What changed in this filing

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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-24 · 92 added, 162 removed, 754 unchanged (25% of the section changed)

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• We may change our investment strategy, operating policies and/or asset allocations without stockholder consent.

• Our investments in residential mortgage and other assets involve credit risk.

• Our investments in residential mortgage (including BPLs), residential mortgage securities, commercial mortgage loans and other assets involve credit risk.

• Our investments are subject to changes in credit spreads and other risks.

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Other Business Risks

• The COVID-19 pandemic has adversely affected our business, financial condition, liquidity and results of operations.

• We are dependent on our executive officers and other key personnel for our success.

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Interest rates and conditional prepayment rates (or CPRs) (which are a measure the amount of unscheduled principal prepayment on a loan or security) vary according to the type of investment, conditions in the financial markets, fiscal and monetary policies and domestic and international economic and political conditions, competition and other factors, none of which can be predicted with any certainty or is within our control.

Therefore, a period of rising interest rates and flattening or inverted yield curves, such as the conditions experienced during 2022, which have continued in 2023, presents particular challenges on our net interest income and our operations more generally.

Our operating results also depend on our ability to effectively manage the risks associated with our business operations, including interest rate, prepayment, financing, liquidity and credit risks, while maintaining our qualification as a REIT.

Therefore, a period of rising interest rates and flattening or inverted yield curves, such as the conditions experienced during 2022 and 2023, which may continue in 2024, presents challenges on our ability to effectively manage the risks associated with our business operations, including interest rate, prepayment, financing, liquidity and credit risks, while maintaining our qualification as a REIT.

Credit and Other Risks Related to Our Investments

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We may change our investment strategy, operating policies and/or asset allocation with respect to investments, acquisitions, leverage, growth, operations, indebtedness, capitalization and distributions at any time without the consent of our stockholders, which could result in an investment portfolio with a different risk profile (including an investment portfolio that may be more concentrated in a particular class of asset).

For example, related to the impact of the unprecedented conditions created by the COVID-19 pandemic, during early 2020 we sold substantially all of our MBS and substantially reduced our investments in MSR-related assets and CRT securities, resulting in our residential whole loans becoming by far our largest asset.

A change in our investment strategy may increase our exposure to various risks, including but not limited to:

interest rate

risk, credit risk, default risk, liquidity risk, financing risk, legal or regulatory risk, and/or real estate market fluctuations.

interest rate risk, credit risk, default risk, liquidity risk, financing risk, legal or regulatory risk, and/or real estate market fluctuations.

Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those in which we have historically invested.

These changes could materially adversely affect our financial condition, results of operations, the market price of our common stock or our ability to pay dividends or make distributions.

Our investments in residential whole loans, residential mortgage securities and MSR-related assets involve credit risk, which could materially adversely affect our results of operations.

Investors in residential mortgage assets assume the risk that the underlying borrowers may default on their obligations to make full and timely payments of principal and interest.

Under our investment policy, we may invest in residential whole loans, residential mortgage securities, MSR-related assets and other investment assets that may be considered to be lower credit quality.

Our investments in residential whole loans (including BPLs), residential mortgage securities, MSR-related assets and commercial mortgage loans involve credit risk, which could materially adversely affect our results of operations.

Investors in residential and commercial mortgage assets assume the risk that the underlying borrowers may default on their obligations to make full and timely payments of principal and interest.

Under our investment policy, we may invest in residential whole loans, residential mortgage securities, MSR-related assets, commercial mortgage bridge loans and other investment assets that may be considered to be lower credit quality.

In general, these investments are more exposed to credit risk than Agency MBS because the former are not guaranteed as to principal or interest by the U.S.

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Higher-than-expected rates of default and/or higher-than-expected loss severities on the mortgages underlying these investments could adversely affect the value of these assets.

Accordingly, defaults in the payment of principal and/or interest on our residential whole loans, residential mortgage securities, MSR-related assets and other investment assets of less-than-high credit quality could result in our incurring losses of income from, and/or losses in market value relating to, these assets, which could materially adversely affect our results of operations.

This risk may be more pronounced during times of market volatility and negative economic conditions, such as those that were experienced in connection with the onset of the COVID-19 pandemic in early 2020.

Our portfolio of residential whole loans is by far our largest asset class and represented approximately 83% of our total assets as of December 31, 2022.

We expect that our investment portfolio in residential whole loans will continue to increase during 2023.

Accordingly, defaults in the payment of principal and/or interest on our residential whole loans, residential mortgage securities, MSR-related assets, commercial mortgage bridge loans and other investment assets of less-than-high credit quality could result in our incurring losses of income from, and/or losses in market value relating to, these assets, which could materially adversely affect our results of operations.

This risk may be more pronounced during times of market volatility and negative economic conditions.

Our portfolio of residential whole loans (including BPLs) is by far our largest asset class and represented approximately 84% of our total assets as of December 31, 2023.

We expect that our investment portfolio in residential whole loans will

continue to increase during 2024.

As an investor in residential whole loans, we are subject to the risk that the underlying borrowers may default or have defaulted on their obligations to make full and timely payments of principal and interest.

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In addition to the credit risk associated with these assets, residential whole loans are less liquid than certain of our other credit sensitive assets, which may make them more difficult to dispose of if the need or desire arises.

For example, upon the onset of the volatility triggered in early 2020 by the COVID-19 pandemic, we were unable to efficiently and expeditiously liquidate residential whole loans to meet our liquidity needs.

In addition, if actual results are different from our assumptions in determining the prices paid to acquire such loans, particularly if the market value of the underlying properties decreases significantly subsequent to purchase, we may incur significant losses, which could materially adversely affect our results of operations.

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Treasuries of like maturity.

Floating rate securities are generally valued based on a market credit spread over LIBOR (which is being phased out and will cease on June 30, 2023, as discussed below under the Risk Factor captioned “Risks Related to Our Use of Leverage - The discontinuation of LIBOR may affect our financial results.”) or another benchmark lending rate such as the Secured Overnight Funding Rate (or SOFR).

Floating rate securities are generally valued based on a market credit spread over Secured Overnight Funding Rate (or SOFR) or another benchmark lending rate.

