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Refer to the risks identified under the caption "Risk Factors", in our Annual Report on Form 10-K for the year ended December 31, 2019 and our subsequent filings, which are available on the Securities and Exchange Commission’s website at www.sec.gov , and in the "Forward-Looking Statements" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" sections herein.
−Removed: The novel coronavirus pandemic, measures intended to prevent its spread and government actions to mitigate its economic impact has had and may continue to have a material adverse effect on our business, liquidity, results of operations, financial condition, and ability to make distributions to our stockholders.
+Added: The novel coronavirus pandemic, measures intended to prevent its spread and government actions to mitigate its economic impact have had and may continue to have a material adverse effect on our business, liquidity, results of operations, financial condition, and ability to make distributions to our stockholders.
The novel coronavirus (COVID-19) pandemic is causing significant disruptions to the U.S.
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The impact of the pandemic and measures to prevent its spread have negatively impacted us and could further negatively impact our business.
−Removed: Recently, we have experienced declines in the value of our target assets as well as adverse developments with respect to the cost and terms of financing available to us, and have received margin calls, default notices and deficiency letters from certain of our financing counterparties.
−Removed: Additionally, we expect over the near and long term that the economic impacts of the pandemic will impact the financial stability of the mortgage loans and mortgage loan borrowers underlying the residential and commercial securities and loans that we own and, as a result, anticipate that the number of borrowers who become delinquent or default on their loans may increase significantly.
+Added: We experienced declines in the value of our target assets as well as adverse developments with respect to the cost and terms of financing available to us, and received margin calls, default notices and deficiency letters from certain of our financing counterparties.
+Added: Additionally, we expect over the near and long term that the economic impacts of the pandemic may impact the financial stability of the mortgage loans and mortgage loan borrowers underlying the residential and commercial securities and loans that we own and, as a result, the number of borrowers who become delinquent or default on their loans may increase significantly.
Elevated levels of delinquency or default would have an adverse impact on our income and the value of our assets.
−Removed: Forced sales of the securities and other assets that secure our repurchase and other financing arrangements in the current environment have been, and will likely continue to be, on terms less favorable to us than might otherwise be available in a regularly functioning market and could result in deficiency judgments and other claims against us.
−Removed: To the extent current conditions persist or worsen, we expect there to be a materially negative effect on our results of operations, and, in turn, cash available for distribution to our stockholders and on the value of our assets.
+Added: Forced sales of the securities and other assets that secure our repurchase and other financing arrangements have been, and will likely continue to be, on terms less favorable to us than might otherwise be available in a regularly functioning market and could result in deficiency judgments and other claims against us.
+Added: To the extent conditions worsen, or revert to conditions experienced at the end of the first and beginning of the second quarter, we expect there to be a materially negative effect on our results of operations, and, in turn, cash available for distribution to our stockholders and on the value of our assets.
In response to the pandemic, the U.S.
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Treasuries, mortgage-backed securities, municipal bonds and other assets.
−Removed: In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments.
+Added: In addition, President Trump signed into law the CARES Act, which will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments.
Moreover, certain actions taken by U.S.
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Decreases in short-term interest rates, such as those announced by the Federal Reserve late in our 2019 fiscal year and during the first fiscal quarter of 2020, may have a negative impact on our results, as we have certain assets and liabilities which are sensitive to changes in interest rates.
−Removed: The Federal Reserve recently significantly further lowered interest rates in response to COVID-19 pandemic concerns.
+Added: The Federal Reserve lowered interest rates in response to COVID-19 pandemic concerns.
These market interest rate declines have negatively affected our results of operations for prior periods and may continue to negatively affect our results of operations for future periods.
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To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations and financial condition may continue to be materially adversely affected.
+Added: Many jurisdictions are now open with social distancing measures implemented to curtail the spread of COVID-19, but we cannot predict the length of time that it will take for a meaningful economic recovery to take place.
+Added: We also cannot predict whether or not these openings or lower temperatures in fall and winter will lead to additional surges in new cases of COVID-19 causing governmental authorities to reimpose quarantines, lockdowns or travel restrictions, which could further materially and adversely affect our results and financial condition.
