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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-06-12 · 532 added, 436 removed, 1041 unchanged (48% of the section changed)

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We refer to our external manager, AG REIT Management, LLC, as our "Manager," and we refer to the direct parent company of our Manager, Angelo, Gordon & Co., L.P., as "Angelo Gordon."

The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Item 1 of this report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in Current Reports on Form 8-K that we may file from time to time.

Forward-Looking Statements

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• changes in general economic conditions, in our industry and in the finance and real estate markets, including the impact on the value of our assets;

• conditions in the market for Agency RMBS, Non-Agency RMBS and CMBS securities, Excess MSRs and loans;

• conditions in the market for Agency RMBS, Residential Investments, including Non-Agency RMBS, CRTs, Non-U.S.

RMBS, interest only securities, and residential mortgage loans, Commercial Investments, including CMBS, interest only securities, and commercial real estate loans, and Excess MSRs;

• legislative and regulatory actions by the U.S.

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• the forbearance program included in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act");

• our ability to make distributions to our stockholders in the future;

• our ability to reinstate quarterly dividends on our common and preferred stock and to make distributions to our stockholders in the future;

• our ability to maintain our qualification as a REIT for federal tax purposes;

• our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended.

• our ability to qualify for an exemption from registration under the Investment Company Act of 1940, as amended, prior to the expiration of our one year grace period.

We caution investors not to rely unduly on any forward-looking statements, which speak only as of the date made, and urge you to carefully consider the risks noted above and identified under the captions "Risk Factors," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2019 and any subsequent filings.

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Special Note Regarding COVID-19 Pandemic

As a result of the global COVID-19 pandemic and our disposition of assets to preserve liquidity, we incurred large realized losses in the quarter ended March 31, 2020 and a sharp decline in book value.

Our Net Loss Available to Common Stockholders during this period was $(490.7) million and our book value per share decreased $(14.98) per share from $17.61 as of December 31, 2019 to $2.63 as of March 31, 2020.

As a result of the global COVID-19 pandemic and our disposition of assets to preserve liquidity, we incurred large realized losses during the six months ended June 30, 2020 and a sharp decline in book value.

Our Net Loss Available to Common Stockholders during this period was $493.3 million and our book value per share decreased $14.86 per share from $17.61 as of December 31, 2019 to $2.75 as of June 30, 2020.

We recognized net realized losses of $181.4 million on the sale of real estate securities, loans and related collateral and realized losses of $61.4 million on the termination of the related derivatives.

The Company also recognized a $(313.9) million increase in net unrealized losses for the period comprised of unrealized losses on securities and unrealized losses on loans of $203.4 million and $110.5 million, respectively.

These losses were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic and the Company's responses thereto, including $2.4 billion in asset sales and a significant decrease in asset valuations in March.

Included in unrealized losses on both securities and loans are net unrealized gain reversals due to sales during the first quarter of 2020 totaling $105.4 million.

The remaining losses of $208.5 million relate to mark to market losses on securities and loans still held.

In the three month period ended March 31, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $1.3 billion, and at March 31, 2020, our equity capital allocation was 5% to Agency RMBS and 95% to Credit Investments.

In an effort to prudently manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, we completed the sale of our 30 year fixed rate Agency securities during the quarter.

We believe the resulting capital allocation will impact our yield, cost of funds and leverage ratio described below.We believe the reduction in the size of our investment portfolio will limit our earnings going forward.

We also recognized $204.3 million in net unrealized losses for the period comprised of unrealized losses on securities and unrealized losses on loans of $154.4 million and $49.9 million, respectively.

These realized and unrealized losses were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic and the actions we took to maintain liquidity and preserve capital, including $3.0 billion in asset sales and a significant decrease in asset valuations during the period.

Included in unrealized losses on both securities and loans are net unrealized gain reversals due to sales during the first and second quarters of 2020 totaling $131.2 million.

The remaining unrealized losses of $73.1 million relate to mark to market losses on securities and loans still held.

In the six month period ended June 30, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $652.3 million, and at June 30, 2020, our equity capital allocation was 3% to Agency RMBS and 97% to Credit Investments.

In an effort to prudently manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, we completed the sale of our portfolio of 30 year fixed rate Agency securities during the six months ended June 30, 2020.

We believe the resulting capital allocation will impact our yield, cost of funds and leverage ratio as described more fully below.We believe the drastic reduction in the size of our investment portfolio will also materially limit our earnings going forward.

We do not yet know the full extent of the effects of the COVID-19 pandemic on our business, operations, personnel, or the U.S.

economy as a whole.

We cannot predict future developments, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third-party providers' ability to support our operations, the nature and effect of any actions taken by governmental authorities and other third parties in response to the pandemic, and the other factors discussed above and throughout this report as discussed more fully under "Risk Factors." Future developments with respect to the COVID-19 pandemic could continue to materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

We cannot predict future developments, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third-party providers' ability to support our operations, the nature and effect of any actions taken by governmental authorities and other third parties in response to the pandemic, and the other factors discussed above and throughout this report as discussed more fully under "Risk Factors." Future developments with respect to the COVID-19 pandemic and the actions taken to reduce its spread could continue to materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Executive Summary

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

On March 13, 2020, the U.S.

declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities have subsequently declared public health emergencies.

These conditions have caused a significant disruption in the U.S.

declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities subsequently declared public health emergencies.

These conditions have caused, and continue to cause, a significant disruption in the U.S.

and world economies.

To slow the spread of COVID-19, many countries, including the U.S., have implemented social distancing measures, which have prohibited large gatherings, including at sporting events, movie theaters, religious services and schools.

To slow the spread of COVID-19, many countries, including the U.S., implemented social distancing measures, which have substantially prohibited large gatherings, including at sporting events, religious services and schools.

Further, many regions, including the majority of U.S.

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To conserve capital, protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize, on March 20, 2020, we notified our repurchase agreement counterparties that we did not expect to fund the existing and anticipated future margin calls under our repurchase agreements and commenced discussions with our counterparties with regard to entering into forbearance agreements.

In an effort to manage our portfolio through this unprecedented turmoil in the financial markets and to improve liquidity, we executed the following measures during the three months ended March 31, 2020:

• Reduced GAAP investment portfolio from $4.0 billion at December 31, 2019 to $1.3 billion at March 31, 2020 and investment portfolio on a non-GAAP basis from $4.4 billion at December 31, 2019 to $1.6 billion at March 31, 2020 through sales, directly or as a result of financing counterparty seizures.

• Reduced financing arrangement balance on a GAAP basis from $3.2 billion at December 31, 2019 to $969.9 million at March 31, 2020 and financing arrangements on a non-GAAP basis from $3.5 billion at December 31, 2019 to $1.2 billion at March 31, 2020.

• Reduced our GAAP leverage ratio and Economic Leverage Ratio from 4.1x and 4.1x at December 31, 2019, respectively, to 3.1x and 3.3x at March 31, 2020, respectively.

• Unwound entire portfolio of pay-fixed, receive-variable interest rate swaps held directly and through investments in debt and equity of affiliates, recording net realized losses of $(65.4) million on a GAAP basis and $(67.9) million on a non-GAAP basis for the three months ended March 31, 2020.

In addition, subsequent to March 31, 2020, we took the following actions:

• Entered three consecutive forbearance agreements, pursuant to which the forbearing counterparties agreed not to exercise any of their rights or remedies under their applicable financing arrangement with the Company through June 15, 2020.

• Entered into agreements with our financing counterparties to exit forbearance, pursuant to which each Participating Counterparty agreed to permanently waive all existing and prior events of default under our financing agreements and reinstate our financing arrangements described in more detail below under the "Financing arrangements" heading of this Item 2.

• Sold real estate securities for proceeds of approximately $232.3 million and residential and commercial loans for proceeds of approximately $416.9 million.

• Further reduced financing arrangement balance on a GAAP basis from $969.9 million at March 31, 2020 to $242.2 million at May 31, 2020 and financing arrangements on a non-GAAP basis from $1.2 billion at March 31, 2020 to $518.3 million at May 31, 2020.

Financing arrangements exclude securitized debt and subordinated debt .

• Reduced our debt obligations to approximately $710 million, net of approximately $25 million of cash posted as collateral to our financing counterparties.

Debt obligations include all financing arrangements, securitized debt and subordinated debt.

Of this amount, approximately $280 million are recourse debt obligations, approximately $410 million are non-recourse debt obligations and approximately $20 million are subordinated debt obligations.

We entered into three consecutive forbearance agreements, pursuant to which the forbearing counterparties agreed not to exercise any of their rights or remedies under their applicable financing arrangement with us through June 15, 2020.

We terminated the Forbearance Agreement on June 10, 2020 pursuant to which each Participating Counterparty agreed to permanently waive all existing and prior events of default under our financing agreements and reinstate our financing arrangements described in more detail below under the "Financing arrangements" heading of this Item 2.

In an effort to manage our portfolio through this unprecedented turmoil in the financial markets, to improve liquidity, and preserve capital, we executed the following measures during the six months ended June 30, 2020:

• Reduced GAAP investment portfolio by $3.3 billion from $4.0 billion at December 31, 2019 to $652.3 million at June 30, 2020 and investment portfolio on a non-GAAP basis by $3.4 billion from $4.4 billion at December 31, 2019 to $1.0 billion at June 30, 2020 through sales, directly or as a result of financing counterparty seizures.

• Reduced financing arrangement balance on a GAAP basis by $2.9 billion from $3.2 billion at December 31, 2019 to $251.1 million at June 30, 2020 and financing arrangements on a non-GAAP basis by $3.0 billion from $3.5 billion at December 31, 2019 to $469.2 million at June 30, 2020.

◦ Reduced the aggregate number of our financing counterparties from 30 as of December 31, 2019 to 6 as of June 30, 2020.

• Reduced mark-to-market recourse financing by $3.2 billion from $3.5 billion at December 31, 2019 to $278.7 million at June 30, 2020

◦ Increased non mark-to-market non-recourse financing by $185.3 million from $224.3 million at December 31, 2019 to $409.6 million at June 30, 2020

• Reduced our GAAP leverage ratio and Economic Leverage Ratio from 4.1x and 4.1x at December 31, 2019, respectively, to 1.3x and 0.8x at June 30, 2020, respectively.

• Did not declare quarterly dividends on our common or preferred stock and, based on current conditions for the Company, we do not anticipate paying dividends on our common or preferred stock for the foreseeable future.

Refer to the "Dividends" section of this Item 2 for more detail on arrearages.

Reconciliations of GAAP and non-GAAP financial measures appear below.

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See Note 14 to the "Notes to Consolidated Financial Statements (unaudited)" for additional financial information regarding our discontinued operations.

Compliance with Investment Company Act and REIT Tests

We intend to conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes, of the Investment Company Act.

Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities.

Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis (the "40% Test").

"Investment securities" do not include, among other things, U.S.

government securities, and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private investment company" exemptions).

If we failed to comply with the 40% Test or another exemption under the Investment Company Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this Report.

Accordingly, in order to maintain our exempt status, we monitor our subsidiaries' compliance with Section 3(c)(5)(C) of the Investment Company Act, which exempts from the definition of "investment company" entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.

The staff of the Securities and Exchange Commission, or the SEC, generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" and at least another 25% in additional qualifying assets or in "real estate-related" assets (with no more than 20% comprised of miscellaneous assets).

As of December 31, 2019, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements.

Due to the recent market conditions as a result of the COVID-19 pandemic and the resultant issues related to our financing arrangements, we sold assets to meet margin calls on our financing arrangements, and some of our subsidiaries currently fail to meet the 55% Test, and as a result must rely on Section 3(c)(7) to avoid registration as investment companies.

As a result, we no longer satisfy the 40% Test.

As we cannot rely on our historical exemption from regulation as an investment company, we now must rely upon Rule 3a-2 of the Investment Company Act, which provides a safe harbor exemption, not to exceed one year, for companies that have a bona fide intent to be engaged in an excepted activity but that temporarily fail to meet the requirements for another exemption from registration as an investment company.

As required by the rule, after we learned that we would become out of compliance with the exemption, our board of directors promptly adopted a resolution declaring our bona fide intent to be engaged in excepted activities and we are currently working to restore our assets to compliance.

The one year grace period ends in March 2021.

"Risk Factors" for additional information regarding the risks associated with the failure to comply with the exemptions under the Investment Company Act.

We calculate that at least 75% of our assets were real estate assets, cash and cash items and government securities for the year ended December 31, 2019.

We also calculate that a sufficient portion of our revenue qualifies for the 75% gross income test and for the 95% gross income test rules for the year ended December 31, 2019.

Overall, we believe that we met the REIT income and asset tests.

We also believe that we met all other REIT requirements, including the ownership of our stock and the distribution of our taxable income.

Therefore, for the year ended December 31, 2019, we believe that we qualified as a REIT under the Code.

"Risk Factors" for additional information regarding the risks associated with the failure to comply with the REIT rules.

Our target investments

Historically, our investment portfolio has been comprised of Agency RMBS, Residential Investments and Commercial Investments, each of which is described in more detail below.

Our investment portfolio has historically been comprised of Agency RMBS, Residential Investments and Commercial Investments, each of which is described in more detail below.

We intend to continue to focus on our core portfolio strengths of residential and commercial credit assets.

In periods where we have working capital in excess of our short-term liquidity needs, we may invest the excess in more liquid assets until such time as we are able to re-invest that capital in credit assets that meet our underwriting requirements.

Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments.

Our investment and capital allocation decisions depend on prevailing market conditions and compliance with Investment Company Act and REIT tests, among other factors, and may change over time in response to opportunities available in different economic and capital market environments.

Prior to the COVID-19 pandemic, our investment portfolio was comprised primarily of residential mortgage-backed securities ("RMBS").

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We referred to these securities as Agency RMBS.

Our Agency RMBS portfolio included:

Our Agency RMBS portfolio has historically included:

• Fixed rate securities (held as mortgage pass-through securities);

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The basic servicing fee is the compensation received by the mortgage servicer for the performance of its servicing duties.

As of June 30, 2020, our Agency RMBS portfolio only includes Excess mortgage servicing rights as we sold out of all other Agency investments during the six months ended June 30, 2020.

Residential Investments

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• RPLs or NPLs in securitized form that are issued by an entity in which we own an equity interest and that we hold alongside other private funds under the management of Angelo Gordon.

The securitizations typically take the form of equity and various classes of notes.

The securitizations typically take the form of

equity and various classes of notes.

These investments are included in the "RMBS" and "Investments in debt and equity of affiliates" line items on our consolidated balance sheets.

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Market conditions

Though 2020 began with an improved interest rate environment for our business and industry as a whole, the impact of the global response to the COVID-19 pandemic on the financial markets has resulted in unprecedented market disruption.

Beginning in the middle of the first quarter of 2020 and continuing into the second quarter, financial and mortgage-related asset markets have experienced significant volatility as a result of the spread of COVID-19.

