TPG Mortgage Investment Trust, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In this quarterly report on Form 10-Q, or this "report," we refer to AG Mortgage Investment Trust, Inc. as "we," "us," the "Company," or "our," unless we specifically state otherwise or the context indicates otherwise. 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, and any subsequent filings. Forward-Looking Statements We make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in this report that are subject to substantial known and unknown risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, returns, results of operations, plans, yields, objectives, the composition of our portfolio, actions by governmental entities, including the Federal Reserve, and the potential effects of actual and proposed legislation on us, our views on certain macroeconomic trends, and the impact of the novel coronavirus ("COVID-19"). When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements. These forward-looking statements are based upon information presently available to our management and are inherently subjective, uncertain and subject to change. There can be no assurance that actual results will not differ materially from our expectations. Some, but not all, of the factors that might cause such a difference include, without limitation: • the uncertainty and economic impact of the COVID-19 pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties; • changes in our business and investment strategy; • our ability to predict and control costs; • changes in interest rates and the fair value of our assets, including negative changes resulting in margin calls relating to the financing of our assets; • changes in the yield curve; • changes in prepayment rates on the loans we own or that underlie our investment securities; • 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; • changes in general economic conditions, in our industry and in the finance and real estate markets, including the impact on the value of our assets; • conditions in the market for Agency RMBS, Residential Investments, including Non-Agency RMBS, CRTs, Non-U.S. RMBS, interest only securities, and residential mortgage loans, Commercial Investments, including CMBS, interest only securities, and commercial real estate loans, and Excess MSRs; • legislative and regulatory actions by the U.S. 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, 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 stock and to make distributions to our stockholders in the future; • our ability to maintain our qualification as a REIT for federal tax purposes; and • 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. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice. 60 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 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. We also recognized $184.8 million in net unrealized losses for the period comprised of unrealized losses on securities and unrealized losses on loans of $145.1 million and $39.7 million, respectively. These realized and unrealized losses were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic and the actions we took to maintain liquidity and preserve capital, including $3.2 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 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 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. 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 nine months ended September 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 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. economy as a whole. We cannot predict future developments, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third-party providers' ability to support our operations, the nature and effect of any actions taken by governmental authorities and other third parties in response to the pandemic, and the other factors discussed above and throughout this report as discussed more fully under "Risk Factors." Future developments with respect to the COVID-19 pandemic and the actions taken to reduce its spread could continue to materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Executive Summary On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. On March 13, 2020, the U.S. declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities subsequently declared public health emergencies. These conditions have caused, and continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, many countries, including the U.S., implemented social distancing measures, which have substantially prohibited large gatherings, including at sporting events, religious services and schools. Further, many regions, including the majority of U.S. states, have implemented additional measures, such as shelter-in-place and stay-at-home orders. Many businesses have moved to a remote working environment, temporarily suspended operations, laid off a significant percentage of their workforce and/or shut down completely. 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 into 2021. 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. These events, in turn, resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties. To conserve capital, protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize, on March 20, 2020, we notified our repurchase agreement counterparties that we did not expect to fund the existing and anticipated future margin calls under our repurchase agreements and commenced discussions with our counterparties with regard to entering into forbearance agreements. 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. 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 61 "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. • 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 nine months ended September 30, 2020. • 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. 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. 62 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. Our company We are a hybrid mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of Agency RMBS and Credit Investments. Our Credit Investments include Residential Investments and Commercial Investments. We are a Maryland corporation and are externally managed by our Manager, a wholly-owned subsidiary of Angelo Gordon, pursuant to a management agreement. Our Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement. We conduct our operations to qualify and be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a REIT. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol MITT. Our 8.25% Series A Cumulative Redeemable Preferred Stock, our 8.00% Series B Cumulative Redeemable Preferred Stock, and our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock trade on the NYSE under the symbols MITT PrA, MITT PrB, and MITT PrC, respectively. Prior to December 31, 2019, we conducted our business through the following segments; (i) Securities and Loans and (ii) Single-Family Rental Properties. On November 15, 2019, we sold our portfolio of single-family rental properties and no longer separate our business into segments. 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. Compliance with Investment Company Act and REIT Tests We intend to conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes, of the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the "40% Test"). "Investment securities" do not include, among other things, U.S. government securities, and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private investment company" exemptions). If we failed to comply with the 40% Test or another exemption under the Investment Company Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this Report. Accordingly, in order to maintain our exempt status, we monitor our subsidiaries' compliance with Section 3(c)(5)(C) of the Investment Company Act, which exempts from the definition of "investment company" entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. The staff of the Securities and Exchange Commission, or the SEC, generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" and at least another 25% in additional qualifying assets or in "real estate-related" assets (with no more than 20% comprised of miscellaneous assets). As of 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 63 and asset tests. We also believe that we met all other REIT requirements, including the ownership of our stock and the distribution of our taxable income. Therefore, for the year ended December 31, 2019, we believe that we qualified as a REIT under the Code. See Part II. Item 1A. "Risk Factors" for additional information regarding the risks associated with the failure to comply with the REIT rules. Our target investments 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. In periods where we have working capital in excess of our short-term liquidity needs, we may invest the excess in more liquid assets until such time as we are able to re-invest that capital in credit assets that meet our underwriting requirements. Our investment and capital allocation decisions depend on prevailing market conditions 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. Agency 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. government agency such as the Government National Mortgage Association, or Ginnie Mae, or by a government-sponsored entity such as the Federal National Mortgage Association, or Fannie Mae, or the Federal Home Loan Mortgage Corporation, or Freddie Mac (each, a "GSE"). We referred to these securities as Agency RMBS. Our Agency RMBS portfolio has historically included: • Fixed rate securities (held as mortgage pass-through securities); • Sequential pay fixed rate collateralized mortgage obligations ("CMOs"); • CMOs are structured debt instruments representing interests in specified pools of mortgage loans subdivided into multiple classes, or tranches, of securities, with each tranche having different maturities or risk profiles. • Inverse Interest Only securities (CMOs where the holder is entitled only to the interest payments made on the mortgages underlying certain mortgage backed securities ("MBS") whose coupon has an inverse relationship to its benchmark rate, such as LIBOR); • Interest Only securities (CMOs where the holder is entitled only to the interest payments made on the mortgages underlying certain MBS "interest-only strips"); • Certain Agency RMBS for which the underlying collateral is not identified until shortly (generally two days) before the purchase or sale settlement date ("TBAs"); and • Excess mortgage servicing rights ("Excess MSRs") whose underlying collateral is securitized in a trust held by a U.S. government agency or GSE. • Excess MSRs are interests in an MSR, representing a portion of the interest payment collected from a pool of mortgage loans, net of a basic servicing fee paid to the mortgage servicer. An MSR provides a mortgage servicer with the right to service a mortgage loan or a pool of mortgages in exchange for a portion of the interest payments made on the mortgage or the underlying mortgages. An MSR is made up of two components: a basic servicing fee and an Excess MSR. The basic servicing fee is the compensation received by the mortgage servicer for the performance of its servicing duties. Residential Investments The Residential Investments that we own include RMBS that are not issued or guaranteed by Ginnie Mae or a GSE or that are collateralized by non-U.S. mortgages, which we collectively refer to as our Non-Agency RMBS. The mortgage loan collateral for residential Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by U.S. government agencies or U.S. government-sponsored entities, or are non-U.S. mortgages. Our Non-Agency RMBS include investment grade and non-investment grade fixed and floating-rate securities. We categorize certain of our Residential Investments by weighted average credit score at origination: • Prime (weighted average credit score above 700) • Alt-A/Subprime • Alt-A (weighted average credit score between 700 and 620); and • Subprime (weighted average credit score below 620). 