Excessive supply of these securities combined with reduced demand for them from investors will generally cause the market to require a higher yield on these securities, resulting in the use of a higher, or “wider,” spread over the benchmark rate to value such securities.

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Such changes in the market value of our investments may affect our net equity, net income or cash flow directly through their impact on portfolio unrealized gains or losses, and therefore our ability to realize gains on such investments, or indirectly through their impact on our ability to borrow and access capital.

This risk may be more pronounced during times of market volatility and negative economic conditions.

We may be adversely affected by risks affecting borrowers or the asset or property types in which certain of our investments may be concentrated at any given time, as well as from unfavorable changes in the related geographic regions.

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A significant number of the mortgages underlying our residential whole loans and residential mortgage securities are concentrated in certain geographic areas.

For example, we have significant exposure in California, Florida, Texas, New York and Georgia.

For example, we have significant exposure in California, Florida, Texas, Georgia and New York.

(For a discussion of the percentage of these assets in these states, see “Credit Risk” included under Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K.) Certain markets within these states (particularly in California and Florida) have experienced significant decreases in residential home values in the past and may do so from time to time in the future.

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In general, any material decline in the economy or significant problems in a particular real estate market (including from a rise in unemployment) would likely cause a decline in the value of residential properties securing the mortgages in that market, thereby increasing the risk of delinquency, default and foreclosure of residential whole loans and the loans underlying our residential mortgage securities and the risk of loss upon liquidation of these assets.

This could, in turn, have a material adverse effect on our credit loss experience on residential mortgage investments in the affected market if higher-than-expected rates of default and/or higher-than-expected loss severities on our investments in residential whole loans and residential mortgage securities were to occur.

This could, in turn, have a material adverse effect on our credit loss experience on residential mortgage investments in the affected market if higher-than-expected rates of

default and/or higher-than-expected loss severities on our investments in residential whole loans and residential mortgage securities were to occur.

In addition, the occurrence of a natural disaster (such as an earthquake, tornado, hurricane, flood, mudslide or wildfires), pandemic, terrorist attack or a significant adverse climate change, including potential rises in sea-levels, may cause a sudden decrease in the value of real estate in the area or areas affected and would likely reduce the value of the properties securing the mortgages collateralizing our residential whole loans or residential mortgage securities.

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Furthermore, the assumptions underlying the models may prove to be inaccurate, causing the model output also to be incorrect.

In particular, the economic, financial and related impacts of events like the COVID-19 pandemic have been and will continue to be very difficult to model (including their impact on the housing and mortgage markets), as such events may be unprecedented in modern history and therefore subject to unique variables, assumptions and inputs, making historical data used in models less reliable.

In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.

In particular, the economic, financial and related impacts of certain types of events (e.g., the COVID-19 pandemic) have been and will continue to be very difficult to model (including their impact on the housing and mortgage markets), as such events may be unprecedented in modern history and therefore subject to unique variables, assumptions and inputs, making historical data used in models less reliable.

In the event models and data prove to be incorrect,

misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.

For example, by relying on incorrect models and data, we may overestimate or underestimate credit losses, buy certain assets at prices that are too high, sell certain assets at prices that are too low or miss favorable opportunities altogether, which could have a material adverse impact on our financial results, business and growth prospects.

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Additionally, dealers may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability arising out of any inaccuracy or incompleteness in valuations.

Depending on the complexity and illiquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another.

Depending on the complexity and liquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another.

Wide disparity in asset valuations may be more pronounced during periods when market participants are engaged in distressed sales.

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An RPL could become a NPL, which could reduce our earnings.

Our investments in residential whole loans may require us to work with our

designated third-party mortgage loan servicers to the extent that they engage in workout negotiations or a restructuring with a borrower and/or the possibility of foreclosure.

Our investments in residential whole loans may require us to work with our designated third-party mortgage loan servicers to the extent that they engage in workout negotiations or a restructuring with a borrower and/or the possibility of foreclosure.

These processes may be lengthy and expensive.

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However, there may be impediments to executing a refinancing strategy for NPLs and RPLs.

For example, during 2020, many mortgage lenders adjusted their loan programs and underwriting standards, which reduced the availability of mortgage credit to certain borrowers.

For example, many mortgage lenders have from time to time adjusted their loan programs and underwriting standards, which reduced the availability of mortgage credit to certain borrowers.

This resulted in reduced availability of financing alternatives for borrowers seeking to refinance their mortgage loans.

To the extent prevailing mortgage interest rates rise from their current low levels, these risks would be exacerbated.

Periods of higher mortgage interest rates exacerbate this risk.

The effect of the above would likely serve to make the refinancing of NPLs and RPLs potentially more difficult and less profitable for us.

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Government, through the Federal Reserve, the U.S.

Treasury Department, the Federal Housing Administration (FHA), the CFPB, and other agencies have in the past implemented, and may in the future implement, a number of federal programs designed to help homeowners avoid residential mortgage loan foreclosures, reduce or forgive certain mortgage payments, or otherwise mitigate losses for homeowners.

Treasury Department, the Federal Housing Administration (or FHA), the CFPB, and other agencies have in the past implemented, and may in the future implement, a number of federal programs designed to help homeowners avoid residential mortgage loan foreclosures, reduce or forgive certain mortgage payments, or otherwise mitigate losses for homeowners.

In addition, Fannie Mae and Freddie Mac implemented their Flex Modification foreclosure prevention program, developed at the direction of the FHFA.

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Especially with respect to residential whole loan investments, loan modifications with respect to a given underlying loan, including, but not limited to, those related to principal payment deferrals, forbearance agreements, forgiveness and coupon reduction, could negatively impact the realized yields and cash flows on such investments.

These loan modification programs, future legislative or regulatory actions, including possible amendments to the bankruptcy laws, that result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may materially adversely affect the value of, and the returns on, these assets.

These loan modification programs, future legislative or regulatory actions, including possible

amendments to the bankruptcy laws, that result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may materially adversely affect the value of, and the returns on, these assets.

