What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-10 · 442 added, 357 removed, 1216 unchanged (40% 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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• increased rates of default or delinquencies and/or decreased recovery rates on our assets;

• our ability to obtain and maintain financing arrangements on terms favorable to us or at all, particularly in light of the current disruption in the financial markets;

• our ability to obtain and maintain financing arrangements on terms favorable to us or at all;

• 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;

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• legislative and regulatory actions by the U.S.

Congress, U.S.

Department of the Treasury, the Federal Reserve and other agencies and instrumentalities in response to the economic effects of the COVID-19 pandemic;

• how COVID-19 may affect us, our operations and personnel;

• how COVID-19, and regulatory and market responses thereto, may affect us, our operations and personnel;

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

• 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 reinstate quarterly dividends on our common 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 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.

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

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 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.

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

Our Net Loss Available to Common Stockholders during this period was $478.3 million and our book value per share decreased by $14.27 per share from $17.61 as of December 31, 2019 to $3.34 as of September 30, 2020.

We recognized net realized losses of $194.6 million on the sale of real estate securities, loans and related collateral and realized losses of $62.6 million on the termination of the related derivatives.

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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 $3.2 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.

Included in unrealized losses on both securities and loans are net unrealized gain reversals due to sales during 2020 totaling $132.0 million.

The remaining unrealized losses of $52.8 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.

In the nine month period ended September 30, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $903.7 million, and at September 30, 2020, our GAAP investment portfolio consisted of $253.6 million of Agency RMBS, or 28% of our GAAP investment portfolio, and $650.1 million of credit positions, or 72% of our GAAP investment portfolio.

We believe the resulting capital allocation will impact our yield, cost of funds and leverage ratio as described more fully below.

We believe the significant 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.

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Moreover, the COVID-19 pandemic and certain of the actions taken to reduce its spread have resulted in lost business revenue, rapid and significant increases in unemployment, changes in consumer behavior and significant reductions in liquidity and the fair value of many assets, including those in which we invest.

Although many of the government restrictions are in the process of being relaxed, these conditions, or some level thereof, and others are expected to continue over the near term and may prevail throughout 2020.

Beginning in mid-March, economic conditions caused financial and mortgage-related asset markets to come under extreme duress, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets.

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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.

• 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 six months ended June 30, 2020.

• 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.

On June 10, 2020, we exited forbearance, terminating the last remaining forbearance agreement, and entered into a reinstatement agreement, 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 during the nine months ended September 30, 2020:

• Reduced GAAP investment portfolio by $3.1 billion from $4.0 billion at December 31, 2019 to $903.7 million at September 30, 2020 and investment portfolio on a non-GAAP basis by $3.3 billion from $4.4 billion at December 31, 2019 to $1.1 billion at September 30, 2020 through sales, directly or as a result of financing counterparty seizures.

• Reduced financing arrangement balance on a GAAP basis by $3.0 billion from $3.2 billion at December 31, 2019 to $225.5 million at September 30, 2020 and financing arrangements on a non-GAAP basis by $3.1 billion from $3.5 billion at December 31, 2019 to $349.5 million at September 30, 2020.

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

• Reduced mark-to-market recourse financing by $3.2 billion from $3.5 billion at December 31, 2019 to $242.8 million at September 30, 2020.

◦ Increased non mark-to-market non-recourse financing by $251.7 million from $224.3 million at December 31, 2019 to $476.0 million at September 30, 2020.

• Reduced our GAAP leverage ratio and Economic Leverage Ratio from 4.1x and 4.1x at December 31, 2019, respectively, to 1.8x and 0.9x at September 30, 2020, respectively.

• Did not declare quarterly dividends on our common or preferred stock for the three months ended June 30, 2020 and September 30, 2020.

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

We executed the following during the three months ended September 30, 2020:

• We purchased $250.1 million of Agency RMBS and $60.2 million of Re/Non-Performing Loans.

• We participated in a non-rated securitization, in which Re/Non-Performing Loans with a fair value of $199.6 million were securitized, converting financing from recourse financing that was mark-to-market with respect to margin calls to non-recourse financing that is no longer mark-to-market with respect to margin calls.

• We sold real estate securities for proceeds of $38.8 million, Re/Non-Performing Loans for proceeds of $6.2 million, Commercial Real Estate Loans for proceeds of $2.7 million and Excess MSRs for proceeds of $8.5 million.

• We, alongside private funds under the management of 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 $226.0 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 $24.3 million as of September 30, 2020.

We have a 44.6% interest in the retained subordinate tranches.

• On September 24, 2020, we issued (i) 1,215,370 shares of common stock to the Manager in full satisfaction of the deferred base management fee of $3.8 million payable by us in respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter of 2020.

The shares of Common Stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of our book value per share as of August 31, 2020.

The remaining third quarter management fee will be paid in the normal course of business.

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

In March 2020, our Manager transitioned to a fully remote work force, to protect the safety and well-being of our personnel.

Our Manager’s prior investments in technology, business continuity planning and cyber-security protocols have enabled us to continue working with limited operational impact.

Subsequent to quarter end, given the improvement in our liquidity and financial position among other improvements, the Board of Directors approved, and we have declared and set apart for payment, all dividends on the Preferred Stock that were in arrears as well as the full dividends payable on the Preferred Stock for the fourth quarter of 2020.

These preferred dividends will be paid on December 17, 2020, the next regular payment date, to Preferred Stock holders of record on November 30, 2020.

We may from time to time continue to seek to acquire additional shares of Preferred Stock in privately negotiated transactions, open market purchases or exchange offers.

As previously reported in our Current Reports on Form 8-K, dated October 1, 2020 and October 5, 2020, on September 30, 2020 and October 2, 2020, respectively, we entered into privately negotiated exchange agreements (the "Exchange Transactions") with existing holders of our 8.25% Series A Cumulative Preferred Stock, par value $0.01 per share ("Series A Preferred");

8.00% Series B Cumulative Preferred Stock, par value $0.01 per share ("Series B Preferred");

and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share ("Series C Preferred" and, collectively with the other series, "Preferred Stock").

Pursuant to the Exchange Transactions, we issued to the transacting holders a total of 4,579,634 shares of our Common Stock, par value $0.01 per share, and paid a total of $8.0 million cash in exchange for a total of 210,662 shares of Series A Preferred, 404,187 shares of Series B Preferred, and 687,467 shares of Series C Preferred.

We subsequently determined that, pursuant to the Articles Supplementary establishing the terms of the Preferred Stock, we were not permitted to pay cash as partial consideration to acquire such Preferred Stock unless full cumulative dividends on the Preferred Stock had been declared and paid or declared and a sum sufficient for the payment thereof set apart for payment covering all past dividend periods.

Upon review and consideration of the Exchange Transactions, certain provisions of our charter, and the declaration and setting apart for payment of the Preferred Stock dividends payable on December 17, 2020, the Board decided to ratify the Exchange Transactions.

Including the Common Stock issued in connection with the Exchange Transactions, we had 40,721,831 shares of our Common Stock outstanding as of November 4, 2020.

We are a hybrid mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of Agency RMBS and Credit Investments.

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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.

As of September 30, 2020 and December 31, 2019, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements.

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.

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.

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Our target investments

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

Our investment portfolio is 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.