We expect this volatility may continue in the near term due to the heightened uncertainty relating to COVID-19's duration and potential impact.

During the first quarter of 2020, the significant dislocation in the financial markets caused, among other things, credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets.

These conditions have put significant pressure on the mortgage REIT industry, including financing operations, mortgage asset pricing and liquidity demands.

After a series of rate cuts in 2019, the U.S.

Federal Reserve responded to the effects of the COVID-19 pandemic with a series of large-scale actions, including cutting the Fed Funds target rate by 150 basis points, back to the zero bound.

The Fed also committed in March to unlimited purchases of U.S.

Treasuries and Agency RMBS, in a round of quantitative easing known as QE4.

As the conditions created by the COVID-19 outbreak became more acute, financial markets began to experience severe dislocations and volatility.

In order to maintain adequate liquidity in preparation for the expected economic contraction, many companies began to increase cash levels notably in March, in turn de-levering their businesses.

In fixed income markets specifically, this created acute selling pressures in U.S.

Treasuries and Agency MBS, the two markets with the deepest liquidity profile and hence the greatest potential for raising cash.

In order to increase liquidity, fixed income investors were compelled to sell U.S.

Treasuries and Agency MBS, given their greater liquidity as compared to other fixed income assets, leading to an excess supply of these assets in need of redistribution.

Pressure in financing markets and the need to meet margin obligations created additional selling pressure in U.S.

Treasury and Agency MBS markets.

This negative feedback loop was ultimately disrupted in part by the Federal Reserve’s asset purchases and other institutions’ ability to invest available cash on attractive terms.

Other markets, including the market for residential credit and commercial real estate securities, also saw de-levering flows and similar cyclical feedback loops taking place, albeit on a lesser scale.

The de-levering flows impacted the Agency MBS market due to its greater liquidity relative to other less liquid asset classes, and the sector saw meaningful underperformance versus comparable hedges for a short period of time in mid-March.

Other securitized asset markets saw similar dramatic underperformance in pricing.

Policy makers’ actions appear to have stabilized Agency MBS spreads and other securitized credit markets, both of which tightened into the second quarter of 2020.

During the second quarter of 2020, the financial markets began to recover from the significant dislocation caused by the COVID-19 outbreak and the resultant economic shutdown across the majority of the U.S.

The uncertain conditions prevailing at the end of the first quarter and the start of the second quarter caused significant spread widening, an unprecedented liquidity void, which along with other factors put significant pressure on the mortgage REIT industry.

This pressure has largely abated as the U.S.

Federal Reserve committed to a broad array of programs designed to support the financial markets, including unlimited purchases of Agency RMBS and U.S.

Treasuries, as well as purchases in certain segments of the corporate credit market.

See "Recent government activity" below.

Furthermore, the large-scale liquidity-driven selling from a broad array of fixed income investors in March has reversed as many bond funds experienced inflows during the quarter.

The Fed has also signaled that it intends to maintain low interest rates for the foreseeable future.

After recording the widest spreads since the Global Financial Crisis ("GFC"), the mortgage backed sectors rebounded considerably from late March as a result of increased liquidity and better-than-expected data through the second quarter along with relatively broad-based risk-on sentiment across the financial markets.

At the end of June, spreads had tightened significantly but nonetheless remain wide compared to pre-COVID levels, which we believe is due to the ongoing uncertainty created by regional re-opening plans and the impact of federal stimulus on employment and hiring.

Following one of the most violent market moves ever in Agency MBS, decisive action from, and broad-based support by, the Federal Reserve was able to stabilize both the Agency MBS and funding markets by early May.

This allowed for the generic current coupon MBS spread versus the 10-year Treasury rate to recoup 22 basis points of the 33 basis points of Q1 widening by the end of June.

Specified pools also recovered much of their price declines as demand for protection from refinancing-driven prepayments surged in the face of historically low interest rates.

Federal Reserve buying, strong bank deposit growth, broad demand for yield and declining interest rate volatility have all combined to create a very supportive backdrop for valuations despite elevated gross issuance.

In the RMBS sectors, including Credit Risk Transfer ("CRT"), the spread recovery began in April at the top of the capital structure, and by June, spreads for assets lower in the structure also experienced material tightening.

Similarly, senior tranches were the first to rally, particularly on the heels of the Federal Reserve’s announcement of a GFC-era lending facility (TALF) for some senior ABS and CMBS positions.

By the end of the second quarter, demand was visible lower in the capital structure as market participants searched for yield in the ongoing low interest rate environment.

Tighter secondary spreads brought issuers to market beginning in May across a range of residential sub-sectors, including:

Non-QM, Non-/Re-Performing, Prime Jumbo, Single-Family Rental and CRT.

Non-QM represented the majority of the RMBS issuance as issuers capitalized on rebounding spreads and investor demand.

CRT issuance included the first benchmark deal from Freddie Mac since March, which priced on June 30, 2020, and a deal from a mortgage insurer.

Both were well oversubscribed.

The quarter’s RMBS issuance totaled $8.2 billion, well off first quarter and year-ago levels around $30 billion.

Renewed primary issuance and tighter spreads are welcome developments, but spreads for most mortgage sub-sectors remain wide of pre-COVID levels as uncertainty hangs over the market, reflecting a wide range of potential outcomes.

In the months following COVID, mortgage payment forbearances and consumer relief have largely been within the market’s initial expectations, helping fuel the spread rally.

Home prices have been well supported given strong demand and limited supply in the marketplace.

Government stimulus through the CARES Act and various payment relief programs have helped maintain a level of continuity that was critical to the performance of consumer assets in particular.

The senior parts of the CMBS capital structure that initially led the market wider in March also led the market tighter during the quarter as fixed income mutual funds experienced inflows and opportunistic capital was directed to CMBS.

After trading as wide as swaps plus approximately 3.25%, AAA conduit CMBS spreads ended the quarter at approximately swaps plus 1.10%, only about 0.20% wide to pre-COVID-19 levels.

The tightening in AAA spreads improved economics for issuers enough to slowly restart the new issue market;

however, second quarter CMBS issuance of $7 billion was the lowest amount in eight years and a far cry from the $23 billion issued in the first quarter.

After AAA CMBS pricing recovered, AA rated securities were quick to follow.

Eventually, we saw a similar dynamic in single A rated bonds.

In June, the rally began extending into our target assets, such as BBB rated conduit CMBS (and even some bonds originally rated BB).

While prices have moved higher from the distressed levels of March, fundamentals remain under pressure with the conduit delinquency rate rising to 10.3% at the end of June, just 2 basis points below the record high set in July 2012.

An additional 4.1% of loans are in their grace period (not current, but not listed as more than 30 days delinquent).

The heavy selling pressure in Single-Asset/Single-Borrower ("SA/SB") bonds in March also reversed in April and deals from favored assets classes such as industrial, multifamily and even office are back to trading within a few points of their pre-COVID levels with very flat credit curves.

Certain hotel and retail deals have rallied from their lows, but this is much more deal specific with a high level of focus on sponsorship and much steeper credit curves.

Finally, in the Agency CMBS market, Freddie K B-Pieces were one of the first sectors to recover in April, likely driven in large part by the assumption that the multifamily loans that secure these deals are unlikely to default.

While historical performance of these deals has been strong, the asset class in general may not be immune from credit challenges going forward.

In light of the pervasive uncertainties of the COVID-19 pandemic for the U.S.

and global economy, there can be no assurance tht the trends and conditions described above will not change in a manner materially adverse to the mortgage REIT industry.

Recent government activity

economy remained strong through January and February of 2020.

Despite this, the Federal Reserve has been conducting large scale overnight repo operations since late 2019 to address disruptions in the U.S.

Treasury, Agency debt and Agency RMBS financing markets.

These operations have been increased substantially due to the funding disruptions resulting from the economic crisis and market dislocations resulting from the COVID-19 pandemic.

The Federal Reserve has taken a number of other actions to stabilize markets as a result of the impact of the COVID-19 pandemic.

On Sunday, March 15, 2020, the Federal Reserve announced a $700 billion asset purchase program to provide liquidity to the U.S.

The Federal Reserve has taken a number of actions to stabilize markets as a result of the impact of the COVID-19 pandemic.

Since late 2019, the Federal Reserve has been conducting large scale overnight repo operations to address disruptions in the U.S.

Treasury, Agency debt and Agency RMBS financing markets and has substantially increased these operations to address funding disruptions resulting from the economic crisis and market dislocations resulting from the COVID-19 pandemic.

On March 15, 2020, the Federal Reserve announced a $700 billion asset purchase program to provide liquidity to the U.S.

Treasury and Agency RMBS markets.

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The markets for U.S.

Treasuries, MBS and other mortgage and fixed income markets continued to deteriorate following this announcement as investors liquidated investments in response to the economic crisis.

Many of these markets experienced severe dislocations during the second half of March, which resulted in forced selling of assets to satisfy margin calls.

To address these issues in the fixed income and funding markets, on the morning of Monday, March 23, 2020, the Federal Reserve announced a program to acquire U.S.

Treasuries, MBS and other mortgage and fixed income markets experienced severe dislocations in March as a result of the COVID-19 pandemic.

To address these issues in the fixed income and funding markets, on March 23, 2020, the Federal Reserve announced a program to acquire U.S.

Treasuries and Agency RMBS in the amounts needed to support smooth market functioning.

Since that date, the Federal Reserve and the Federal Housing Finance Agency (“FHFA”) have taken various other steps to support certain other fixed income markets, to support mortgage servicers and to implement various portions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was signed into law on March 27, 2020.

One provision of the CARES Act provides up to 360 days of forbearance relief from mortgage loan payments for borrowers with federally backed (e.g.

The FHFA instructed the GSEs on how to handle servicer advances for loans that back Agency RMBS that enter into forbearance, which limits prepayments during the forbearance period that could have resulted otherwise.

Further, the FHFA announced a loan payment deferment plan for Agency multi-family borrowers facing hardship from revenue losses caused by COVID-19, with the condition that these borrowers suspend all evictions for renters unable to pay rent due to the impact of COVID-19.

On March 27, 2020, the CARES Act was signed into law to provide many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity resulting from the COVID-19 pandemic.

The over $2 trillion relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), funding to hospitals and health care providers, loans and investments to businesses, states and municipalities and grants to the airline industry.

On April 24, 2020, President Trump signed an additional funding bill into law that provided an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts.

In addition, in response to the economic impact of the COVID-19 pandemic, governors of several states issued executive orders prohibiting evictions and foreclosures for specified periods of time, and many courts enacted emergency rules delaying hearings related to evictions or foreclosures.

One additional provision of the CARES Act provides up to 360 days of forbearance relief from mortgage loan payments for borrowers with federally backed (e.g.

Fannie Mae or Freddie Mac) mortgages who experience financial hardship related to the pandemic.

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The CARES Act also prohibits foreclosures for 60 days and evictions by landlords for 120 days after its enactment.

These legislative actions have created uncertainty around the ultimate effects on delinquencies, defaults, prepayment speeds, low interest rates and home price appreciation.

The FHFA has instructed the GSEs on how they will handle servicer advances for loans that back Agency RMBS that enter into forbearance, which should limit prepayments during the forbearance period that could have resulted otherwise.

In addition, governors of several states have issued executive orders prohibiting evictions and foreclosures for specified periods of time, and many courts have enacted emergency rules delaying hearings related to evictions or foreclosures.

Further, the FHFA recently announced a loan payment deferment plan for Agency multi-family borrowers facing hardship from revenue losses caused by COVID-19, with the condition that these borrowers suspend all evictions for renters unable to pay rent due to the impact of COVID-19.

We anticipate that the number of borrowers with residential loans and those loans that underlie the securities in which we invest that become delinquent or default on their financial obligations may increase significantly as a result of the ongoing pandemic and such increased levels could materially adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders.

The CARES Act also provides many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity.

This over $2 trillion COVID-19 relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), provided funding to hospitals and health care providers, provided loans and investments to businesses, states and municipalities and provided grants to the airline industry.

On April 24, 2020, President Trump signed an additional funding bill into law that provides an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts.

On June 17, 2020, the FHFA announced that Fannie Mae and Freddie Mac will extend their single-family moratorium on foreclosure and evictions until at least August 31, 2020.

These legislative and agency actions have created uncertainty around the ultimate effects on delinquencies, defaults, prepayment speeds, low interest rates and home price appreciation.

The scope and nature of any future actions the Federal Reserve and other governmental authorities will ultimately undertake are unknown and will continue to evolve, especially in light of the COVID-19 pandemic and the upcoming presidential and Congressional elections in the United States.

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Prior to the sale of our 30 year fixed rate Agency RMBS portfolio in March 2020, our net interest income varied primarily as a result of changes in market interest rates, prepayment speeds, as measured by the Constant Prepayment Rate ("CPR") on the Agency RMBS in our investment portfolio, and our funding and hedging costs.

Additionally, we believe the reduction in the size of our investment portfolio will limit our earnings going forward.

Three Months Ended March 31, 2020 compared to the Three Months Ended March 31, 2019

The table below presents certain information from our consolidated statements of operations for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

As a result of the global COVID-19 pandemic and our disposition of assets to preserve liquidity, we incurred large realized losses in 2020 and a sharp decline in book value.

Additionally, we believe the drastic reduction in the size of our investment portfolio will materially limit our earnings going forward.

Three Months Ended June 30, 2020 compared to the Three Months Ended June 30, 2019

The table below presents certain information from our consolidated statements of operations for the three months ended June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended

March 31, 2020 March 31, 2019 Increase/(Decrease)

June 30, 2020 June 30, 2019 Increase/(Decrease)

Statement of Operations Data:

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Other operating expenses 4,482 3,807 675

Restructuring related expenses 7,104 — 7,104

Equity based compensation to affiliate 75 73 2

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Treasury securities, if any.

Interest income decreased from March 31, 2019 to March 31, 2020 primarily due to a decrease in the weighted average yield on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period of 0.54% from 5.02% for the three months ended March 31, 2019 to 4.48% for the three months ended March 31, 2020.

This was offset by an increase in the weighted average cost of our GAAP investment portfolio and U.S.

Treasury securities, if any, of $0.3 billion from $3.3 billion at March 31, 2019 to $3.6 billion at March 31, 2020.

We expect our interest income going forward to be materially lower compared to comparable prior periods as a result of the changes in our investment portfolio as set forth in the tables of the "Investment activities" section below as a result of the COVID-19 pandemic.

Interest income decreased from June 30, 2019 to June 30, 2020 primarily due to the drastic reduction in the size of our investment portfolio as a result of the global COVID-19 pandemic.

The weighted average cost of our GAAP investment portfolio and U.S.

Treasury securities, if any, of $2.4 billion from $3.4 billion for the three months ended June 30, 2019 to $1.0 billion for the three months ended June 30, 2020.

We expect our interest income going forward to be materially lower compared

to comparable prior periods as a result of the changes in our investment portfolio as set forth in the tables of the "Investment activities" section below as a result of the COVID-19 pandemic.

