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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-28 · 668 added, 937 removed, 411 unchanged (80% of the section changed)

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The following discussion contains forward-looking statements and should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in this report.

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

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

Our Credit Investments include Residential Investments and Commercial Investments.

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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.

We conduct our operations to qualify and be taxed as a REIT, for U.S.

federal income tax purposes.

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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;

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See Note 13 to the "Notes to Consolidated Financial Statements" for additional financial information regarding our discontinued operations.

COVID-19 Impact

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic.

On March 13, 2020, the U.S.

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

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

and world economies.

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

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

states, implemented additional measures, such as shelter-in-place and stay-at-home orders.

Many businesses 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 the Company invests.

Although many of the government restrictions were relaxed over the summer and early fall of 2020, these conditions, or some level thereof, are expected to continue over the near term and may continue throughout 2021, depending on state and local outbreaks and the success of availability of an effective vaccine.

Beginning in mid-March 2020, the global pandemic associated with COVID-19 and related 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.

The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints.

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 "Financing arrangements" heading of this Part II, Item 7.

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 year ended December 31, 2020.

• Reduced GAAP investment portfolio from $4.0 billion at December 31, 2019 to $1.2 billion at December 31, 2020 and investment portfolio on a non-GAAP basis from $4.4 billion at December 31, 2019 to $1.4 billion at December 31, 2020 through sales, directly or as a result of financing counterparty seizures.

• Reduced financing arrangement balance on a GAAP basis from $3.2 billion at December 31, 2019 to $564.0 million at December 31, 2020 and financing arrangements on a non-GAAP basis from $3.5 billion at December 31, 2019 to $680.8 million at December 31, 2020.

• Reduced mark-to-market recourse financing from $3.5 billion at December 31, 2019 to $580.1 million at December 31, 2020.

◦ Increased non mark-to-market non-recourse financing from $224.3 million at December 31, 2019 to $466.3 million at December 31, 2020.

• Reduced our GAAP leverage ratio and Economic Leverage Ratio from 4.1x and 4.1x at December 31, 2019, respectively, to 2.4x and 1.5x at December 31, 2020, respectively.

• Unwound entire portfolio of pay-fixed, receive-variable interest rate swaps held directly and through investments in debt and equity of affiliates during the first quarter, recognizing net realized losses of $(65.4) million on a GAAP basis as a result of the market disruption caused by the pandemic.

We also executed the following during the year ended December 31, 2020:

• We purchased $0.5 billion of Agency RMBS and $60.2 million of Residential Mortgage Loans.

• We participated in a non-rated securitization, in which Residential Mortgage 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, 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.

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

The full impact of COVID-19 on the mortgage REIT industry, the credit markets and, consequently, our financial condition and results of operations for future periods is uncertain and cannot be predicted at the current time as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity, duration and spread of the outbreak, (ii) the effectiveness of the United States and global public health response, (iii) the pandemic’s impact on the U.S.

and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, including the availability of a treatment or vaccination for COVID-19, (v) the impact of government interventions, and (vi) the negative impact on our borrowers, asset values and cost of capital.

Market conditions

S&P CoreLogic Case-Shiller reported a 3.3% increase in national home prices year-over-year, up slightly from 3.2% in the previous quarter and down from 5.3% a year ago.

New and existing home sales oscillated during the quarter as limited supply, particularly in the lower- and middle-price tiers, and affordability headwinds from rising prices continued to challenge homebuyers.

On the other hand, a monthly survey of homebuilders, measuring sales expectations, current sale conditions and buyer traffic, reached its highest level since June 1999, as relatively low mortgage rates, limited housing stock and a strong job market increased builders’ confidence.

Although the pace of home price appreciation has slowed, the continued positive trajectory in home prices has resulted in an annual 5.1% increase of U.S.

homeowner equity in the third quarter of 2019 according to CoreLogic’s Homeowner Equity Report.

At the same time, the total number of mortgaged residential properties with negative equity (homes where the homeowner owes more on the home than the home is worth) decreased 10% on a year-over-year basis to two million homes.

Additionally, credit performance in terms of serious delinquencies and subsequent default rates continued to be stable-to-improving.

According to CoreLogic’s Loan Performance Insights Report, the serious delinquency rate on residential mortgages, defined as 90 days or more past due including loans in foreclosure, was 1.7% in September 2019, down from 2.0% in September 2018.

This improvement has been driven primarily by the strengthening of borrower’s household balance sheets and the strength of the U.S.

labor market.