See the Risk Factor captioned “Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally - Actions by the U.S.

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Thus, a material amount of foreclosed residential mortgage loans, particularly in the states mentioned above, could result in significant losses in our residential whole loan portfolio and could materially adversely affect our results of operations.

Due to the COVID-19 pandemic, there were various federal, state, and local laws, regulations, orders, and ordinances limiting foreclosure and eviction remedies.

On August 26, 2021, the United States Supreme Court declared unconstitutional an executive order issued by the CDC, which created a moratorium on foreclosure proceedings.

As a result of the Supreme Court’s ruling, the federal foreclosure moratorium is no longer in effect.

The Supreme Court’s ruling does not affect or preclude state and local jurisdictions from issuing orders stopping or limiting evictions and foreclosures in an effort to lessen the financial burden created by COVID-19 in their jurisdictions, and moratoriums were imposed in certain jurisdictions.

Any such limitations could adversely impact the cash flow on those investments.

In addition, due to the COVID-19 pandemic, there were various federal, state, and local laws, regulations, orders, and ordinances limiting foreclosure and eviction remedies.

Any similar limitations enacted in the future in response to a pandemic or other events outside our control could adversely impact the cash flow on those investments.

The expanding body of federal, state and local regulations and investigations of mortgage loan originators and servicers may increase costs of compliance and the risks of noncompliance, and may adversely affect servicers’ ability to perform their servicing obligations.

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The mortgages underlying the MBS that we acquire are also serviced by third-party servicers that have been hired by the bond issuers.

The mortgage servicing business is subject to extensive regulation by federal, state and local governmental authorities and is subject to various laws and judicial and administrative decisions imposing requirements and restrictions and increased compliance costs on a substantial portion of their operations.

restrictions and increased compliance costs on a substantial portion of their operations.

The volume of new or modified laws and regulations has increased in recent years and the regulators have identified mortgage loan servicing as an enforcement priority.

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Federal laws and regulations have also been proposed or adopted which, among other things, could hinder the ability of a servicer to foreclose promptly on defaulted residential loans, and which could result in assignees being held responsible for violations in the residential loan origination process.

For example, due to regulations arising from the COVID-19 pandemic, the CDC issued a federal moratorium against evictions in September 2020, which limited foreclosure and eviction remedies until it was struck down by the Supreme Court in August 2021.

For example, due to regulations arising from the COVID-19 pandemic, the Centers for Disease Control and Prevention (or CDC) issued a federal moratorium against evictions in September 2020, which limited foreclosure and eviction remedies until it was struck down by the Supreme Court in August 2021.

In addition, mortgage lenders and third-party servicers have voluntarily, pursuant to federal, state or local regulation, or as part of settlements with law enforcement authorities, established loan modification programs relating to loans they hold or service.

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We also cannot predict the length of time needed to find a willing purchaser and to close the sale of an REO.

In certain circumstances, we may be required to expend

cash to correct defects, pay expenses or to make improvements before a property can be sold, and we cannot assure that we will have cash available to make these payments.

In certain circumstances, we may be required to expend cash to correct defects, pay expenses or to make improvements before a property can be sold, and we cannot assure that we will have cash available to make these payments.

As a result, our ownership of REOs could materially and adversely affect our liquidity and results of operations.

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Our operations and activities include business purpose loans originated and serviced by Lima One.

These business purpose loans include short-term loans that are collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the property for a profit (Transitional loans), as well as long-term mortgage loans made to investors who intend to rent such properties to generate income.

These business purpose loans include short-term loans that are collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the property for a profit (Transitional loans), as well as long-term mortgage loans made to investors who intend to rent such properties to generate income.

Such a borrower’s ability to repay its loan may be adversely impacted by numerous factors, including negative local or more general economic conditions and, in the case of Transitional loans, the borrower’s ability to complete the rehabilitation successfully, on budget and on time.

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Similar to other mortgage loans in which we invest, business purpose loans are also subject to risks of borrower defaults, bankruptcies, fraud and other losses.

Accordingly, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the loan.

Accordingly, we bear the risk of loss of principal and non-payment of interest and fees to

the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the loan.

To the extent we suffer such losses with respect to these loans, our business, results of operations and financial condition may be materially adversely affected.

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• If we are unable to renew our borrowings at acceptable interest rates, it may force us to sell assets under adverse market conditions, which may materially adversely affect our liquidity and profitability.

Since a portion of our borrowings to finance longer-term residential mortgage investments are under short-term repurchase agreements, our ability to achieve our investment objectives depends on our ability to borrow funds in sufficient amounts and on acceptable terms, and on our ability to renew or replace maturing borrowings on a continuous basis.

acceptable terms, and on our ability to renew or replace maturing borrowings on a continuous basis.

Our repurchase agreement credit lines are renewable at the discretion of our lenders and, as such, do not contain guaranteed roll-over terms.

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If we are not able to renew or replace maturing borrowings, we could be forced to sell assets, including assets in an unrealized loss position, in order to maintain liquidity.

Forced sales, particularly under adverse market conditions, as frequently occurred during the onset of the COVID-19 pandemic, could result in lower sales prices than ordinary market sales made in the normal course of business.

Forced sales, particularly under adverse market conditions, could result in lower sales prices than ordinary market sales made in the normal course of business.

If our residential mortgage investments were liquidated at prices below our amortized cost (i.e., the cost basis) of such assets, we would incur losses, which could materially adversely affect our earnings.

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A decline in the market value of our residential mortgage investments may limit our ability to borrow against such assets or result in lenders initiating margin calls, which require a pledge of additional collateral or cash to re-establish the required ratio of borrowing to collateral value, under our repurchase agreements.

For example, during the initial stages of the COVID-19 pandemic and related market dislocations, we experienced significantly higher margin calls and lender demanded higher “haircuts” (i.e., the difference between the value of the collateral and the amount lent to the borrower) with respect to our repurchase agreements.

For example, during past market dislocations, we experienced significantly higher margin calls and lender demanded higher “haircuts” (i.e., the difference between the value of the collateral and the amount lent to the borrower) with respect to our repurchase agreements.