Interest expense

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Treasury securities, if any.

Interest expense decreased from March 31, 2019 to March 31, 2020 primarily due to a decrease in the weighted average financing rate on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period, by 0.52% from 3.16% for the three months ended March 31, 2019 to 2.64% for the three months ended March 31, 2020.

Our weighted average financing balance on our GAAP investment portfolio and U.S.

Treasury securities, if any, remained flat during the three months ended March 31, 2019 and March 31, 2020.

Interest expense decreased from June 30, 2019 to June 30, 2020 primarily due to the drastic reduction in the size of our investment portfolio and related financing as a result of the global COVID-19 pandemic.

The weighted average financing balance on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period of $2.5 billion from $3.1 billion for the three months ended June 30, 2019 to $551.3 million for the three months ended June 30, 2020.

Refer to the "Financing activities" section below for a discussion of the material changes in our cost of funds.

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See Note 2, Note 3, Note 4 and Note 5 to the "Notes to Consolidated Financial Statements (unaudited)" for further discussion on OTTI.

The following table presents a summary of Net realized gain/(loss) for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

The following table presents a summary of Net realized gain/(loss) for the three months ended June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

Sale/seizures of real estate securities and related collateral $ (36,288) $ 3,745

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Total Net realized gain/(loss) $ (91,609) $ (27,510)

As previously discussed, in order to preserve liquidity and meet margin calls, we sold approximately $2.4 billion of securities during the three months ended March 31, 2020 due to the unprecedented market conditions experienced as a result of the global COVID-19 pandemic.

During the three months ended March 31, 2020, we recognized net realized losses of $86.3 million on the sale or seizure of such securities and realized losses of $61.9 million on the termination of the related derivatives.

We also recognized $3.0 million of net realized losses on residential loans during the three months ended March 31, 2020, primarily due to the sale of one loan.

Due to the unprecedented market conditions experienced as a result of the global COVID-19 pandemic and in order to continue to preserve liquidity and meet margin calls, we sold approximately $0.6 billion of securities and loans during the three months ended June 30, 2020.

Net interest component of interest rate swaps

Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps.

Net interest component of interest rate swaps decreased from March 31, 2019 to March 31, 2020 due to a decrease in the average 3 month LIBOR rate as well as a decrease in the weighted average notional period over period.

Average 3 month LIBOR, the interest rate upon which the floating leg of these derivative instruments is based, decreased from 2.687% for the three months ended March 31, 2019 to 1.535% for the three months ended March 31, 2020.

In addition, the weighted average swap notional decreased from $1.9 billion for the three months ended March 31, 2019 to $1.5 billion for the three months ended March 31, 2020.

Net interest component of interest rate swaps decreased from June 30, 2019 to June 30, 2020 as we did not hold any interest rate swaps for the three months ended June 30, 2020.

For the three months ended June 30, 2019, the net interest component of interest rate swaps was $1.8 million.

Refer to the "Hedging activities" section below for a discussion of material changes in our interest rate swap portfolio.

Unrealized gain/(loss) on real estate securities and loans, net

The disruptions of the financial markets due to the COVID-19 pandemic have caused credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets.

These conditions have put significant downward pressure on the fair value of our assets and resulted in unrealized losses for the three months ended March 31, 2020.

During the first quarter of 2020, the Company recognized a $313.9 million increase in net unrealized losses comprised of unrealized losses on securities and unrealized losses on loans of $203.4 million and $110.5 million, respectively.

These losses were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic and the Company's response thereto, including $2.4 billion in asset sales and a significant decrease in asset valuations in March.

Included in unrealized losses on both securities and loans are net unrealized gain reversals due to sales during the first quarter of 2020 totaling $105.4 million.

The remaining losses of $208.5 million relate to mark to market losses on securities and loans still held at March 31, 2020.

During the second quarter of 2020, the Company recognized $109.6 million in net unrealized gains comprised of unrealized gains on securities and unrealized gains on loans of $48.9 million and $60.7 million, respectively.

Included in unrealized gains on both securities and loans are net unrealized loss reversals due to sales during the second quarter of 2020 totaling $88.1 million.

The remaining gains of $21.5 million relate to mark to market gains on securities and loans still held at June 30, 2020.

Unrealized gain/(loss) on derivative and other instruments, net

For the three months ended March 31, 2020, the gain of $5.7 million was comprised of unrealized gains on securitized debt offset by unrealized losses on excess MSRs and derivatives.

For the three months ended June 30, 2020, the losses of $9.5 million were comprised of unrealized losses on securitized debt, Excess MSRs, and derivatives.

Foreign currency gain/(loss), net

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Refer to Note 2 of the "Notes to the Consolidated Financial Statements" for details on what specifically is included in the "Foreign currency gain/(loss), net" line item.

During the three months ended March 31, 2020, the value of GBP relative to USD decreased, resulting in a gain on the liabilities held in foreign currencies.

Other income primarily includes certain fees we receive on our loans and CMBS portfolios.

Other income decreased from March 31, 2019 to March 31, 2020 due to the fact that we did not originate any loans during Q1 2019.

For the three months ended June 30, 2019, we did not hold any positions denominated in foreign currencies.

Other income currently includes certain fees we receive on our loans and CMBS portfolios.

Other income decreased from June 30, 2019 to June 30, 2020 due to a premium received on a credit default swap during the three months ended June 30, 2019 that we did not receive during the three months ended June 30, 2020.

Management fee to affiliate

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See the "Contractual obligations" section of this Item 2 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity.

Management fees decreased from March 31, 2019 to March 31, 2020 primarily due to a decrease in our Stockholders' Equity as calculated pursuant to our Management Agreement.

Management fees decreased from June 30, 2019 to June 30, 2020 primarily due to a decrease in our Stockholders' Equity as calculated pursuant to our Management Agreement.

On April 6, 2020, we executed an amendment to our Management Agreement pursuant to which our Manager agreed to defer our payment of the management fee and reimbursement of expenses beginning with the first quarter of 2020 through September 30, 2020, or such other time as we and the Manager agree.

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Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to the Manager.

The following table presents a summary of expenses within Other operating expenses broken out between non-investment related expenses and investment related expenses for the three months ended March 31, 2020 and March 31, 2019 (in thousands):

Three Months Ended

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

Non Investment Related Expenses

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Directors' compensation 173 218

Restructuring related expenses (1) 1,500 —

Other 198 220

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Affiliate expense reimbursement - Deal related expenses 162 173

Affiliate expense reimbursement - Transaction related expenses and deal related performance fees (2) — 41

Professional fees 47 46

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Total Other operating expenses $ 4,482 $ 3,807

(1) Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement.

(1) For the three months ended June 30, 2020 and June 30, 2019, total transaction related expenses and deal related performance fees were $0.6 million and $0.4 million, respectively.

For the three months ended June 30, 2020, the $0.6 million includes $0.2 million of deferred financing costs that are included within interest expense.

For the three months ended June 30, 2019, the $0.4 million includes $30.5 thousand deferred financing costs that are included within interest expense.

Restructuring related expenses

Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement.

Refer to the "Financing activities" section below for more information regarding the Forbearance Agreement.

(2) For the three months ended March 31, 2020 and March 31, 2019, total transaction related expenses and deal related performance fees were $(3.4) million and $0.4 million, respectively.

For the three months ended March 31, 2020, the $(3.4) million includes $(0.2) million of deferred financing costs that are included within interest expense.

For the three months ended March 31, 2019, the $0.4 million excludes a de minimis amount of deferred financing costs that are included within interest expense.

The decrease in Transaction related expenses and deal related performance fees from the three months ended March 31, 2019 to the three months ended March 31, 2020 is primarily a result of accrued deal related performance fees being reversed in the current period due to a decline in the price of the related assets, as well as the seizure of such assets by financing counterparties.

Equity based compensation to affiliate

Equity based compensation to affiliate represents the amortization of the fair value of our restricted stock units granted to our Manager, less the present value of dividends expected to be paid on the underlying shares through the requisite period.

For the three months ended March 31, 2020 and March 31, 2019, our equity based compensation to affiliate decreased due to a decrease in our stock price.

For the three months ended June 30, 2020 and June 30, 2019, our equity based compensation to affiliate remained relatively unchanged.

Excise tax represents a four percent tax on the required amount of any ordinary income and net capital gains not distributed during the year.

The quarterly expense is calculated in accordance with applicable tax regulations.

For the three months ended March 31, 2020 and March 31, 2019, our excise tax decreased primarily due to losses associated with COVID-19.

For the three months ended June 30, 2020, our excise tax decreased primarily due to losses associated with COVID-19.

Servicing fees

We incur servicing fee expenses in connection with the servicing of our Residential mortgage loans.

As of March 31, 2020 and March 31, 2019, we owned Residential mortgage loans with a fair value of $767.0 million and $202.0 million, respectively.

This increase in the fair value of the Residential mortgage loans was a result of our purchases of Residential mortgage loan pools in 2019 and 2020.

For the three months ended March 31, 2020 and March 31, 2019, our servicing fees increased primarily due to our purchases of residential mortgage loans described above.

As of June 30, 2020 and June 30, 2019, we owned Residential mortgage loans with a fair value of $379.8 million and $200.0 million, respectively.

This increase in the fair value of the Residential mortgage loans was a result of net purchases of Residential mortgage loan pools in 2019 and 2020.

For the three months ended June 30, 2020 and June 30, 2019, our servicing fees increased primarily due to our purchases of residential mortgage loans described above.

Equity in earnings/(loss) from affiliates

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A majority of these investments are comprised of real estate securities, loans and our investment in AG Arc.

The decrease from the quarter ended March 31, 2019 to the quarter ended March 31, 2020 primarily pertains to our share of the unrealized losses on investments held within affiliated entities.

The increase from the quarter ended June 30, 2019 to the quarter ended June 30, 2020 primarily pertains to our share of the unrealized gains on investments held within affiliated entities.

Discontinued operations

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We reclassified the operating results of the single-family rental properties segment to discontinued operations and excluded the income from continuing operations for all periods presented.

Six Months Ended June 30, 2020 compared to the Six Months Ended June 30, 2019

The table below presents certain information from our consolidated statements of operations for the six months ended June 30, 2020 and June 30, 2019 (in thousands):

Six Months Ended

June 30, 2020 June 30, 2019 Increase/(Decrease)

Statement of Operations Data:

Net Interest Income

Interest income $ 53,637 $ 82,391 $ (28,754)

Interest expense 28,584 45,124 (16,540)

Total Net Interest Income 25,053 37,267 (12,214)

Other Income/(Loss)

Net realized gain/(loss) (242,752) (48,093) (194,659)

Net interest component of interest rate swaps 923 3,581 (2,658)

Unrealized gain/(loss) on real estate securities and loans, net (204,265) 89,918 (294,183)

Unrealized gain/(loss) on derivative and other instruments, net (3,767) (20,925) 17,158

Foreign currency gain/(loss), net 1,493 — 1,493

Other income 4 630 (626)

Total Other Income/(Loss) (448,364) 25,111 (473,475)

Management fee to affiliate 3,827 4,745 (918)

Other operating expenses 5,324 7,588 (2,264)

Restructuring related expenses 8,604 — 8,604

Equity based compensation to affiliate 163 199 (36)

Excise tax (815) 278 (1,093)

Servicing fees 1,145 787 358

Total Expenses 18,248 13,597 4,651

Income/(loss) before equity in earnings/(loss) from affiliates (441,559) 48,781 (490,340)

Equity in earnings/(loss) from affiliates (40,758) 1,279 (42,037)

Net Income/(Loss) from Continuing Operations (482,317) 50,060 (532,377)

Net Income/(Loss) from Discontinued Operations 361 (2,227) 2,588

Net Income/(Loss) (481,956) 47,833 (529,789)

Dividends on preferred stock 11,334 6,734 4,600

Net Income/(Loss) Available to Common Stockholders $ (493,290) $ 41,099 $ (534,389)

Interest income

Interest income decreased from June 30, 2019 to June 30, 2020 primarily due to the drastic reduction in the size of our investment portfolio as a result of the global COVID-19 pandemic.

The weighted average cost of our GAAP investment portfolio and U.S.

Treasury securities, if any, of $1.0 billion from $3.3 billion at June 30, 2019 to $2.3 billion at June 30, 2020.

Interest expense

The weighted average financing balance on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period of $1.2 billion from $3.0 billion for the six months ended June 30, 2019 to $1.8 billion for the six months ended June 30, 2020.

Refer to the "Financing activities" section below for a discussion of the material changes in our cost of funds.

We do not expect our interest expense, set forth in the consolidated statements of operations table above, to be indicative of our future interest expense due to the changes in our financing arrangements described in the "Financing activities" section below.

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the six months ended June 30, 2020 and June 30, 2019 (in thousands):

Six Months Ended

June 30, 2020 June 30, 2019

Sale/seizures of real estate securities and related collateral $ (122,593) $ 5,807

Sale of loans and loans transferred to or sold from Other assets (58,765) 948

Settlement of derivatives and other instruments (61,394) (41,447)

OTTI — (13,401)

Total Net realized gain/(loss) $ (242,752) $ (48,093)

As previously discussed, in order to preserve liquidity and meet margin calls, we sold approximately $3.5 billion of securities and loans during the six months ended June 30, 2020, a majority of which were sold due to the unprecedented market conditions experienced as a result of the global COVID-19 pandemic.

Net interest component of interest rate swaps

Net interest component of interest rate swaps decreased from June 30, 2019 to June 30, 2020 as we sold out of our interest rate swaps positions in March 2020.

For the six months ended June 30, 2019, the net interest component of interest rate swaps was $3.6 million.

Refer to the "Hedging activities" section below for a discussion of material changes in our interest rate swap portfolio.

Unrealized gain/(loss) on real estate securities and loans, net

These conditions have put significant downward pressure on the fair value of our assets and resulted in unrealized losses for the six months ended June 30, 2020.

During the six months ended 2020, the Company recognized $204.3 million in net unrealized losses comprised of unrealized losses on securities and unrealized losses on loans of $154.4 million and $49.9 million, respectively.

These losses were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic and the Company's response thereto.

Included in unrealized losses on both securities and loans are net unrealized gain reversals due to sales during the period totaling $131.2 million.

The remaining losses of $73.1 million relate to mark to market losses on securities and loans still held at June 30, 2020.

Unrealized gain/(loss) on derivative and other instruments, net

For the six months ended June 30, 2020, the losses of $3.8 million was comprised of unrealized losses on derivatives and excess MSRs offset by unrealized gains on securitized debt.

Foreign currency gain/(loss), net

During the six months ended June 30, 2020, the value of GBP relative to USD decreased, resulting in a gain on the liabilities held in foreign currencies.

We did not hold any positions denominated in foreign currencies during the six months ended June 30, 2019.

Other income currently includes certain fees we receive on our loans and CMBS portfolios.

Other income decreased from June 30, 2019 to June 30, 2020 as a result of origination fees received related to new commercial real estate loans and a premium received on a credit default swap 2019 that we did not receive in 2020.