64 The Residential Investments that we do not categorize by weighted average credit score at origination include our: • CRTs (described below); • Non-U.S. RMBS; • Non-Agency RMBS which are collateralized by non-U.S. mortgages. • Interest Only securities (Non-Agency RMBS backed by interest-only strips); • Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S. government agency or GSE; • Excess MSRs are grouped within "Interest Only and Excess MSR" throughout Part I, Item 2 of this Report and are grouped within Excess mortgage servicing rights or Excess MSRs in the Notes to the Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Report; • Re/Non-Performing Loans (described below); • Non-QM Loans (described below); and • Land Related Financing (described below). Credit Risk Transfer securities ("CRTs") include: • Unguaranteed and unsecured mezzanine, junior mezzanine and first loss securities issued either by GSEs or issued by other third-party institutions to transfer their exposure to mortgage default risk to private investors. These securities reference a specific pool of newly originated single family mortgages from a specified time period (typically around the time of origination). The risk of loss on the reference pool of mortgages is transferred to investors who may experience losses when adverse credit events such as defaults, liquidations or delinquencies occur in the underlying mortgages. Owners of these securities generally receive an uncapped floating interest rate equal to a predetermined spread over one-month LIBOR. Re/Non-Performing Loans include: • 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. These investments are included in the "RMBS" and "Investments in debt and equity of affiliates" line items on our consolidated balance sheets. • RPLs or NPLs that we hold through interests in certain consolidated trusts. These investments are secured by residential real property, including prime, Alt-A, and subprime mortgage loans, and are included in the "Residential mortgage loans, at fair value" line item on our consolidated balance sheets. Non-QM Loans include: • 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. • Non-QM loans in securitized form that are issued by MATT. The securitizations typically take the form of various classes of notes. These investments are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. Land Related Financing includes: • First mortgage loans we originate to third party land developers and home builders for the acquisition and horizontal development of land. These loans may be held through our unconsolidated subsidiaries or in securitized form. These loans are included either in the "Investments in debt and equity of affiliates" or in the "RMBS" line items on our consolidated balance sheets. Commercial Investments We also invest in Commercial Investments. Our Commercial Investments include: • Commercial mortgage-backed securities ("CMBS"); • Interest Only securities (CMBS backed by interest-only strips); 65 • Commercial real estate loans secured by commercial real property, including first mortgages, mezzanine loans, preferred equity, first or second lien loans, subordinate interests in first mortgages, bridge loans to be used in the acquisition, construction or redevelopment of a property and mezzanine financing secured by interests in commercial real estate; and • Freddie Mac K-Series (described below). CMBS include: • Fixed and floating-rate CMBS, including investment grade and non-investment grade classes. 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"); and • 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: • CMBS, Interest-Only securities and CMBS principal-only securities which are regularly-issued by Freddie Mac as structured pass-through securities backed by multifamily mortgage loans. These K-Series feature a wide range of investor options which include guaranteed senior and interest-only bonds as well as unguaranteed senior, mezzanine, subordinate and interest-only bonds. Our K-Series portfolio includes unguaranteed senior, mezzanine, subordinate and interest-only bonds. Throughout Item 2, we categorize our Freddie Mac K-Series interest-only bonds as part of our Interest-Only securities. Investment classification Throughout this Report, (1) we use the terms "credit portfolio" and "credit investments" to refer to our Residential Investments, Commercial Investments, and, if applicable, ABS, inclusive of investments held within affiliated entities but exclusive of AG Arc (discussed below); (2) we refer to our Re/Non-Performing Loans (exclusive of our RPLs or NPLs in securitized form that we purchase from an affiliate or affiliates of the Manager), Non-QM Loans (exclusive of those in securitized form), Land Related Financing (exclusive of loans in securitized form), and commercial real estate loans, collectively, as our "loans"; (3) we use the term "credit securities" to refer to our credit portfolio, excluding Excess MSRs and loans; and (4) we use the term "real estate securities" or "securities" to refer to our Agency RMBS portfolio, exclusive of Excess MSRs, and our credit securities. Our "investment portfolio" refers to our combined Agency RMBS portfolio and credit portfolio and encompasses all of the investments described above. We also use the term "GAAP investment portfolio" which consists of (i) our Agency RMBS, exclusive of (x) TBAs and (y) any investments classified as "Other assets" on our consolidated balance sheets (our "GAAP Agency RMBS portfolio"), and (ii) our credit portfolio, exclusive of (x) all investments held within affiliated entities and (y) any investments classified as "Other assets" on our consolidated balance sheets (our "GAAP credit portfolio"). See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of our investments held within affiliated entities. For a reconciliation of our investment portfolio to our GAAP investment portfolio, see the GAAP Investment Portfolio Reconciliation Table below. This presentation of our investment portfolio is consistent with how our management team evaluates our business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. Arc Home LLC We, alongside private funds under the management of Angelo Gordon, through AG Arc LLC, one of our indirect subsidiaries ("AG Arc"), formed Arc Home LLC ("Arc Home"). Arc Home, through its wholly-owned subsidiary, originates conforming, Government, Jumbo, Non-QM and other non-conforming residential mortgage loans, retains the mortgage servicing rights associated with the loans that it originates, and purchases additional mortgage servicing rights from third-party sellers. Discontinued Operations 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 66 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 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. economy. 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. 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 that the trends and conditions described above will not change in a manner materially adverse to the mortgage REIT industry. 67 Recent government activity The Federal Reserve has taken a number of actions to stabilize markets as a result of the impact of the COVID-19 pandemic. Since late 2019, the Federal Reserve has been conducting large scale overnight repo operations to address disruptions in the U.S. Treasury, Agency debt and Agency RMBS financing markets and has substantially increased these operations to address funding disruptions resulting from the economic crisis and market dislocations resulting from the COVID-19 pandemic. On March 15, 2020, the Federal Reserve announced a $700 billion asset purchase program to provide liquidity to the U.S. Treasury and Agency RMBS markets. Specifically, the Federal Reserve announced that it would purchase at least $500 billion of U.S. Treasuries and at least $200 billion of Agency RMBS. The Federal Reserve also lowered the federal funds rate by 100 basis points to a range of 0.0% - 0.25%, after having already lowered the federal funds rate by 50 basis points on March 3, 2020. The markets for U.S. Treasuries, MBS and other mortgage and fixed income markets experienced severe dislocations in March as a result of the COVID-19 pandemic. To address these issues in the fixed income and funding markets, on March 23, 2020, the Federal Reserve announced a program to acquire U.S. Treasuries and Agency RMBS in the amounts needed to support smooth market functioning. Since that date, the Federal Reserve and the Federal Housing Finance Agency (“FHFA”) have taken various other steps to support certain other fixed income markets, to support mortgage servicers and to implement various portions of the 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. Further, the FHFA announced a loan payment deferment plan for Agency multi-family borrowers facing hardship from revenue losses caused by COVID-19, with the condition that these borrowers suspend all evictions for renters unable to pay rent due to the impact of COVID-19. On March 27, 2020, the CARES Act was signed into law to provide many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity resulting from the COVID-19 pandemic. The over $2 trillion relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), funding to hospitals and health care providers, loans and investments to businesses, states and municipalities and grants to the airline industry. On April 24, 2020, President Trump signed an additional funding bill into law that provided an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts. In addition, in response to the economic impact of the COVID-19 pandemic, governors of several states issued executive orders prohibiting evictions and foreclosures for specified periods of time, and many courts enacted emergency rules delaying hearings related to evictions or foreclosures. One additional provision of the CARES Act provides up to 360 days of forbearance relief from mortgage loan payments for borrowers with federally backed (e.g. Fannie Mae or Freddie Mac) mortgages who experience financial hardship related to the pandemic. Combined with expected widespread unemployment stemming from the economic slowdown caused by the pandemic, residential mortgage assets came under extreme spread pressure. The CARES Act also prohibits foreclosures for 60 days and evictions by landlords for 120 days after its enactment. 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 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. Greater uncertainty frequently leads to wider asset spreads or lower prices and higher hedging costs. The current regulatory environment may be impacted by future legislative developments, such as changes to Fannie Mae and Freddie Mac, including their continued existence and their roles in the market. The impact of such potential reforms on our operations remains unclear. 68 Results of operations 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 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 significant reduction in the size of our investment portfolio will materially limit our earnings going forward. 69 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 September 30, 2020 September 30, 2019 Increase/(Decrease) Statement of Operations Data: Net Interest Income Interest income $ 9,717 $ 40,735 $ (31,018) Interest expense 4,357 21,887 (17,530) Total Net Interest Income 5,360 18,848 (13,488) Other Income/(Loss) Net realized gain/(loss) (14,431) (16,132) 1,701 Net interest component of interest rate swaps (13) 2,179 (2,192) Unrealized gain/(loss) on real estate securities and loans, net 19,495 11,726 7,769 Unrealized gain/(loss) on derivative and other instruments, net 1,970 3,258 (1,288) Foreign currency gain/(loss), net (10) 667 (677) Other income — 210 (210) Total Other Income/(Loss) 7,011 1,908 5,103 Expenses Management fee to affiliate 1,698 2,346 (648) Other operating expenses 5,929 6,062 (133) Restructuring related expenses 1,345 — 1,345 Equity based compensation to affiliate — 76 (76) Excise tax — 186 (186) Servicing fees 540 416 124 Total Expenses 9,512 9,086 426 Income/(loss) before equity in earnings/(loss) from affiliates 2,859 11,670 (8,811) Equity in earnings/(loss) from affiliates 17,187 (564) 17,751 Net Income/(Loss) from Continuing Operations 20,046 11,106 8,940 Net Income/(Loss) from Discontinued Operations — (1,057) 1,057 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) Net Income/(Loss) Available to Common Stockholders $ 15,022 $ 6,329 $ 8,693 Interest income Interest income is calculated using the effective interest method for our GAAP investment portfolio and calculated based on the actual coupon rate and the outstanding principal balance on our U.S. Treasury securities, if any. 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, decreased by $2.7 billion from $3.4 billion for the three months ended September 70 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 Interest expense is calculated based on the actual financing rate and the outstanding financing balance of our GAAP investment portfolio and U.S. Treasury securities, if any. 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 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. We do not expect our interest expense, set forth in the consolidated statements of operations table above, to be indicative of our future interest expense due to the changes in our financing arrangements described in the "Financing activities" section below. Net realized gain/(loss) 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 September 30, 2020 and September 30, 2019 (in thousands): Three Months Ended 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 Settlement of derivatives and other instruments (1,159) (17,218) OTTI — (3,625) Total Net realized gain/(loss) $ (14,431) $ (16,132) 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 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 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 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. 71 Foreign currency gain/(loss), net Foreign currency gain/(loss), net pertains to the effects of remeasuring the monetary assets and liabilities of our foreign investments into U.S. dollars using foreign currency exchange rates at the end of the reporting period. 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. Other income Other income currently includes certain fees we receive on our loans and CMBS portfolios. 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 Our management fee is based upon a percentage of our Stockholders’ Equity. 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 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. 72 Other operating expenses These amounts are primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance and directors’ fees, as well as certain expenses reimbursable to the Manager. We are required to reimburse our Manager or its affiliates for operating expenses which are incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence, and other services. 