Posting additional collateral or cash to support our credit will reduce our liquidity and limit our ability to leverage our assets, which could materially adversely affect our business.

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Furthermore, if a number of our lenders became unwilling or unable to continue to provide us with financing, we could be forced to sell assets , including MBS in an unrealized loss position, in order to maintain liquidity.

Forced sales, particularly under adverse market conditions,

may result in lower sales prices than ordinary market sales made in the normal course of business.

Forced sales, particularly under adverse market conditions, may result in lower sales prices than ordinary market sales made in the normal course of business.

If our residential mortgage investments were liquidated at prices below our amortized cost (i.e., the cost basis) of such assets, we would incur losses, which could adversely affect our earnings.

We and many other mortgage REITs experienced these conditions in 2020 in connection with the conditions created by the COVID-19 pandemic.

In addition, any uncertainty in the global finance market or weak economic conditions in Europe could cause the conditions described above to have a more pronounced effect on our European lending counterparties.

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Because the cash we receive from the lender when we initially transfer the securities to the lender is less than the value of those securities (this difference is referred to as the “haircut”), if the lender defaults on its obligation to transfer the same securities back to us, we would incur a loss on the transaction equal to the amount of the haircut (assuming there was no change in the value of the securities).

Our exposure to defaults by counterparties may be more pronounced during periods of significant volatility in the market conditions for mortgages and mortgage-related assets as well as the broader financial markets.

exposure to defaults by counterparties may be more pronounced during periods of significant volatility in the market conditions for mortgages and mortgage-related assets as well as the broader financial markets.

At December 31, 2023, we had greater than 5% stockholders’ equity at risk to the following financing agreement counterparties:

Barclay’s Bank (approximately 15.6%), Wells Fargo (approximately 11.8%) and Credit Suisse (approximately 9.7%).

Wells Fargo (approximately 14.9%), Barclay’s Bank (approximately 8.9%) and Churchill (approximately 8.0%).

In addition, generally, if we default on one of our obligations under a repurchase transaction with a particular lender, that lender can elect to terminate the transaction and cease entering into additional repurchase transactions with us.

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Further, an increase in short-term interest rates could also have a negative impact on the market value of our residential mortgage investments.

Interest rates increased significantly in 2022 and may continue increasing in 2023.

Interest rates increased significantly in 2022 and 2023 and may continue to remain high in 2024.

As such, we could experience a decrease in net income or incur a net loss during these periods, which may negatively impact our distributions to stockholders.

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Inflation by some measures is at the highest readings since 1982, and inflationary pressures have broadened from goods earlier in the pandemic to include shelter costs and a number of labor-intensive services.

The rapid acceleration of inflation led to an abrupt shift in the Federal Reserve’s monetary policy stance as they no longer consider these price pressures to be “transitory”.

Coming into 2021, the consensus view, including within the Federal Reserve, was that tapering of its treasuries and agency RMBS bond buying program would not begin until 2022, with rates unlikely to rise until 2024.

The Federal Reserve actually began to taper its bond buying program in November and then doubled the pace of cuts in December 2021.

In addition, the Federal Reserve raised the federal funds rate seven times in 2022, a significant turnaround in officials’ policy outlook of earlier in the year.

The Federal Reserve has also raised the federal funds rate once thus far in 2023, and markets expect more rate hikes during the remainder of the year.

The rapid acceleration of inflation led to an abrupt shift in the Federal Reserve’s monetary policy stance as they no longer consider these price pressures to be “transitory.” In an effort to control inflation, the Federal Reserve raised the federal funds rate seven times in 2022, followed by eleven rate raises in 2023.

While markets expect rate cuts in 2024, it is unclear whether or when such rate cuts will happen.

As the Federal Reserve lifts its federal funds target rate, the margin between short and long-term rates could further compress.

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For a detailed discussion of the impact of interest rates, see “Interest Rate Risk” included under Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K.

The discontinuation of LIBOR may affect our financial results.

The interest rates on our repurchase agreements, as well as adjustable-rate mortgage loans in our securitizations, are generally based on LIBOR.

On March 5, 2021, the United Kingdom Financial Conduct Authority (or FCA), which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.

The FCA’s announcement coincides with the March 5, 2021, announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (or IBA), indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.

These announcements mean that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate.

Moreover, any adjustable-rate mortgage loans based upon LIBOR will need to convert by that time too.

In the United States, the Alternative Reference Rates Committee (or ARRC), a committee of private sector entities with ex-officio official sector members convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (or SOFR) and in some cases, the forward-looking term rate based on SOFR published by CME Group Benchmark Administration Ltd., (or CME Term SOFR) plus, in each case, a recommended spread adjustment as LIBOR’s replacements.

The Board of Governors of the Federal Reserve has also named CME Term SOFR as the Board-selected replacement rate for most cash products under the Adjustable Interest Rate (LIBOR) Act of 2021, which governs instruments for which there is no determining person to choose a LIBOR replacement or which have no fallback provisions specifying an alternate replacement rate.

There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

If our LIBOR-based borrowings are converted to SOFR or CME Term SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our operating results.

At December 31, 2022, we had Swaps with an aggregate notional balance of approximately $3.2 billion whose interest rates were based on SOFR.

Although SOFR and CME Term SOFR are the AARC’s recommended replacement rates, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us.

Furthermore, lenders may select alternative rates sooner than June 30, 2023, either in amendments to existing facilities or as we decide to enter into new facilities.

It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time, and it is possible that not all of our assets and liabilities will transition to the same alternative reference rate, in each case increasing the difficulty of hedging.

We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management.

The process of transition involves operational risks.

It is not yet possible to predict the magnitude of LIBOR's end on our borrowing costs and other operations given the remaining uncertainty about which rates will replace LIBOR and the related timing.

For further discussion on the impact of LIBOR discontinuation, see “Interest Rate Risk” included under Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K.

Holders of our fixed-to-floating preferred shares should refer to the relevant prospectus to understand the USD-LIBOR cessation provisions applicable to that class.

We do not currently intend to amend any of our fixed-to-floating preferred shares to change the existing USD-LIBOR cessation fallbacks.