With unemployment and jobless claims remaining at or near historical lows, subdued inflation, and a belief that their prior interest rate cuts were sufficient insurance protection against a further weakening of economic data, the Federal Reserve unanimously voted to maintain the federal funds interest rate at its target range of 1.50%-1.75% at its December meeting.

Chairman Powell expressed confidence in a favorable outlook for the economy and indicated that the Fed is on hold for the foreseeable future and that a significant change in their outlook would be required for further rate cuts to occur.

Spreads for many mortgage sectors were stable during the fourth quarter of 2019 although Agency MBS spreads tightened sharply versus benchmarks as headwinds from the prior two quarters turned to tailwinds.

Higher rates, decreased origination, lower implied volatility and favorable seasonals all helped improve valuations versus both benchmark interest rates and investment grade corporate credit.

Successful actions by the Federal Reserve to stabilize funding during the quarter further supported valuations through an improved carry profile.

Spreads for credit-risk transfer (CRT) were relatively unchanged, in some instances a little tighter.

Supply was well-absorbed, and strong investor demand continuously reduced dealer balance sheets through the quarter.

However, CRT bonds that trade at large price premiums to par faced some moderate spread pressure before relief set in from higher

Strong demand for legacy RMBS continued.

CMBS spreads generally widened during the quarter on the heels of strong supply into the end of the year.

The market conditions and trends outlined above may have a meaningful impact on our operating results and our existing portfolio and may cause us to adjust our investment and financing strategies over time as new opportunities emerge and the risk profile of our business changes.

Recent government activity

The current regulatory environment may be impacted by future legislative developments, such as changes to Fannie Mae and Freddie Mac, including with respect to how long they will continue to be in existence, the extent of their roles in the market and what forms they will take.

The impact of such potential reforms on our operations is unclear.

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, 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.

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

Our net interest income varies 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.

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

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

That caused, among other things, credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets.

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

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

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

The Fed also committed in March 2020 to unlimited purchases of U.S.

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

Combined with significant fiscal stimulus enacted by Congress, these actions seemed to stabilize broader market conditions by late in the second quarter.

Subsequently, risk assets generally rallied through the balance of the year as fundamentals became more clear and risk appetite amongst market participants returned.

During the fourth quarter of 2020, the financial markets continued a cautious recovery from the unprecedented dislocation caused by the COVID-19 outbreak and the resultant economic shutdown across much of the U.S.

We believe several

factors have contributed to this recovery, including support from the U.S.

Federal Reserve, capital flows into fixed income assets and generally improving 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 and facilitate economic recovery, including unlimited purchases of Agency RMBS and U.S.

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

The Federal Reserve signaled that it intends to maintain low interest rates for the foreseeable future.

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

We believe that risks for the mortgage- and asset-backed sectors have been balanced against collateral fundamentals that have generally exceeded the market’s expectations since March and April 2020, as markets conditions improve.

The latest survey of home price indices in the fourth quarter point to an annual increase of around 9% for 2020, as limited supply of new and existing homes and strong demand continued to drive price appreciation.

We expect that the mortgage and consumer sectors will continue to benefit from the unemployment support and stimulus disbursements, which were included in the Bipartisan-Bicameral Omnibus COVID Relief Deal bill, which was passed by Congress in December 2020.

Credit Assets .

Overall, the factors discussed above contributed to increasingly tighter spreads over the course of the quarter, particularly the lower tranches of credit-related assets.

For example, Credit Risk Transfer ("CRT") mezzanine spreads were around 15 basis points tighter while subordinate spreads tightened around 100 basis points.

Benchmark new-issue triple-A spreads mostly tightened around 10 basis points, except for Non-QM triple-A rated tranches which were roughly 40 basis points tighter.

As a result, primary spreads are approaching pre-pandemic levels for several sectors, including Non-QM RMBS, which ended the year around five basis points tighter than February 2020 spreads.

Limited supply contributed to the strong oversubscription levels for newly issued RMBS, which fell 26% compared to the prior quarter as the election likely sidelined some issuers.

Overall, issuance in the fourth quarter brought full-year 2020 RMBS volumes to around $95 billion, which was around 25% lower compared to 2019.

Agency MBS continued their strong performance in the fourth quarter, with generic current coupon MBS spreads versus the 10-year Treasury rate tightening 29 basis points on the quarter and tightening 37 basis points over the full year, to spreads not seen since the third round of quantitative easing from the Federal Reserve in 2012.

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

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

While structured credit spreads have rallied from their March extremes, spreads for most RMBS and some ABS sub-sectors remain wide of pre-pandemic levels as ongoing risks over the implications of high unemployment due to COVID-19 hang over the market.