Our inability to access funding or the terms on which funding is available could have a material adverse effect on our results of operations and financial condition, particularly in light of ongoing market dislocations resulting from the COVID-19 pandemic.
−Removed: Our ability to fund our operations, meet financial obligations and finance asset acquisitions may be impacted by an inability to secure and maintain our repurchase agreements with our counterparties.
+Added: We have reduced the aggregate number of our financing counterparties from 30 as of December 31, 2019 to 6 as of September 30, 2020.
+Added: Although we believe this reduction in financing counterparties will reduce our exposure to margin calls, the reduction of financing counterparties may reduce our ability to obtain financing on favorable terms and increases our risk to heightened counterparty credit risk.
+Added: In addition, our ability to fund our operations, meet financial obligations and finance asset acquisitions may be impacted by an inability to secure and maintain our repurchase agreements with our counterparties.
Because repurchase agreements are short-term commitments of capital, repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis our maturing short-term financings and have and may continue to impose more onerous conditions when rolling such financings.
−Removed: If we are not able to renew or roll our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise
−Removed: unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities.
+Added: If we are not able to renew or roll our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.
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As a result of the COVID-19 outbreak, late in the first quarter of 2020, we observed a mark-down of a portion of our assets by our repurchase agreement counterparties, resulting in us having to pay cash or additional securities to satisfy margin calls that were well beyond historical norms.
−Removed: These trends had and, if continued, could continue to have a material adverse impact on our liquidity and could lead to significant losses.
−Removed: We expect that the economic and market disruptions caused by COVID-19 will adversely impact the financial condition of the borrowers of our loans and the loans that underlie our investment securities and limit our ability to grow our business.
+Added: These trends have had and, if continued, could continue to have a material adverse impact on our liquidity and could lead to significant losses.
+Added: We expect that the economic and market disruptions caused by COVID-19 may adversely impact the financial condition of the borrowers of our loans and the loans that underlie our investment securities and limit our ability to grow our business.
We are subject to risks related to residential mortgage loans, commercial mortgage loans, and mezzanine loans.
−Removed: Over the near and long term, we expect that the economic and market disruptions caused by COVID-19 will adversely impact the financial condition of the borrowers of our residential mortgage loans and the loans that underlie our residential MBS (“RMBS”), commercial MBS (“CMBS”) and commercial loan investments.
+Added: Over the near and long term, we expect that the economic and market disruptions caused by COVID-19 may adversely impact the financial condition of the borrowers of our residential mortgage loans and the loans that underlie our residential MBS (“RMBS”), commercial MBS (“CMBS”) and commercial loan investments.
As a result, we anticipate that the number of borrowers who become delinquent or default on their financial obligations may increase significantly, and in addition to borrowers who are seeking to defer the payment of principal and/or interest or other payments on certain of the loans that we own.
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Such increased levels of payment delinquencies, defaults, foreclosures, forbearance arrangements or losses would adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders, and any such impact may be material.
−Removed: Moreover, a number of states are considering or have already implemented temporary moratoriums on the ability of lenders to initiate foreclosures, which could further limit our ability to foreclose and recover against our collateral, or pursue recourse claims (should they exist) against a borrower or operating partner in the event of a default or failure to meet its financial obligations to us.
+Added: Moreover, a number of states have implemented temporary moratoriums on the ability of lenders to initiate foreclosures, which could further limit our ability to foreclose and recover against our collateral, or pursue recourse claims (should they exist) against a borrower or operating partner in the event of a default or failure to meet its financial obligations to us.
In addition, our portfolio includes commercial loans collateralized by hotel, retail and other asset classes which have been significantly negatively impacted by the ongoing COVID-19 pandemic and various governmental and consumer responses to the pandemic, including government-mandated closures and travel restrictions.
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We expect delinquencies, defaults and requests for forbearance arrangements to rise as savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from the slow-down in economic activity caused by the COVID-19 pandemic and government-mandated closures and travel restrictions.
−Removed: Any future period of payment
−Removed: deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from residential mortgage loans, mezzanine loans and our RMBS and commercial loan investments, the fair value of these assets and our ability to originate and acquire our target assets, which would materially and adversely affect us.