Our fixed-to-floating preferred shares become callable at the same time they begin to pay a USD-LIBOR-based rate.

Should we choose to call our fixed-to-floating preferred shares in order to avoid a dispute over the results of the USD-LIBOR fallbacks, we may be forced to raise additional funds at an unfavorable time.

Certain of our current lenders require, and future lenders may require, that we enter into restrictive covenants relating to our operations.

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Such representations and warranties may include, but are not limited to, issues such as the validity of the lien;

the absence of delinquent taxes or other liens;

the absence of delinquent taxes or other

the loans’ compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien.

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Cybersecurity Risks

Maintaining cybersecurity and data security is important to our business and a breach of our cybersecurity or data security could result in serious harm to our reputation and have a material adverse impact on our business and financial results.

When we acquire or originate real estate mortgage loans, we come into possession of borrower non-public personal information that an identity thief could utilize in engaging in fraudulent activity or theft.

Maintaining cybersecurity and data security is important to our business and a cybersecurity incident could result in serious harm to our reputation and have a material adverse impact on our business and financial results.

When we acquire or originate real estate mortgage loans, we come into possession of borrower non-public personal information that a threat actor could utilize in engaging in fraudulent activity or theft.

We may share this information with third parties, such as loan sub-servicers, outside vendors, third parties interested in acquiring such loans from us, or lenders extending credit to us collateralized by such loans.

We have acquired more than 30,000 residential mortgage loans since 2014, and our Lima One subsidiary, which we acquired in July 2021, has originated several thousand mortgage loans since its founding in 2011.

While we have security measures in place to protect this information and prevent security breaches, these security measures may be compromised as a result of third-party action, including intentional misconduct by computer hackers, cyber-attacks, "phishing" attacks, service provider or vendor error, or malfeasance or other intentional or unintentional acts by third parties and bad actors, including third-party service providers.

The security measures we have implemented to protect personal information and prevent cybersecurity incidents may be compromised as a result of third-party action, including intentional misconduct by computer hackers, cyber-attacks, "phishing" attacks, service provider or vendor error, or malfeasance or other intentional or unintentional acts by third parties and bad actors, including third-party service providers.

Furthermore, borrower data, including personally identifiable information, may be lost, exposed, or subject to unauthorized access or use as a result of accidents, errors, or malfeasance by our employees, independent contractors, or others working with us or on our behalf.

Our servers and systems, and those of our service providers, may be vulnerable to computer malware, break-ins, denial-of-service attacks, and similar disruptions from unauthorized tampering with our computer systems, which could result in someone obtaining unauthorized access to borrowers’ data or our data, including other confidential business information.

In the past, we have experienced unauthorized access to

certain data and information.

Our response was to take immediate steps to investigate and address the unauthorized access, and past unauthorized access has not had, and is not expected to have, a material adverse effect on our business and financial results.

We have further developed and enhanced our cybersecurity systems and processes that are intended to protect this type of data and information;

Our servers and systems, and those of our service providers, may be vulnerable to computer malware, break-ins, denial-of-service attacks, and similar disruptions from unauthorized access to our computer systems, which could result in someone obtaining unauthorized access to borrowers’ data or our data, including other confidential business information.

In the past, we have experienced unauthorized access to certain data and information.

Our cybersecurity systems and processes that are intended to protect this type of data and information;

however, they may not be effective in preventing unauthorized access in the future.

While past unauthorized access has been immaterial to our business and financial results, there can be no assurance of a similar result in the future.

Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

We may also experience security breaches that may remain undetected for an extended period.

We may be liable for losses suffered by individuals whose identities are stolen as a result of a breach of the security of the systems that we or third-parties and service providers of ours store this information on, and any such liability could be material.

Even if we are not liable for such losses, any breach of these systems could expose us to material costs in notifying affected individuals and providing credit monitoring services to them, as well as regulatory fines or penalties.

Furthermore, because the techniques used to obtain unauthorized access to, or to compromise, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

We may also experience cybersecurity incidents that may remain undetected for an extended period.

We may be liable for losses suffered by individuals whose personal information is compromised as a result of a breach of the security of the systems that we or third-parties and service providers of ours store this information on, and any such liability could be material.

Even if we are not liable for such losses, any breach of these systems could expose us to material costs in notifying affected individuals and providing credit monitoring or other services to them, as well as regulatory fines or penalties.

In addition, any breach of these systems could disrupt our normal business operations and expose us to reputational damage and lost business, revenues, and profits.

Any insurance we maintain against the risk of this type of loss may not be sufficient to cover actual losses, or may not apply to the circumstances relating to any particular breach.

Security breaches could also significantly damage our reputation with existing and prospective loan sellers, borrowers, and third parties with whom we do business.

We may not be able to secure cybersecurity insurance at prices or on terms acceptable to us.

Cybersecurity incidents could also significantly damage our reputation with existing and prospective loan sellers, borrowers, and third parties with whom we do business.

Any publicized security problems affecting our businesses and/or those of such third parties may negatively impact the market perception of our products and discourage market participants from doing business with us.

These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity.

We are dependent on information systems and their failure (including in connection with cyber-attacks) could significantly disrupt our business.

We are dependent on information systems and their failure (including in connection with cybersecurity incidents) could significantly disrupt our business.

Our business is highly dependent on our information and communications systems, including systems containing or using open source software.

Any failure or interruption of our systems or cyber-attacks or security breaches of our networks or systems could cause delays or other problems in our securities trading activities, which could have a material adverse effect on operating results, the market price of our common stock and other securities and our ability to pay dividends to our stockholders.

Any failure or interruption of our systems or cybersecurity incidents could cause delays or other problems in our securities trading activities, which could have a material adverse effect on operating results, the market price of our common stock and other securities and our ability to pay dividends to our stockholders.

Our use of open source software poses particular risk, including potential security vulnerabilities, licensing compliance issues and quality issues.

In addition, we also face the risk of operational failure, termination or capacity constraints of any of the third-parties with which we do business or that facilitate our business activities, including clearing agents or other financial intermediaries we use to facilitate our securities transactions as well as the servicers of our loans.