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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").

Our investment portfolio includes residential mortgage-backed securities ("RMBS").

Certain of the assets that were in our RMBS portfolio had a guarantee of principal and interest by a U.S.

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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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Non-QM Loans include:

• Residential mortgage loans that do not qualify for the Consumer Finance Protection Bureau's (the "CFPB") safe harbor provision for "qualifying mortgages," or "QM," that we hold alongside other private funds under the management of Angelo Gordon.

• Residential mortgage loans that do not qualify for the Consumer Finance Protection Bureau's safe harbor provision for "qualifying mortgages," or "QM," that we hold alongside other private funds under the management of Angelo Gordon.

These investments are held in one of our unconsolidated subsidiaries, Mortgage Acquisition Trust I LLC ("MATT") (see the "Contractual obligations" section of this Item 2 for more detail), and are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

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CMBS are secured by, or evidence ownership interest in, a single commercial mortgage loan or a pool of commercial mortgage loans.

• Additionally, our CMBS include:

• CMBS secured by multiple commercial mortgage loans or a pool of commercial loans to multiple borrowers ("Conduit");

• CMBS secured by a single commercial mortgage loan which is backed by a single asset (usually a large commercial property) or by a pool of cross collateralized mortgage obligations to a single borrower or related borrowers ("Single-Asset/Single-Borrower").

Freddie Mac K-Series ("K-Series") include:

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On November 15, 2019, we sold our portfolio of single-family rental properties to a third party.

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

We reclassified the operating results of our single-family rental properties segment to discontinued operations and excluded the income associated with the

portfolio from continuing operations for all periods presented.

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

Market conditions

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.

During the third quarter of 2020, the financial markets continued their recovery from the significant dislocation caused by the COVID-19 outbreak and the resultant economic shutdown across much of the U.S.

We believe several factors have contributed to this recovery including support from the U.S.

Federal Reserve, capital flows into fixed income assets and generally positive economic data.

The Federal Reserve has expressed continued commitment to the broad array of programs it implemented in the immediate wake of the COVID-19 crisis, which are all 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.

The Federal Reserve has also continued to signal that it intends to maintain low interest rates for the foreseeable future.

Additionally, bond fund inflows throughout the quarter have provided further technical support to the credit markets.

Spreads for the mortgage backed sectors extended their rebound from the second quarter.

At the end of September, spreads had tightened further but nonetheless remain wide compared to pre-COVID levels, which we believe is due to the ongoing uncertainty regarding the sustainability of regional re-opening plans, fears regarding a potential second or third COVID-19 wave and the continued uncertainty regarding additional federal stimulus.

Agency MBS continued along its path to recovering from the spread widening experienced in the first quarter, with generic current coupon MBS spreads versus the 10-year Treasury rate ending the quarter 8 basis points tighter than pre-COVID-19 spread levels.

Specified pools have also continued to perform well as demand for protection from refinancing-driven prepayments remain elevated given historically low mortgage rates.

Federal Reserve buying, strong bank deposit growth, broad demand for yield and declining interest rate volatility continue to result in a supportive backdrop for valuations despite elevated gross issuance.

In the RMBS sectors, including CRT, the spread recovery continued up and down the capital structure as better-than-expected data, liquidity and relatively broad-based risk-on sentiment continued to support the rebound in spreads.

Despite the continued recovery, spreads for most mortgage sub-sectors continue to remain wide of pre-COVID levels as uncertainty hangs over the market, reflecting a wide range of potential outcomes.

While mortgage payment forbearances have been declining, uncertainty around additional consumer relief poses risks to the mortgage sector’s performance.

Collateral fundamentals have largely been within or better than the market’s initial expectations, supporting the ongoing spread rally in the RMBS market.

The housing market continues to appear to be heading toward a "V-Shaped" recovery, due to strong demand for homes across the U.S, and the home price outlook continues to be favorable into the foreseeable future.

For the third quarter, new-issue RMBS activity was sharply higher at $26.8 billion, nearly doubling the second quarter activity.

This supply was met with strong demand with subscription levels often multiples of the offered amounts.

However, RMBS issuance is still down about 17% compared to levels a year ago, in part due to the lull in Non-QM activity following COVID-19, but we expect it to rise in the coming quarters.

The CMBS markets generally followed a path similar to that observed in the RMBS market with spreads tightening quarter-over-quarter and investor demand providing support to the new issue market, AAA conduit CMBS spreads, which traded as wide as swap rates plus 3.25% in the first quarter, ending the quarter at approximately swap rates plus 0.95%, roughly in line with pre-COVID-19 levels.

Further down in the capital structure, pricing remains wide of pre-COVID levels with a considerable amount of dispersion among deals.

During the quarter seven private label conduit deals totaling $5.1 billion and 11 Single-Asset/Single-Borrower deals totaling $7.6 billion priced in the U.S., resulting in year-to-date volume of $42.7 billion, a 27% decline versus the first nine months of 2019.

During the third quarter the percentage of CMBS loans categorized as 30 days or more delinquent declined from 10.32% to 8.92%.

Over that same period, the percentage of loans transferred to the special servicer shows a nearly opposite trend, growing from 8.28% up to 10.48%.

The reason for this seeming anomaly is that borrowers who reach a forbearance agreement are typically reclassified as current even if the borrower has been granted temporary interest payment relief or is allowed to tap excess reserves to remain current on their mortgage payments.

Unsurprisingly, loans secured by hotel properties are showing the most distress with 26.0% of those loans specially serviced at the end of September, followed by retail, with 18.3% of all CMBS loans secured by retail properties in special servicing at the end of the quarter.

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.

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

Recent government activity

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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.

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.

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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.

On August 27, 2020, the FHFA announced an extension of the single-family moratorium on foreclosures and evictions until December 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.

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 result of the presidential and Congressional elections in the United States.

We cannot predict how, in the long term, these and other actions, as well as the negative impacts from the ongoing COVID-19 pandemic, will affect the efficiency, liquidity and stability of the financial, credit and mortgage markets, and thus, our business.

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Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our target assets in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose mortgage loans are included in our investment portfolio and other unanticipated events in our markets.

Our primary source of net income available to common stockholders is our net interest income, less our cost of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and hedging our investment portfolio.

Our primary source of net income or loss available to common stockholders is our net interest income, less our cost of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and hedging our investment portfolio, as well as any income or losses from our equity investments in affiliates.

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.

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):

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

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

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

Three Months Ended

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

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

Statement of Operations Data:

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Net Income/(Loss) 20,046 10,049 9,997

Gain on Exchange Offer, net 539 — 539

Dividends on preferred stock (5,563) (3,720) (1,843)

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Treasury securities, if any.

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.

Interest income decreased from September 30, 2019 to September 30, 2020 primarily due to the significant 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.

Treasury securities, if any, decreased by $2.7 billion from $3.4 billion for the three months ended September

30, 2019 to $744.7 million for the three months ended September 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 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.

Interest expense decreased from September 30, 2019 to September 30, 2020 primarily due to the significant 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.