Management fee to affiliate

Management fees decreased from June 30, 2019 to June 30, 2020 primarily due to a decrease in our Stockholders' Equity as calculated pursuant to our Management Agreement.

Other operating expenses

Six Months Ended

June 30, 2020 June 30, 2019

Non Investment Related Expenses

Affiliate expense reimbursement - Operating expenses $ 3,576 $ 3,490

Professional fees 1,193 909

D&O insurance 348 348

Directors' compensation 391 439

Other 427 454

Total Corporate Expenses 5,935 5,640

Investment Related Expenses

Affiliate expense reimbursement - Deal related expenses 324 367

Affiliate expense reimbursement - Transaction related expenses and deal related performance fees (1) — 42

Professional fees 94 92

Residential mortgage loan related expenses 1,579 398

Transaction related expenses and deal related performance fees (1) (2,846) 763

Other 238 286

Total Investment Expenses (611) 1,948

Total Other operating expenses $ 5,324 $ 7,588

(1) For the six months ended June 30, 2020 and June 30, 2019, total transaction related expenses and deal related performance fees were $(2.8) million and $0.8 million, respectively.

For the six months ended June 30, 2020, the $(2.8) million includes a de minimis amount of deferred financing costs that are included within interest expense.

For the six months ended June 30, 2019, the $0.8 million includes $30.5 thousand of deferred financing costs that are included within interest expense.

The decrease in Transaction related expenses and deal related performance fees from the six months ended June 30, 2019 to the six months ended June 30, 2020 is primarily a result of accrued deal related performance fees being reversed in the current period due to a decline in the price of the related assets, as well as the seizure of such assets by financing counterparties.

Restructuring related expenses

Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement.

Refer to the "Financing activities" section below for more information regarding the Forbearance Agreement.

Equity based compensation to affiliate

For the six months ended June 30, 2020 and June 30, 2019, our equity based compensation to affiliate remained relatively unchanged.

For the six months ended June 30, 2020 and June 30, 2019, our excise tax decreased primarily due to losses associated with COVID-19.

Servicing fees

For the six months ended June 30, 2020 and June 30, 2019, our servicing fees increased primarily due to net purchases of residential mortgage loans described above.

Equity in earnings/(loss) from affiliates

The decrease from the six months ended June 30, 2019 to the six months ended June 30, 2020 primarily pertains to our share of the unrealized losses on investments held within affiliated entities.

Book value per share

As of March 31, 2020 and December 31, 2019, our book value per common share was $2.63 and $17.61, respectively.

As of June 30, 2020 and December 31, 2019, our book value per common share was $2.75 and $17.61, respectively.

Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP, including all vested shares granted to our Manager, and our independent directors under our equity incentive plans as of quarter-end.

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The liquidation preference for the Series A, Series B and Series C Preferred Stock is $52.8 million, $117.3 million and $117.3 million, respectively.

The liquidation preference as of June 30, 2020 includes accumulated and unpaid dividends (whether or not authorized or declared) in the aggregate amount of $5.7 million.

Book value does not include any accrual of accumulated, unpaid, or undeclared dividends on our Cumulative Redeemable Preferred Stock.

Refer to the "Dividends" section below and Note 9 in the "Notes to Consolidated Financing Statements (Unaudited)" for more information on the arrearages related to the preferred stock.

Presentation of investment, financing and hedging activities

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As a result, our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the diversification of our counterparties and their available capacity to finance our assets, and anticipated regulatory developments.

Over the past several quarters, we have generally maintained a leverage ratio range of 4.0 to 5.0 times to finance our investment portfolio, on a fully deployed capital basis.

Prior to COVID-19, we generally maintained a leverage ratio range of 4.0 to 5.0 times to finance our investment portfolio, on a fully deployed capital basis.

Our debt-to-equity ratio is directly correlated to the composition of our portfolio;

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As previously mentioned, in an effort to prudently manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, we completed the sale of our 30 year fixed rate Agency securities during the first quarter of 2020.

We believe the resulting capital allocation impacts the weighted average yield, weighted average cost of funds and leverage ratio illustrated below.

We believe the resulting capital allocation impacts the weighted average yield, weighted average cost of funds and leverage ratio as illustrated below.

Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio.

See the "Financing activities" section below for more detail on our leverage ratio.

The chart below sets forth the net interest margin and leverage ratio from our investment portfolio as of March 31, 2020 and March 31, 2019 and a reconciliation to our GAAP investment portfolio:

March 31, 2020

The chart below sets forth the net interest margin and leverage ratio from our investment portfolio as of June 30, 2020 and June 30, 2019 and a reconciliation to our GAAP investment portfolio:

June 30, 2020

Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a)

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Leverage Ratio (c) 1.3x (d) 0.8x

March 31, 2019

June 30, 2019

Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a)

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Core Earnings

We are not disclosing Core Earnings, a non-GAAP financial measure, for the first quarter of 2020, as we determined that this measure, as we have historically calculated it, would not appropriately capture the materially negative economic impact of the COVID-19 pandemic on our business, liquidity, results of operations, financial condition, and ability to make distributions to our stockholders.

We are not currently disclosing Core Earnings, a non-GAAP financial measure, as we determined that this measure, as we have historically calculated it, would not appropriately capture the materially negative economic impact of the COVID-19 pandemic on our business, liquidity, results of operations, financial condition, and ability to make distributions to our stockholders.

As financial markets stabilize, we will evaluate whether core earnings or other non-GAAP financial measures would help both management and investors evaluate our operating performance for future periods.

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Our allocation to each of these investments is set forth in more detail below.

The risk-reward profile of our investment opportunities changes continuously with the market, with labor, housing and economic fundamentals, and with U.S.

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As a result, in reacting to market conditions and taking into account a variety of other factors, including liquidity, duration, interest rate expectations and hedging, the mix of our assets changes over time as we opportunistically deploy capital.

In light of recent market turmoil related to the COVID-19 pandemic, we expect to maintain a defensive posture in the near term as it relates to new investments until we have greater clarity of market and economic conditions resulting from the COVID-19 pandemic and as related restrictions are reduced and states "re-open." In Q1 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $1.3 billion, and at March 31, 2020, our equity capital allocation was 5% to Agency RMBS and 95% to Credit Investments.

As a result of the market turmoil related to the COVID-19 pandemic, we maintained a defensive posture during the second quarter as it related to new investments.

We prioritized liquidity and capital preservation to acquisition.

During the six months ended June 30, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $652.3 million, and at June 30, 2020, our equity capital allocation was 3% to Agency RMBS and 97% to Credit Investments.

We have expertise in Agency RMBS, and may choose to allocate additional capital in those assets should the opportunity arise;

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Therefore, potential future losses may also stem from issues with our investments that are not identified by our credit reviews.

The following table presents a detailed break-down of our investment portfolio as of March 31, 2020 and December 31, 2019 and a reconciliation to our GAAP Investment Portfolio ($ in thousands):

The following table presents a detailed break-down of our investment portfolio as of June 30, 2020 and December 31, 2019 and a reconciliation to our GAAP Investment Portfolio ($ in thousands):

Fair Value Percent of Investment Portfolio

Fair Value Leverage Ratio (a)

March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019

Agency RMBS $ 37,620 $ 2,333,626 2.3 % 52.8 % 1.1x 7.1x

June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019

Agency RMBS (b) $ 12,688 $ 2,333,626 1.3 % 52.8 % — 7.1x

Residential Investments 732,375 1,493,869 76.3 % 33.8 % 1.6x 2.7x

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Investment Portfolio $ 959,402 $ 4,417,204 100.0 % 100.0 % 0.8x 4.1x

Investments in Debt and Equity of Affiliates (b) $ 342,468 $ 373,126 N/A N/A (c) (c)

Investments in Debt and Equity of Affiliates (c) $ 307,130 $ 373,126 N/A N/A (d) (d)

GAAP Investment Portfolio $ 652,272 $ 4,044,078 N/A N/A 1.3x 4.1x

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The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage.

(b) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt.

Refer to the Executive Summary above for information on securities and loans sold subsequent to quarter end.

(b) As of June 30, 2020, Agency RMBS includes only Excess MSRs.

(d) Refer to the "Financing activities" section below for an aggregate breakout of leverage.

We allocate our equity by investment using the fair value of our investment portfolio, less any associated leverage, inclusive of any long TBA position (at cost).

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Our equity allocation method is a non-GAAP methodology and may not be comparable to the similarly titled measure or concepts of other companies, who may use different calculations and allocation methodologies.

The following table presents a summary of the allocated equity of our investment portfolio as of March 31, 2020 and December 31, 2019 ($ in thousands):

The following table presents a summary of the allocated equity of our investment portfolio as of June 30, 2020 and December 31, 2019 ($ in thousands):

Allocated Equity Percent of Equity

March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019

Agency RMBS $ 11,426 $ 295,358 3.1 % 34.8 %

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Total $ 365,378 $ 849,046 100.0 % 100.0 %

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of March 31, 2020 ($ in thousands):

GAAP Investment Portfolio Reconciliation

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of June 30, 2020 ($ in thousands):

Instrument Current Face Amortized Cost Unrealized Mark-

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Life (Years) (3)

Inverse Interest Only $ 96,198 $ 16,281 $ (2,675) $ 13,606 5.34 % 4.40 % 3.93

Interest Only 120,325 11,678 (2,152) 9,526 3.10 % (1.17) % 2.49

Excess MSR (4) $ 2,441,668 $ 18,174 $ (5,486) $ 12,688 N/A 4.85 % 6.38

Total Agency RMBS 3,045,812 47,048 (9,428) 37,620 4.10 % 3.18 % 6.08

Total Agency RMBS 2,441,668 18,174 (5,486) 12,688 N/A 4.85 % 6.38

Credit Investments:

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The following table presents the fair value ($ in thousands) and the CPR experienced on our GAAP Agency RMBS portfolio for the periods presented.

We did not hold any GAAP Agency RMBS as of June 30, 2020.

Fair Value CPR (1)(2)(3)

Agency RMBS March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019

Agency RMBS December 31, 2019 December 31, 2019

30 Year Fixed Rate (3) $ 2,241,298 8.1 %

Fixed Rate CMO (4) — — — % 8.2 %

Inverse Interest Only (3) 38,238 11.7 %

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Total/Weighted Average $ 2,315,439 8.2 %

(1) Represents the weighted average monthly CPRs published during the quarter ended of March 31, 2020 and year ended December 31, 2019 for our in-place portfolio during the same period.

(3) We held 30 Year Fixed Rate Agency RMBS during 2020, but sold them prior to March 31, 2020.

(4) We held Fixed Rate CMOs during 2019, but sold them prior to December 31, 2019.

(1) Represents the weighted average monthly CPRs published during the year ended December 31, 2019 for our in-place portfolio during the same period.

(3) CPRs are shown only for securities with fair values as of period end.

The following table presents the fair value of the securities and loans in our credit portfolio, and a reconciliation to our GAAP credit portfolio (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Non-Agency RMBS (1) $ 117,149 $ 835,325

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(3) Includes Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing not held in securitized form.

The following table presents certain information grouped by vintage as it relates to our credit securities portfolio as of March 31, 2020 ($ in thousands).

The following table presents certain information grouped by vintage as it relates to our credit securities portfolio as of June 30, 2020 ($ in thousands).

We have also presented a reconciliation to GAAP.

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2020 338,775 42,453 (2,698) 39,755 1.20 % 13.69 % 4.33

2019 1,213,460 226,345 (47,593) 178,752 1.44 % 10.15 % 4.31

2020 303,403 24,824 (6,687) 18,137 0.92 % 14.19 % 3.74

Credit Securities $ 2,254,634 $ 235,496 $ (31,693) $ 203,803 0.82 % 9.56 % 4.29

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Actual maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.

The following table presents the fair value of our credit securities portfolio by credit rating as of March 31, 2020 and December 31, 2019 (in thousands):

Credit Rating - Credit Securities (1) March 31, 2020 (2) December 31, 2019 (2)

The following table presents the fair value of our credit securities portfolio by credit rating as of June 30, 2020 and December 31, 2019 (in thousands):

Credit Rating - Credit Securities (1) June 30, 2020 (2) December 31, 2019 (2)

AAA $ 631 $ 4,975

A 11,859 13,792

BBB 1,445 65,454

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The following tables present the geographic concentration of the underlying collateral for our Non-Agency RMBS and CMBS portfolios ($ in thousands).

March 31, 2020

The geographic markets that we invest in have been and continue to be severely impacted by the ongoing COVID-19 pandemic.

June 30, 2020

Non-Agency RMBS CMBS (1)

State Fair Value (2) Percentage (2) State Fair Value Percentage

California $ 65,697 28.5 % California $ 19,519 13.9 %

New York 26,407 11.5 % Florida 17,304 12.3 %

California $ 30,202 28.8 % Florida $ 13,771 15.9 %

New York 14,442 13.8 % California 12,607 14.5 %

Florida 8,914 8.5 % Texas 9,296 10.7 %

Maryland 9,289 4.0 % New York 15,093 10.7 %

New Jersey 8,154 3.5 % New Jersey 10,686 7.6 %

Texas 3,553 3.4 % New York 9,107 10.5 %

Maryland 3,420 3.3 % New Jersey 5,740 6.6 %

Other 56,618 42.2 % Other 36,133 41.8 %

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The following tables present certain information regarding credit quality for certain categories within our Non-Agency RMBS and CMBS portfolios ($ in thousands):

March 31, 2020

June 30, 2020

Non-Agency RMBS*

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Freddie Mac K Series 118,150 0.6 % 45.3 0.4 %

The following table presents detail on our commercial real estate loan portfolio on March 31, 2020 ($ in thousands).

In our Re/Non-Performing Loan portfolio, 22% of the overall population has requested COVID related assistance as of June 30, 2020;

approximately 40% of the population requesting assistance is being reported as contractually current as of quarter end.

At the end of the initial forbearance period, those borrowers who can make their regular monthly scheduled payment will do so and the payment terms of the forbearance amounts will be negotiated (reinstatement, repayment or deferral).

For those borrowers who cannot make their scheduled payment, the servicer will initiate phone contact with such borrowers to determine income status and ability to make future mortgage payments.

The servicer will collect documents (where allowed by state laws) to initiate further forbearance or loss mitigation strategies for those borrowers who cannot make their regularly scheduled mortgage payments at the end of the initial forbearance period.

Prior to COVID, the three month average monthly default rate, or rate at which a borrower moved from current to 30 days delinquent, was 6.4%.

The default rate for June was 4.5%.

COVID related delinquencies made up approximately 56% of those defaults in June.

Our Re/Non-Performing Loan valuation process in Q1 and Q2 2020 has incorporated a more conservative view of defaults, liquidation timelines and discount rates.

In our Non-QM Loan portfolio, 30% of the overall population has requested COVID related assistance as of June 30, 2020;

approximately 31% of the population requesting assistance is being reported as contractually current as of quarter end.