Computer malware, viruses, hacking and phishing and cyber-attacks have become more prevalent in our industry and may occur on our systems in the future.

Additionally, due to the transition to remote working environments as a result of the COVID-19 pandemic, there is an elevated risk of such events occurring.

Although we have not detected a material cybersecurity breach to date, there can be no assurance that we are or will be fully protected against cyber risks and security breaches and not be vulnerable to new and evolving threats to our information technology systems.

Computer malware, viruses, hacking and phishing and cybersecurity incidents have become more prevalent in our industry and may occur on our systems in the future.

Additionally, due to the overall transition to remote working environments, there is an elevated risk of such events occurring.

We may not be fully protected against cyber risks and cybersecurity incidents, and we may be vulnerable to new and evolving threats to our information technology systems.

We rely heavily on financial, accounting and other data processing systems.

It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or networks or systems of, among other third-parties, our lenders and servicers) or any failure to maintain performance, reliability and security of our technical infrastructure.

As a result, any such computer malware, viruses, hacking, phishing and cyber-attacks may negatively affect our operations.

It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cybersecurity incidents or security breaches of our networks or systems (or networks or systems of, among other third-parties, our lenders and servicers) or any failure to maintain performance, reliability and security of our technical infrastructure.

As a result, any such computer malware, viruses, hacking, phishing and cybersecurity incidents may negatively affect our operations.

Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally

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Significant adverse changes in financial market conditions leading to the forced sale of large quantities of mortgage-related and other financial assets would result in significant volatility in the market for mortgages and mortgage-related assets and potentially significant losses for ourselves and certain other market participants.

In addition, concerns over actual or anticipated low economic growth rates, higher levels of

unemployment or uncertainty regarding future U.S.

In addition, concerns over actual or anticipated low economic growth rates, higher levels of unemployment or uncertainty regarding future U.S.

monetary policy may contribute to increased interest rate volatility.

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For instance, the Dodd-Frank Act imposes significant restrictions on the proprietary trading activities of certain banking entities and subjects other systemically significant entities and activities regulated by the Federal Reserve to increased capital requirements and quantitative limits for engaging in such activities.

The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the MBS market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements.

The Dodd-Frank Act also seeks to reform

the asset-backed securitization market (including the MBS market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements.

The Dodd-Frank Act also imposes significant regulatory restrictions on the origination and servicing of residential mortgage loans.

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Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those in place under federal laws and regulations.

In addition, under the anti-predatory lending laws

of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower.

In addition, under the anti-predatory lending laws of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower.

This test, as well as certain standards set forth in the “ability-to-repay” and “qualified mortgage” regulations, may be highly subjective and open to interpretation.

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This flexibility may adversely affect the pricing and availability of Agency MBS during the remaining term of these portfolios.

Various regulatory measures enacted in response to the COVID-19 pandemic affect mortgage servicing and could have a material adverse effect on our business and financial results.

For example, on March 27, 2020, the CARES Act was signed into law.

Among the provisions in this wide-ranging law are protections for homeowners experiencing financial difficulties due to COVID-19, including forbearance provisions and procedures.

Borrowers with federally backed mortgage loans, regardless of delinquency status, were permitted to request loan forbearance for a six-month period, with the option to extend forbearance for another six-month period if necessary.

The CARES Act also modified the manner in which accounts subject to financial accommodation are reported to consumer reporting agencies.

Although the initial deadline to request forbearance on federally backed loans was set to expire under the CARES Act on December 31, 2020, FHFA and CFPB announced extensions of several measures to align COVID-19 mortgage relief policies across the federal government, including additional three-month extensions of COVID-19 forbearance or payment deferral options for certain borrowers.

Federally backed mortgage loans are loans secured by first- or subordinate-liens on 1-4 family residential real property, including individual units of condominiums and cooperatives, which are insured or guaranteed pursuant to certain government housing programs, such as by the Federal Housing Administration or U.S.

Department of Agriculture, or are purchased or securitized by Fannie Mae or Freddie Mac.

The CARES Act also included a temporary 60-day foreclosure moratorium that applied to federally backed mortgage loans, which lasted until July 24, 2020.

However, the foreclosure moratorium was extended several times to July 31, 2021 and the forbearance enrollment window was extended through September 30, 2021 by the Department of Housing and Urban Development, Department of Veterans Affairs, the Department of Agriculture and FHFA, which includes mortgages backed by Fannie Mae and Freddie Mac.

Although the federal foreclosure moratorium expired, various states and local jurisdictions also imposed foreclosure moratoriums, some of which remained in effect after the federal moratorium expired.

On July 30, 2021, FHFA announced that Fannie Mae and Freddie Mac were extending the moratorium on single-family real estate owned (REO) evictions until September 30, 2021.

Federal or state authorities may still enact additional foreclosure relief measures or foreclosure and eviction moratoriums that may continue to adversely impact the cash flow on mortgage loans.

The CFPB has announced that it is carefully monitoring conditions in the mortgage market and taking steps to minimize avoidable foreclosures and address any compliance failures, including by conducting prioritized assessments, or targeted supervisory reviews, designed to obtain real-time information from mortgage services due to the elevated risk of consumer

harm because of the COVID-19 pandemic.

On June 28, 2021, the CFPB finalized amendments to the federal mortgage servicing regulations designed support the housing market’s transition to post-pandemic operation.

The rules established temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.

The rules cover loans on principal residences, generally exclude small servicers, and took effect on August 31, 2021.

On November 10, 2021, the Board of Governors of the Federal Reserve, the CFPB, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the state financial regulators (collectively, agencies) announced that they were discontinuing the more flexible supervisory approach announced in April 2020, concluding that servicers have had sufficient time to adjust their operations by, among other things, taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote work capabilities.

CFPB’s December 2021 Supervisory Highlights show, among other things, that CFPB is prioritizing compliance with Regulation Z and Regulation X, as well as unfair and deceptive acts or practices prohibited by the CFPB.

CFPB’s November 2022 Supervisory Highlights shows, among other things, that CFPB’s examinations continue to focus on credit reporting, mortgage servicing fees charged to consumers, and proper handling of COVID-19 protections.