Treasury securities, if any, during the period decreased by $2.6 billion from $2.9 billion for the three months ended September 30, 2019 to $255.2 million for the three months ended September 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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Net realized gain/(loss)

Net realized gain/(loss) represents the net gain or loss recognized on any (i) sales and seizures by financing counterparties of real estate securities out of our GAAP investment portfolio, including any associated deficiencies recognized, (ii) sales of loans out of our GAAP investment portfolio, transfers of loans from our GAAP investment portfolio to real estate owned included in Other assets, and sales of Other assets, (iii) settlement of derivatives and other instruments, and (iv) prior to the adoption of ASU 2016-13, other-than-temporary-impairment ("OTTI") charges recorded during the period.

Net realized gain/(loss) represents the net gain or loss recognized on any (i) sales and seizures, if any, of real estate securities out of our GAAP investment portfolio, including any associated deficiencies recognized, if any, (ii) sales of loans out of our GAAP investment portfolio, transfers of loans from our GAAP investment portfolio to real estate owned included in Other assets, and sales of Other assets, (iii) settlement of derivatives and other instruments, and (iv) prior to the adoption of ASU 2016-13, other-than-temporary-impairment ("OTTI") charges recorded during the period.

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 June 30, 2020 and June 30, 2019 (in thousands):

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

Three Months Ended

June 30, 2020 June 30, 2019

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

September 30, 2020 September 30, 2019

Sale of real estate securities $ (8,477) $ 4,589

Sale of loans and loans transferred to or sold from Other assets (4,795) 122

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Total Net realized gain/(loss) $ (14,431) $ (16,132)

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 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.

Net interest component of interest rate swaps decreased from September 30, 2019 to September 30, 2020, primarily due to the significant reduction in the size of our investment portfolio and related financing as a result of the global COVID-19 pandemic.

For the three months ended September 30, 2020 and September 30, 2019, the net interest component of interest rate swaps was $(13.0) thousand and $2.2 million, respectively.

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

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.

During the third quarter of 2020, the Company recognized $19.5 million in net unrealized gains comprised of unrealized gains on securities and unrealized gains on loans of $9.3 million and $10.2 million, respectively.

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

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.

For the three months ended September 30, 2020, the gains of $2.0 million were comprised of unrealized gains on Excess MSRs and derivatives as a result of the reversal of unrealized losses previously recorded on these assets in connection with the sale or expiration of these positions, offset by unrealized losses on securitized debt.

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.

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.

Other income decreased from September 30, 2019 to September 30, 2020 due to fees received on our commercial loans during the three months ended September 30, 2019 that we did not receive during the three months ended September 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 June 30, 2019 to June 30, 2020 primarily due to a decrease in our Stockholders' Equity as calculated pursuant to our Management Agreement.

Management fees decreased from September 30, 2019 to September 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.

As of September 30, 2020, we paid all deferred management fees related to prior quarters and settled a portion of management fees related to the third quarter through the issuance of common stock to the Manager.

The remaining third quarter expense will be paid in the normal course of business.

See Note 11 to the "Notes to Consolidated Financial Statements (unaudited)" and the "Liquidity and capital resources" section of this Item 2 below for a further discussion on management fees.

Other operating expenses

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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 June 30, 2020 and June 30, 2019 (in thousands):

Three Months Ended

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

Non Investment Related Expenses

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Transaction related expenses and deal related performance fees (1) 1,590 2,793

Other 123 137

Total Investment Expenses 2,926 3,407

Total Other operating expenses $ 5,929 $ 6,062

(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.

(1) For the three months ended September 30, 2020 and September 30, 2019, total transaction related expenses and deal related performance fees were $2.2 million and $2.8 million, respectively.

For the three months ended September 30, 2020, the $2.2 million includes $0.6 million of deferred financing costs that are included within interest expense.

For the three months ended September 30, 2019, the $2.8 million excludes $25.1 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.

Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with restructuring our debt and capital structure.

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 June 30, 2020 and June 30, 2019, our equity based compensation to affiliate remained relatively unchanged.

For the three months ended September 30, 2020 and September 30, 2019, our equity based compensation to affiliate decreased as a result of the remaining restricted stock units vesting during 2020.

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 June 30, 2020, our excise tax decreased primarily due to losses associated with COVID-19.

For the three months ended September 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 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.

As of September 30, 2020 and September 30, 2019, we owned Residential mortgage loans with a fair value of $429.6 million and $379.4 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.

For the three months ended September 30, 2020 and September 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 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.

The increase from the quarter ended September 30, 2019 to the quarter ended September 30, 2020 primarily pertains to our share of the income at Arc Home coupled with unrealized gains on investments held within affiliated entities.

During the current quarter, we recognized $13.4 million of equity in earnings from affiliates related to our investment in AG Arc.

The increase in earnings within AG Arc was the result of elevated origination volumes and the related lending revenues experienced at Arc Home.

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)

Gain on Exchange Offer, net

We completed an exchange offer (the "Exchange Offer") during the third quarter of 2020.

As a result of the Exchange Offer, we exchanged a total of 42,820 shares of Series A Preferred Stock, 31,085 shares of Series B Preferred Stock and 29,355 shares of Series C Preferred Stock for a total of 516,300 shares of common stock.

We recognized a gain of $0.5 million in connection with the Exchange Offer, which is net of related expenses.

Refer to the "Liquidity and capital resources" section below for more information on the Exchange Offer.

Nine Months Ended September 30, 2020 compared to the Nine Months Ended September 30, 2019

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

Nine Months Ended

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

Statement of Operations Data:

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Net Income/(Loss) (461,910) 57,882 (519,792)

Gain on Exchange Offer, net 539 — 539

Dividends on preferred stock (16,897) (10,455) (6,442)

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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.

Interest income decreased from September 30, 2019 to September 30, 2020 primarily due to the significant 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.

Treasury securities, if any, decreased by $1.6 billion from $3.4 billion at September 30, 2019 to $1.8 billion at September 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.

Treasury securities, if any, during the period decreased by $1.6 billion from $2.9 billion for the nine months ended September 30, 2019 to $1.3 billion for the nine months ended September 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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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

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

Nine Months Ended

September 30, 2020 September 30, 2019

Sale/seizures of real estate securities and related collateral $ (131,070) $ 10,396

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Total Net realized gain/(loss) $ (257,183) $ (64,225)

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.

As previously discussed, in order to preserve liquidity and meet margin calls, we sold approximately $ 3.2 billion of securities and loans during the nine months ended September 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.

Net interest component of interest rate swaps decreased from September 30, 2019 to September 30, 2020 primarily due to the significant reduction in the size of our investment portfolio and related financing as a result of the global COVID-19 pandemic.

For the nine months ended September 30, 2020 and September 30, 2019, the net interest component of interest rate swaps was $0.9 million and $5.8 million, respectively.

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

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

During the nine months ended 2020, the Company recognized $184.8 million in net unrealized losses comprised of unrealized losses on securities and unrealized losses on loans of $145.1 million and $39.7 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 $132.0 million.

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

The remaining losses of $52.8 million relate to mark to market losses on securities and loans still held at September 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.

For the nine months ended September 30, 2020, the losses of $1.8 million was comprised of unrealized losses on derivatives offset by unrealized gains on excess MSRs and 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.

During the nine months ended September 30, 2020, the value of GBP relative to USD decreased, resulting in a gain on the liabilities held 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 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.

Other income decreased from September 30, 2019 to September 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.