At the end of the forbearance period, the servicer will complete the same steps as described above with regards to Re/Non-Performing Loans.

Prior to COVID, the three month average monthly default rate was 1.3%.

The default rate for June was 2.5%.

COVID related delinquencies made up approximately 69% of those defaults in June.

As it relates to our Non-QM Loans, our valuation no longer reflects a call assumption, given the greater uncertainty around future performance and market conditions at the time of call.

The following table presents detail on our commercial real estate loan portfolio on June 30, 2020 ($ in thousands).

Weighted Average

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Loan G (8)(9) $ 56,710 $ — $ 56,710 $ (4,225) $ 52,485 5.27 % 5.27 % 1.55 July 9, 2020 July 9, 2022 CA Condo, Retail, Hotel

Loan H (8)(9) 36,000 — 36,000 (1,800) 34,200 4.71 % 4.71 % 0.19 March 9, 2019 June 9, 2020 AZ Office

Loan I (10) 15,212 (211) 15,001 (789) 14,212 11.50 % 12.26 % 1.80 February 9, 2021 February 9, 2023 MN Office, Retail

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(1) We have the contractual right to receive a balloon payment for each loan.

(2) See our "Off-balance sheet arrangements" section below for details on our commitments on commercial real estate loans as of March 31, 2020.

(2) See our "Off-balance sheet arrangements" section below for details on our commitments on commercial real estate loans as of June 30, 2020.

(3) Pricing is reflective of marks on unfunded commitments.

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(5) Yield includes any exit fees.

(6) Actual maturities of commercial real estate loans may be shorter than stated contractual maturities.

(6) Actual maturities of commercial real estate loans may be shorter or longer than stated contractual maturities.

Maturities are affected by prepayments of principal.

(7) Represents the maturity date of the last possible extension option.

(8) Loan G, Loan H, and Loan J are first mortgage loans.

(9) Subsequent to quarter end, Loan H was sold.

(8) Loan G and Loan J are first mortgage loans.

(9) Loan G matured on July 9, 2020.

Discussions are ongoing between the borrower and the lenders related to the extension and restructuring of the loan.

However, there can be no guaranty that an agreement will be reached with respect to any such discussions.

(10) Loan I is a mezzanine loan.

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(3) Yield includes any exit fees.

(4) Actual maturities of commercial real estate loans may be shorter than stated contractual maturities.

(4) Actual maturities of commercial real estate loans may be shorter or longer than stated contractual maturities.

Weighted average maturities are affected by prepayments of principal.

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however, no assurance can be given that we will be able to access any such financing or the size, timing or terms thereof.

In Q1 2020, in response to the unprecedented illiquidity and drop in demand for MBS due to the COVID-19 pandemic, which resulted in a significant decline in the value of our assets, which, in turn, resulted in an unusually high number of margin calls from our financing counterparties, we reduced our overall exposure to our financing counterparties by selling a significant portion of our investment portfolio and reducing the amount of our financing arrangements from $3.2 billion to $969.9 million on a GAAP basis and from $3.5 billion to $1.2 billion on a Non-GAAP basis, including a reduction in our repurchase agreement balance from $3.2 billion to $527.4 million.

Our revolving facilities balance increased from $296.5 million to $703.8 million due primarily to the financing of our purchase of a residential mortgage loan portfolio with a gross aggregate acquisition fair value of $450.3 million.

Additionally, the Federal Reserve cut the federal funds rate by a total of 150 basis points during Q1 2020.

In 2020, in response to the unprecedented illiquidity and drop in demand for MBS due to the COVID-19 pandemic, which resulted in a significant decline in the value of our assets, which, in turn, resulted in an unusually high number of margin calls from our financing counterparties, we reduced our overall exposure to our financing counterparties by selling a significant portion of our investment portfolio and reducing the amount of our financing arrangements from $3.2 billion to $251.1 million on a GAAP basis and from $3.5 billion to $469.2 million on a Non-GAAP basis, including a reduction in our repurchase agreement balance from $3.2 billion to $208.0 million.

Additionally, the Federal Reserve cut the federal funds rate by a total of 150 basis points during the first quarter of 2020.

As previously described, we sold our entire portfolio of 30 year fixed rate Agency RMBS in March of 2020.

As a result, our investment portfolio was primarily comprised of Credit Investments as of March 31, 2020.

As financing costs on our Credit Investments are typically higher than financing costs on our Agency RMBS portfolio, our cost of financing increased from 2.51% at December 31, 2019 to 3.25% at March 31, 2020.

As a result, our investment portfolio was primarily comprised of Credit Investments as of June 30, 2020.

This reallocation resulted in an increase in our financing costs from 2.51% at December 31, 2019 to 3.86% at June 30, 2020 due to the increased expense associated with financing Credit Investments as compared to Agency RMBS.

On March 20, 2020, we notified our financing counterparties that we did not expect to be in a position to fund the anticipated volume of future margin calls under our financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.

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During this period of market upheaval, we engaged in discussions with our financing counterparties with regard to entering into forbearance agreements pursuant to which each counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under the applicable financing arrangement for an agreed-upon period.

Subsequent to quarter end, on April 10, 2020, we entered into a forbearance agreement for an initial 15 day period, a second forbearance agreement on April 27, 2020, for an extended period ending on June 1, 2020, and a third forbearance agreement on June 1, 2020 for an additional period ending June 15, 2020 (collectively, the "Forbearance Agreement") with certain of our financing counterparties (the "Participating Counterparties").

On April 10, 2020, we entered into a forbearance agreement for an initial 15 day

period, a second forbearance agreement on April 27, 2020, for an extended period ending on June 1, 2020, and a third forbearance agreement on June 1, 2020 for an additional period ending June 15, 2020 (collectively, the "Forbearance Agreement") with certain of our financing counterparties (the "Participating Counterparties").

Pursuant to the terms of the Forbearance Agreement, the Participating Counterparties agreed to forbear from exercising any of their right and remedies in respect of events of default and any and all other defaults under the applicable financing arrangement with us for the duration of the forbearance period specified in the Forbearance Agreement (the "Forbearance Period").

On June 10, 2020, we entered into a Reinstatement Agreement with the Participating Counterparties, pursuant to which the parties agreed to terminate the Forbearance Agreement and each Participating Counterparty agreed to permanently waive all existing and prior events of default under our financing agreements (each, a "Bilateral Agreement") and to reinstate each Bilateral Agreement, as it may be amended by agreement between the Participating Counterparty and the Company.

As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on the our outstanding borrowings under each Bilateral Agreement will cease to accrue as of June 10, 2020 and the interest rate shall be the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements, all cash margin will be applied to outstanding balances we owe, and the DTC repo tracker coding for each Bilateral Agreement will be reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by us, just as it was before the prior forbearance agreements were put in place.

In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the various forbearance agreements are being terminated and released.

As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on the our outstanding borrowings under each Bilateral Agreement has ceased to accrue as of June 10, 2020 and the interest rate was the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements, all cash margin has been applied to outstanding balances we owe, and the DTC repo tracker coding for each Bilateral Agreement has been reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by us, just as it was before the prior forbearance agreements were put in place.

We also agreed to pay the reasonable fees and out-of-pocket expenses of counsel and other professional advisors for the Participating Counterparties and the collateral agent.

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The Reinstatement Agreement and the JPM Reinstatement Agreement collectively cover all of our existing financing arrangements as of the date of this Report.

As previously described, through the end of March and subsequent to the end of the quarter, we sold certain assets in an effort to satisfy outstanding financing obligations and reduce our exposure to various counterparties.

As of June 10, 2020, we had met all margin call requirements.

Refer to Note 13 in the "Notes to Consolidated Financial Statements (Unaudited)" for more information on outstanding deficiencies.

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Haircuts may change as our financing arrangements mature or roll and are sensitive to governmental regulations.

We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the three months ended March 31, 2020.

We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the three and six months ended June 30, 2020.

As previously described, this resulted in us raising liquidity and de-risking our portfolio.

Through asset sales and related debt pay-offs, we have reduced the aggregate number of our financing counterparties, bringing the counterparties we have debt outstanding with down from 30 as of December 31, 2019 to 18 as of March 31, 2020.

We have further reduced the number of our outstanding financing counterparties to 5 on a GAAP basis and to 6 on a non-GAAP basis subsequent to quarter end.

Our repurchase agreements are accounted for as financings and require the repurchase of the transferred securities or loans or repayment of the advance at the end of each agreement’s term, typically 30 to 90 days.

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Any Month-End

June 30, 2020

Non-GAAP Basis $ 469,153 $ 642,182 $ 939,056

Investments in Debt and Equity of Affiliates 218,055 255,764 276,149

GAAP Basis $ 251,098 $ 386,418 $ 662,907

March 31, 2020

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GAAP Basis $ 2,256,742 $ 2,201,185 $ 2,330,017

March 31, 2017

Non-GAAP Basis $ 1,887,767 $ 1,813,668 $ 1,887,766

Investments in Debt and Equity of Affiliates 8,424 8,788 9,172

GAAP Basis $ 1,879,343 $ 1,804,880 $ 1,878,594

The balance on our financing arrangements can reasonably be expected to (i) increase as the size of our investment portfolio increases primarily through equity capital raises and as we increase our investment allocation to Agency RMBS and (ii) decrease as the size of our portfolio decreases through asset sales, principal paydowns, and as we increase our investment allocation to credit investments.

Credit investments, due to their risk profile, have lower leverage ratios than Agency RMBS,

which restricts our financing counterparties from providing as much financing to us and lowers the balance of our total financing.

Credit investments, due to their risk profile, have lower leverage ratios than Agency RMBS, which restricts our financing counterparties from providing as much financing to us and lowers the balance of our total financing.

Recourse and non-recourse financing

We utilize both recourse and non-recourse debt to finance our portfolio.

Non-recourse financing includes securitized debt and other non-recourse financing.

Recourse financing includes the secured debt from our Manager and other recourse financing.

The below table provides detail on the breakout between recourse and non-recourse financing as of June 30, 2020 and December 31, 2019 ($ in thousands):

June 30, 2020 December 31, 2019

Recourse financing $ 278,723 $ 3,490,884

Non-recourse financing (1) 409,549 224,348

Total (2) $ 688,272 $ 3,715,232

Recourse financing - Investments in Debt and Equity of Affiliates 7,480 257,416

Non-recourse financing - Investments in Debt and Equity of Affiliates 210,575 —

Total Investments in Debt and Equity of Affiliates 218,055 257,416

GAAP Basis $ 470,217 $ 3,457,816

(1) Not mark-to-market with respect to margin calls.

(2) As of June 30, 2020, total financing includes $469.2 million of financing arrangements, $199.0 million of securitized debt and $20.1 million of secured debt.

As of December 31, 2019, total financing includes $3.5 billion of financing arrangements and $224.3 million of securitized debt.

Financing arrangements on our investment portfolio

As of March 31, 2020, we had received notifications from several of our financing counterparties of alleged events of default under their financing agreements, and of those counterparties' intentions to accelerate our performance obligations under the relevant agreements as a result of our inability to meet certain margin calls as a result of market disruptions created by the COVID-19 pandemic.

As discussed above, until a formal agreement was reached, we negotiated with our financing counterparties regarding the lenders' forbearance from exercising their rights and remedies under their applicable financing arrangements.

As discussed above, until a formal agreement was reached, we negotiated with our financing

counterparties regarding the lenders' forbearance from exercising their rights and remedies under their applicable financing arrangements.

While as of March 31, 2020 certain lenders had accelerated our obligations under their applicable financing arrangements, once subject to the Reinstatement Agreement, the Participating Counterparties agreed to extend the maturity dates of each of their respective repurchase agreements as determined by their respective Bilateral Agreements.

As a result, we have not presented the maturity of our financing arrangements as of March 31, 2020 in the tables below.

Additionally, due to declines in the fair value of our portfolio, certain haircuts were negative as of March 31, 2020.

Subsequent to quarter end, as a result of asset sales and delevering, we had positive equity in our investments and positive haircuts.

As of June 10, 2020 we had met all margin calls related to our financing arrangements.

Refer to Note 13 in the "Notes to Consolidated Financial Statements (Unaudited)" for more information on outstanding deficiencies.

We continue to take steps to manage and de-lever our portfolio.

Through asset sales and related debt pay-offs, we have reduced our exposure to various counterparties, bringing the counterparties with debt outstanding down from 30 as of December 31, 2019 to 18 as of March 31, 2020.

See Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for a description of our material financing arrangements as of March 31, 2020.

See Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for a description of our material financing arrangements as of June 30, 2020.

Our financing arrangements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions.

Although specific to each repurchase agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.

The following table presents a summary of the financing arrangements on our investment portfolio as of March 31, 2020 and December 31, 2019 (in thousands).

March 31, 2020 December 31, 2019

The following table presents a summary of the financing arrangements on our investment portfolio as of June 30, 2020 and December 31, 2019 (in thousands).

June 30, 2020 December 31, 2019

Repurchase agreements $ 208,032 $ 3,194,409

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(1) Increasing our borrowing capacity under a majority of our revolving facilities requires consent of the lenders.

The following table presents a summary of the financing arrangements on our Investment Portfolio as of March 31, 2020 ($ in thousands):

Agency Credit Total

Balance Weighted

The following table presents a summary of the financing arrangements on our Investment Portfolio as of June 30, 2020 ($ in thousands):

Financing Arrangements Maturing Within:

(1) Balance Weighted Average Funding Cost

30 days or less $ 55,658 3.43 %

61-90 days 14,429 4.67 %

91-180 days 1,253 2.20 %

Greater than 180 days 397,813 4.35 %

Non-GAAP Basis $ 469,153 4.25 %

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GAAP Basis $ 251,098 3.64 %

(1) As of June 30, 2020, our weighted average days to maturity is 457 days and our weighted average original days to maturity is 749 days on a GAAP Basis.

As of June 30, 2020, our weighted average days to maturity is 360 days and our weighted average original days to maturity is 878 days on a Non-GAAP Basis.

The following table presents a summary of the financing arrangements by maturity on our Investment Portfolio as of December 31, 2019 ($ in thousands):

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Repurchase agreements

The following table presents, as of March 31, 2020, a summary of the repurchase agreements on our real estate securities ($ in thousands).

The following table presents, as of June 30, 2020, a summary of the repurchase agreements on our real estate securities ($ in thousands).

It also reconciles these items to GAAP:

Balance Weighted Average

Repurchase Agreements Maturing Within:

Balance Weighted

Rate Weighted Average

Funding Cost Weighted Average

Funding Cost Weighted

30 days or less $ 55,658 3.43 % 3.43 % 12 46.9 %

61-90 days 5,037 4.71 % 4.71 % 70 43.3 %

Greater than 180 days 16,413 5.00 % 5.00 % 458 42.5 %

Non-GAAP Basis $ 77,108 3.85 % 3.85 % 111 45.7 %

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GAAP Basis $ 2,987,355 2.25 % 2.25 % 30 8.5 %

The decrease in the balance of our repurchase agreements from December 31, 2019 to March 31, 2020 is due primarily to selling collateral in order to meet margin calls.