This enhanced scrutiny is likely to continue to increase the economic and compliance costs for participants in the mortgage and securitization industries, including us.

In response to the COVID-19 pandemic, wide-ranging legal protections for homeowners, including foreclosure moratoria and forbearance provisions, were enacted including through the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), which was signed into law on March 27, 2020, and rules and letters issued by the FHA and the CFPB.

Availability for foreclosure and forbearance protections for borrowers with federally backed mortgage loans, regardless of delinquency status, were extended multiple times.

If the COVID-19 pandemic resurges or another public health crisis breaks out in the future, similar measures may be reenacted, which could adversely affect our business, results of operations and financial condition.

Regulatory Risk and Risks Related to the Investment Company Act of 1940

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These requirements can and do change as statutes and regulations are enacted, promulgated, amended and interpreted, and the recent trend among federal and state lawmakers and regulators has been toward increasing laws, regulations and investigative proceedings in relation to the mortgage industry generally.

For example, on December 10, 2020, the CFPB issued a final rule that adopts a set of “bright-line” loan pricing thresholds to replace the previous General Qualified Mortgage 43% debt-to-income threshold calculated in accordance with “Appendix Q” and removes Appendix Q (or General QM Final Rule).

The effective date of the General QM Final Rule was March 1, 2021, and the mandatory compliance date was July 1, 2021.

On December 10, 2020, the CFPB also issued a final rule that creates a new category of a qualified mortgage, referred to as a “Seasoned QM” (or Seasoned QM Final Rule).

A loan is eligible to become a Seasoned QM if it is a first-lien, fixed rate loans that meets certain performance requirements over a seasoning period of 36 months, is held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, complies with general restrictions on product features and points and fees, and meets certain underwriting requirements.

The effective date for the Seasoned QM Final Rule was March 1, 2021.

At this time, however, there can be no assurance what impact these final rules will have on the mortgage market and the “ability-to-repay” rules.

Furthermore, the temporary qualified mortgage provision applicable to certain mortgage loans eligible for purchase or guarantee by the GSEs under the ability-to-repay, commonly referred to as the “GSE Patch,” was scheduled to expire on the earlier of (i) the mandatory compliance date of the final rule amending the general qualified mortgage definition described above (July 1, 2021) or (ii) the date that the GSEs exit conservatorship.

On April 27, 2021, the CFPB issued a final rule extending the mandatory compliance date of the General Qualified Mortgage Rule to October 1, 2022.

It similarly extends expiration of the GSE patch to October 1, 2022 or the date the applicable GSE exits conservatorship, whichever happens first.

We cannot predict the impact of its expiration on the mortgage market.

For example, effective March 1, 2021, the General QM Final Rule provided certain changes to the definition of general qualified mortgage loans and the Seasoned QM Final Rule creates a new category of a qualified mortgage, referred to as a “Seasoned QM” loan is eligible to become a Seasoned QM if it is a first-lien, fixed rate loan that meets certain performance requirements over a seasoning period of 36 months, is held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, complies with general restrictions on product features and points and fees, and meets certain underwriting requirements.

These amendments and changes to the necessary policies and procedures to demonstrate compliance with these requirements for loans sold in the secondary market may increase the economic and compliance costs for participants in the mortgage origination and securitization industries, including us.

In addition, actions taken by or proposed to be taken by, among others, FHFA, the U.S.

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To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly.

In addition, we may be limited in our ability to make certain investments and these limitations could result in us holding assets we might wish to sell or selling assets we might wish to hold.

addition, we may be limited in our ability to make certain investments and these limitations could result in us holding assets we might wish to sell or selling assets we might wish to hold.

Certain of our subsidiaries that hold residential mortgage loans through majority owned subsidiaries may rely on the exemption provided by Section 3(c)(6), which excludes from the definition of “investment company” any company primarily engaged, directly or through majority-owned subsidiaries, in a business, among others, described in Section 3(c)(5)(C) of the Investment Company Act (from which not less than 25% of such company’s gross income during its last fiscal year was derived) together with an additional business or additional businesses other than investing, reinvesting, owning, holding or trading in securities.

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federal income tax to the extent we distribute 100% of our REIT taxable income (which is generally our taxable income, computed without regard to the dividends paid deduction, any net income from prohibited transactions, and any net income from foreclosure property) to stockholders within the timeframe permitted under the Code and provided that we comply with certain income, asset ownership and other tests applicable to REITs.

We believe that we currently meet all of the REIT requirements and intend to continue to

qualify as a REIT under the provisions of the Code.

We believe that we currently meet all of the REIT requirements and intend to continue to qualify as a REIT under the provisions of the Code.

Many of the REIT requirements, however, are highly technical and complex.

The determination of whether we are a REIT requires an analysis of various factual matters and circumstances, some of which may not be totally within our control and some of which involve interpretation.

For example, if we are to qualify as a REIT, annually at least 75% of our gross income must come from, among other sources, interest on obligations secured by mortgages on real property or interests in real property, gain from the disposition of real property, including mortgages or interests in real property (other than sales or dispositions of real property, including mortgages on real property, or securities that are treated as mortgages on real property, that we hold primarily for sale to customers in the ordinary course of a trade or business (i.e., prohibited transactions)), dividends or other distributions on, and gains from the disposition of shares in other REITs, commitment fees received for agreements to make real estate loans and certain temporary investment income.

that are treated as mortgages on real property, that we hold primarily for sale to customers in the ordinary course of a trade or business (i.e., prohibited transactions)), dividends or other distributions on, and gains from the disposition of shares in other REITs, commitment fees received for agreements to make real estate loans and certain temporary investment income.

In addition, the composition of our assets must meet certain requirements at the close of each quarter.

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Also, our ability, or the ability of our subsidiaries, to deduct interest may be limited under Section 163(j) of the Code.

To the extent that we generate such non-cash taxable income or have limitations on our deductions in a taxable year, we may have to borrow funds on unfavorable terms, sell investments at

disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions or make a taxable distribution of our stock to make distributions sufficient to maintain our qualification as a REIT or avoid corporate income tax in a particular year.