Management fees decreased from September 30, 2019 to September 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

Nine Months Ended

September 30, 2020 September 30, 2019

Non Investment Related Expenses

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Total Other operating expenses $ 11,253 $ 13,650

(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.

(1) For the nine months ended September 30, 2020 and September 30, 2019, total transaction related expenses and deal related performance fees were $(0.7) million and $3.6 million, respectively.

For the nine months ended September 30, 2020, the $(0.7) million includes $0.6 million of deferred financing costs that are included within interest expense.

For the nine months ended September 30, 2019, the $3.6 million includes $10.4 thousand of deferred financing costs that are included within interest expense.

The decrease in Transaction related expenses and deal related performance fees from the nine months ended September 30, 2019 to the nine months ended September 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

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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.

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

For the nine months ended September 30, 2020 and September 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.

For the nine months ended September 30, 2020 and September 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.

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

Book value per share

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

As of September 30, 2020 and December 31, 2019, our book value per common share was $3.34 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, $118.8 million and $118.8 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.

The liquidation preference as of September 30, 2020 includes accumulated and unpaid dividends (whether or not authorized or declared) in the aggregate amount of $11.2 million.

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

Subsequent to quarter end, the Board of Directors has approved, and the Company has declared and set apart for payment on December 17, 2020, the next regular payment date, all accrued and unpaid cash dividends on our Preferred Stock as well as the full dividends payable on the preferred stock for the fourth quarter of 2020.

The dividends will be paid on December 17, 2020 to holders of record on November 30, 2020.

As such, our book value will decrease by the amount of the dividends declared during the fourth quarter.

Our book value per share as of September 30, 2020 would be $0.31 lower after deducting the accumulated and unpaid preferred dividends outstanding as of September 30, 2020.

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.

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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 June 30, 2020 and June 30, 2019 and a reconciliation to our GAAP investment portfolio:

June 30, 2020

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

September 30, 2020

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

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Leverage Ratio (c) 1.8x (d) 0.9x

June 30, 2019

September 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 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.

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 our business, liquidity, results of operations, financial condition, or our ability to make distributions to our stockholders.

We will continue to evaluate whether core earnings or other non-GAAP financial measures would help both management and investors evaluate our operating performance for future periods.

Investment activities

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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.

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.

During the nine months ended September 30, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $903.7 million, and at September 30, 2020, our equity capital allocation was 15% to Agency RMBS and 85% 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 June 30, 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 September 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)

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

September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

Agency RMBS $ 254,008 $ 2,333,626 22.7 % 52.8 % 3.5x 7.1x

Residential Investments 690,203 1,493,869 61.6 % 33.8 % 0.2x 2.7x

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Investment Portfolio $ 1,121,319 $ 4,417,204 100.0 % 100.0 % 0.9x 4.1x

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

Investments in Debt and Equity of Affiliates (b) $ 217,643 $ 373,126 N/A N/A (c) (c)

GAAP Investment Portfolio $ 903,676 $ 4,044,078 N/A N/A 1.8x 4.1x

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

(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.

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

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 June 30, 2020 and December 31, 2019 ($ in thousands):

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

Allocated Equity Percent of Equity

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

September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

Agency RMBS $ 59,470 $ 295,358 15.2 % 34.8 %

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Total $ 390,469 $ 849,046 100.0 % 100.0 %

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

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

Instrument Current Face Amortized Cost Unrealized Mark-

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Life (Years) (3)

30 Year Fixed Rate $ 237,142 $ 249,902 $ 221 $ 250,123 2.21 % 1.17 % 5.81

Excess MSR (4) 753,265 5,251 (1,366) 3,885 N/A 4.34 % 5.64

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

Total Agency RMBS 990,407 255,153 (1,145) 254,008 2.21 % 1.22 % 5.68

Credit Investments:

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RMBS 2,869 3,680 (236) 3,444 6.16 % 6.08 % 3.66

Interest Only and Excess MSR (4)(6) 215,176 249 179 428 0.59 % NM 1.13

Interest Only and Excess MSR (4) 200,629 252 145 397 0.55 % 16.39 % 1.09

Re/Non-Performing Loans 605,264 485,470 (14,224) 471,246 3.72 % 5.90 % 6.20

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Commercial Investments

CMBS 98,622 93,305 (19,282) 74,023 4.08 % 5.25 % 3.36

Conduit 4,925 3,844 (781) 3,063 4.78 % 11.88 % 3.76

Single-Asset/Single-Borrower 50,480 48,937 (10,759) 38,178 4.17 % 4.84 % 2.53

Freddie Mac K-Series 22,572 10,351 (1,715) 8,636 3.84 % 8.98 % 10.58

Interest Only (7) 687,446 4,313 (80) 4,233 0.10 % 7.02 % 4.37

CMBS Interest Only (6) 687,293 4,218 133 4,351 0.10 % 7.51 % 4.34

Commercial Real Estate Loans (7) 137,081 136,570 (13,690) 122,880 6.50 % 6.80 % 2.59

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The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 744 and 687, respectively.

(6) A majority of the Interest Only and Excess MSR line is made up of two Residential Interest Only positions.

The overall impact of these investments' yields on the Investment Portfolio is immaterial.

(6) Comprised of Freddie Mac K-Series interest-only bonds.

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Commercial Investments

CMBS 277,020 262,233 784 263,017 4.87 % 5.57 % 4.07

Conduit 72,318 63,137 209 63,346 4.24 % 5.57 % 7.72

Single-Asset/Single-Borrower 204,702 199,096 575 199,671 5.09 % 5.57 % 2.78

Freddie Mac K-Series 235,810 100,427 17,723 118,150 5.01 % 11.34 % 8.34

Interest Only (6) 3,650,693 46,606 3,250 49,856 0.23 % 6.64 % 3.02

CMBS Interest Only (6) 3,650,693 46,606 3,250 49,856 0.23 % 6.64 % 3.02

Commercial Real Estate Loans (7) 158,686 158,000 686 158,686 6.82 % 7.17 % 1.92

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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 December 31, 2019 December 31, 2019

Agency RMBS September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

30 Year Fixed Rate (3) $ 250,123 $ 2,241,298 0.9 % 8.1 %

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Total/Weighted Average $ 250,123 $ 2,315,439 0.9 % 8.2 %

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

(1) Represents the weighted average monthly CPRs published during the year periods ended September 30, 2020 and 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):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Non-Agency RMBS (1) $ 124,299 $ 835,325

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(1) Includes investments in Prime, Alt-A/Subprime, Credit Risk Transfer, Non-U.S RMBS, Interest-Only and Excess MSR, Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing held in securitized form.

(2) Includes CMBS, Freddie Mac K-Series, and Interest-Only investments.

(2) Includes Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments.

(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 June 30, 2020 ($ in thousands).

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

We have also presented a reconciliation to GAAP.