+Added: Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from residential mortgage loans, mezzanine loans and our RMBS and commercial loan investments, the fair value of these assets and our ability to originate and acquire our target assets, which would materially and adversely affect us.
In addition, to the extent current conditions persist or worsen, we expect that real estate values may decline, which will likely reduce the fair value of our assets and may also reduce the level of new mortgage and other residential real estate-related investment opportunities available to us, which would adversely affect our ability to grow our business and fully execute our investment strategy, could decrease our earnings and liquidity, and may expose us to further margin calls.
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We are generally required to distribute to our stockholders at least 90% of our REIT taxable income (excluding net capital gain and without regard to the deduction for dividends paid) each year for us to qualify as a REIT under the Internal Revenue Code, which requirement we have historically satisfied through quarterly distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments.
−Removed: However, in light of the negative impact on our liquidity caused by the recent economic and market turmoil resulting from COVID-19, we announced on March 27, 2020 that our board of directors elected to suspend the payment of quarterly dividends on our common stock and our 8.25% Series A Cumulative Redeemable Preferred Stock, 8.00% Series B Cumulative Redeemable Preferred Stock, and our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock.
−Removed: As of the date of this report, we have not yet reinstated quarterly dividends on any of our capital stock.
−Removed: Further, we have noted that, based on current conditions for the Company, we do not anticipate paying dividends on our common or preferred stock for the foreseeable future.
−Removed: No assurance can be given that we will be able to reinstate quarterly dividends on our common stock and/or preferred stock or make any other distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time.
+Added: However, in light of the negative impact on our liquidity caused by the recent economic and market turmoil resulting from COVID-19, we announced on March 27, 2020 that our board of directors
+Added: elected to suspend the payment of quarterly dividends on our common stock and our 8.25% Series A Cumulative Redeemable Preferred Stock, 8.00% Series B Cumulative Redeemable Preferred Stock, and our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock.
+Added: As of the date of this report, we have not yet reinstated quarterly dividends on shares of our common stock;
+Added: although subsequent to quarter end, we announced that our Board of Directors has approved, and we had 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 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, to holders of record on November 30, 2020.
+Added: No assurance can be given that we will be able to reinstate quarterly dividends on our common stock or make any other distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time.
Under the terms governing our series of preferred stock, we cannot pay cash dividends with respect to our common stock if dividends on our preferred stock are in arrears.
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We have experienced, and may experience in the future, a decline in the fair value of our investments as a result of COVID-19, which could materially and adversely affect us.
−Removed: During the six months ended June 30, 2020, we experienced a significant amount of realized and unrealized losses on our assets.
−Removed: A future decline in the fair value of our investments as a result of COVID-19 may require us to recognize an impairment under U.S.
+Added: During the nine months ended September 30, 2020, we experienced a significant amount of realized and unrealized losses on our assets.
+Added: Although the fair values of our assets have stabilized in the three months ended September 30, 2020, there can be no assurances that a future decline in the September 30 fair value of our investments as a result of COVID-19 may require us to recognize an impairment under U.S.
GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets.
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Negative impacts on our business caused by COVID-19 may cause us to default on certain financial covenants contained in our financing arrangements.
−Removed: The repurchase agreements that finance a portion of our investment portfolio, and repurchase agreements we enter into in the future, may contain financial covenants.
+Added: The repurchase agreements that finance a portion of our investment portfolio, and repurchase agreements we enter into in the future likely will contain financial covenants.
The negative impacts on our business caused by COVID-19 have and may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
−Removed: If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and the financing counterparties could elect to declare the repurchase price due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral.
+Added: If we fail to meet or satisfy any of these covenants, an event of defaultt could be declaredvunder these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and the financing counterparties could elect to declare the repurchase price due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral.
A default also could significantly limit our financing alternatives, which could cause us to curtail our investment activities or dispose of assets when we otherwise would not choose to do so.
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Measures intended to prevent the spread of COVID-19 have disrupted our ability to operate our business.
−Removed: In response to the outbreak of COVID-19 and the federal and state mandates implemented to control its spread, all of our Manager's personnel are working remotely at least a few days a week.
+Added: In response to the outbreak of COVID-19 and the federal and state mandates implemented to control its spread, the majority of our Manager's personnel are working remotely at least a few days a week.