To the extent that we generate such non-cash taxable income or have limitations on our deductions in a taxable year, we may have to borrow funds on unfavorable terms, sell investments at disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions or make a taxable distribution of our stock to make distributions sufficient to maintain our qualification as a REIT or avoid corporate income tax in a particular year.

These alternatives could increase our costs or reduce our stockholders’ equity.

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This Credit Reserve is generally not accreted into income for financial statement reporting purposes.

For tax purposes, however, we are not permitted to anticipate, or establish a reserve for, credit losses prior to their occurrence.

For tax purposes, however, we are not permitted to anticipate,

or establish a reserve for, credit losses prior to their occurrence.

As a result, discount on securities acquired in the primary or secondary market is included in the determination of taxable income and is not impacted by losses until such losses are incurred.

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In order to maintain our qualification as a REIT, we must comply with a number of requirements under U.S.

federal tax law, including that we distribute at least 90% of our REIT taxable income within the timeframe permitted under the Code,

which is calculated generally before the dividends paid deduction and excluding net capital gain.

federal tax law, including that we distribute at least 90% of our REIT taxable income within the timeframe permitted under the Code, which is calculated generally before the dividends paid deduction and excluding net capital gain.

Dividends will be declared and paid at the discretion of our Board and will depend on our REIT taxable earnings, our financial results and overall condition, maintenance of our REIT qualification and such other factors as our Board may deem relevant from time to time.

We have not established a minimum dividend payment level for our common stock and our ability to pay dividends may be negatively impacted by adverse changes in our operating results.

We have not established a minimum dividend payment level for our common stock and our ability to pay dividends may be

negatively impacted by adverse changes in our operating results.

Therefore, our dividend payment level may fluctuate significantly, and, under some circumstances, we may not pay dividends at all.

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federal income tax purposes, which we are required to include in our taxable income either over time or as principal payments are received, as applicable.

we collect less on the debt instrument than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions.

If we collect less on the debt instrument than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions.

Some of the debt instruments that we acquire may have been issued with original issue discount.

We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future projected payments due on such debt instruments will be made.

We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future

projected payments due on such debt instruments will be made.

If such debt instruments turn out not to be fully collectible, an offsetting loss deduction will become available only in the later year that uncollectability is provable.

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With respect to the REIT 75% asset test, Revenue Procedure 2014-51 provides a safe harbor under which the IRS will not challenge a REIT’s treatment of a loan as being a real estate asset in an amount equal to the lesser of (1) the greater of (a) the current value of the real property securing the loan or (b) the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire the loan or (2) the fair market value of the loan on the date of the relevant quarterly REIT asset testing date.

This safe harbor, if it applied to us, would help us comply with the REIT asset tests following the acquisition of distressed debt if the value of the real property

securing the loan were to subsequently decline.

This safe harbor, if it applied to us, would help us comply with the REIT asset tests following the acquisition of distressed debt if the value of the real property securing the loan were to subsequently decline.

If we did not meet one or more of the REIT asset tests, then we could potentially either lose our REIT status or be required to pay a tax penalty to the IRS.

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Generally, shares owned by affiliated owners will be aggregated for purposes of the ownership limit.

Any transfer of shares of our capital stock or other event that, if effective, would (a) violate the ownership limit, (b) cause us to

become “closely held” under Section 856(h) of the Code or (c) would cause our equity stock to be owned by fewer than 100 persons, will be void as to that number of shares of capital stock in excess of the ownership limit, causing us to be “closely held” or which would otherwise be owned by the transferee, respectively, and the intended transferee will acquire no rights in such shares.

Any transfer of shares of our capital stock or other event that, if effective, would (a) violate the ownership limit, (b) cause us to become “closely held” under Section 856(h) of the Code or (c) would cause our equity stock to be owned by fewer than 100 persons, will be void as to that number of shares of capital stock in excess of the ownership limit, causing us to be “closely held” or which would otherwise be owned by the transferee, respectively, and the intended transferee will acquire no rights in

Shares issued or transferred that would cause any stockholder to own more than the ownership limit or cause us to become “closely held” under Section 856(h) of the Code will automatically be converted into an equal number of shares of excess stock.

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Upon liquidation, holders of our debt securities and shares of preferred stock, if any, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock.

Additional equity

offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both.

Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both.

Preferred stock could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock.

Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.

Because our decision to issue securities in

any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.

Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

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Other Business Risks

The COVID-19 pandemic has adversely affected our business, financial condition, liquidity and results of operations, and may continue to do so.

The COVID-19 pandemic has negatively affected our business, and it may continue to do so.

The early 2020 outbreak caused significant volatility and disruption in the financial markets both in the United States and globally, and periods of market volatility and disruption have continued to occur at various times since the initial outbreak, in particular when new variants of the virus that causes COVID-19 appear and result in an increase in the number of new cases, hospitalizations or deaths.

If COVID-19, or another highly infectious or contagious disease, continues to spread or otherwise remain at high levels, or the response (including vaccines) to contain it is unsuccessful, we could continue to, or once again begin to, experience material adverse effects on our business, financial condition, liquidity, and results of operations.

The extent of such effects will depend on future developments which are highly uncertain and cannot be predicted, including the geographic spread of COVID-19, or another highly infectious or contagious disease, the overall severity of the disease, the development and characteristics of variants (including variants not yet identified) of the disease, the duration of the outbreak, the effectiveness and acceptance of vaccines, the measures taken by various governmental authorities in response to the outbreak (such as quarantines and travel restrictions) and the possible impacts on the global economy.

The continued spread of COVID-19 and health related concerns could also negatively impact the availability of key personnel who are necessary to conduct our business.

In addition, governments have adopted policies, laws and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial and mortgage markets.

We cannot predict the ultimate effect that any policies, laws and plans adopted in response to the COVID-19 pandemic will have on us.

We are dependent on our executive officers and other key personnel for our success, the loss of any of whom may materially adversely affect our business.

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Also, as a result of this competition, desirable investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

Unresolved Staff Comments.

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