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Weighted Average Life (Years) (3)

Pre 2009 $ 2,189 $ 2,057 $ 277 $ 2,334 7.05 % 7.90 % 9.14

2013 $ 1,102 $ 759 $ 41 $ 800 3.60 % 5.55 % 19.69

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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 June 30, 2020 and December 31, 2019 (in thousands):

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

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

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

AAA $ 633 $ 4,975

BBB 1,445 65,454

BB 3,143 106,311

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

June 30, 2020

September 30, 2020

Non-Agency RMBS CMBS (1)

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

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

California $ 37,571 33.0 % Texas $ 7,867 14.5 %

New York 15,443 13.6 % California 6,604 12.2 %

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

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

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

Florida 9,499 8.3 % New York 5,983 11.0 %

Texas 3,798 3.3 % Florida 4,800 8.9 %

Maryland 3,735 3.3 % Arkansas 4,009 7.4 %

Other 54,253 38.5 % Other 24,965 46.0 %

Total $ 124,299 100.0 % Total $ 54,228 100.0 %

(1) CMBS includes all commercial credit securities, including CMBS, Freddie Mac K-Series, and Interest-Only investments.

(1) CMBS includes all commercial credit securities, including Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments.

(2) Non-Agency RMBS fair value includes $10.5 million of investments where there was no data regarding the underlying collateral.

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Total $ 835,325 100.0 % Total $ 431,023 100.0 %

(1) CMBS includes all commercial credit securities, including CMBS, Freddie Mac K-Series, and Interest-Only investments.

(1) CMBS includes all commercial credit securities, including Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments.

(2) Non-Agency RMBS fair value includes $123.0 million of investments where there was no data regarding the underlying collateral.

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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):

June 30, 2020

September 30, 2020

Non-Agency RMBS*

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Average Credit

CMBS $ 74,023 1.2 % 29.3 10.4 %

Freddie Mac K Series 8,398 0.6 % 19.9 0.0 %

Conduit $ 3,063 10.6 % 78.0 8.7 %

Single-Asset/Single-Borrower 38,178 — % 26.7 6.1 %

Freddie Mac K Series CMBS 8,636 0.2 % 23.1 0.0 %

December 31, 2019

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Average Credit

CMBS $ 263,017 0.2 % 22.1 9.3 %

Conduit $ 63,346 0.9 % 39.0 16.2 %

Single-Asset/Single-Borrower 199,671 — % 16.8 7.2 %

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

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

In our Re/Non-Performing Loan portfolio, 25% of the overall population has requested COVID related assistance as of September 30, 2020;

approximately 42% of the population requesting assistance is being reported as contractually current as of quarter end.

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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.

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;

The default rate for September was 4.0%.

COVID related delinquencies made up approximately 29% of those defaults in September.

Our Re/Non-Performing Loan valuation process in 2020 has incorporated increased defaults and extended liquidation timelines.

In our Non-QM Loan portfolio, 36% of the overall population has requested COVID related assistance as of September 30, 2020;

approximately 57% of the population requesting assistance is being reported as contractually current as of quarter end.

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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).

The default rate for September was 0.8%.

COVID related delinquencies made up approximately 42% of those defaults in September.

Our Non-QM Loan valuation process in 2020 has incorporated increased defaults and extended liquidation timelines.

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

Weighted Average

(1)(2) Current Face Premium

Loan (1)(2) Current Face Premium

Amortized Cost Gross Unrealized Losses Fair Value (3) Coupon

(4) Yield (5) Life

(6) Initial Stated

Maturity Date

Date (7) Location Collateral Type

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 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

Loan J (8) 6,291 — 6,291 (4,051) 2,240 5.65 % 5.65 % 2.12 January 1, 2023 January 1, 2024 NY Hotel, Retail

Loan K (11) 12,673 — 12,673 (1,100) 11,573 10.00 % 11.22 % 1.27 May 22, 2021 February 22, 2024 NY Hotel, Retail

Loan L (11) 51,000 (344) 50,656 (3,481) 47,175 5.40 % 5.66 % 4.12 July 22, 2022 July 22, 2024 IL Hotel, Retail

Maturity Date (7) Location Collateral Type

Loan G (8)(9) $ 56,697 $ — $ 56,697 $ (3,941) $ 52,756 5.27 % 5.27 % 1.80 July 9, 2022 CA Condo, Retail, Hotel

Loan I (10)(11) 15,211 (173) 15,038 (826) 14,212 11.50 % 12.00 % 2.47 February 9, 2023 MN Office, Retail

Loan K (12) 14,173 — 14,173 (1,100) 13,073 10.00 % 11.00 % 1.27 February 22, 2024 NY Hotel, Retail

Loan L (12)(13) 51,000 (338) 50,662 (7,823) 42,839 5.40 % 5.67 % 3.86 July 22, 2024 IL Hotel, Retail

$ 137,081 $ (511) $ 136,570 $ (13,690) $ 122,880 6.50 % 6.80 % 2.59

(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 June 30, 2020.

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

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

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

(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.

(8) Loan G is a first mortgage loan.

(9) Loan G has been amended and has been extended to its extended maturity date upon reaching its initial maturity of July 9, 2020.

See "Off-balance sheet arrangements" section below for more details regarding commitments.

(10) Loan I is a mezzanine loan.

(11) Subsequent to quarter end, we and the borrower of Loan I entered into a modification agreement to, among other things, extend the term of the Loan, allow for a portion of the interest to be deferred and increase the capital commitment amount by $6.0 million.

See "Off-balance sheet arrangements" section below for more details regarding commitments.

(12) Loan K and Loan L are comprised of first mortgage and mezzanine loans.

(13) Subsequent to quarter end, we and the borrower of Loan L entered into a modification agreement to, among other things, require the borrower to pay previously deferred interest in full, defer interest for the following 12-month period and require funding of capital reserves by the borrower.

The following table presents detail on our commercial real estate loan portfolio on December 31, 2019 ($ in thousands).

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(2) Yield (3) Life

(4) Initial Stated

Maturity Date

Date (5) Location Collateral Type

Loan G (6) $ 45,856 $ — $ 45,856 $ — $ 45,856 6.46 % 6.46 % 0.53 July 9, 2020 July 9, 2022 CA Condo, Retail, Hotel

Loan H (6) 36,000 — 36,000 — 36,000 5.49 % 5.49 % 0.19 March 9, 2019 June 9, 2020 AZ Office

Loan I (7) 11,992 (184) 11,808 184 11,992 12.21 % 14.51 % 1.04 February 9, 2021 February 9, 2023 MN Office, Retail

Loan J (6) 4,674 — 4,674 — 4,674 6.36 % 6.36 % 2.12 January 1, 2023 January 1, 2024 NY Hotel, Retail

Loan K (8) 9,164 — 9,164 — 9,164 10.71 % 11.86 % 1.72 May 22, 2021 February 22, 2024 NY Hotel, Retail

Loan L (8) 51,000 (502) 50,498 502 51,000 6.16 % 6.50 % 4.63 July 22, 2022 July 22, 2024 IL Hotel, Retail

(4) Extended Maturity Date (5) Location Collateral Type

Loan G (6) $ 45,856 $ — $ 45,856 $ — $ 45,856 6.46 % 6.46 % 0.53 July 9, 2022 CA Condo, Retail, Hotel

Loan H (6) 36,000 — 36,000 — 36,000 5.49 % 5.49 % 0.19 June 9, 2020 AZ Office

Loan I (7) 11,992 (184) 11,808 184 11,992 12.21 % 14.51 % 1.04 February 9, 2023 MN Office, Retail

Loan J (6) 4,674 — 4,674 — 4,674 6.36 % 6.36 % 2.12 January 1, 2024 NY Hotel, Retail

Loan K (8) 9,164 — 9,164 — 9,164 10.71 % 11.86 % 1.72 February 22, 2024 NY Hotel, Retail

Loan L (8) 51,000 (502) 50,498 502 51,000 6.16 % 6.50 % 4.63 July 22, 2024 IL Hotel, Retail

$ 158,686 $ (686) $ 158,000 $ 686 $ 158,686 6.82 % 7.17 % 1.92

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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 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.