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 September 30, 2020 and September 30, 2019 (in thousands): Three Months Ended September 30, 2020 September 30, 2019 Non Investment Related Expenses Affiliate expense reimbursement - Operating expenses $ 1,697 $ 1,423 Professional fees 729 528 D&O insurance 321 174 Directors' compensation 138 222 Other 118 308 Total Corporate Expenses 3,003 2,655 Investment Related Expenses Affiliate expense reimbursement - Deal related expenses 643 145 Professional fees 47 47 Residential mortgage loan related expenses 597 298 Transaction related expenses and deal related performance fees (1) 1,590 2,793 Other 49 124 Total Investment Expenses 2,926 3,407 Total Other operating expenses $ 5,929 $ 6,062 (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 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 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 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 September 30, 2020, our excise tax decreased primarily due to losses associated with COVID-19. 73 Servicing fees We incur servicing fee expenses in connection with the servicing of our Residential mortgage loans. 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 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 Equity in earnings/(loss) from affiliates represents our share of earnings and profits of investments held within affiliated entities. A majority of these investments are comprised of real estate securities, loans and our investment in AG Arc. 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 On November 15, 2019, we sold our portfolio of single-family rental properties to a third party at a price of approximately $137 million. We recognized a gain of $0.2 million as a result of the transaction. 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. 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. 74 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: Net Interest Income Interest income $ 63,354 $ 123,126 $ (59,772) Interest expense 32,941 67,011 (34,070) Total Net Interest Income 30,413 56,115 (25,702) Other Income/(Loss) Net realized gain/(loss) (257,183) (64,225) (192,958) Net interest component of interest rate swaps 910 5,760 (4,850) Unrealized gain/(loss) on real estate securities and loans, net (184,770) 101,644 (286,414) Unrealized gain/(loss) on derivative and other instruments, net (1,797) (17,667) 15,870 Foreign currency gain/(loss), net 1,483 667 816 Other income 4 840 (836) Total Other Income/(Loss) (441,353) 27,019 (468,372) Expenses Management fee to affiliate 5,525 7,091 (1,566) Other operating expenses 11,253 13,650 (2,397) Restructuring related expenses 9,949 — 9,949 Equity based compensation to affiliate 163 275 (112) Excise tax (815) 464 (1,279) Servicing fees 1,685 1,203 482 Total Expenses 27,760 22,683 5,077 Income/(loss) before equity in earnings/(loss) from affiliates (438,700) 60,451 (499,151) Equity in earnings/(loss) from affiliates (23,571) 715 (24,286) Net Income/(Loss) from Continuing Operations (462,271) 61,166 (523,437) Net Income/(Loss) from Discontinued Operations 361 (3,284) 3,645 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) Net Income/(Loss) Available to Common Stockholders $ (478,268) $ 47,427 $ (525,695) Interest income 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, decreased by $1.6 billion from $3.4 billion at September 30, 2019 to $1.8 billion at 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. 75 Interest expense 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 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. We do not expect our interest expense, set forth in the consolidated statements of operations table above, to be indicative of our future interest expense due to the changes in our financing arrangements described in the "Financing activities" section below. Net realized gain/(loss) The following table presents a summary of Net realized gain/(loss) for the 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 Sale of loans and loans transferred to or sold from Other assets (63,560) 1,070 Settlement of derivatives and other instruments (62,553) (58,665) OTTI — (17,026) Total Net realized gain/(loss) $ (257,183) $ (64,225) As previously discussed, in order to preserve liquidity and meet margin calls, we sold approximately $ 3.2 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 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. Unrealized gain/(loss) on real estate securities and loans, net The disruptions of the financial markets due to the COVID-19 pandemic have caused credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. These conditions have put significant downward pressure on the fair value of our assets and resulted in unrealized losses for the 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 $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 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. 76 Foreign currency gain/(loss), net 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 Other income currently includes certain fees we receive on our loans and CMBS portfolios. 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 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. Other operating expenses 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 September 30, 2020 and September 30, 2019 (in thousands): Nine Months Ended September 30, 2020 September 30, 2019 Non Investment Related Expenses Affiliate expense reimbursement - Operating expenses $ 5,273 $ 4,913 Professional fees 1,922 1,437 D&O insurance 669 522 Directors' compensation 529 661 Other 545 762 Total Corporate Expenses 8,938 8,295 Investment Related Expenses Affiliate expense reimbursement - Deal related expenses 967 512 Affiliate expense reimbursement - Transaction related expenses and deal related performance fees (1) — 42 Professional fees 141 139 Residential mortgage loan related expenses 2,176 696 Transaction related expenses and deal related performance fees (1) (1,256) 3,556 Other 287 410 Total Investment Expenses 2,315 5,355 Total Other operating expenses $ 11,253 $ 13,650 (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. 77 Restructuring related expenses Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement. Refer to the "Financing activities" section below for more information regarding the Forbearance Agreement. Equity based compensation to affiliate For the nine months ended September 30, 2020 and September 30, 2019, our equity based compensation to affiliate remained relatively unchanged. Excise tax 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 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 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 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. Book value is calculated using stockholders’ equity less net proceeds of our 8.25% Series A Cumulative Redeemable Preferred Stock ($48.9 million), 8.00% Series B Cumulative Redeemable Preferred Stock ($110.5 million), and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ($110.5 million) as the numerator. 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 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. Presentation of investment, financing and hedging activities In the "Investment activities," "Financing activities," "Hedging activities" and "Liquidity and capital resources" sections of this Item 2, where we disclose our investment portfolio and the related financing arrangements, we have presented this information inclusive of (i) unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method and (ii) TBAs, which are accounted for as derivatives under GAAP. Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP. This presentation of our investment portfolio is consistent with how our management team evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments in debt and equity of affiliates and TBAs. 78 Net interest margin and leverage ratio GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial measure, are calculated by subtracting the weighted average cost of funds from the weighted average yield for our GAAP investment portfolio or our investment portfolio, respectively, which both exclude cash held by us and any net TBA position. The weighted average yield on our Agency RMBS portfolio and our credit portfolio represents an effective interest rate, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end. The calculation of weighted average yield is weighted on fair value. The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost, which is the weighted average of the net pay rate on our interest rate swaps, the net receive/pay rate on our Treasury long and short positions, respectively, and the net receivable rate on our IO index derivatives, if any. Both elements of cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio or our investment portfolio and securitized debt at quarter-end, exclusive of repurchase agreements associated with U.S. Treasury securities, if any. As our capital allocation shifts, our weighted average yields and weighted average cost of funds will also shift. Our Agency Investments, given their liquidity and high credit quality, are eligible for higher levels of leverage, while our Credit Investments, with less liquidity and/or more exposure to credit risk and prepayment, utilize lower levels of leverage. As a result, our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the diversification of our counterparties and their available capacity to finance our assets, and anticipated regulatory developments. Prior to COVID-19, we generally maintained a leverage ratio range of 4.0 to 5.0 times to finance our investment portfolio, on a fully deployed capital basis. Our debt-to-equity ratio is directly correlated to the composition of our portfolio; specifically, the higher percentage of Agency Investments we hold, the higher our leverage ratio is, while the higher percentage of Credit Investments we hold, the lower our leverage ratio is. As previously mentioned, in an effort to prudently manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, we completed the sale of our 30 Year Fixed Rate Agency securities during the first quarter of 2020. We believe the resulting capital allocation impacts the weighted average yield, weighted average cost of funds and leverage ratio as illustrated below. Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio. See the "Financing activities" section below for more detail on our leverage ratio. The chart below sets forth the net interest margin and leverage ratio from our investment portfolio as of 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) Yield 4.40 % 9.13 % 5.32 % Cost of Funds (b) 2.76 % 4.90 % 3.02 % Net Interest Margin 1.64 % 4.23 % 2.30 % Leverage Ratio (c) 1.8x (d) 0.9x September 30, 2019 Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a) Yield 4.48 % 6.51 % 4.65 % Cost of Funds (b) 2.50 % 4.48 % 2.55 % Net Interest Margin 1.98 % 2.03 % 2.10 % Leverage Ratio (c) 4.6x (d) 4.6x (a) Excludes any net TBA position. (b) Includes cost of non-recourse financing arrangements. (c) The leverage ratio on our GAAP investment portfolio represents GAAP leverage. The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section. (d) Refer to the "Financing activities" section below for an aggregate breakout of leverage. 79 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 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 Historically, our investment portfolio has been comprised of Agency RMBS, Residential Investments and Commercial Investments. Our allocation to each of these investments is set forth in more detail below. 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. The risk-reward profile of our investment opportunities changes continuously with the market, with labor, housing and economic fundamentals, and with U.S. monetary policy, among others. 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. 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; however, in the near term we expect our capital to be almost entirely allocated to Credit Investments. Overall, our intention is to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes. We evaluate investments in Agency RMBS using factors including, among others, expected future prepayment trends, supply of and demand for Agency RMBS, costs of financing, costs of hedging, liquidity, expected future interest rate volatility and the overall shape of the U.S. Treasury and interest rate swap yield curves. Prepayment speeds, as reflected by the CPR, and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds on our Agency RMBS portfolio increase, the related purchase premium amortization increases, thereby reducing the net yield on such assets. Our credit investments are subject to risk of loss with regard to principal and interest payments. We evaluate each investment in our credit portfolio based on the characteristics of the underlying collateral, the securitization structure, expected return, geography, collateral type, and the cost and availability of financing, among others. We maintain a comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management team and a quarterly credit review process for each investment that examines the need for a potential reduction in accretable yield, missed or late contractual payments, significant declines in collateral performance, prepayments, projected defaults, loss severities and other data which may indicate a potential issue in our ability to recover our capital from the investment. These processes are designed to enable our Manager to evaluate and proactively manage asset-specific credit issues and identify credit trends on a portfolio-wide basis. Nevertheless, we cannot be certain that our review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets. Therefore, potential future losses may also stem from issues with our investments that are not identified by our credit reviews. 