With respect to the CMBS market, markets conditions varied throughout the year.

In September and October of 2020 the significant rally in CMBS prices experienced earlier in the year seemed to be losing momentum, likely due to concerns regarding COVID-19 infections and political uncertainties.

Conditions improved in November of 2020, likely due to positive news regarding a COVID-19 vaccine and the broad election results.

Later in the month, the CMBS market experience significant pressure based on guidance provided by the National Association of Insurance Commissioners.

However, there was significant demand to absorb these sales, permitting the CMBS market to end the year on a positive note.

Regarding CMBS valuations over the course of 2020, we estimate that CMBS conduit AAA bonds started the year at approximately swaps plus 95 basis points, tightened to the mid-80s by February 2020 before widening into the mid-300s at the height of the pandemic-related panic, and subsequently tightened back to around swaps plus 80 to end the year.

The moves in BBB- bonds were even more dramatic, starting the year in the mid-300s, tightening to the low 300s before gapping out to well over swaps plus 1,000 basis points, and then ending the year in the low 400s range.

Delinquency data by property type also provides an interesting perspective on this difficult year.

The industrial sector fared best, with delinquencies rising from 1.4% to a peak of just 1.8% and then falling to 1.2% at year-end.

Office and multifamily properties largely followed similar patterns, with delinquencies ending the year around 2.2% and 2.9%, respectively.

Retail was negatively affected, with delinquencies rising from 4.4% to as high as 18% and ending the year at 13%.

Hotels were most impacted, with delinquencies rising from 1.5% to 24% and ending the year at 20%.

Notably, when hotel loans in special servicing or on servicer watchlists are included in this metric, approximately 70% of all securitized loans in that space showed some level of distress at their peak in 2020.

In light of various market uncertainties, in particular 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 and/or our Company.

Results of Operations for the Fiscal Year 2020 and 2019

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.

In particular, our results of operations for 2020 were significantly impacted by the conditions created by the COVID-19 pandemic.

Prior to the pandemic, 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.

However, we sold our 30 Year Fixed Rate Agency RMBS portfolio in March 2020 to raise liquidity.

As a result, 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.

Year Ended December 31, 2020 compared to the Year Ended December 31, 2019

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

Increase/(Decrease)

December 31, 2019

December 31, 2018

Year Ended Increase/(Decrease)

December 31, 2020 December 31, 2019

Statement of Operations Data:

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Foreign currency gain/(loss), net 1,528 (2,512) 4,040

Other income 6 1,182 (1,176)

Total Other Income/(Loss) (424,070) 39,104 (463,174)

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Other operating expenses 14,513 18,638 (4,125)

Restructuring related expenses 10,200 — 10,200

Equity based compensation to affiliate 163 349 (186)

Excise tax (815) 531 (1,346)

Servicing fees 2,224 1,619 605

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Net Income/(Loss) (420,919) 92,922 (513,841)

Gain on Exchange Offers, net 10,574 — 10,574

Dividends on preferred stock (20,549) (16,122) (4,427)

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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 increased from December 31, 2018 to December 31, 2019 primarily due to an increase in the weighted average cost of our GAAP investment portfolio and U.S.

Treasury securities, if any, period over period by $0.3 billion from $3.3 billion for the year ended December 31, 2018 to $3.6 billion for the year ended December 31, 2019 .

Additionally, there was an increase in the weighted average yield on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period of 0.01%

from 4.80% for the year ended December 31, 2018 to 4.81% for the year ended December 31, 2019 .

Interest income is calculated using the effective interest method for our GAAP investment portfolio and calculated based on the actual coupon rate.

Interest income decreased from December 31, 2019 to December 31, 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 decreased by $2.0 billion from $3.6 billion for the year ended December 31, 2019 to $1.6 billion for the year ended December 31, 2020.

We expect our interest income going forward to be materially lower compared to comparable prior periods as a result of the changes in our investment portfolio 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 increased from December 31, 2018 to December 31, 2019 primarily due to an increase in the weighted average financing rate on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period, by 0.38% from 2.55% for the year ended December 31, 2018 to 2.93% for the year ended December 31, 2019 .

Additionally, there was an increase in the weighted average financing balance on our GAAP investment portfolio and U.S.

Treasury securities, if any, of $0.3 billion from $2.8 billion for the year ended December 31, 2018 to $3.1 billion for the year ended December 31, 2019 .

For the year ended December 31, 2019 , interest expense includes a de minimis amount of deferred financing costs that were excluded from core earnings in transaction related expenses.