Since March 23, 2020, we have received notifications of alleged events of default and deficiency notices from several of our financing counterparties.

Subject to the terms of the applicable financing arrangement, if we fail to deliver additional collateral or otherwise meet margin calls when due, the financing counterparties may be able to demand immediate payment by us of the aggregate outstanding financing obligations owed to such counterparties, and if such financing obligations are not paid, may be permitted to sell the financed assets and apply the proceeds to our financing obligations and/or take ownership of the assets securing our financing obligations.

Subsequent to March 23, 2020, we received notifications of alleged events of default and deficiency notices from several of our financing counterparties.

Subject to the terms of the applicable financing arrangement, if we had failed to deliver additional collateral or otherwise meet margin calls when due, the financing counterparties may have been able to demand immediate payment by us of the aggregate outstanding financing obligations owed to such counterparties, and if such financing obligations were not paid, may have been permitted to sell the financed assets and apply the proceeds to our financing obligations and/or take ownership of the assets securing our financing obligations.

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.

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").

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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.

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

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

We use leverage to finance the purchase of our target assets.

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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 and six months ended June 30, 2020.

We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the three and nine months ended September 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 6 as of June 30, 2020.

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

September 30, 2020

Non-GAAP Basis $ 349,535 $ 390,361 $ 461,461

Investments in Debt and Equity of Affiliates 124,031 155,057 216,401

GAAP Basis $ 225,504 $ 235,304 $ 245,060

June 30, 2020

34 unchanged sentences

GAAP Basis $ 2,634,182 $ 2,622,117 $ 2,718,697

Quarter Ended Quarter-End

Balance Average

Balance Maximum

Any Month-End

March 31, 2018

10 unchanged sentences

GAAP Basis $ 2,694,552 $ 2,587,836 $ 2,737,282

June 30, 2017

Non-GAAP Basis $ 2,265,227 $ 2,209,991 $ 2,339,133

Investments in Debt and Equity of Affiliates 8,485 8,806 9,116

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

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.

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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

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

September 30, 2020 December 31, 2019

Recourse financing $ 242,767 $ 3,490,884

5 unchanged sentences

GAAP Basis $ 594,729 $ 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.

(1) As of September 30, 2020, total financing includes $349.5 million of financing arrangements, $359.0 million of securitized debt and $10.3 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.

1 unchanged sentence

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.

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.

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 6 as of June 30, 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.

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.

See Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for a description of our material financing arrangements as of September 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 June 30, 2020 and December 31, 2019 (in thousands).

June 30, 2020 December 31, 2019

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

September 30, 2020 December 31, 2019

Repurchase agreements $ 186,469 $ 3,194,409

4 unchanged sentences

(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 June 30, 2020 ($ in thousands):

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

Agency Credit Total

Financing Arrangements Maturing Within:

(1) Balance Weighted Average Funding Cost

(1) Balance Weighted

Balance Weighted Average Funding Cost Balance Weighted

30 days or less $ 101,284 0.22 % $ 39,102 2.80 % $ 140,386 0.94 %

5 unchanged sentences

GAAP Basis $ 101,284 0.22 % $ 124,220 3.04 % $ 225,504 1.78 %

(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.

(1) As of September 30, 2020, our weighted average days to maturity is 301 days and our weighted average original days to maturity is 481 days on a GAAP Basis.

As of September 30, 2020, our weighted average days to maturity is 320 days and our weighted average original days to maturity is 711 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):

15 unchanged sentences

Repurchase agreements

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

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

It also reconciles these items to GAAP:

24 unchanged sentences

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 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).

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

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

Repurchase Agreements Maturing Within:

3 unchanged sentences

61-90 days $ 23,918 4.10 % 4.10 % 81 42.7 %

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

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

The following table presents, as of December 31, 2019, a summary of repurchase agreements on our Re/Non-performing loans ($ in thousands).

6 unchanged sentences

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

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 %

As of September 30, 2020, we did not have any repurchase agreements on our commercial real estate loans.

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

5 unchanged sentences

Financing facilities

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

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

It also reconciles these items to GAAP.

June 30, 2020 December 31, 2019

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

(4) During the second quarter of 2020, Revolving facility B was paid off.

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

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

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

As of September 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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(3) As of December 31, 2019, the fair market value of the total resecuritized asset is included on our consolidated balance sheets as "Non-Agency RMBS."

In August 2019, we entered into a securitization transaction of certain of our residential mortgage loans, pursuant to which we created an SPE to facilitate the transaction.

We determined that the SPE was a VIE and that the VIE should be consolidated by us under ASC 810-10.

The transferred assets were recorded as a secured borrowing (the "Consolidated August 2019 VIE").

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 June 30, 2020 and December 31, 2019 ($ in thousands):

In August 2019 and September 2020, we entered into securitization transactions of certain of our residential mortgage loans, pursuant to which we created SPEs to facilitate the transactions.

We determined that the SPEs were VIEs and that the VIEs should be consolidated by us under ASC 810-10.

The transferred assets were recorded as secured borrowings (the "Consolidated August 2019 VIE" and the "Consolidated September 2020 VIE").

See Note 2 and Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on the Consolidated August 2019 VIE and the Consolidated September 2020 VIE.

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

Weighted Average

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

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

September 30, 2020

August 2019 VIE Residential mortgage loans $ 248,023 $ 220,590 3.71 % 4.80 % 6.97

Securitized debt (2) 206,434 195,499 2.96 % 2.97 % 5.13

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

September 2020 VIE Residential mortgage loans 249,071 199,610 3.58 % 5.46 % 6.72

Securitized debt (2) 163,487 163,487 2.98 % 3.00 % 2.09

December 31, 2019

August 2019 VIE Residential mortgage loans 263,956 255,171 3.96 % 5.11 % 7.66

Securitized debt (2) 217,455 217,118 2.92 % 2.86 % 5.00

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

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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 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.

(2) As of September 30, 2020 and December 31, 2019, we have recorded secured financing of $359.0 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).

June 30, 2020 Leverage Stockholders’ Equity Leverage Ratio

September 30, 2020 Leverage Stockholders’ Equity Leverage Ratio

GAAP Leverage $ 699,707 $ 390,469 1.8x

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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.

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 September 30, 2020 with debt outstanding of $349.5 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.

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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.

See "Financing arrangements on our investment portfolio" section above for information on the contractual maturity of our financing arrangements at September 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.

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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).

The following table presents information at September 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

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Credit Suisse AG, Cayman Islands Branch - GAAP $ 38,385 43 9.8 %

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.

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

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.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Notional amount of non-hedge derivatives and other instruments:

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This arrangement helps hedge our exposure to higher interest rates because the variable-rate payments received on the swap agreements help to offset additional interest accruing on the related borrowings due to the higher interest rate, leaving the fixed-rate payments to be paid on the swap agreements as our effective borrowing rate, subject to certain adjustments including changes in spreads between variable rates on the swap agreements and actual borrowing rates.