80 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) 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 Commercial Investments 177,108 589,709 15.7 % 13.4 % 0.9x 2.1x Total: Investment Portfolio $ 1,121,319 $ 4,417,204 100.0 % 100.0 % 0.9x 4.1x Investments in Debt and Equity of Affiliates (b) $ 217,643 $ 373,126 N/A N/A (c) (c) Total: GAAP Investment Portfolio $ 903,676 $ 4,044,078 N/A N/A 1.8x 4.1x (a) The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements by its allocated equity (described in the chart below). Cash posted as collateral has been allocated pro-rata by each respective asset class' Economic Leverage amount. The Economic Leverage Ratio excludes any fully non-recourse financing arrangements. The leverage ratio on our Agency RMBS includes any net receivables on TBA. The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage. (b) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. (c) Refer to the "Financing activities" section below for an aggregate breakout of leverage. We allocate our equity by investment using the fair value of our investment portfolio, less any associated leverage, inclusive of any long TBA position (at cost). We allocate all non-investment portfolio related assets and liabilities to our investment portfolio based on the characteristics of such assets and liabilities in order to sum to stockholders' equity per the consolidated balance sheets. 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 September 30, 2020 and December 31, 2019 ($ in thousands): Allocated Equity Percent of Equity September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 Agency RMBS $ 59,470 $ 295,358 15.2 % 34.8 % Residential Investments 236,858 359,923 60.7 % 42.4 % Commercial Investments 94,141 193,765 24.1 % 22.8 % Total $ 390,469 $ 849,046 100.0 % 100.0 % 81 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- to-Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Agency RMBS: 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 990,407 255,153 (1,145) 254,008 2.21 % 1.22 % 5.68 Credit Investments: Residential Investments Prime (5) 14,104 7,748 614 8,362 3.69 % 7.64 % 19.38 Alt-A/Subprime (5) 16,471 6,795 2,951 9,746 4.25 % 5.25 % 15.90 Credit Risk Transfer 15,523 15,523 (3,489) 12,034 4.70 % 4.60 % 15.87 Non-U.S. RMBS 2,869 3,680 (236) 3,444 6.16 % 6.08 % 3.66 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 Non-QM Loans 1,358,599 165,313 (12,850) 152,463 1.08 % 7.10 % 4.07 Land Related Financing 32,440 32,265 246 32,511 13.11 % 13.22 % 1.90 Total Residential Investments 2,245,899 717,046 (26,843) 690,203 2.42 % 6.50 % 4.61 Commercial Investments 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 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 Total Commercial Investments 902,351 203,920 (26,812) 177,108 1.38 % 6.59 % 4.12 Total Credit Investments 3,148,250 920,966 (53,655) 867,311 2.03 % 6.52 % 4.47 Total: Investment Portfolio $ 4,138,657 $ 1,176,119 $ (54,800) $ 1,121,319 2.04 % 5.32 % 4.76 Investments in Debt and Equity of Affiliates $ 1,568,557 $ 228,975 $ (11,332) $ 217,643 1.70 % 9.13 % 4.06 Total: GAAP Investment Portfolio $ 2,570,100 $ 947,144 $ (43,468) $ 903,676 2.21 % 4.40 % 5.42 (1) Refer to "Off-balance sheet arrangements" section below and Note 2 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheet and a discussion of our Investments in debt and equity of affiliates. (2) Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. (4) Within Agency RMBS, Excess MSRs whose underlying collateral is securitized in a trust held by a U.S. government agency or GSE. Within Residential Investments, Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S. government agency or GSE. (5) Non-Agency RMBS with credit scores above 700, between 700 and 620 and below 620 at origination are classified as Prime, Alt-A, and Subprime, respectively. The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 744 and 687, respectively. (6) Comprised of Freddie Mac K-Series interest-only bonds. (7) Yield on Commercial Real Estate Loans includes any exit fees. 82 The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2019 ($ in thousands): Instrument Current Face Amortized Cost Unrealized Mark- to-Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Agency RMBS: 30 Year Fixed Rate $ 2,125,067 $ 2,184,190 $ 57,108 $ 2,241,298 3.73 % 3.17 % 5.85 Inverse Interest Only 217,031 37,611 627 38,238 4.37 % 6.66 % 4.97 Interest Only 259,161 35,333 570 35,903 3.56 % 5.02 % 4.01 Excess MSR (4) 3,042,841 20,188 (2,001) 18,187 N/A 8.33 % 5.56 Total Agency RMBS 5,644,100 2,277,322 56,304 2,333,626 3.77 % 3.30 % 5.57 Credit Investments: Residential Investments Prime (5) 297,932 213,056 28,831 241,887 4.92 % 7.44 % 11.63 Alt-A/Subprime (5) 141,464 110,605 12,107 122,712 4.40 % 6.89 % 8.23 Credit Risk Transfer 270,397 270,988 8,967 279,955 5.17 % 5.27 % 5.66 Non-U.S. RMBS 44,867 54,340 3,391 57,731 3.21 % 3.58 % 2.53 Interest Only and Excess MSR (4) 244,115 1,592 (376) 1,216 0.77 % 7.73 % 6.34 Re/Non-Performing Loans 605,844 493,734 16,449 510,183 4.14 % 6.48 % 6.56 Non-QM Loans 1,141,131 250,087 4,189 254,276 1.69 % 5.35 % 1.71 Land Related Financing 25,607 25,395 514 25,909 12.27 % 12.40 % 3.00 Total Residential Investments 2,771,357 1,419,797 74,072 1,493,869 3.53 % 6.24 % 4.99 Commercial Investments 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 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 Total Commercial Investments 4,322,209 567,266 22,443 589,709 0.82 % 7.25 % 3.33 Total Credit Investments 7,093,566 1,987,063 96,515 2,083,578 1.74 % 6.53 % 3.98 Total: Investment Portfolio $ 12,737,666 $ 4,264,385 $ 152,819 $ 4,417,204 2.34 % 4.82 % 4.69 Investments in Debt and Equity of Affiliates $ 1,676,838 $ 361,992 $ 11,134 $ 373,126 1.82 % 6.75 % 2.71 Total: GAAP Investment Portfolio $ 11,060,828 $ 3,902,393 $ 141,685 $ 4,044,078 2.41 % 4.57 % 4.94 (1) Refer to "Off-balance sheet arrangements" section below and Note 2 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheet and a discussion of Investments in debt and equity of affiliates. (2) Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. (4) Within Agency RMBS, Excess MSRs whose underlying collateral is securitized in a trust held by a U.S. government agency or GSE. Within Residential Investments, Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S. government agency or GSE. (5) Non-Agency RMBS with credit scores above 700, between 700 and 620 and below 620 at origination are classified as Prime, Alt-A, and Subprime, respectively. The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 719 and 674, respectively. (6) Comprised of Freddie Mac K-Series interest-only bonds. (7) Yield on Commercial Real Estate Loans includes any exit fees. 83 The following table presents the fair value ($ in thousands) and the CPR experienced on our GAAP Agency RMBS portfolio for the periods presented. Fair Value CPR (1)(2)(3) 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 % Inverse Interest Only (3) — 38,238 — % 11.7 % Interest Only (3) — 35,903 — % 10.3 % Total/Weighted Average $ 250,123 $ 2,315,439 0.9 % 8.2 % (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. (2) Source: Bloomberg. (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): Fair Value September 30, 2020 December 31, 2019 Non-Agency RMBS (1) $ 124,299 $ 835,325 CMBS (2) 54,228 431,023 Total Credit securities 178,527 1,266,348 Residential loans (3) 565,904 658,544 Commercial real estate loans 122,880 158,686 Total loans 688,784 817,230 Total Credit Investments $ 867,311 $ 2,083,578 Less: Investments in Debt and Equity of Affiliates $ 217,199 $ 372,571 Total GAAP Credit Portfolio $ 650,112 $ 1,711,007 (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 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. 84 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. Credit Securities: Current Face Amortized Cost Unrealized Mark-to- Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) 2013 $ 1,102 $ 759 $ 41 $ 800 3.60 % 5.55 % 19.69 2014 9,514 7,391 (812) 6,579 4.35 % 8.88 % 8.79 2015 325,756 13,393 4,009 17,402 0.66 % 6.43 % 2.14 2016 130,461 2,545 612 3,157 0.17 % 12.08 % 4.59 2017 192,492 7,045 (223) 6,822 0.25 % 7.42 % 4.05 2018 185,271 23,400 (5,623) 17,777 0.55 % 4.56 % 5.32 2019 954,123 92,907 (18,064) 74,843 0.96 % 8.01 % 4.25 2020 527,389 51,826 (679) 51,147 1.01 % 15.60 % 4.63 Total: Credit Securities $ 2,326,108 $ 199,266 $ (20,739) $ 178,527 0.75 % 9.76 % 4.16 Investments in Debt and Equity of Affiliates $ 1,330,680 $ 89,059 $ (8,031) $ 81,028 0.79 % 13.98 % 4.10 Total: GAAP Basis $ 995,428 $ 110,207 $ (12,708) $ 97,499 0.72 % 6.25 % 4.23 (1) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. (2) Equity residual investments and principal only securities are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities of mortgage-backed securities are shorter than stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. The following table presents certain information grouped by vintage as it relates to our credit securities portfolio as of December 31, 2019 ($ in thousands). We have also presented a reconciliation to GAAP. Credit Securities: Current Face Amortized Cost Unrealized Mark-to- Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Pre 2009 $ 278,125 $ 198,225 $ 25,099 $ 223,324 5.07 % 7.12 % 12.67 2010 1,070 948 42 990 1.97 % 6.68 % 2.94 2011 4,812 4,302 29 4,331 4.44 % 5.73 % 4.93 2012 3,740 3,062 510 3,572 4.05 % 7.61 % 3.42 2013 76,869 17,724 1,367 19,091 2.18 % 7.06 % 2.58 2014 974,525 38,454 4,320 42,774 0.31 % 10.46 % 0.56 2015 895,235 108,425 17,520 125,945 0.84 % 9.24 % 4.22 2016 1,139,729 80,162 11,595 91,757 0.60 % 8.67 % 4.57 2017 1,054,591 176,767 8,632 185,399 0.88 % 6.43 % 4.27 2018 275,234 104,090 3,040 107,130 2.08 % 5.48 % 5.77 2019 1,498,432 449,682 12,353 462,035 2.07 % 6.05 % 2.73 Total: Credit Securities $ 6,202,362 $ 1,181,841 $ 84,507 $ 1,266,348 1.24 % 6.92 % 3.78 Investments in Debt and Equity of Affiliates $ 1,311,008 $ 123,152 $ 8,803 $ 131,955 0.78 % 9.50 % 2.50 Total: GAAP Basis $ 4,891,354 $ 1,058,689 $ 75,704 $ 1,134,393 1.31 % 6.62 % 4.13 (1) Certain Re/Non-Performing Loans held in securitized form are recorded net of non-recourse securitized debt. (2) Equity residual investments and principal only securities are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities of mortgage-backed securities are shorter than stated contractual maturities. Actual maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. 85 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 A — 13,792 BBB — 65,454 BB 3,143 106,311 B 25,260 226,083 Below B 10,950 103,985 Not Rated 138,541 745,748 Total: Credit Securities $ 178,527 $ 1,266,348 Less: Investments in Debt and Equity of Affiliates $ 81,028 $ 131,955 Total: GAAP Basis $ 97,499 $ 1,134,393 (1) Represents the minimum rating for rated assets of S&P, Moody and Fitch credit ratings, stated in terms of the S&P equivalent. (2) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. The following tables present the geographic concentration of the underlying collateral for our Non-Agency RMBS and CMBS portfolios ($ in thousands). The geographic markets that we invest in have been and continue to be severely impacted by the ongoing COVID-19 pandemic. September 30, 2020 Non-Agency RMBS CMBS (1) State Fair Value (2) Percentage (2) State Fair Value Percentage California $ 37,571 33.0 % Texas $ 7,867 14.5 % New York 15,443 13.6 % California 6,604 12.2 % 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 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. These positions were excluded from the percent calculation. December 31, 2019 Non-Agency RMBS CMBS (1) State Fair Value (2) Percentage (2) State Fair Value Percentage California $ 174,569 24.5 % California $ 52,647 12.2 % Florida 62,796 8.8 % New York 46,317 10.7 % New York 57,931 8.1 % Texas 45,619 10.6 % Texas 33,890 4.8 % Florida 45,032 10.4 % New Jersey 22,736 3.3 % New Jersey 31,396 7.3 % Other 483,403 50.5 % Other 210,012 48.8 % Total $ 835,325 100.0 % Total $ 431,023 100.0 % (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 $123.0 million of investments where there was no data regarding the underlying collateral. These positions were excluded from the percent calculation. 