7 unchanged sentences
We are subject to interest rate risk in connection with our investments and our repurchase agreements.
−Removed: Our repurchase agreements are typically of 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 agreements, futures contracts and TBAs.
+Added: Our repurchase agreements are typically short-term in nature and are periodically refinanced at current market rates.
+Added: We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agreements..
Interest Rate Effect on Net Interest Income
24 unchanged sentences
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.
−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: 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
21 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 December 31, 2020, assuming a static portfolio and constant financing and credit spreads.
+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 December 31, 2021 and 2020, assuming a static portfolio and constant financing and credit spreads.
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.
−Removed: Change in Interest Rates Percentage Change in Projected
−Removed: Net Interest Income Percentage Change in Projected
−Removed: Portfolio Value
+Added: At December 31, 2021
+Added: At December 31, 2020
+Added: Change in Interest Rates Percentage Change in
+Added: Projected Net Interest Income Percentage Change in
+Added: Projected Portfolio Value Percentage Change in
+Added: Projected Net Interest Income Percentage Change in
+Added: Projected Portfolio Value
+1.00% (3.27) % (1.61) % 29.73 % (1.91) %
3 unchanged sentences
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 December 31, 2020.
−Removed: 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.
+Added: The base interest rate scenarios assume interest rates at December 31, 2021 and 2020.
+Added: Furthermore, while the analysis reflects the estimated impact of interest rate increases and decreases on a static portfolio, we actively manage the size and composition of our investment and swap portfolios, which can result in material changes to our interest rate risk profile.
Our scenario analysis assumes a floor of 0% for U.S.
Treasury yields.
−Removed: Given the relatively low interest rates at December 31, 2020, to be consistent, we also applied a floor of 0% for all related funding costs.
+Added: Given the relatively low interest rates at December 31, 2021 and 2020, 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.
17 unchanged sentences
We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields.
−Removed: These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and
−Removed: extension expectations.
+Added: These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.
We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and credit enhancement levels relative to collateral performance projections.
This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.
−Removed: The conditions related to the COVID-19 pandemic have adversely affected the fundamentals of many of our portfolio investments.
−Removed: 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, 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.
−Removed: 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.
−Removed: In many instances, tenants are foregoing rent payments or seeking forbearance.
−Removed: As a result, loans may experience increased delinquencies and defaults, which could impact the fundamental performance of our mortgage-backed securities.
−Removed: Further, we expect credit rating agencies to reassess transactions that are negatively impacted by these adverse changes.
−Removed: This may result in our investments being downgraded by credit rating agencies.
+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.
Foreign Exchange Rate Risk
−Removed: We have an investment of €12.4 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.
+Added: As of December 31, 2021, we have an investment of €9.2 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.
−Removed: We seek to hedge our foreign currency exposures by purchasing currency forward contracts.
+Added: We have historically sought to hedge our foreign currency exposures by purchasing currency forward contracts.
+Added: The unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible.
Risk Management
10 unchanged sentences
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.