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 June 30, 2020.

As of September 30, 2020, our interest rate swap positions consisted of pay-fixed interest rate swaps.

The following table presents information about our interest rate swaps as of September 30, 2020 ($ in thousands).

We did not hold any interest rate swap positions within our investments in debt and equity of affiliates as of September 30, 2020.

Maturity Notional Amount Weighted Average

Pay-Fixed Rate Weighted Average

Receive-Variable Rate Weighted Average

Years to Maturity

2025 $ 136,000 0.34 % 0.13 % 4.95

2030 44,000 0.68 % 0.12 % 9.96

Total/Wtd Avg $ 180,000 0.42 % 0.13 % 6.18

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 % 1.92 % 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:

Non-GAAP Basis $ 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

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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As described above, our distribution requirements are based on taxable income rather than GAAP net income.

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.

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 June 30, 2020.

We estimate that we do not have any undistributed taxable income as of September 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 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.

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

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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):

Subsequent to quarter end, the Company announced that its Board of Directors has approved, and we have declared and set apart for payment on December 17, 2020, the next regular payment date, all accrued and unpaid cash dividends on its 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 that were in arrears as well as the full dividends payable on the preferred stock for the fourth quarter of 2020 in the amount of $1.54689, $1.50 and $1.50 per share, respectively.

The dividends will be paid on December 17, 2020 to holders of record on November 30, 2020.

As of September 30, 2020, our book value does not include any accrual of accumulated, unpaid, or undeclared dividends on our Cumulative Redeemable Preferred Stock.

As such, our book value will decrease by the amount of the dividends declared during the fourth quarter.

Our book value per share as of September 30, 2020 would be $0.31 lower after deducting the accumulated and unpaid preferred dividends outstanding as of September 30, 2020.

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

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

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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:

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

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

Declaration Date Record Date Payment Date Dividend Per Share

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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.

9/6/2019 9/30/2019 10/31/2019 0.45

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 nine months ended September 30, 2020 and September 30, 2019.

Cash Dividend Per Share

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

8/16/2019 8/30/2019 9/17/2019 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 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.

Our principal sources of cash as of September 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 June 30, 2020, we had $68.1 million of cash available to support our liquidity needs.

At September 30, 2020, we had $82.4 million of liquidity, which consisted of $44.6 million of cash and $37.8 million of unencumbered assets available to support our liquidity needs.

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

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Since March 23, 2020, we have received notifications of alleged events of default and deficiency notices from several of our financing counterparties.

Subsequent to March 23, 2020, we received notifications of alleged events of default and deficiency notices from several of our financing counterparties.

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.

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.

As of June 30, 2020, we have met all margin calls.

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

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.

As of September 30, 2020, we have met all margin calls.

Refer to Note 13 in the "Notes to Consolidated Financial Statements (Unaudited)" for more information on deficiencies which have since been settled.

The below details changes to our cash, cash equivalents, and restricted cash for the nine months ended September 30, 2020 and September 30, 2019 (in thousands),

Nine Months Ended

September 30, 2020 September 30, 2019 Change

Cash, cash equivalents, and restricted cash, Beginning of Period $ 125,369 $ 84,358 $ 41,011

Net cash provided by (used in) operating activities (1) (2,284) 32,797 (35,081)

Net cash provided by (used in) investing activities (2) 2,491,879 (1,197,068) 3,688,947

Net cash provided by (used in) financing activities (3) (2,565,086) 1,147,672 (3,712,758)

Net change in cash, cash equivalents and restricted cash (75,491) (16,599) (58,892)

Effect of exchange rate changes on cash (178) 82 (260)

Cash, cash equivalents, and restricted cash, End of Period $ 49,700 $ 67,841 $ (18,141)

(1) Cash used in or provided by operating activities is primarily attributable to net interest income less operating expenses for the nine months ended September 30, 2020 and September 30, 2019, respectively.

There was a significant reduction in our investment portfolio size in 2020 as a result of the global COVID-19 pandemic and increased expenses primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement

(2) Cash provided by investing activities for the nine months ended September 30, 2020 was primarily attributable to sales of investments and principal repayments of investments less purchases of investments.

Cash used by investing activities for the nine months ended September 30, 2019 was primarily attributable to purchases of investments less sales of investments and principal repayments of investments.

The difference period over period is primarily due to significant sales in 2020 as a result of the global COVID-19 pandemic.

(3) Cash used in financing activities for the nine months ended September 30, 2020 was primarily attributable to repayments of financing arrangements and dividend payments offset by borrowings under financing arrangements.

Cash provided by financing activities for the nine months ended September 30, 2019 was primarily attributable to borrowing of financing arrangements offset by offset by repayment of borrowings under financing arrangements and dividend payments.

The difference period over period is primarily due to a reduction in financing arrangements as a result of significant sales in 2020 due to the global COVID-19 pandemic.

Equity distribution agreement

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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 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.

For the three and nine months ended September 30, 2020, we sold 0.4 million and 1.4 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $1.2 million and $4.7 million.

For the three and nine months ended September 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 September 30, 2020, we have sold approximately 2.8 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $32.3 million, with $67.7 million available to be issued.

Common stock offering

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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.

Exchange Offer

On August 14, 2020, we announced the commencement of an offer to exchange newly issued shares of common stock for up to 250,470 shares of our Series A Preferred Stock, up to 556,600 shares of our Series B Preferred Stock, and up to 556,600 shares of our Series C Preferred Stock.

The Exchange Offer expired on September 11, 2020.

Based on the final count provided by the Exchange Agent, American Stock Transfer & Trust Company, LLC, a total of 42,820 shares of Series A Preferred Stock, 31,085 Series B Preferred Stock and 29,355 Series C Preferred Stock were validly tendered and not properly withdrawn prior to the expiration of the Exchange Offer.

We accepted all such 103,260 validly tendered shares of preferred stock, and issued in exchange a total of 516,300 shares of Common Stock in reliance upon the exemption from registration provided under Section 3(a)(9) of the Securities Act of 1933, as amended.

After settlement, we had outstanding 2,027,180 shares of Series A Preferred Stock, 4,568,915 shares of Series B Preferred Stock and 4,570,645 shares of Series C Preferred Stock.

Common Stock Issuance to the Manager

On September 24, 2020, we issued (i) 1,215,370 shares of common stock to the Manager in full satisfaction of the deferred base management fee of $3.8 million payable by us in respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter of 2020.

The shares of Common Stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of our book value per share as of August 31, 2020.

The remaining third quarter management fee will be paid in the normal course of business.

Refer to "Contractual obligations - Management agreement" section below for more information on this transaction.

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 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.

For the three and nine months ended September 30, 2020, we incurred management fees of approximately $1.7 million and $5.5 million, respectively.

For the three and nine months ended September 30, 2019, we incurred management fees of approximately $2.3 million and $7.1 million, respectively.

As of September 30, 2020 and December 31, 2019, we have recorded management fees payable of $1.2 million and $2.7 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 $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.

Of the $5.9 million and $11.3 million of Other operating expenses for the three and nine months ended September 30, 2020, respectively, we have accrued $2.3 million and $6.2 million, respectively, representing a reimbursement of expenses.