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

Interest expense is calculated based on the actual financing rate and the outstanding financing balance of our GAAP investment portfolio.

Interest expense decreased from December 31, 2019 to December 31, 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 during the period decreased by $2.0 billion from $3.1 billion for the year ended December 31, 2019 to $1.1 billion for the year ended December 31, 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 of real estate securities out of our GAAP investment portfolio, (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) other-than-temporary-impairment ("OTTI") charges recorded during the period.

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

Net realized gain/(loss) represents the net gain or loss recognized on any (i) sales and seizure, of real estate securities out of our GAAP investment portfolio, including any associated deficiency recognized, (ii) sale of loans out of our GAAP investment portfolio, transfer of loans from our GAAP investment portfolio to real estate owned, which is included within our Other assets line item on our consolidated balance sheets, and sale 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, and Note 4 to the "Notes to Consolidated Financial Statements" for further discussion on OTTI.

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

December 31, 2019

December 31, 2018

Sale of real estate securities

Sale of loans and loans transferred to or sold from Other assets

December 31, 2020 December 31, 2019

Sales/Seizures of real estate securities $ (130,567) $ 29,858

Sales of loans and loans transferred to or sold from Other assets (63,285) 1,042

Settlement of derivatives and other instruments (62,670) (64,181)

OTTI — (17,541)

Total Net realized gain/(loss) $ (256,522) $ (50,822)

As previously discussed, in order to preserve liquidity and meet margin calls, we sold approximately $3.2 billion of securities and loans during the year ended December 31, 2020, a majority of which were sold due to the unprecedented market conditions experienced as a result of the global COVID-19 pandemic, which is the primary driver of the variances presented in the table above.

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 increased from December 31, 2018 to December 31, 2019 due to a decrease in the weighted average pay rate for swaps from 2.41% at December 31, 2018 to 1.60% at to December 31, 2019 .

This was offset by a decrease in three-month LIBOR.

Three-month LIBOR decreased from 2.808 % at December 31, 2018 to 1.908 % at December 31, 2019 .

In addition, the weighted average swap notional decreased from $2.3 billion for the year ended December 31, 2018 to $1.6 billion for the year ended December 31, 2019 .

Net interest component of interest rate swaps decreased from December 31, 2019 to December 31, 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.

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

For the year ended December 31, 2019 , the gain of $83.8 million was comprised of unrealized gains on securities of $75.2 million and unrealized gains on loans of $8.6 million during the year.

For the year ended December 31, 2020, the loss of $159.5 million consisted of unrealized losses on securities of $136.8 million and unrealized losses on loans of $22.7 million during the year.

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

For the year ended December 31, 2019 , the $(0.3) million loss was comprised of unrealized losses on certain derivatives of $(0.3) million due to the decrease in the value of such derivatives.

For the year ended December 31, 2020, the $10.3 million loss consisted of unrealized losses on certain derivatives and securitized debt, offset by unrealized gains on Excess MSRs.

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.

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.

We invested in assets and liabilities denominated in foreign currencies during the year ended December 31, 2019 , causing the change from the year ended December 31, 2018 to the year ended December 31, 2019 .

The 2019 losses relate to an increase in the value of GBP relative to USD from the time we acquired assets and liabilities denominated in foreign currencies through the end of the year.

Other income primarily includes certain fees we receive on our loans and CMBS portfolios, and a premium received on a credit default swap which was entered into and expired in Q2 2019.

Other income increased from December 31, 2018 to December 31, 2019 primarily as a result of origination fees received on our loans during the year.

During the year ended December 31, 2020, our liabilities held in foreign currencies generated gains as the result of a decrease in the value of GBP relative to USD.

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

Other income decreased from December 31, 2019 to December 31, 2020 as a result of origination fees received on our loans during 2019 and a premium received on a credit default swap during 2019 that we did not receive in 2020.

Management fee to affiliate

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See the "Contractual obligations" section of this Part II, Item 7 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity.

Management fees increased from December 31, 2019 and December 31, 2018 primarily due to an increase in our Stockholders’ Equity as calculated pursuant to our Management Agreement.

Management fees decreased from December 31, 2020 to December 31, 2019 primarily due to an 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 2020 through September 30, 2020, or such other time as we and the Manager agreed.

As of December 31, 2020, we have paid all deferred management fees related to earlier periods and settled $4.3 million of management fees through the issuance of common stock to the Manager.

See Note 10 to the "Notes to Consolidated Financial Statements" and the "Liquidity and capital resources" section of this Item 7 below for a further discussion on management fees.

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.