The following table presents, as of March 31, 2020, a summary of our repurchase agreements on our Re/Non-performing loans ($ in thousands).

Balance Weighted Average

Rate Weighted Average

Funding Cost Weighted Average

The decrease in the balance of our repurchase agreements from December 31, 2019 to June 30, 2020 is due primarily to selling collateral in order to meet margin calls.

The following table presents, as of June 30, 2020, a summary of our repurchase agreements on our Re/Non-performing loans ($ in thousands).

Repurchase Agreements Maturing Within:

Balance Weighted

Rate Weighted

Funding Cost Weighted

61-90 days $ 9,392 4.65 % 4.65 % 70 61.2 %

Greater than 180 days 118,072 3.68 % 4.10 % 329 19.4 %

GAAP Basis $ 127,464 3.76 % 4.14 % 310 22.4 %

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GAAP Basis $ 131,594 3.53 % 3.68 % 602 22.0 %

The following table presents, as of March 31, 2020, a summary of repurchase agreements on our commercial real estate loans ($ in thousands).

Balance Weighted Average

Rate Weighted Average

Funding Cost Weighted Average

GAAP Basis $ 3,370 3.76 % 5.13 % 9.4 %

The following table presents, as of June 30, 2020, a summary of repurchase agreements on our commercial real estate loans ($ in thousands).

Repurchase Agreements Maturing Within:

Balance Weighted

Rate Weighted

Funding Cost Weighted

Greater than 180 days $ 3,460 4.75 % 6.00 % 915 36.4 %

The following table presents, as of December 31, 2019, a summary of repurchase agreements on our commercial real estate loans ($ in thousands).

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Financing facilities

The following table presents information regarding revolving facilities as of March 31, 2020 and December 31, 2019 ($ in thousands).

The following table presents information regarding revolving facilities as of June 30, 2020 and December 31, 2019 ($ in thousands).

It also reconciles these items to GAAP.

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Facility Investment Maturity Date Rate Funding Cost (1) Balance Maximum Aggregate Borrowing Capacity Rate Funding Cost (1) Balance

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Revolving facility C (2)(3) Commercial loans August 10, 2023 2.33 % 2.68 % 62,812 100,000 3.85 % 4.01 % 89,956

Revolving facility D (2)(3) Non-QM loans February 16, 2021 2.84 % 5.62 % 172,059 312,130 3.61 % 4.02 % 177,899

Revolving facility D (2)(3)(4) Non-QM loans October 1, 2021 5.00 % 5.00 % 194,162 194,162 3.61 % 4.02 % 177,899

Revolving facility E (2) Re/Non-performing loans November 25, 2020 2.20 % 2.20 % 1,253 1,253 3.73 % 3.73 % 1,808

Revolving facility F (2) Re/Non-performing loans July 25, 2021 1.94 % 1.94 % 2,894 14,120 3.55 % 3.55 % 5,266

Revolving facility G (2)(3) Re/Non-performing loans January 26, 2021 3.16 % 3.26 % 410,337 440,000 — — —

Non-GAAP Basis $ 261,121 $ 309,535 $ 296,475

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(3) Increasing our borrowing capacity under this facility requires consent of the lender.

See Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on Revolving Facility G.

The increase in our Revolving facility G balance from December 31, 2019 to March 31, 2020 is due primarily to financing obtained to purchase a new pool of Re/nonperforming loans during the period.

As previously mentioned, on May 28, 2020, we entered into a MLPSA.

The MLPSA provided for the Loan Sale which closed on May 28, 2020, resulting in Revolving facility G being paid off.

(4) Refer to the "MATT Financing Arrangement Restructuring" Section below for additional information.

Other financing transactions

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See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on Consolidated December 2014 VIE.

The following table details certain information related to the Consolidated December 2014 VIE as of March 31, 2020 ($ in thousands):

Weighted Average

Current Face Fair Value Coupon Yield Life (Years) (1)

Consolidated tranche (2) $ 6,011 $ 5,836 3.33 % 1.29 % 0.93

Retained tranche 7,680 5,354 5.30 % 18.18 % 6.74

Total resecuritized asset (3) $ 13,691 $ 11,190 4.43 % 9.37 % 4.19

(1) This is based on projected life.

Typically, actual maturities of investments and loans are shorter than stated contractual maturities.

Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.

(2) As of March 31, 2020, we have recorded secured financing of $5.8 million on our consolidated balance sheets in the "Securitized debt, at fair value" line item.

We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows at the time of securitization.

(3) As of March 31, 2020, the fair market value of the total resecuritized asset is included on our consolidated balance sheets as "Non-Agency RMBS."

As of June 30, 2020, we did not hold any interest in the December 2014 VIE.

The following table details certain information related to the Consolidated December 2014 VIE as of December 31, 2019 ($ in thousands):

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See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on the Consolidated August 2019 VIE.

The following table details certain information related to the Consolidated August 2019 VIE as of March 31, 2020 ($ in thousands):

The following table details certain information related to the Consolidated August 2019 VIE as of June 30, 2020 and December 31, 2019 ($ in thousands):

Weighted Average

Current Unpaid Principal Balance Fair Value Coupon Yield Life (Years) (1)

Residential mortgage loans (2) $ 258,424 $ 214,176 4.03 % 4.73 % 6.90

June 30, 2020 Residential mortgage loans (2) $ 254,936 $ 223,119 3.51 % 4.81 % 6.85

Securitized debt (3) 213,233 198,974 2.95 % 2.95 % 5.19

(1) Weighted average life is based on projected life.

Typically, actual maturities of investments and loans are shorter than stated contractual maturities.

Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.

(2) This represents all loans contributed to the Consolidated August 2019 VIE.

(3) As of March 31, 2020, we have recorded secured financing of $191.3 million on the consolidated balance sheets in the "Securitized debt, at fair value" line item.

We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows at the time of securitization.

The following table details certain information related to the Consolidated August 2019 VIE as of December 31, 2019 ($ in thousands):

Weighted Average

Current Unpaid Principal Balance Fair Value Coupon Yield Life (Years) (1)

Residential mortgage loans (2) $ 263,956 $ 255,171 3.96 % 5.11 % 7.66

December 31, 2019 Residential mortgage loans (2) 263,956 255,171 3.96 % 5.11 % 7.66

Securitized debt (3) 217,455 217,118 2.92 % 2.86 % 5.00

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(2) This represents all loans contributed to the Consolidated August 2019 VIE.

(3) As of December 31, 2019, we have recorded secured financing of $217.1 million on the consolidated balance sheets in the "Securitized debt, at fair value" line item.

(3) As of June 30, 2020 and December 31, 2019, we have recorded secured financing of $199.0 million and $217.1 million, respectively, on the consolidated balance sheets in the "Securitized debt, at fair value" line item.

We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows at the time of securitization.

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The following tables present a reconciliation of our Economic Leverage ratio back to GAAP ($ in thousands).

March 31, 2020 Leverage Stockholders’ Equity Leverage Ratio

June 30, 2020 Leverage Stockholders’ Equity Leverage Ratio

GAAP Leverage $ 470,169 $ 365,378 1.3x

Non-recourse financing arrangements (197,182)

Financing arrangements through affiliated entities 218,055

Net TBA (receivable)/payable adjustment (392)

Non-recourse financing arrangements (409,549)

Economic Leverage $ 278,675 $ 365,378 0.8x

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GAAP Leverage $ 3,441,451 $ 849,046 4.1x

Non-recourse financing arrangements (224,348)

Financing arrangements through affiliated entities 257,416

Non-recourse financing arrangements (224,348)

Economic Leverage $ 3,474,519 $ 849,046 4.1x

The amount of leverage, or debt, we may deploy for particular assets depends upon our Manager’s assessment of the credit and other risks of those assets, and also depends on any limitations placed upon us through covenants contained in our financing arrangements.

We generate income principally from the yields earned on our investments and, to the extent that leverage is deployed, on the difference between the yields earned on our investments and our cost of borrowing and the cost of any hedging activities.

Subject to maintaining both our qualification as a REIT for U.S.

federal income tax purposes and our Investment Company Act exemption, to the extent leverage is deployed, we may use a number of sources to finance our investments.

As previously described, due to market volatility caused by the COVID-19 pandemic, we executed on various asset sales in an effort to create additional liquidity and de-risk our portfolio.

As a result of these asset sales and related debt pay-offs, we have reduced the number of financing counterparties we have, bringing the overall number of counterparties with debt outstanding down from 30 as of December 31, 2019 to 6 as of June 30, 2020 with debt outstanding of $469.2 million, inclusive of financing arrangements through affiliated entities.

These agreements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions.

Although specific to each lending agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.

Under our financing arrangements, we may be required to pledge additional assets to our lenders in the event the estimated fair value of the existing pledged collateral under such agreements declines and such lenders demand additional collateral, which may take the form of additional securities or cash.

Certain securities that are pledged as collateral under our financing arrangements are in unrealized loss positions.

See "Financing arrangements on our investment portfolio" section above for information on the contractual maturity of our financing arrangements at June 30, 2020 and December 31, 2019.

As described above in the "Other financing transactions" section, we entered into a resecuritization transaction in 2014 and a securitization transaction of certain of our residential mortgage loans in August 2019 that resulted in the consolidation of those VIEs created with the SPEs.

We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows.

See Note 3 and 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail.

During the quarter, we entered into the Forbearance Agreement pursuant to which the consent of the Participating Counterparties was required in order for us to increase our leverage.

As described above, upon entering in to the Reinstatement Agreement, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement, though the Reinstatement Agreement limits our Recourse Indebtedness to Stockholder's Equity (both as defined therein) leverage ratio to no greater than 3:1.

The following table presents information at June 30, 2020 with respect to each counterparty that provides us with financing for which we had greater than 5% of our stockholders’ equity at risk ($ in thousands).

Counterparty Stockholders’ Equity

at Risk Weighted Average

Maturity (days) Percentage of

Stockholders’ Equity

Credit Suisse AG, Cayman Islands Branch - Non-GAAP $ 79,134 129 21.6 %

Non-GAAP Adjustments (a) (28,378) (105) (7.8) %

Credit Suisse AG, Cayman Islands Branch - GAAP $ 50,756 24 13.9 %

Barclays Bank PLC $ 28,966 329 7.9 %

(a) Represents stockholders' equity at risk, weighted average maturity and percentage of stockholders' equity from financing arrangements held in investments in debt and equity of affiliates.

Hedging activities

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Refer to the tables below for a summary of our derivative instruments.

Our centrally cleared trades require that we post an "initial margin" to our counterparties of an amount determined by the Chicago Mercantile Exchange ("CME") and the London Clearing House ("LCH"), the central clearinghouses ("CCPs") through which those trades are cleared, which is generally intended to be set at a level sufficient to protect the CCPs from the maximum estimated single-day price movement in that market participant’s contracts.

We also exchange cash "variation margin" with our counterparties on our centrally cleared trades based upon daily changes in the fair value as measured by the CCPs.

The daily exchange of variation margin associated with a CCP instrument is legally characterized as the daily settlement of the derivative instrument itself.

Accordingly, we account for the daily receipt or payment of variation margin associated with our centrally cleared interest rate swaps and futures as a direct reduction to the carrying value of the interest rate swap and future derivative asset or liability, respectively.

The carrying amount of centrally cleared interest rate swaps and futures reflected in our consolidated balance sheets is equal to the unsettled fair value of such instruments.

See Note 8 to the "Notes to Consolidated Financial Statements (unaudited)" for more information.

On March 23, 2020, in an effort to prudently manage our portfolio through unprecedented market volatility resulting from the COVID-19 pandemic and preserve long-term stockholder value, we sold our 30 Year Fixed Rate Agency securities, our most interest rate sensitive assets, and as a result, removed all of our interest rate swap positions, a decrease of $1.9 billion swap notional amount.

The following table summarizes certain information on our non-hedge derivatives and other instruments (in thousands) as of the dates indicated.

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Notional amount of non-hedge derivatives and other instruments:

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During the quarter ended March 31, 2020, we sold our interest rate sensitive assets.

As a result, we did not hold any interest rate swap positions as of March 31, 2020.

As of December 31, 2019, our interest rate swap positions consisted of pay-fixed interest rate swaps.

The following table presents information about our interest rate swaps as of December 31, 2019 ($ in thousands).

It also reconciles these items to GAAP.

Maturity Notional Amount Weighted Average

Pay-Fixed Rate Weighted Average

Receive-Variable Rate Weighted Average

Years to Maturity

2020 $ 105,000 1.54 % 1.91 % 0.20

2022 837,531 1.64 % 1.91 % 2.69

2023 5,750 3.19 % 1.91 % 3.85

2024 650,000 1.52 % 1.90 % 4.80

2026 180,000 1.50 % 1.89 % 6.70

2029 165,000 1.77 % 1.94 % 9.85

Total/Wtd Avg $ 1,943,281 1.60 % 1.91 % 4.25

Investments in Debt and Equity of Affiliates $ 94,531 1.61 % 1.93 % 2.83

Total/Wtd Avg:

GAAP Basis $ 1,848,750 1.60 % 1.91 % 4.32

(1) 100% of our receive variable interest rate swap notional amount resets quarterly based on three-month LIBOR.

As a result, we did not hold any interest rate swap positions as of June 30, 2020.

Federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT ordinary taxable income, without regard to the deduction for dividends paid and excluding net capital gains and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income.

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The primary differences between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of realized gains and losses on sold investments and certain terminated derivatives, (v) taxes and (vi) methods of depreciation.

Undistributed taxable income is based on current estimates and is not finalized until we file our annual tax return for that tax

year, typically in September of the following year.

We estimate that we do not have any undistributed taxable income as of March 31, 2020.

Undistributed taxable income is based on current estimates and is not finalized until we file our annual tax return for that tax year, typically in September of the following year.

We estimate that we do not have any undistributed taxable income as of June 30, 2020.

Refer to the "Results of operations" section above for more detail.

On March 27, 2020, we announced that our Board of Directors approved a suspension of our quarterly dividends on our common stock, 8.25% Series A Cumulative Redeemable Preferred Stock, 8.00% Series B Cumulative Redeemable Preferred Stock, and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, beginning with the common dividends that normally would have been declared in March 2020 and the preferred dividend that would have been declared in May 2020, in order to conserve capital and preserve liquidity.

Based on current circumstances, it is our intention to suspend quarterly dividends on common and preferred stock for the foreseeable future.

Refer to Note 12 in the "Notes to Consolidated Financing Statements (Unaudited)" for more information on the Company's preferred stock.

No common stock dividends were declared during the three months ended March 31, 2020.

The following tables detail our common stock dividends during the three months ended March 31, 2019:

Declaration Date Record Date Payment Date Dividend Per Share

3/15/2019 3/29/2019 4/30/2019 $ 0.50

The following tables detail our preferred stock dividends on our 8.25% Series A and 8.00% Series B Preferred Stock during the three months ended March 31, 2020 and March 31, 2019.