Of the $6.1 million and $13.7 million of Other operating expenses for the three and nine months ended September 30, 2019, respectively, we have recorded $1.6 million and $5.5 million, respectively, representing a reimbursement of expenses.

As of September 30, 2020 and December 31, 2019, we recorded a reimbursement payable to the Manager of $2.2 million and $2.5 million, respectively.

On April 6, 2020, we executed an amendment to the management agreement with the Manager pursuant to which the Manager agreed to defer our payment of the management fee and reimbursement of expenses, effective Q1 2020 through September 30, 2020, or such other time as we and the Manager agreed.

As of September 30, 2020, the Company has reimbursed the Manager for expenses through the second quarter of 2020.

Expenses related to the third quarter will be paid in the normal course of business.

On September 24, 2020, we executed an amendment with the Manager (the "Second Management Agreement Amendment") to the management agreement, pursuant to which the Manager agreed to receive a portion of the accrued base management fee in shares of common stock.

Pursuant to the Second Management Agreement Amendment, the Manager agreed to accept (i) 1,215,370 shares of common stock in full satisfaction of the deferred base management fee of $3.8 million payable by us in respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter of 2020.

The shares of Common Stock issued to the Manager

were valued at $3.15 per share based on the midpoint of the estimated range of our book value per share as of August 31, 2020.

The remaining third quarter management fee will be paid in the normal course of business.

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.

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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 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

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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.

As of September 30, 2020, 1,901,106 shares of common stock were available to be awarded under the Equity Incentive Plan.

Since our IPO, we have granted an aggregate of 204,688 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.

As of September 30, 2020, all the shares of restricted common stock granted to our Manager and independent directors have vested and all restricted stock units granted to our Manager have vested.

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.

The vesting of such units is subject to the continuation of the management agreement.

If the management agreement terminates, all unvested units then held by the Manager or the Manager’s transferee shall be immediately cancelled and forfeited without consideration.

Unfunded commitments

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.

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 September 30, 2020.

MATT Financing Arrangement Restructuring

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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.

As of September 30, 2020 and December 31, 2019, we are obligated to pay accrued interest on our financing arrangements in the amount of $0.3 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 2020.

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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 June 30, 2020, we did not hold any TBA positions.

As of September 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 June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

The below table details our investments in debt and equity of affiliates as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

Assets Liabilities Equity Assets 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 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

(2) Certain Non-QM Loans as well as positions held in securitized form are presented net of non-recourse securitized debt.

As of September 30, 2020, Non-QM Loans excludes loans with an unpaid principal balance of $24.5 million whereby an affiliate of MATT has the right, but not the obligation, to repurchase loans from the trust that are 90 days or more delinquent.

These loans, which are eligible to be repurchased, would be recorded on the balance sheet of MATT, an unconsolidated equity method investee of the Company, with a corresponding and offsetting liability.

(3) Includes financing arrangements on real estate owned as of September 30, 2020 and December 31, 2019 of $(0.2) million and $(0.3) million, respectively.

The table below details our additional commitments as of September 30, 2020 (in thousands):

Commitment Type Date of Commitment Total Commitment Funded Remaining Funding

Commercial loan G (a)(b) July 26, 2018 $ 78,806 $ 56,697 $ 22,109

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 I (a)(c) January 23, 2019 20,000 15,211 4,789

Commercial loan K (a) February 22, 2019 20,000 14,173 5,827

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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.

(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.

(b) Paydowns of $5.7 million on Commercial loan G during the quarter decreased the total commitment from $84.5 million to $78.8 million.

We expect to receive financing of approximately $14.4 million on our remaining

commitment, which would cause our remaining equity commitment to be approximately $7.7 million.

This financing is not committed and actual financing could vary significantly from our expectations.

(c) Subsequent to quarter end, we and the borrower of Loan I entered into a modification agreement to, among other things, extend the term of the Loan, allow for a portion of the interest to be deferred and increase the capital commitment amount by $6.0 million.

(d) Refer to "Contractual obligations" section above for more information regarding LOTS.

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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 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.

For the three and nine months ended September 30, 2020, the fees paid by us to the Asset Manager totaled $0.6 million and $2.1 million.

For the three and nine months ended September 30, 2019, the fees paid by us to the Asset Manager totaled $0.1 million and $0.4 million, respectively.

These fees include amounts paid directly by us and amounts paid by trustees in securitizations that we own residual interests in.

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.

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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 June 30, 2020 and December 31, 2019.

See "Off-balance sheet arrangements" section above for the fair value as Arc Home of September 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 June 30, 2020 and December 31, 2019, these Excess MSRs had fair values of approximately $12.7 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 September 30, 2020 and December 31, 2019, these Excess MSRs had fair values of approximately $3.9 million and $18.2 million, respectively.

See below "Other Transactions with affiliates" and

Note 5 to the "Notes to Consolidated Financial Statements (unaudited)" for details regarding the sale of a portion of Excess MSRs during the third quarter of 2020.

In connection with our investments in Excess MSRs purchased through Arc Home, we pay an administrative fee to Arc Home.

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.

For the three and nine months ended September 30, 2020, the administrative fees paid by us to Arc Home totaled $42.0 thousand and $0.2 million, respectively.

For the three and nine months ended September 30, 2019, the administrative fees paid by us to Arc Home totaled $0.1 million and $0.2 million, respectively.

During the third quarter of 2020, Arc Home began selling Non-QM loans to a private fund under the management of Angelo Gordon.

Arc Home sold $4.6 million of unpaid principal balance of Non-QM loans to this affiliate of the Manager in September 2020.

Mortgage Acquisition Trust I LLC

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In June 2019, we, alongside private funds under the management of 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 $408.0 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 $42.9 million as of June 30, 2019.

We have a 44.6% interest in the retained subordinate tranches.

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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.

We have a 44.6% interest in the retained subordinate tranches.

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We have a 44.6% interest in the retained subordinate tranches.

In July 2020, in accordance with the Company’s Affiliated Transactions Policy, we sold certain real estate securities to an affiliate of the Manager (the "July 2020 Acquiring Affiliate").

As of the date of the trade, the real estate securities sold to the July 2020 Acquiring Affiliate had a total fair value of $1.9 million.

The July 2020 Acquiring Affiliate purchased the real estate securities through a BWIC.

Prior to our submission of the BWIC, the July 2020 Acquiring Affiliate submitted its bid for the real estate securities to us.

The July 2020 Acquiring Affiliate’s pre-submission of its bid allowed us to confirm third-party market pricing and best execution.

In August 2020, we, alongside private funds under the management of 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 $226.0 million were securitized.

We have a 44.6% interest in the retained subordinate tranches.

In August 2020, we, alongside private funds under the management of Angelo Gordon, sold our Ginnie Mae Excess MSR portfolio to Arc Home for total proceeds of $18.9 million.

The portfolio had a total unpaid principal balance of $3.1 billion.

Our share of the total proceeds approximated $8.5 million, representing its approximate 45% ownership interest.

Arc Home subsequently sold its Ginnie Mae MSR portfolio to a third party.

Critical accounting policies

We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting.

These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on

facts and circumstances existing at the time of reporting.

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 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.

Although our estimates contemplate conditions as of September 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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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