86 See Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for a breakout of geographic concentration of credit risk within loans we include in the "Residential mortgage loans, at fair value" line item on our consolidated balance sheets. The following tables present certain information regarding credit quality for certain categories within our Non-Agency RMBS and CMBS portfolios ($ in thousands): September 30, 2020 Non-Agency RMBS* Category Fair Value Weighted Average 60+ Days Delinquent Weighted Average Loan Age (Months) Weighted Average Credit Enhancement Prime $ 8,362 5.5 % 69.1 2.3 % Alt-A/Subprime 9,746 8.7 % 159.0 0.1 % Credit Risk Transfer 12,034 7.2 % 16.9 0.4 % Non-U.S. RMBS 3,444 4.1 % 59.8 1.1 % CMBS* Category Fair Value Weighted Average 60+ Days Delinquent Weighted Average Loan Age (Months) Weighted Average Credit Enhancement 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 Non-Agency RMBS* Category Fair Value Weighted Average 60+ Days Delinquent Weighted Average Loan Age (Months) Weighted Average Credit Enhancement Prime $ 241,887 10.6 % 136.7 9.8 % Alt-A/Subprime 122,712 12.8 % 162.3 17.7 % Credit Risk Transfer 279,955 0.4 % 24.5 1.8 % Non-U.S. RMBS 57,731 7.3 % 147.8 15.8 % CMBS* Category Fair Value Weighted Average 60+ Days Delinquent Weighted Average Loan Age (Months) Weighted Average Credit Enhancement 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 % *Sources: Intex, Trepp 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. At the end of the initial forbearance period, those borrowers who can make their regular monthly scheduled payment will do so and the payment terms of the forbearance amounts will be negotiated (reinstatement, repayment or deferral). For those borrowers who cannot make their scheduled payment, the servicer will initiate phone contact with such borrowers to determine income status and ability to make future mortgage payments. The servicer will collect documents (where allowed by state laws) 87 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 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. At the end of the forbearance period, the servicer will complete the same steps as described above with regards to Re/Non-Performing Loans. Prior to COVID, the three month average monthly default rate was 1.3%. The default rate for 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 Loan (1)(2) Current Face Premium (Discount) Amortized Cost Gross Unrealized Losses Fair Value (3) Coupon (4) Yield (5) Life (Years) (6) Extended 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 September 30, 2020. (3) Pricing is reflective of marks on unfunded commitments. (4) Each commercial real estate loan investment has a variable coupon rate. (5) Yield includes any exit fees. (6) Actual maturities of commercial real estate loans may be shorter or longer than stated contractual maturities. Maturities are affected by prepayments of principal. (7) Represents the maturity date of the last possible extension option. (8) Loan G 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 $6.0 million. See "Off-balance sheet arrangements" section below for more details regarding commitments. (12) Loan K and Loan L are comprised of first mortgage and mezzanine loans. (13) Subsequent to quarter end, we and the borrower of Loan L entered into a modification agreement to, among other things, require the borrower to pay previously deferred interest in full, defer interest for the following 12-month period and require funding of capital reserves by the borrower. 88 The following table presents detail on our commercial real estate loan portfolio on December 31, 2019 ($ in thousands). Weighted Average Loan (1) Current Face Premium (Discount) Amortized Cost Gross Unrealized Gains Fair Value Coupon (2) Yield (3) Life (Years) (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 (1) We have the contractual right to receive a balloon payment for each loan. (2) Each commercial real estate loan investment has a variable coupon rate. (3) Yield includes any exit fees. (4) Actual maturities of commercial real estate loans may be shorter or longer than stated contractual maturities. Weighted average maturities are affected by prepayments of principal. (5) Represents the maturity date of the last possible extension option. (6) Loan G, Loan H, and Loan J are first mortgage loans. (7) Loan I is a mezzanine loan. (8) Loan K and Loan L are comprised of first mortgage and mezzanine loans. Financing activities Prior to the recent turmoil in the financial markets, we sought to achieve a balanced and diverse funding mix to finance our assets and operations, which included a combination of short-term borrowings, such as repurchase agreements with terms typically of 30-90 days, longer term repurchase agreement borrowings, and longer term financings, such as securitizations and revolving facilities, with terms longer than one year. We have explored and will continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, issuances of equity or debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing or the size, timing or terms thereof. In 2020, in response to the unprecedented illiquidity and drop in demand for MBS due to the COVID-19 pandemic, which resulted in a significant decline in the value of our assets, which, in turn, resulted in an unusually high number of margin calls from our financing counterparties, we reduced our overall exposure to our financing counterparties by selling a significant portion of our investment portfolio and reducing the amount of our financing arrangements from $3.2 billion to $225.5 million on a GAAP basis and from $3.5 billion to $349.5 million on a Non-GAAP basis, including a reduction in our repurchase agreement balance from $3.2 billion to $186.5 million. Additionally, the Federal Reserve cut the federal funds rate by a total of 150 basis points during the first quarter of 2020. As previously described, we sold our entire portfolio of 30 Year Fixed Rate Agency RMBS in March of 2020. 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. 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"). 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"). 89 On June 10, 2020, we entered into a Reinstatement Agreement with the Participating Counterparties, pursuant to which the parties agreed to terminate the Forbearance Agreement and each Participating Counterparty agreed to permanently waive all existing and prior events of default under our financing agreements (each, a "Bilateral Agreement") and to reinstate each Bilateral Agreement, as it may be amended by agreement between the Participating Counterparty and the Company. As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on the our outstanding borrowings under each Bilateral Agreement has ceased to accrue as of June 10, 2020 and the interest rate was the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements, all cash margin has been applied to outstanding balances we owe, and the DTC repo tracker coding for each Bilateral Agreement has been reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by us, just as it was before the prior forbearance agreements were put in place. In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the various forbearance agreements have been terminated and released. We also agreed to pay the reasonable fees and out-of-pocket expenses of counsel and other professional advisors for the Participating Counterparties and the collateral agent. Additionally, the Reinstatement Agreement provides a set of financial covenants that override and replace the financial covenants in each Bilateral Agreement and sets forth various reporting requirements from the Company to the Participating Counterparties, releases, certain netting obligations and cross-default provisions. In connection with the negotiation and execution of the Reinstatement Agreement, we entered into certain amendments to the Bilateral Agreements with certain of the Participating Counterparties to reflect current market terms. In general, the amendments reflect increased haircuts and higher coupons. On June 10, 2020, we also entered a separate reinstatement agreement with JPMorgan Chase Bank (the "JPM Reinstatement Agreement") on substantially the same terms as those set forth in the Reinstatement Agreement. 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 deficiencies which are now settled. We use leverage to finance the purchase of our target assets. In 2020 and 2019, our leverage has primarily been in the form of repurchase agreements, facilities, and securitized debt. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset. 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 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 September 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. If we maintain the beneficial interest in the specific assets pledged during the term of the borrowing, we receive the related principal and interest payments. If we do not maintain the beneficial interest in the specific assets pledged during the term of the borrowing, we will have the related principal and interest payments remitted to us by the lender. Interest rates on borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the borrowing at which time we may enter into a new borrowing arrangement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty. We have also entered into revolving facilities to purchase certain loans in our investment portfolio. These facilities typically have longer stated maturities than repurchase agreements. Interest rates on these facilities are based on prevailing rates corresponding to the terms of the borrowings, and interest is paid on a monthly basis. Additionally, these facilities contain representations, warranties, covenants, including financial covenants, events of default and indemnities that are customary for agreements of these types. In response to declines in fair value of pledged assets due to changes in market conditions or the publishing of monthly security paydown factors, lenders typically require us to post additional assets as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, referred to as margin calls. 90 The following table presents the quarter-end balance, average quarterly balance and maximum balance at any month-end for our (i) financing arrangements on our investment portfolio and U.S Treasury securities ("Non-GAAP Basis" below), and (ii) financing arrangements through affiliated entities, excluding any financing utilized in our investment in AG Arc, with a reconciliation of all quarterly figures to GAAP ("GAAP Basis" below) (in thousands). Refer to the "Hedging Activities" section below for more information on repurchase agreements secured by U.S. Treasury securities. Quarter Ended Quarter-End Balance Average Quarterly Balance Maximum Balance at Any Month-End September 30, 2020 Non-GAAP Basis $ 349,535 $ 390,361 $ 461,461 Less: Investments in Debt and Equity of Affiliates 124,031 155,057 216,401 GAAP Basis $ 225,504 $ 235,304 $ 245,060 June 30, 2020 Non-GAAP Basis $ 469,153 $ 642,182 $ 939,056 Less: Investments in Debt and Equity of Affiliates 218,055 255,764 276,149 GAAP Basis $ 251,098 $ 386,418 $ 662,907 March 31, 2020 Non-GAAP Basis $ 1,231,231 $ 2,878,844 $ 3,904,578 Less: Investments in Debt and Equity of Affiliates 261,374 260,737 280,195 GAAP Basis $ 969,857 $ 2,618,107 $ 3,624,383 December 31, 2019 Non-GAAP Basis $ 3,490,884 $ 3,703,921 $ 3,929,708 Less: Investments in Debt and Equity of Affiliates 257,416 240,602 257,830 GAAP Basis $ 3,233,468 $ 3,463,319 $ 3,671,878 September 30, 2019 Non-GAAP Basis $ 3,720,937 $ 3,301,725 $ 3,720,937 Less: Investments in Debt and Equity of Affiliates 195,949 238,144 279,478 GAAP Basis $ 3,524,988 $ 3,063,581 $ 3,441,459 June 30, 2019 Non-GAAP Basis $ 3,074,536 $ 3,166,610 $ 3,263,481 Less: Investments in Debt and Equity of Affiliates 183,286 216,024 238,045 GAAP Basis $ 2,891,250 $ 2,950,586 $ 3,025,436 March 31, 2019 Non-GAAP Basis $ 3,290,383 $ 3,069,958 $ 3,290,383 Less: Investments in Debt and Equity of Affiliates 177,548 174,672 179,524 GAAP Basis $ 3,112,835 $ 2,895,286 $ 3,110,859 December 31, 2018 Non-GAAP Basis $ 2,860,227 $ 2,851,744 $ 2,866,872 Less: Investments in Debt and Equity of Affiliates 139,739 125,851 139,739 GAAP Basis $ 2,720,488 $ 2,725,893 $ 2,727,133 September 30, 2018 Non-GAAP Basis $ 2,913,543 $ 2,862,935 $ 2,913,543 Less: Investments in Debt and Equity of Affiliates 102,149 92,833 102,149 GAAP Basis $ 2,811,394 $ 2,770,102 $ 2,811,394 June 30, 2018 Non-GAAP Basis $ 2,719,376 $ 2,792,123 $ 2,932,186 Less: Investments in Debt and Equity of Affiliates 85,194 170,006 213,489 GAAP Basis $ 2,634,182 $ 2,622,117 $ 2,718,697 91 Quarter Ended Quarter-End Balance Average Quarterly Balance Maximum Balance at Any Month-End March 31, 2018 Non-GAAP Basis $ 3,035,398 $ 2,954,404 $ 3,043,392 Less: Investments in Debt and Equity of Affiliates 208,819 77,309 208,819 GAAP Basis $ 2,826,579 $ 2,877,095 $ 2,834,573 December 31, 2017 Non-GAAP Basis $ 3,011,591 $ 2,882,548 $ 3,011,591 Less: Investments in Debt and Equity of Affiliates 7,184 8,849 9,807 GAAP Basis $ 3,004,407 $ 2,873,699 $ 3,001,784 September 30, 2017 Non-GAAP Basis $ 2,703,069 $ 2,596,533 $ 2,746,151 Less: Investments in Debt and Equity of Affiliates 8,517 8,697 8,869 GAAP Basis $ 2,694,552 $ 2,587,836 $ 2,737,282 The balance on our financing arrangements can reasonably be expected to (i) increase as the size of our investment portfolio increases primarily through equity capital raises and as we increase our investment allocation to Agency RMBS and (ii) decrease as the size of our portfolio decreases through asset sales, principal paydowns, and as we increase our investment allocation to credit investments. Credit investments, due to their risk profile, have lower leverage ratios than Agency RMBS, which restricts our financing counterparties from providing as much financing to us and lowers the balance of our total financing. Recourse and non-recourse financing We utilize both recourse and non-recourse debt to finance our portfolio. Non-recourse financing includes securitized debt and other non-recourse financing. Recourse financing includes the secured debt from our Manager and other recourse financing. The below table provides detail on the breakout between recourse and non-recourse financing as of September 30, 2020 and December 31, 2019 (in thousands): September 30, 2020 December 31, 2019 Recourse financing $ 242,767 $ 3,490,884 Non-recourse financing 475,993 224,348 Total (1) $ 718,760 $ 3,715,232 Recourse financing - Investments in Debt and Equity of Affiliates 7,024 257,416 Non-recourse financing - Investments in Debt and Equity of Affiliates 117,007 — Total Investments in Debt and Equity of Affiliates 124,031 257,416 Total: GAAP Basis $ 594,729 $ 3,457,816 (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. Financing arrangements on our investment portfolio As of March 31, 2020, we had received notifications from several of our financing counterparties of alleged events of default under their financing agreements, and of those counterparties' intentions to accelerate our performance obligations under the relevant agreements as a result of our inability to meet certain margin calls as a result of market disruptions created by the COVID-19 pandemic. As discussed above, until a formal agreement was reached, we negotiated with our financing counterparties regarding the lenders' forbearance from exercising their rights and remedies under their applicable financing arrangements. While as of March 31, 2020 certain lenders had accelerated our obligations under their applicable financing 92 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. 