayment penalties.
+Added: Additionally, Agency CMBS include Ginnie Mae Construction Loan Certificates (“CLCs”) and the resulting Project Loan Certificates (“PLCs”) when the construction project is complete.
+Added: The investor in the CLC is committed to fund the full amount of the project;
+Added: however, actual funding generally occurs monthly as construction progresses on the property.
+Added: Ginnie Mae guarantees the timely payment of principal and interest on each CLC and PLC.
+Added: Ginnie Mae CLCs pay interest only during construction, while PLCs pay principal and interest.
+Added: The mortgage loans underlying the PLCs generally contain a lock-out and prepayment penalty period of 10 years.
+Added: Ginnie Mae does not guarantee the payment of prepayment penalties.
+Added: Government-Sponsored Enterprises Credit Risk Transfer Securities
+Added: GSE CRTs are structured to provide credit protection to the issuer with respect to defaults and other credit events within pools of mortgage loans secured by single family properties that collateralize Agency RMBS issued and guaranteed by the GSEs or within pools of mortgage loans secured by multifamily properties that collateralize Agency CMBS issued and guaranteed by the GSEs.
+Added: This credit protection is achieved by allowing the GSEs to reduce the outstanding class principal balance of the securities as designated credit events on the loans arise.
+Added: The GSEs make monthly coupon payments of interest and periodic payments of principal based on prepayments to the holders of the securities.
+Added: To date, all GSE CRTs have paid a floating interest rate benchmarked to one-month London Interbank Offered Rate (“LIBOR”) or the Secured Overnight Financing Rate (“SOFR”).
+Added: Loan Participation Interest
+Added: In August 2018, we invested in a loan participation interest in a secured loan to a non-bank servicer that is collateralized by mortgage servicing rights associated with Fannie Mae, Freddie Mac, and Ginnie Mae loans.
+Added: Mortgage servicing rights represent the right to perform and control the servicing of mortgage loans in exchange for a fee.
+Added: We sold our loan participation interest in April 2020.
Financing Strategy
−Removed: We generally finance our investments through short- and long-term borrowings structured as repurchase agreements and secured loans.
−Removed: We have also financed investments through the issuances of debt and equity, and may utilize other forms of financing in the future.
+Added: We have historically used repurchase agreements to finance the majority of our target assets and expect to continue to use repurchase agreements to finance Agency investments in the future.
+Added: Repurchase agreements are generally settled on a short-term basis, usually from one to six months, and bear interest at rates that are expected to move in close relationship to SOFR.
+Added: We also used secured loans from the Federal Home Loan Bank of Indianapolis (“FHLBI”) to finance a portion of our investment portfolio.
+Added: We repaid our secured loans during 2020 with proceeds from sales of assets that collateralized the secured loans.
+Added: We terminated our membership in FHLBI in the third quarter of 2020.
+Added: We have also financed investments through issuances of equity, and may utilize other forms of financing in the future.
Repurchase Agreements
2 unchanged sentences
The difference between the sale price and repurchase price is the cost, or interest expense, of financing under a repurchase agreement.
−Removed: Under repurchase agreement financing arrangements, certain buyers require us to provide additional cash collateral in the event the market value of the asset declines to maintain the ratio of value of the collateral to the amount of borrowing.
−Removed: Secured Loans
−Removed: Our wholly-owned captive insurance subsidiary, IAS Services LLC, was a member of the Federal Home Loan Bank of Indianapolis (“FHLBI”).
−Removed: As a member of the FHLBI, IAS Services LLC borrowed funds from the FHLBI in the form of secured advances.
−Removed: FHLBI advances were treated as secured financing transactions and carried at their contractual amounts.
−Removed: We fully repaid our secured loans during the year ended December 31, 2020 and terminated our membership in the FHLBI in the third quarter of 2020.
−Removed: IAS Services LLC was dissolved in December 2020.
+Added: Under repurchase agreement
+Added: financing arrangements, certain buyers require us to provide additional cash collateral in the event the market value of the asset declines to maintain the ratio of value of the collateral to the amount of borrowing.
We use leverage on our assets to achieve our return objectives, which are adjusted as our investment and financing opportunities change.
19 unchanged sentences
Refer to Item 7.
−Removed: “Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Conditions” in Part II of this Report for a discussion of proposed changes to LIBOR.
+Added: “Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Conditions” in Part II of this Report for a discussion of our transition away from LIBOR.
We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value per common share and our liquidity to help us achieve our investment objectives.
4 unchanged sentences
Changes in spreads impact our book value per common share and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value per common share.
+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.
We believe that our investment strategy will generally keep our credit losses and financing costs low.
6 unchanged sentences
This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.
+Added: Amid the COVID-19 vaccine program and progress toward controlling the pandemic, the U.S.
+Added: economy has strengthened despite elevated case counts largely fueled by the Omicron variant.
+Added: This pick-up in economic activity has translated to improving employment levels and increased activity in residential and commercial real estate.
+Added: While loan delinquencies remain elevated, they continue to decline from their post-pandemic peak levels.
+Added: In particular, multi-family and single-family housing have been aided by government support and generous forbearance practices.
+Added: Further, stimulative monetary policies have helped support real estate activity and property valuations.
+Added: Despite these positives, many borrowers continue to experience difficulties meeting their obligations or seek to forbear or further forbear payment on their mortgage loans.
+Added: As a result, loans may continue to experience elevated delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities.
+Added: We also expect credit rating agencies to continue to reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.
Liquidity Risk
22 unchanged sentences
Our investment process includes sourcing and screening investment opportunities, assessing investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, reviewing legal structure and servicer and originator information and investment structuring, as appropriate, to ensure an attractive return commensurate with the risk we are bearing.
−Removed: Upon identification of an investment opportunity, the investment will be screened and monitored
−Removed: by our Manager to determine its impact on maintaining our REIT qualification and our exemption from registration under the 1940 Act.
+Added: Upon identification of an investment opportunity, the investment will be screened and monitored by our Manager to determine its impact on maintaining our REIT qualification and our exemption from registration under the 1940 Act.
We make investments in sectors where our Manager has strong core competencies and where we believe market risk and expected performance can be reasonably quantified.
27 unchanged sentences
The SEC maintains a website that contains reports, proxy and other information at www.sec.gov.
−Removed: We make available free of charge on our corporate website, www.invescomortgagecapital.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
+Added: We make available free of charge on our corporate website, www.invescomortgagecapital.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished under Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The information on our website is not intended to form a part of or be incorporated by reference into this Report.
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.