If our Manager's personnel are unable to work effectively as a result of COVID-19, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.
Further, remote work arrangements may increase the risk of cyber-security incidents and cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in the operation of our business and damage to our reputation.
−Removed: We cannot predict the effect that government policies, laws, and plans adopted in response to the COVID-19 pandemic or other future outbreaks involving highly infectious or contagious diseases and resulting recessionary economic conditions will have on us.
−Removed: Governments have adopted, and we expect will continue to adopt, policies, laws, and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial, and mortgage markets that it has caused.
+Added: We cannot predict the effect that evolving government policies, laws, and plans adopted in response to the COVID-19 pandemic or other future outbreaks involving highly infectious or contagious diseases and resulting recessionary economic conditions will have on us.
+Added: Governments have adopted, and we expect will continue to adopt, evolving policies, laws, and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial, and mortgage markets that it has caused.
We cannot assure you that these programs will be effective, sufficient, or otherwise have a positive impact on our business.
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We enter into financing arrangements to finance the acquisition of our target assets.
−Removed: Pursuant to the terms of the Bilateral Agreements and any future borrowings under additional financing arrangements, a decline in the value of the collateral may result in our lenders initiating margin calls.
+Added: Pursuant to the terms of our borrowings under our financing arrangements, a decline in the value of the collateral may result in our lenders initiating margin calls.
A margin call requires us to pledge additional collateral to re-establish the ratio of the value of the collateral to the amount borrowed.
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Our assets are not subject to any geographic diversification or concentration limitations.
−Removed: We concentrate in residential mortgage-related investments.
Accordingly, our investment portfolio may be concentrated by geography, asset, property type and/or borrower, increasing the risk of loss to us if the particular concentration in our portfolio is subject to greater risks or undergoing adverse developments.
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In order to maintain our exempt status, we monitor our subsidiaries' compliance with Section 3(c)(5)(C) of the Investment Company Act, which exempts from the definition of "investment company" entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.
−Removed: 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
−Removed: 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).
−Removed: As of December 31, 2019, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements.
−Removed: Due to the recent market deterioration and resulting defaults on our financing arrangements, we have sold assets to meet margin calls on our financing arrangements, and some of our subsidiaries designed to rely on Section 3(c)(5)(C) currently fail to meet the 55% Test, and as a result must rely on Section 3(c)(7) to avoid registration as investment companies.
−Removed: As a result, we no longer satisfy the 40% Test.
−Removed: As we cannot rely on our historical exemption from regulation as an investment company, we now must rely upon Rule 3a-2, which provides a safe harbor exemption, not to exceed one year, for companies that have a bona fide intent to be engaged in an excepted activity but that temporarily fail to meet the requirements for another exemption from registration as an investment company.
−Removed: As required by the rule, after we learned that we would become out of compliance, our board of directors promptly adopted a resolution declaring our bona fide intent to be engaged in excepted activities and we are currently working to restore our assets to compliance.
−Removed: The one-year grace period started when we sold our 30 Year Fixed Rate Agency securities, which was in March of 2020.
−Removed: There is no assurance that we will not be deemed subject to the 1940 Act and be required to register as an investment company.
−Removed: While in transient investment company status, we will actively pursue alternatives for regaining compliance with the exemption.
−Removed: Qualification for exemption from the definition of investment company under the Investment Company Act limits our ability to make certain investments.
−Removed: For example, these restrictions limit our and our subsidiaries’ ability to invest directly in mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations, certain real estate companies or assets not related to real estate.
−Removed: If we fail to qualify for these exemptions, or the SEC determines that companies that invest in RMBS are no longer able to rely on these exemptions, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including restrictions with respect to diversification and industry concentration and other matters.
−Removed: In either case we could be required to restructure our activities and investments in a manner that, or at a time when, we would not otherwise choose to do so, or we may be required to register as an investment company under the Investment Company Act.
−Removed: Either of these outcomes could negatively affect our business, the value of shares of our stock and our ability to make distributions to our stockholders.
+Added: 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).
+Added: Although we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements as of September 30, 2020 and December 31, 2019, loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to distribute cash to our stockholders.
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.