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 September 30, 2020. 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 September 30, 2020 and December 31, 2019 (in thousands). September 30, 2020 December 31, 2019 Repurchase agreements $ 186,469 $ 3,194,409 Revolving facilities (1) 163,066 296,475 Total: Non-GAAP Basis $ 349,535 $ 3,490,884 Investments in Debt and Equity of Affiliates 124,031 257,416 Total: GAAP Basis $ 225,504 $ 3,233,468 (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 September 30, 2020 ($ in thousands): Agency Credit Total Financing Arrangements Maturing Within: (1) Balance Weighted Average Funding Cost Balance Weighted Average Funding Cost Balance Weighted Average Funding Cost 30 days or less $ 101,284 0.22 % $ 39,102 2.80 % $ 140,386 0.94 % 31-60 days — — 1,155 2.20 % 1,155 2.20 % 61-90 days — — 27,538 4.15 % 27,538 4.15 % Greater than 180 days — — 180,456 4.21 % 180,456 4.21 % Total: Non-GAAP Basis $ 101,284 0.22 % $ 248,251 3.97 % $ 349,535 2.89 % Investments in Debt and Equity of Affiliates $ — — $ 124,031 4.90 % $ 124,031 4.90 % Total: GAAP Basis $ 101,284 0.22 % $ 124,220 3.04 % $ 225,504 1.78 % (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. 93 The following table presents a summary of the financing arrangements by maturity on our Investment Portfolio as of December 31, 2019 ($ in thousands): Agency Credit Total Financing Arrangements Maturing Within: (1) Balance Weighted Average Funding Cost Balance Weighted Average Funding Cost Balance Weighted Average Funding Cost 30 days or less $ 1,011,185 2.05 % $ 587,325 2.92 % $ 1,598,510 2.37 % 31-60 days 1,098,093 1.96 % 470,568 3.29 % 1,568,661 2.36 % 61-90 days — — 71,753 2.99 % 71,753 2.99 % 91-180 days — — 20,384 3.79 % 20,384 3.79 % Greater than 180 days — — 231,576 3.90 % 231,576 3.90 % Total: Non-GAAP Basis $ 2,109,278 2.01 % $ 1,381,606 3.23 % $ 3,490,884 2.49 % Investments in Debt and Equity of Affiliates $ — — $ 257,416 3.94 % $ 257,416 3.94 % Total: GAAP Basis $ 2,109,278 2.01 % $ 1,124,190 3.07 % $ 3,233,468 2.38 % (1) As of December 31, 2019, our weighted average days to maturity is 94 days and our weighted average original days to maturity is 164 days on a GAAP Basis. As of December 31, 2019, our weighted average days to maturity is 92 days and our weighted average original days to maturity is 196 days on a Non-GAAP Basis. Repurchase agreements 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: Repurchase Agreements Maturing Within: Balance Weighted Average Rate Weighted Average Funding Cost Weighted Average Days to Maturity Weighted Average Haircut 30 days or less $ 140,386 0.94 % 0.94 % 15 15.4 % 61-90 days 3,620 4.50 % 4.50 % 68 48.2 % Greater than 180 days 18,545 5.00 % 5.00 % 366 39.8 % Total: Non-GAAP Basis $ 162,551 1.48 % 1.48 % 56 18.9 % Investments in Debt and Equity of Affiliates $ 22,165 4.92 % 4.92 % 317 41.1 % Total: GAAP Basis $ 140,386 0.94 % 0.94 % 15 15.4 % The following table presents, as of December 31, 2019, a summary of the repurchase agreements by maturity on our real estate securities ($ in thousands). It also reconciles these items to GAAP: Repurchase Agreements Maturing Within: Balance Weighted Average Rate Weighted Average Funding Cost Weighted Average Days to Maturity Weighted Average Haircut 30 days or less $ 1,598,510 2.37 % 2.37 % 14 9.8 % 31-60 days 1,366,178 2.13 % 2.13 % 46 7.0 % 61-90 days 71,753 2.99 % 2.99 % 67 23.5 % 91-180 days 20,384 3.79 % 3.79 % 176 21.1 % Greater than 180 days 2,973 3.79 % 3.79 % 283 23.7 % Total: Non-GAAP Basis $ 3,059,798 2.29 % 2.29 % 31 9.0 % Investments in Debt and Equity of Affiliates $ 72,443 3.76 % 3.76 % 67 29.8 % Total: 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 September 30, 2020 is due primarily to selling collateral in order to meet margin calls. 94 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: Balance Weighted Average Rate Weighted Average Funding Cost Weighted Average Days to Maturity Weighted Average Haircut 61-90 days $ 23,918 4.10 % 4.10 % 81 42.7 % The following table presents, as of December 31, 2019, a summary of repurchase agreements on our Re/Non-performing loans ($ in thousands). Repurchase Agreements Maturing Within: Balance Weighted Average Rate Weighted Average Funding Cost Weighted Average Days to Maturity Weighted Average Haircut 31-60 days $ 24,584 3.14 % 3.14 % 56 33.7 % Greater than 180 days 107,010 3.61 % 3.80 % 727 19.3 % Total: GAAP Basis $ 131,594 3.53 % 3.68 % 602 22.0 % 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). Repurchase Agreements Maturing Within: Balance Weighted Average Rate Weighted Average Funding Cost Weighted Average Days to Maturity Weighted Average Haircut Greater than 180 days $ 3,017 4.46 % 5.89 % 1,097 35.4 % Financing facilities 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. September 30, 2020 December 31, 2019 Facility Investment Maturity Date Rate Funding Cost (1) Balance Maximum Aggregate Borrowing Capacity Rate Funding Cost (1) Balance Revolving facility B (2)(3)(4) Re/Non-performing loans June 28, 2021 — % — % $ — $ — 3.80 % 3.80 % $ 21,546 Revolving facility C (2)(3) Commercial loans August 10, 2023 2.31 % 2.79 % 61,200 100,000 3.85 % 4.01 % 89,956 Revolving facility D (2)(3)(5) Non-QM loans October 1, 2021 5.00 % 5.00 % 98,462 98,462 3.61 % 4.02 % 177,899 Revolving facility E (2) Re/Non-performing loans November 25, 2020 2.20 % 2.20 % 1,155 1,155 3.73 % 3.73 % 1,808 Revolving facility F (2) Re/Non-performing loans July 25, 2021 2.00 % 2.00 % 2,249 14,120 3.55 % 3.55 % 5,266 Total: Non-GAAP Basis $ 163,066 $ 213,737 $ 296,475 Investments in Debt and Equity of Affiliates $ 101,866 $ 113,737 $ 184,973 Total: GAAP Basis $ 61,200 $ 100,000 $ 111,502 (1) Funding costs represent the stated rate inclusive of any deferred financing costs. (2) Under the terms of our financing agreements, the counterparties may, in certain cases, sell or re-hypothecate the pledged collateral. (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. 95 Other financing transactions In 2014, we entered into a resecuritization transaction, pursuant to which we created a special purpose entity ("SPE") to facilitate the transaction. We determined that the SPE was a variable interest entity ("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 December 2014 VIE"). See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on Consolidated 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): Weighted Average Current Face Fair Value Coupon Yield Life (Years) (1) Consolidated tranche (2) $ 7,204 $ 7,230 3.46 % 4.11 % 1.96 Retained tranche 7,851 6,608 5.37 % 18.14 % 7.64 Total resecuritized asset (3) $ 15,055 $ 13,838 4.46 % 10.81 % 4.92 (1) This is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. (2) As of December 31, 2019, we have recorded secured financing of $7.2 million on our consolidated balance sheets in the "Securitized debt, at fair value" line item. We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows at the time of securitization. (3) As of December 31, 2019, the fair market value of the total resecuritized asset is included on our consolidated balance sheets as "Non-Agency RMBS." In August 2019 and September 2020, we entered into securitization transactions of certain of our residential mortgage loans, pursuant to which we created SPEs to facilitate the transactions. We determined that the SPEs were VIEs and that the VIEs should be consolidated by us under ASC 810-10. The transferred assets were recorded as secured borrowings (the "Consolidated August 2019 VIE" and the "Consolidated September 2020 VIE"). See Note 2 and Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on the Consolidated August 2019 VIE and the Consolidated September 2020 VIE. The following table details certain information related to the Consolidated August 2019 VIE and September 2020 VIE as of September 30, 2020 and December 31, 2019 ($ in thousands): Weighted Average As of: Current Unpaid Principal Balance Fair Value Coupon Yield Life (Years) (1) 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 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. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal. (2) As of 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. 96 Leverage We define GAAP leverage as the sum of (1) our GAAP financing arrangements net of any restricted cash posted on such financing arrangements, (2) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled, and (3) securitized debt, at fair value. We define Economic Leverage, a non-GAAP metric, as the sum of: (i) our GAAP leverage, exclusive of any fully non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, net of any restricted cash posted on such financing arrangements, exclusive of any financing utilized through AG Arc, any adjustment related to unsettled trades as described in (2) in the previous sentence, and any fully non-recourse financing arrangements and (iii) our net TBA position (at cost). Our calculations of GAAP leverage and Economic Leverage exclude financing arrangements and net receivables/payables on unsettled trades pertaining to U.S. Treasury securities due to the highly liquid and temporary nature of these investments. Historically, we reported non-GAAP "At-Risk" leverage, which included non-recourse financing arrangements, but we believe that the adjustments made to our GAAP leverage in order to compute Economic Leverage, including the exclusion of non-recourse financing arrangements, allow investors the ability to identify and track the leverage metric that management uses to evaluate and operate the business. Our obligation to repay our non-recourse financing arrangements is limited to the value of the pledged collateral thereunder and does not create a general claim against us as an entity. The calculations in the tables below divide GAAP leverage and Economic Leverage by our GAAP stockholders’ equity to derive our leverage ratios. The following tables present a reconciliation of our Economic Leverage ratio back to GAAP ($ in thousands). September 30, 2020 Leverage Stockholders’ Equity Leverage Ratio GAAP Leverage $ 699,707 $ 390,469 1.8x Financing arrangements through affiliated entities 124,031 Non-recourse financing arrangements (475,993) Economic Leverage $ 347,745 $ 390,469 0.9x December 31, 2019 Leverage Stockholders’ Equity Leverage Ratio GAAP Leverage $ 3,441,451 $ 849,046 4.1x Financing arrangements through affiliated entities 257,416 Non-recourse financing arrangements (224,348) Economic Leverage $ 3,474,519 $ 849,046 4.1x The amount of leverage, or debt, we may deploy for particular assets depends upon our Manager’s assessment of the credit and other risks of those assets, and also depends on any limitations placed upon us through covenants contained in our financing arrangements. We generate income principally from the yields earned on our investments and, to the extent that leverage is deployed, on the difference between the yields earned on our investments and our cost of borrowing and the cost of any hedging activities. Subject to maintaining both our qualification as a REIT for U.S. federal income tax purposes and our Investment Company Act exemption, to the extent leverage is deployed, we may use a number of sources to finance our investments. As previously described, due to market volatility caused by the COVID-19 pandemic, we executed on various asset sales in an effort to create additional liquidity and de-risk our portfolio. As a result of these asset sales and related debt pay-offs, we have reduced the number of financing counterparties we have, bringing the overall number of counterparties with debt outstanding down from 30 as of December 31, 2019 to 6 as of 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. Although specific to each lending agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios. Under our financing arrangements, we may be required to pledge additional assets to our lenders in the event the estimated fair value of the existing pledged collateral under such agreements declines and such lenders demand additional collateral, which may take the form of additional securities or cash. Certain securities that are pledged as collateral under our financing arrangements are in unrealized loss positions. 97 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. We recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows. See Note 3 and 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail. During the quarter, we entered into the Forbearance Agreement pursuant to which the consent of the Participating Counterparties was required in order for us to increase our leverage. As described above, upon entering in to the Reinstatement Agreement, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement, though the Reinstatement Agreement limits our Recourse Indebtedness to Stockholder's Equity (both as defined therein) leverage ratio to no greater than 3:1. The following table presents information at 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 at Risk Weighted Average Maturity (days) Percentage of Stockholders’ Equity Credit Suisse AG, Cayman Islands Branch - Non-GAAP $ 73,637 128 18.9 % Non-GAAP Adjustments (a) (35,252) (85) (9.1) % Credit Suisse AG, Cayman Islands Branch - GAAP $ 38,385 43 9.8 % (a) Represents stockholders' equity at risk, weighted average maturity and percentage of stockholders' equity from financing arrangements held in investments in debt and equity of affiliates. Hedging activities Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, to the extent leverage is deployed, we may utilize derivative instruments in an effort to hedge the interest rate risk associated with the financing of our portfolio. We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in U.S. Treasury securities. In addition, we may utilize Eurodollar Futures, U.S. Treasury Futures, British Pound Futures and Euro Futures (collectively, "Futures"). Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates. In utilizing leverage and interest rate derivatives, our objectives are to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a spread between the yield on our assets and the costs of our financing and hedging. Derivatives have not been designated as hedging instruments for GAAP. Refer to the tables below for a summary of our derivative instruments. The following table summarizes certain information on our non-hedge derivatives and other instruments (in thousands) as of the dates indicated. September 30, 2020 December 31, 2019 Notional amount of non-hedge derivatives and other instruments: Notional Currency Notional Amount Weighted Average Life (Years) Notional Amount Weighted Average Life (Years) Pay Fix/Receive Float Interest Rate Swap Agreements (1)(2) USD $ 180,000 6.18 $ 1,943,281 4.25 Payer Swaptions USD — — 650,000 0.42 Short positions on British Pound Futures (3) GBP 3,000 0.21 6,563 0.21 Short positions on Euro Futures (4) EUR — — 1,500 0.21 (1) As of December 31, 2019, there were $94.5 million notional amount of pay fix/receive float interest rate swap agreements held through investments in debt and equity of affiliates. (2) As of December 31, 2019, the weighted average life of interest rate swaps on a GAAP basis was 4.32 years and the weighted average life of interest rate swaps held through investments in debt and equity of affiliates was 2.83 years. (3) Each British Pound Future contract embodies £62,500 of notional value. (4) Each Euro Future contract embodies €125,000 of notional value. 98 Interest rate swaps To help mitigate exposure to increases in interest rates, we may use currently-paying and forward-starting, one- or three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap agreements. This arrangement helps hedge our exposure to higher interest rates because the variable-rate payments received on the swap agreements help to offset additional interest accruing on the related borrowings due to the higher interest rate, leaving the fixed-rate payments to be paid on the swap agreements as our effective borrowing rate, subject to certain adjustments including changes in spreads between variable rates on the swap agreements and actual borrowing rates. As of September 30, 2020, our interest rate swap positions consisted of pay-fixed interest rate swaps. The following table presents information about our interest rate swaps as of September 30, 2020 ($ 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 Dividends 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. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our financing arrangements and other debt payable. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make required cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. In addition, prior to the time we have fully deployed the net proceeds of our follow-on offerings to acquire assets in our target asset classes we may fund our quarterly distributions out of such net proceeds. 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) 99 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 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. 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 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. Refer to Note 12 in the "Notes to Consolidated Financing Statements (Unaudited)" for more information on our preferred stock. Refer to the "Book value per share" section above for a discussion of the treatment of accumulated, unpaid, or undeclared preferred dividends on our book value. 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 8.25% Series A $ 1.03126 $ 2,091 8.00% Series B 1.00 4,569 8.000% Series C 1.00 4,571 Total $ 11,231 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. 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 nine months ended September 30, 2020. The following tables detail our common stock dividends during the nine months ended September 30, 2019: 2019 Declaration Date Record Date Payment Date Dividend Per Share 3/15/2019 3/29/2019 4/30/2019 $ 0.50 6/14/2019 6/28/2019 7/31/2019 0.50 9/6/2019 9/30/2019 10/31/2019 0.45 Total $ 1.45 100 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 Declaration Date Record Date Payment Date 8.25% Series A 8.00% Series B 8.000% Series C 2/14/2020 2/28/2020 3/17/2020 $ 0.51563 $ 0.50 $ 0.50 2/15/2019 2/28/2019 3/18/2019 0.51563 0.50 — 5/17/2019 5/31/2019 6/17/2019 0.51563 0.50 — 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 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 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. As previously discussed, on June 1, 2020, we entered into a third forbearance agreement with the Participating Counterparties, providing for a forbearance period ending on June 15, 2020. We exited forbrearance on June 10, 2020. Pursuant to the terms of the Forbearance Agreement, we were obligated to comply with a set of restrictive covenants set forth in the Forbearance Agreement, including restrictions on the use of our cash, restrictions on our incurrence of additional debt, and restrictions on the sale of our assets. We also granted to the Participating Counterparties a lien and security interest in all of our unencumbered assets. Upon entering into the Reinstatement Agreement with the Participating Counterparties, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement and the lien and security interest granted to the Participating Counterparties on all of our unencumbered assets were terminated and released. Margin requirements The fair value of our real estate securities and loans fluctuate according to market conditions. When the fair value of the assets pledged as collateral to secure a financing arrangement decreases to the point where the difference between the collateral fair value and the financing arrangement amount is less than the haircut, our lenders may issue a "margin call," which requires us to post additional collateral to the lender in the form of additional assets or cash. Under our repurchase facilities, our lenders have full discretion to determine the fair value of the securities we pledge to them. Our lenders typically value assets based on recent trades in the market. Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly. We experience margin calls in the ordinary course of our business. In seeking to manage effectively the margin requirements established by our lenders, we maintain a position of cash and, when owned, unpledged Agency RMBS. We refer to this position as our "liquidity." The level of liquidity we have available to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our securities. Typically, if interest rates increase or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will need to use our liquidity to meet the margin calls. There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls. If our haircuts increase, our liquidity will proportionately decrease. In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness. We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which may force us to liquidate assets into potentially unfavorable market conditions and harm our results of operations and financial condition. Further, an unexpected rise in interest rates and a corresponding fall in the fair value of our securities may also force us to liquidate assets under difficult market conditions, thereby harming our results of operations and financial condition, in an effort to maintain sufficient liquidity to meet increased margin calls. 101 Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair values decline. This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the terms of the derivatives involved. We may also receive margin calls on our derivatives based on the implied volatility of interest rates. Our posting of collateral with our counterparties can be done in cash or securities, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us. Refer to the "Liquidity risk – derivatives" section of Item 3 below for a further discussion on margin. 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. 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 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 a result, we will be responsible for making any future margin payments with respect to any financing arrangements relating to these agreements. 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. Cash Flows 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. 102 (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 On May 5, 2017, we entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933. 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 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 On February 14, 2019, we completed a public offering of 3,000,000 shares of our common stock and subsequently issued an additional 450,000 shares pursuant to the underwriters' exercise of their over-allotment option at a price of $16.70 per share. Net proceeds to us from the offering were approximately $57.4 million, after deducting estimated offering expenses. Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock issuance On September 17, 2019, we completed a public offering of 4,000,000 shares of 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock with a liquidation preference of $25.00 per share (the "Series C Preferred Stock") and subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' exercise of their over-allotment option. We received total gross proceeds of $115.0 million and net proceeds of approximately $111.2 million, net of underwriting discounts, commissions and expenses. The Series C Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption. Under certain circumstances upon a change of control, the Series C Preferred Stock is convertible to shares of our common stock. Holders of Series C Preferred Stock have no voting rights, except under limited conditions, and holders are entitled to receive cumulative cash dividends before holders of our common stock are entitled to receive any dividends. The initial dividend rate for the Series C Preferred Stock, from and including the date of original issue to, but not including, September 17, 2024, is equal to 8.000% per annum of the $25.00 per share liquidation preference. On and after September 17, 2024, dividends on the Series C Preferred Stock will accumulate at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the three-month LIBOR plus a spread of 6.476% per annum. Shares of our Series C Preferred Stock are redeemable at $25.00 per share plus accumulated and unpaid dividends (whether or not declared) exclusively at our option commencing on September 17, 2024, or earlier under certain circumstances intended to preserve our qualification as a REIT for Federal income tax purposes. Dividends are payable quarterly in arrears on the 17th day of each March, June, September and December. 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. 103 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 Management agreement On June 29, 2011, we entered into an agreement with our Manager pursuant to which our Manager is entitled to receive a management fee and the reimbursement of certain expenses. The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum. For purposes of calculating the management fee, "Stockholders’ Equity" means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus our retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that we pay for repurchases of our common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in our financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP, and certain other non-cash charges after discussions between the Manager and our independent directors and after approval by a majority of our independent directors. 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 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. We are required to reimburse our Manager or its affiliates for operating expenses which are incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence and other services. Our reimbursement obligation is not subject to any dollar limitation; 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 $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 104 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. Secured debt On April 10, 2020, in connection with the first Forbearance Agreement, we issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to us. Additionally, on April 27, 2020, in connection with the second Forbearance Agreement, we entered into an amendment to the Note to reflect an additional $10 million loan by the Manager to us. The $10 million loan made by the Manager on April 10, 2020 is payable on March 31, 2021, and the $10 million loan made on April 27, 2020 was repaid in full with interest when it matured on July 27, 2020. The unpaid balance of the Note accrues interest at a rate of 6.0% per annum. Interest on the Note is payable monthly in kind through the addition of such accrued monthly interest to the outstanding principal balance of the Note. Share-based compensation Effective on April 15, 2020 upon the approval of our stockholders at our Annual Meeting, the 2020 Equity Incentive Plan provides for 2,000,000 shares of common stock to be issued. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during any fiscal year, shall not exceed $300,000 in total value (calculating the value of any such awards based on the grant date fair value). As of 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 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. 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 September 30, 2020. MATT Financing Arrangement Restructuring On April 3, 2020, we, alongside private funds under the management of Angelo Gordon, restructured our financing arrangements in MATT ("Restructured Financing Arrangement"). The Restructured Financing Arrangement requires all principal and interest on the underlying assets in MATT be used to pay down principal and interest on the outstanding financing arrangement. As of April 3, 2020, The Restructured Financing Arrangement is not a mark-to-market facility and is non-recourse to us. The Restructured Financing Arrangement provides for a termination date of October 1, 2021. At the earlier of the termination date or the securitization or sale by us of the remaining assets subject to the Restructured Financing Arrangement, the financing counterparty will be entitled to 35% of the remaining equity in the assets. We evaluated this restructuring and concluded it was an extinguishment of debt. MATT has chosen to make a fair value election on the new financing arrangement, and we will treat this arrangement consistently with this election. Other 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. Off-balance sheet arrangements We may enter into long TBA positions to facilitate the future purchase or sale of Agency RMBS. We may also enter into short TBA positions to hedge Agency RMBS. 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 September 30, 2020, we did not hold any TBA positions. 105 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. Investments in debt and equity of affiliates are accounted for using the equity method of accounting. 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 September 30, 2020 and December 31, 2019 (in thousands): September 30, 2020 December 31, 2019 Assets Liabilities Equity Assets Liabilities Equity Agency Excess MSR $ 444 $ — $ 444 $ 555 $ — $ 555 Total Agency RMBS 444 — 444 555 — 555 Re/Non-Performing Loans (1) 39,284 (6,854) 32,430 87,216 (56,811) 30,405 Non-QM Loans (2) 152,463 (117,007) 35,456 254,276 (200,257) 54,019 Land Related Financing 25,452 — 25,452 16,979 — 16,979 Total Residential Investments 217,199 (123,861) 93,338 358,471 (257,068) 101,403 Freddie Mac K-Series — — — 12,237 — 12,237 CMBS Interest Only — — — 1,863 — 1,863 Total Commercial — — — 14,100 — 14,100 Total Credit Investments 217,199 (123,861) 93,338 372,571 (257,068) 115,503 Total Investments excluding AG Arc 217,643 (123,861) 93,782 373,126 (257,068) 116,058 AG Arc, at fair value 41,436 — 41,436 28,546 — 28,546 Cash and Other assets/(liabilities) (3) 4,925 (1,454) 3,471 12,953 (1,246) 11,707 Investments in debt and equity of affiliates $ 264,004 $ (125,315) $ 138,689 $ 414,625 $ (258,314) $ 156,311 (1) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. (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)(c) January 23, 2019 20,000 15,211 4,789 Commercial loan K (a) February 22, 2019 20,000 14,173 5,827 LOTS (d) Various 39,361 24,191 15,170 Total $ 158,167 $ 110,272 $ 47,895 (a) We entered into commitments on commercial loans relating to construction projects. See "Investment activities" section above for further details. (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 106 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. Certain related person transactions Our Board of Directors has adopted a policy regarding the approval of any "related person transaction," which is any transaction or series of transactions in which (i) we or any of our subsidiaries is or are to be a participant, (ii) the amount involved exceeds $120,000, and (iii) a "related person" (as defined under SEC rules) has a direct or indirect material interest. Under the policy, a related person would need to promptly disclose to our Secretary or Assistant Secretary any related person transaction and all material facts about the transaction. Our Secretary or Assistant Secretary, in consultation with outside counsel, to the extent appropriate, would then assess and promptly communicate that information to the audit committee of our Board of Directors. Based on its consideration of all of the relevant facts and circumstances, the audit committee will review, approve or ratify such transactions as appropriate. The audit committee will not approve or ratify a related person transaction unless it shall have determined that such transaction is in, or is not inconsistent with, our best interests and does not create a conflict of interest. If we become aware of an existing related person transaction that has not been approved under this policy, the transaction will be referred to the audit committee which will evaluate all options available, including ratification, revision or termination of such transaction. Our policy requires any director who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction. Grants of restricted common stock See "Share-based compensation" section above for detail on our grants of restricted common stock. Red Creek In connection with our investments in Re/Non-Performing Loans and non-QM loans, we may engage asset managers to provide advisory, consultation, asset management and other services. Beginning in November 2015, we also engaged Red Creek Asset Management LLC ("Asset Manager"), an affiliate of the Manager and direct subsidiary of Angelo Gordon, as the asset manager for certain of our Re/Non-Performing Loans. Beginning in September 2019, we engaged the Asset Manager as the asset manager for our non-QM loans. We pay the Asset Manager separate arm’s-length asset management fees as assessed and confirmed periodically by a third party valuation firm for our Re/Non-Performing Loans and non-QM loans. In the third quarter of 2019, the third party assessment of asset management fees resulted in our updating the fee amount for our Re/Non-Performing Loans. We also utilized the third party valuation firm to establish the fee level for non-QM loans in the third quarter of 2019. For the three 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. Arc Home On December 9, 2015, we, alongside private funds under the management of Angelo Gordon, through AG Arc, formed Arc Home, a Delaware limited liability company. Arc Home originates conforming, Government, Jumbo, Non-QM and other non-conforming residential mortgage loans, retains the mortgage servicing rights associated with the loans it originates, and purchases additional mortgage servicing rights from third-party sellers. 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 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 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 107 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 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 See our "MATT Financing Arrangement Restructuring" sections above. LOT SP I LLC and LOT SP II LLC See our "Off-balance sheet arrangements" section above. Management agreement On June 29, 2011 we entered into a management agreement with our Manager, which governs the relationship between us and our Manager and describes the services to be provided by our Manager and its compensation for those services. The terms of our management agreement, including the fees payable by us to Angelo Gordon, were not negotiated at arm’s length, and its terms may not be as favorable to us as if they had been negotiated with an unaffiliated party. Our Manager, pursuant to the delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under our management agreement. For further detail on the Management Agreement, see the "Contractual obligations–Management agreement" section of this Item 2. Secured debt See our "Contractual obligations–Secured debt" section above. Other transactions with affiliates Our Board of Directors has adopted a policy regarding the approval of any "affiliated transaction," which is any transaction or series of transactions in which Angelo Gordon arranges for the purchase and sale of a security or other investment between or among us, on the one hand, and an entity or entities under Angelo Gordon’s management, on the other hand (an "Affiliated Transaction"). In order for us to enter into an Affiliated Transaction, the Affiliated Transaction must be approved by our Chief Risk Officer and the Chief Compliance Officer of Angelo Gordon. For most instruments, if market bids are available, the trading desk will request external bids from the market while simultaneously submitting an internal bid to Compliance and/or Risk. If the highest bid is an external bid, the security or other instrument will be sold to the external bidder and no affiliated transaction will take place. If the highest bid is the internal bid, the price will be the midpoint between the internal bid and the highest external bid. If market bids are not available or prove to be impracticable in Angelo Gordon's reasonable judgment, appropriate pricing will generally be based on a valuation analysis prepared by an independent third party. Our Affiliated Transactions are reviewed by our Audit Committee on a quarterly basis to confirm compliance with the policy. In March 2019, in accordance with our Affiliated Transactions Policy, we executed one trade whereby we acquired a real estate security from an affiliate of the Manager (the "March 2019 Selling Affiliate"). As of the date of the trade, the security acquired from the March 2019 Selling Affiliate had a total fair value of $0.9 million. The March 2019 Selling Affiliate sold the real estate security through a BWIC. Prior to the submission of the BWIC by the March 2019 Selling Affiliate, we submitted our bid for the real estate security to the March 2019 Selling Affiliate. The pre-submission of our bid allowed us to confirm third-party market pricing and best execution. 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 108 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. In July 2019, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "July 2019 Selling Affiliate"). As of the date of the trade, the real estate securities acquired from the July 2019 Selling Affiliate had a total fair value of $2.0 million. As procuring market bids for the real estate securities was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by independent third-party pricing vendors. The third-party pricing vendors allowed us to confirm third-party market pricing and best execution. In September 2019, we, alongside private funds managed by Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated non-QM loan securitization, in which non-QM loans with a fair value of $415.1 million were securitized. Certain senior tranches in the securitization were sold to third parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $28.7 million as of September 30, 2019. We have a 44.6% interest in the retained subordinate tranches. In October 2019, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "October 2019 Selling Affiliate"). As of the date of the trade, the real estate securities acquired from the October 2019 Selling Affiliate had a total fair value of $2.2 million. The October 2019 Selling Affiliate sold the real estate securities through a BWIC. Prior to the submission of the BWIC by the October 2019 Selling Affiliate, we submitted its bid for the real estate securities to the October 2019 Selling Affiliate. The pre-submission of our bid allowed us to confirm third-party market pricing and best execution. In November 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 $322.1 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 $21.4 million as of December 31, 2019. We have a 44.6% interest in the retained subordinate tranches. In February 2020, 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 $348.2 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 $26.6 million as of March 31, 2020. 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. 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. 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 109 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 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. Accounting policies and estimates related to specific components of our consolidated financial statements are disclosed in the notes to our consolidated financial statements. A discussion of the critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements is included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Note 2 to the "Notes to Consolidated Financial Statements (unaudited)." Some of the critical accounting policies described therein include but are not limited to: Valuation of financial instruments, Accounting for real estate securities, Accounting for residential and commercial mortgage loans, Interest income recognition and Financing arrangements. Additionally, we rely upon the independent pricing of our assets at each quarter end to arrive at what we believe to be reasonable estimates of fair value, whenever available. For more information on our fair value measurements, see Note 6 to the "Notes to Consolidated Financial Statements (unaudited). Inflation Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. 110