Dividend Declaration Date Record Date Payment Date Dividend Per Share

Based on current conditions for the Company, we do not anticipate paying dividends on our common or preferred stock for the foreseeable future.

If the Company’s Board of Directors does not declare a dividend in a given period, an accrual is not recorded on the balance sheet.

However, undeclared preferred stock dividends are reflected in earnings per share as discussed in ASC 260-10-45-11.

As a result, we did not declare or accrue quarterly dividends on our Common or Preferred Stock during the three months ended June 30, 2020.

Pursuant to the terms of our Preferred Stock, all unpaid dividends on our preferred stock accrue without interest and, if dividends on our preferred stock are in arrears, we cannot pay cash dividends on our common stock.

Refer to Note 12 in the "Notes to Consolidated Financing Statements (Unaudited)" for more information on our preferred stock.

Refer to the "Book value per share" section above for a discussion of the treatment of accumulated, unpaid, or undeclared preferred dividends on our book value.

The following table details the aggregate and per-share amounts of arrearages in cumulative, unpaid, and undeclared preferred dividends as of June 30, 2020 (in thousands, except per share data):

Class of Stock Dividend Per Preferred Share in Arrears Amount of Preferred Dividend in Arrears

8.25% Series A $ 0.51563 $ 1,067

Dividend Declaration Date Record Date Payment Date Dividend Per Share

8.00% Series B 0.50 2,300

Dividend Declaration Date Record Date Payment Date Dividend Per Share

8.000% Series C 0.50 2,300

Dividend Declaration Date Record Date Payment Date Dividend Per Share

8.25% Series A 2/15/2019 2/28/2019 3/18/2019 $ 0.51563

Dividend Declaration Date Record Date Payment Date Dividend Per Share

8.00% Series B 2/15/2019 2/28/2019 3/18/2019 $ 0.50

Total $ 5,667

Preferred stock dividends that are not declared accumulate and are added to the liquidation preference as of the scheduled payment date for the respective series of the preferred stock.

We expect cumulative preferred dividends to continue to accrue for the foreseeable future, thereby increasing the aggregate liquidation preference of the preferred stock.

Subject to market conditions, our liquidity, applicable contractual restrictions, the terms of the preferred stock and applicable law, we may from time to time seek to manage this liability by acquiring shares of our preferred stock in public offers, privately negotiated transactions, open market purchases or other transactions.

No common stock dividends were declared during the three months or the six months ended June 30, 2020.

The following tables detail our common stock dividends during the six months ended June 30, 2019:

Declaration Date Record Date Payment Date Dividend Per Share

3/15/2019 3/29/2019 4/30/2019 $ 0.50

6/14/2019 6/28/2019 7/31/2019 0.50

The following table details our preferred stock dividends on our 8.25% Series A, 8.00% Series B, and 8.000% Series C Preferred Stock during the six months ended June 30, 2020 and June 30, 2019.

Cash Dividend Per Share

Declaration Date Record Date Payment Date 8.25% Series A 8.00% Series B 8.000% Series C

2/14/2020 2/28/2020 3/17/2020 $ 0.51563 $ 0.50 $ 0.50

2/15/2019 2/28/2019 3/18/2019 0.51563 0.50 —

5/17/2019 5/31/2019 6/17/2019 0.51563 0.50 —

Liquidity and capital resources

Our liquidity determines our ability to meet our cash obligations, including distributions to our stockholders, payment of our expenses, financing our investments and satisfying other general business needs.

Our principal sources of cash as of March 31, 2020 consisted of proceeds from sales of assets in an effort to prudently manage our portfolio through unprecedented market volatility resulting from the global pandemic of the COVID-19 virus, borrowings under financing arrangements, principal and interest payments we receive on our investment portfolio, cash generated from our operating results, and proceeds from capital market transactions.

Our principal sources of cash as of June 30, 2020 consisted of proceeds from sales of assets in an effort to prudently manage our portfolio through unprecedented market volatility resulting from the global pandemic of the COVID-19 virus, borrowings under financing arrangements, principal and

interest payments we receive on our investment portfolio, cash generated from our operating results, and proceeds from capital market transactions.

We typically use cash to repay principal and interest on our financing arrangements, to purchase real estate securities, loans and other real estate related assets, to make dividend payments on our capital stock, and to fund our operations.

At March 31, 2020, we had $92.3 million of cash available to support our liquidity needs.

At June 30, 2020, we had $68.1 million of cash available to support our liquidity needs.

Refer to the "Contractual obligations" section of this Item 2 for additional obligations that could impact our liquidity.

As previously discussed, on June 1, 2020, we entered into a third forbearance agreement with the Participating Counterparties, providing for a forbearance period ending on June 15, 2020.

Pursuant to the terms of the Forbearance Agreement, we must comply with a set of restrictive covenants set forth in the Forbearance Agreement, including restrictions on the use of our cash, restrictions on our incurrence of additional debt, and restrictions on the sale of our assets.

We exited forbrearance on June 10, 2020.

Pursuant to the terms of the Forbearance Agreement, we were obligated to comply with a set of restrictive covenants set forth in the Forbearance Agreement, including restrictions on the use of our cash, restrictions on our incurrence of additional debt, and restrictions on the sale of our assets.

We also granted to the Participating Counterparties a lien and security interest in all of our unencumbered assets.

Upon entering into the Reinstatement Agreement

with the Participating Counterparties, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement and the lien and security interest granted to the Participating Counterparties on all of our unencumbered assets were terminated and released.

Subject to maintaining both our qualification as a REIT for U.S.

federal income tax purposes and our Investment Company Act exemption, to the extent leverage is deployed, we may use a number of sources to finance our investments.

As previously described, due to market volatility during the quarter ended March 31, 2020, we executed on various asset sales in an effort to create additional liquidity and de-risk our portfolio.

As a result of these asset sales and related debt pay-offs, we have reduced the number of financing counterparties we have, bringing the overall number of counterparties with debt outstanding down from 30 as of December 31, 2019 to 18 as of March 31, 2020 with debt outstanding of $1.2 billion, inclusive of financing arrangements through affiliated entities.

These agreements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions.

Although specific to each lending agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.

Certain securities that are pledged as collateral under our financing arrangements are in unrealized loss positions.

See "Financing arrangements on our investment portfolio" section above for information on the contractual maturity of our financing arrangements at March 31, 2020 and December 31, 2019.

As described above in the "Financing activities" section of this Item 2, we entered into a resecuritization transaction in 2014 and a securitization transaction of certain of our residential mortgage loans in August 2019 that resulted in the consolidation of those VIEs created with the SPEs.

We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows.

See Note 3 and 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail.

Subsequent to quarter end, we entered into the Forbearance Agreement pursuant to which the consent of the Participating Counterparties was required in order for us to increase our leverage.

The following table presents information at March 31, 2020 with respect to each counterparty that provides us with financing for which we had greater than 5% of our stockholders’ equity at risk ($ in thousands).

Counterparty Stockholders’ Equity

at Risk Weighted Average

Maturity (days) Percentage of

Stockholders’ Equity

Credit Suisse Securities, LLC - Non-GAAP $ 34,269 105 9.5 %

Non-GAAP Adjustments (a) (32,539) 978 (9.0) %

Credit Suisse Securities, LLC - GAAP $ 1,731 1,083 0.5 %

(a) Represents stockholders' equity at risk, weighted average maturity and percentage of stockholders' equity from financing arrangements held in investments in debt and equity of affiliates.

The following table presents information at December 31, 2019 with respect to each counterparty that provides us with financing for which we had greater than 5% of our stockholders’ equity at risk ($ in thousands).

Counterparty Stockholders’ Equity

at Risk Weighted Average

Maturity (days) Percentage of

Stockholders’ Equity

Credit Suisse Securities, LLC - Non-GAAP $ 47,996 72 5.7 %

Non-GAAP Adjustments (a) (44,588) 47 (5.3) %

Credit Suisse Securities, LLC - GAAP $ 3,408 119 0.4 %

Barclays Capital Inc $ 77,334 277 9.1 %

Citigroup Global Markets Inc.

50,263 22 5.9 %

(a) Represents stockholders' equity at risk, weighted average maturity and percentage of stockholders' equity from financing arrangements held in investments in debt and equity of affiliates.

Upon entering into the Reinstatement Agreement with the Participating Counterparties, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement and the lien and security interest granted to the Participating Counterparties on all of our unencumbered assets were terminated and released.

Margin requirements

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We experience margin calls in the ordinary course of our business.

In seeking to manage effectively the margin requirements established by our lenders, we maintain a position of cash and unpledged Agency RMBS.

In seeking to manage effectively the margin requirements established by our lenders, we maintain a position of cash and, when owned, unpledged Agency RMBS.

We refer to this position as our "liquidity." The level of liquidity we have available to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our securities.

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During this period of market upheaval, we engaged in discussions with our financing counterparties and entered into the Forbearance Agreement.

During the Forbearance Period, we did not have

any obligation to make any margin payments as it related to the Participating Counterparties.

As described above, on June 10, we entered into a Reinstatement Agreement with the Participating Counterparties and the JPM Reinstatement Agreement which reinstates each Bilateral Agreement.

During the Forbearance Period, we did not have any obligation to make any margin payments as it related to the Participating Counterparties.

As described above, on June 10, we entered into a Reinstatement Agreement with the Participating Counterparties and the JPM Reinstatement Agreement which

reinstates each Bilateral Agreement.

As a result, we will be responsible for making any future margin payments with respect to any financing arrangements relating to these agreements.

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Refer to Note 13 in the "Notes to Consolidated Financial Statements (Unaudited)" for more information on outstanding deficiencies.

As of March 31, 2020, our cash, cash equivalents, and restricted cash totaled $133.7 million representing a net increase of $8.3 million from $125.4 million at December 31, 2019.

Cash provided by continuing operating activities of $7.4 million was attributable to net interest income less operating expenses.

Cash provided by continuing investing activities of $1,976.3 million was attributable to sales of investments and principal repayments of investments less purchases of investments.

As of June 30, 2020, our cash, cash equivalents, and restricted cash totaled $69.2 million representing a net decrease of $56.2 million from $125.4 million at December 31, 2019.

Cash provided by continuing operating activities of $0.8 million was primarily attributable to net interest income less operating expenses.

Cash provided by continuing investing activities of $2,628.4 million was primarily attributable to sales of investments and principal repayments of investments less purchases of investments.

Cash used in continuing financing activities of $(2,685.2) million was primarily attributable to repayments of financing arrangements and dividend payments offset by borrowings under financing arrangements.

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The Equity Distribution Agreements were amended on May 2, 2018 in conjunction with the filing of our shelf registration statement registering up to $750.0 million of its securities, including capital stock (the "2018 Registration Statement").

For the three months ended March 31, 2020, we did not sell any shares of common stock under the Equity Distribution Agreements.

For the three months ended March 31, 2019, we sold 503.7 thousand shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $8.6 million.

As of March 31, 2020, we have sold approximately 1.5 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $26.6 million.

For the three and six months ended June 30, 2020, we sold 1.0 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $3.5 million.

For the three and six months ended June 30, 2019, we sold 0.5 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $8.6 million.

As of June 30, 2020, we have sold approximately 2.5 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $31.1 million, with $68.9 million available to be issued.

Common stock offering

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Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock issuance

On September 17, 2019, we completed a public offering of 4,000,000 shares of 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock") and subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' exercise of their over-allotment option with a liquidation preference of $25.00 per share.

On September 17, 2019, we completed a public offering of 4,000,000 shares of 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock with a liquidation preference of $25.00 per share (the "Series C Preferred Stock") and subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' exercise of their over-allotment option.

We received total gross proceeds of $115.0 million and net proceeds of approximately $111.2 million, net of underwriting discounts, commissions and expenses.

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Dividends are payable quarterly in arrears on the 17th day of each March, June, September and December.

Based on current conditions for the Company, we do not anticipate paying dividends on our common or preferred stock for the foreseeable future.

Refer to the "Dividends" section above for more detail on arrearages.

Contractual obligations

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Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements.

For the three months ended March 31, 2020 and March 31, 2019, we incurred management fees of approximately $2.1 million and $2.3 million, respectively.

For the three and six months ended June 30, 2020, we incurred management fees of approximately $1.7 million and $3.8 million, respectively.

For the three and six months ended June 30, 2019, we incurred management fees of approximately $2.4 million and $4.7 million, respectively.

Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us.

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however, the reimbursement is subject to an annual budget process which combines guidelines from the Management Agreement with oversight by our Board of Directors and discussions with our Manager.

Of the $2.3 million and $3.8 million of Other operating expenses for the three months ended March 31, 2020 and March 31, 2019, respectively, we have accrued $2.0 million in both periods, representing a reimbursement of expenses.

Of the $4.5 million and $5.3 million of Other operating expenses for the three and six months ended June 30, 2020, respectively, we have accrued $1.9 million and $3.9 million, respectively, representing a reimbursement of expenses.

Of the $3.8 million and $7.6 million of Other operating expenses for the three and six months ended June 30, 2019, respectively, we have accrued $1.9 million and $3.9 million, respectively, representing a reimbursement of expenses.

On April 6, 2020, we executed an amendment to the management agreement pursuant to which the Manager agreed to defer our payment of the management fee and reimbursement of expenses as detailed above through September 30, 2020, or such other time as we and the Manager agree.

Subordinated debt

On April 10, 2020, in connection with the initial Forbearance Agreement, we issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to us.

On April 10, 2020, in connection with the first Forbearance Agreement, we issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to us.

Additionally, on April 27, 2020, in connection with the second Forbearance Agreement, we entered into an amendment to the Note to reflect an additional $10 million loan by the Manager to us.

The $10 million loan made on April 10, 2020 is payable on March 31, 2021, and the $10 million loan made on April 27, 2020 is payable on July 27, 2020.

The $10 million loan made by the Manager on April 10, 2020 is payable on March 31, 2021, and the $10 million loan made on April 27, 2020 was repaid in full with interest when it matured on July 27, 2020.

The unpaid balance of the Note accrues interest at a rate of 6.0% per annum.

Interest on the Note is payable monthly in kind through the addition of such accrued monthly interest to the outstanding principal balance of the Note.

The Manager has agreed to subordinate our obligations with respect to the Note and liens held by the Manager for the security of the performance of our obligations under the Note to our obligations to the Participating Counterparties and to the secured promissory note payable to Royal Bank of Canada, which we repaid in full on June 11, 2020.

The Manager agreed to subordinate our obligations with respect to the Note and liens held by the Manager for the security of the performance of our obligations under the Note to our obligations to the Participating Counterparties and to the secured promissory note payable to Royal Bank of Canada.

Our obligations to the Participating Counterparties and to the secured promissory note payable to Royal Bank of Canada were satisfied or released as of June 30, 2020.

Share-based compensation

Pursuant to the Manager Equity Incentive Plan and the Equity Incentive Plan, we can award up to 277,500 shares of common stock in the form of restricted stock, stock options, restricted stock units or other types of awards to our directors, officers, advisors, consultants and other personnel and to our Manager.

As of March 31, 2020, 11,456 shares of common stock were available to be awarded under the equity incentive plans.

Awards under the equity incentive plans are forfeitable until they become vested.

An award will become vested only if the vesting conditions set forth in the applicable award agreement (as determined by the compensation committee) are satisfied.

The vesting conditions may include performance of services for a specified period, achievement of performance goals, or a combination of both.

The compensation committee also has the authority to provide for accelerated vesting of an award upon the occurrence of certain events in its discretion.

As of March 31, 2020, we have granted an aggregate of 105,794 and 40,250 shares of restricted common stock to our independent directors and Manager, respectively, and 120,000 restricted stock units to our Manager under our equity incentive plans.

As of March 31, 2020, all the shares of restricted common stock granted to our Manager and independent directors have vested and 99,991 restricted stock units granted to our Manager have vested.

The 20,009 restricted stock units that have not vested as of March 31, 2020 were granted to the Manager on July 1, 2017, and represent the right to receive an equivalent number of shares of our common stock when the units vest on July 1, 2020.

Effective on April 15, 2020 upon the approval of our stockholders at our Annual Meeting, the 2020 Equity Incentive Plan provides for 2,000,000 shares of common stock to be issued.

The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during any fiscal year, shall not exceed $300,000 in total value (calculating the value of any such awards based on the grant date fair value).

As of June 30, 2020, 1,925,209 shares of common stock were available to be awarded under the Equity Incentive Plan.

Since our IPO, we have granted an aggregate of 180,585 and 40,250 shares of restricted common stock to our independent directors and Manager, respectively, and 120,000 restricted stock units to our Manager under our equity incentive plans.

As of June 30, 2020, all the shares of restricted common stock granted to our Manager and independent directors have vested and 99,991 restricted stock units granted to our Manager have vested.

The 20,009 restricted stock units that have not vested as of June 30, 2020 were granted to the Manager on July 1, 2017, and represent the right to receive an equivalent number of shares of our common stock when the units vest on July 1, 2020.

The units do not entitle the recipient the rights of a holder of our common stock, such as dividend and voting rights, until shares are issued in settlement of the vested units.

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Unfunded commitments

See our "Off-balance sheet arrangements" section below and Note 13 of the "Notes to Consolidated Financial Statements" for a details on our unfunded commitments as of March 31, 2020.

See our "Off-balance sheet arrangements" section below and Note 13 of the "Notes to Consolidated Financial Statements" for detail on our unfunded commitments as of June 30, 2020.

MATT Financing Arrangement Restructuring

On April 3, 2020, we, alongside private funds under the management of Angelo Gordon, restructured our financing arrangements in MATT ("Restructured Financing Arrangement").

The Restructured Financing Arrangement requires all principal and interest on the underlying assets in MATT be used to paydown principal and interest on the outstanding financing arrangements.

As of the April 3, 2020, the financing arrangement within MATT will be non-recourse to us.

The Restructured Financing Arrangement requires all principal and interest on the underlying assets in MATT be used to pay down principal and interest on the outstanding financing arrangement.

As of April 3, 2020, The Restructured Financing Arrangement is not a mark-to-market facility and is non-recourse to us.

The Restructured Financing Arrangement provides for a termination date of October 1, 2021.

At the earlier of the termination date or the securitization or sale by us of the remaining assets subject to the Restructured Financing Arrangement, the financing counterparty will be entitled to 35% of the remaining equity in the assets.

We have an approximate 44.6% interest in MATH.

As of March 31, 2020 and December 31, 2019, we are obligated to pay accrued interest on our financing arrangements in the amount of $1.5 million and $10.8 million, respectively, inclusive of accrued interest accounted for through investments in debt and equity of affiliates, and exclusive of accrued interest on any financing utilized through AG Arc.

The change in accrued interest on our financing arrangements was due primarily to the repayment of financing arrangements in conjunction with the sales of various assets by us and the seizures of various assets by financing counterparties in Q1 2020.

We evaluated this restructuring and concluded it was an extinguishment of debt.

MATT has chosen to make a fair value election on the new financing arrangement, and we will treat this arrangement consistently with this election.

As of June 30, 2020 and December 31, 2019, we are obligated to pay accrued interest on our financing arrangements in the amount of $0.7 million and $10.8 million, respectively, inclusive of accrued interest accounted for through investments in debt and equity of affiliates, and exclusive of accrued interest on any financing utilized through AG Arc.

Off-balance sheet arrangements

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We record TBA purchases/shorts and sales/covers on the trade date and present the amount net of the corresponding payable or receivable until the settlement date of the transaction.

As of March 31, 2020, we had a net long TBA position with a net payable amount of $0.4 million.

We recorded $2.7 million of derivative assets and $2.3 million of derivative liabilities, in the "Other assets" and "Other liabilities" line items, respectively, on our consolidated balance sheets.

As of June 30, 2020, we did not hold any TBA positions.

Our investments in debt and equity of affiliates are primarily comprised of real estate securities, Excess MSRs, loans, our interest in AG Arc, and certain derivatives.

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See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments in debt and equity of affiliates.

The below table details our investments in debt and equity of affiliates as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020 December 31, 2019

The below table details our investments in debt and equity of affiliates as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Assets (1) Liabilities Equity Assets (1) Liabilities Equity

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(1) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt.

(2) Includes financing arrangements on real estate owned as of March 31, 2020 and December 31, 2019 of $(0.3) million for both periods.

The table below details our additional commitments as of March 31, 2020 (in thousands):

(2) Includes financing arrangements on real estate owned as of June 30, 2020 and December 31, 2019 of $(0.2) million and $(0.3) million, respectively.

The table below details our additional commitments as of June 30, 2020 (in thousands):

Commitment Type Date of Commitment Total Commitment Funded Commitment Remaining Commitment

MATH (a)(b) March 29, 2018 $ 46,820 $ 44,590 $ 2,230

Commercial loan G (c)(d) July 26, 2018 84,515 52,089 32,426

Commercial loan I (c) January 23, 2019 20,000 14,646 5,354

Commercial loan J (c)(e) February 11, 2019 30,000 5,220 24,780

Commercial loan K (c) February 22, 2019 20,000 11,172 8,828

LOTS (a) Various 44,995 22,655 22,340

Commercial loan G (a)(b) July 26, 2018 $ 84,515 $ 56,710 $ 27,805

Commercial loan I (a) January 23, 2019 20,000 15,212 4,788

Commercial loan J (a)(c) February 11, 2019 30,000 6,291 23,709

Commercial loan K (a) February 22, 2019 20,000 12,673 7,327

LOTS (d) Various 40,819 22,999 17,820

Total $ 195,334 $ 113,885 $ 81,449

(a) Refer to "Contractual obligations" section above for more information regarding MATH and LOTS.

(b) Subsequent to quarter end, the financing arrangement in this entity was restructured and the commitment was removed.

Refer to "Contractual obligations" section above for further details.

See Note 4 to the "Notes to the Consolidated Financial Statements (unaudited)" for further details.

(d) We expect to receive financing of approximately $21.1 million on our remaining commitment, which would cause our remaining equity commitment to be approximately $11.3 million.

(a) We entered into commitments on commercial loans relating to construction projects.

See "Investment activities" section above for further details.

(b) We expect to receive financing of approximately $18.1 million on our remaining commitment, which would cause our remaining equity commitment to be approximately $9.7 million.

This financing is not committed and actual financing could vary significantly from our expectations.

(e) We expect to receive financing of approximately $16.1 million on our remaining commitment, which would cause our remaining equity commitment to be approximately $8.7 million.

Of the expected financing, $8.1 million is committed by the financing counterparty.

Subsequent to quarter end, $6.5 million was committed by the financing counterparty.

Actual financing could vary significantly from our expectations.

(c) We expect to receive financing of approximately $13.0 million on our remaining commitment, which would cause our remaining equity commitment to be approximately $10.7 million.

This financing is not committed and actual financing could vary significantly from our expectations.

(d) Refer to "Contractual obligations" section above for more information regarding LOTS.

Certain related person transactions

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We also utilized the third party valuation firm to establish the fee level for non-QM loans in the third quarter of 2019.

For the three months ended March 31, 2020, the fees paid by us to the Asset Manager totaled $0.3 million and $0.1 million, respectively.

In connection with the Forbearance Agreement, we deferred the payment of all fees payable to the Asset Manager as it is an affiliate of the Manager.

For the three months ended March 31, 2020, we deferred $0.1 million of fees owed to the Asset Manager and plan to continue to defer fees through September 30, 2020 or such other time as we and the Manager agree.

For the six months ended June 30, 2020, the fees paid by us to the Asset Manager totaled $0.3 million.

For the three and six months ended June 30, 2019, the fees paid by us to the Asset Manager totaled $0.1 million and $0.3 million, respectively.

For the three and six months ended June 30, 2020, we deferred $0.3 million and $0.4 million, respectively, of fees owed to the Asset Manager and plan to continue to defer fees through September 30, 2020 or such other time as we and the Manager agree.

On December 9, 2015, we, alongside private funds under the management of Angelo Gordon, through AG Arc, formed Arc Home, a Delaware limited liability company.

Arc Home originates conforming, Government, Jumbo, Non-QM and other non-conforming residential mortgage loans, retains the mortgage servicing rights associated with the loans it originates, and purchases additional mortgage servicing rights from third-party sellers.

We have an approximate 44.6% interest in AG Arc.

Our investment in Arc Home, which is conducted through AG Arc, one of our indirect subsidiaries, is reflected on the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

See "Off-balance sheet arrangements" section above for the fair value as Arc Home of March 31, 2020 and December 31, 2019.

See "Off-balance sheet arrangements" section above for the fair value as Arc Home of June 30, 2020 and December 31, 2019.

Arc Home may sell loans to us or to affiliates of our Manager.

Arc Home may also enter into agreements with us, third parties, or affiliates of our Manager to sell Excess MSRs on the mortgage loans that it either purchases from third parties or originates.

We, directly or through our subsidiaries, have entered into agreements with Arc Home to purchase rights to receive the excess servicing spread related to certain of its MSRs and as of March 31, 2020 and December 31, 2019, these Excess MSRs had fair values of approximately $14.5 million and $18.2 million, respectively.

We, directly or through our subsidiaries, have entered into agreements with Arc Home to purchase rights to receive the excess servicing spread related to certain of its MSRs and as of June 30, 2020 and December 31, 2019, these Excess MSRs had fair values of approximately $12.7 million and $18.2 million, respectively.

In connection with our investments in Excess MSRs purchased through Arc Home, we pay an administrative fee to Arc Home.

For the three months ended March 31, 2020 and March 31, 2019, the administrative fees paid by us to Arc Home totaled $0.1 million for both periods.

For the three and six months ended June 30, 2020, the administrative fees paid by us to Arc Home totaled $0.1 million and $0.2 million, respectively.

For the three and six months ended June 30, 2019, the administrative fees paid by us to Arc Home totaled $0.1 million and $0.2 million, respectively.

Mortgage Acquisition Trust I LLC

See our "Off-balance sheet arrangements" and "MATT Financing Arrangement Restructuring" sections above.

See our "MATT Financing Arrangement Restructuring" sections above.

LOT SP I LLC and LOT SP II LLC

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For further detail on the Management Agreement, see the "Contractual obligations–Management agreement" section of this Item 2.

Subordinated debt

See our "Contractual obligations–Subordinated debt" section above.

See our "Contractual obligations–Secured debt" section above.

Other transactions with affiliates

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For most instruments, if market bids are available, the trading desk will request external bids from the market while simultaneously submitting an internal bid to Compliance and/or Risk.

If the highest bid is an external bid, the security or other instrument will be sold to the external bidder and no affilaited transaction will take place.

If the highest bid is an external bid, the security or other instrument will be sold to the external bidder and no affiliated transaction will take place.

If the highest bid is the internal bid, the price will be the midpoint between the internal bid and the highest external bid.

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Our Affiliated Transactions are reviewed by our Audit Committee on a quarterly basis to confirm compliance with the policy.

In October 2018, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities and loans from an affiliate of the Manager (the "October 2018 Selling Affiliate").

As of the date of the trade, the real estate securities and loans acquired from the October 2018 Selling Affiliate had a total fair value of $0.5 million.

As procuring market bids for the real estate securities and loans was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by independent third-party pricing vendors.

The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.

In March 2019, in accordance with our Affiliated Transactions Policy, we executed one trade whereby we acquired a real estate security from an affiliate of the Manager (the "March 2019 Selling Affiliate").

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As of the date of the trade, the real estate securities acquired from the July 2019 Selling Affiliate had a total fair value of $2.0 million.

As procuring market bids for the real estate securities was

determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by independent third-party pricing vendors.

As procuring market bids for the real estate securities was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by independent third-party pricing vendors.

The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.

In September 2019, we, alongside private funds managed by Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated non-QM loan securitization, in which non-QM loans with a fair value of $415.1 million were securitized.

Certain senior tranches in the securitization were sold to third parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $28.7 million as of September 30, 2019.

Certain senior tranches in the securitization were sold to third parties with us and private funds under the

management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $28.7 million as of September 30, 2019.

We have a 44.6% interest in the retained subordinate tranches.

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We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable.

Although our estimates contemplate conditions as of March 31, 2020 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented.

Although our estimates contemplate conditions as of June 30, 2020 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented.

Moreover, the uncertainty over the ultimate impact that that the COVID-19 pandemic will have on the global economy generally, and on our business in particular, makes any estimates and assumptions inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic.

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Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates.

Compliance with Investment Company Act and REIT Tests

We intend to conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes, of the Investment Company Act.

government securities and cash items) on an unconsolidated basis (the "40% Test").

"Investment securities" do not include, among other things, U.S.

As of December 31, 2019, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements.

As a result, we no longer maintain our exempt status.

As we cannot rely on our historical exemption from regulation as an investment company, we now must rely upon Rule 3a-2, which provides a safe harbor exemption, not to exceed one year, for companies that have a bona fide intent to be engaged in an excepted activity but that temporarily fail to meet the requirements for another exemption from registration as an investment company.

As required by the rule, after we learned that we would become out of compliance, our board of directors promptly adopted a resolution declaring our bona fide intent to be engaged in excepted activities and we are currently working to restore our assets to compliance.

We calculate that at least 75% of our assets were real estate assets, cash and cash items and government securities for the year ended December 31, 2019.

We also calculate that a sufficient portion of our revenue qualifies for the 75% gross income test and for the 95% gross income test rules for the year ended December 31, 2019.

Overall, we believe that we met the REIT income and asset tests.

We also believe that we met all other REIT requirements, including the ownership of our stock and the distribution of our taxable income.

Therefore, for the year ended December 31, 2019, we believe that we qualified as a REIT under the Code.

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-Q

Item 2. Management’s Discussion and Analysis