These amounts primarily comprise 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 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 years ended December 31, 2020 and December 31, 2019 (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Non Investment Related Expenses

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Directors' compensation 680 880

Other 711 1,034

Total Corporate Expenses 11,246 11,466

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Transaction related expenses and deal related performance fees (2) (1,235) 4,491

Other 322 532

Total Investment Expenses 3,267 7,172

Total Other operating expenses $ 14,513 $ 18,638

Total Corporate Expenses and Total Investment Expenses for the three months ended December 31, 2019 were $3.2 million and $1.8 million, respectively.

Total Corporate Expenses and Total Investment Expenses for the three months ended December 31, 2018 were $2.7 million and $2.0 million, respectively.

(1) We recognize certain upfront costs and fees relating to investments for which the fair value option has been elected in current period earnings as incurred and do not defer those costs.

Refer to Note 2 to the "Notes to Consolidated Financial Statements" for more information regarding this policy.

(2) For the years ended December 31, 2020 and December 31, 2019, total transaction related expenses and deal related performance fees were $(0.6) million and $4.5 million, respectively.

For the year ended December 31, 2019 , the $4.5 million was comprised of $4.5 million and $42.0 thousand per the chart above as well as a de minimis amount of deferred financing costs that are included within interest expense.

For the year ended December 31, 2018 , the $2.1 million was

comprised of $1.8 million and $0.2 million per the chart above as well as $0.1 million of deferred financing costs that are included within interest expense.

The increase in Transaction related expenses and deal related performance fees from December 31, 2018 to December 31, 2019 is primarily a result of expenses incurred in connection with the Q3 2019 securitization of certain of our re-performing residential mortgage loans coupled with additional expenses incurred in connection with purchases of Residential mortgage loans during 2019.

For the year ended December 31, 2020, the $(0.6) million was comprised of $(1.2) million per the chart above as well as $0.6 million of deferred financing costs that are included within interest expense.

For the year ended December 31, 2019, the $4.5 million consisted of $42.0 thousand and $4.5 million per the chart above as well as a de minimis amount of deferred financing costs that are included within interest expense.

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

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 and the Reinstatement Agreement.

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.

Equity based compensation to affiliate increased from December 31, 2019 to December 31, 2018 as a result of a retrospective adjustment in Q1 2019 as a result of our adoption of ASU 2018-7, which changed the measurement of nonemployee share-based payment award recognition from the performance completion date (generally the vesting date) to the grant date.

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

For the years ended December 31, 2020 and December 31, 2019, our equity based compensation to affiliate decreased as a result of the remaining restricted stock units vesting during 2020.

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

The expense is calculated in accordance with applicable tax regulations.

For the years ended December 31, 2019 and December 31, 2018 our excise tax decreased primarily due to a true up based on filing our 2018 tax return coupled with a decrease in our current estimated undistributed taxable income.

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

Servicing fees

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As of December 31, 2020, and December 31, 2019, we owned Residential mortgage loans with a fair value of $435.4 million and $417.8 million, respectively.

This increase in the fair value of the Residential mortgage loans we own pertains to the purchase of Residential mortgage loan pools in 2019.

For the years ended December 31, 2019 and December 31, 2018 , our servicing fees increased primarily due to our purchases of residential mortgage loans during the period.

This increase in the fair value of the Residential mortgage loans we own pertains to the net purchases of Residential mortgage loan pools in 2019 and 2020.

For the years ended December 31, 2020 and December 31, 2019, our servicing fees increased primarily due to our net 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 decrease from the year ended December 31, 2019 to the year ended December 31, 2018 primarily pertains to our share of the unrealized losses on investments held within affiliated entities.

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.

Year Ended December 31, 2018 compared to the Year Ended December 31, 2017

The table below presents certain information from our consolidated statements of operations for the years ended December 31, 2018 and December 31, 2017 (in thousands):

Increase/(Decrease)

December 31, 2018

December 31, 2017

Statement of Operations Data:

Net Interest Income

Interest income

Interest expense

Total Net Interest Income

Other Income/(Loss)

Net realized gain/(loss)

Net interest component of interest rate swaps

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

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

Total Other Income/(Loss)

Management fee to affiliate

Other operating expenses

Equity based compensation to affiliate

Servicing fees

Total Expenses

Income/(loss) before equity in earnings/(loss) from affiliates

Equity in earnings/(loss) from affiliates

Net Income/(Loss) from Continuing Operations

Net Income/(Loss) from Discontinued Operations

Net Income/(Loss)

Dividends on preferred stock

Net Income/(Loss) Available to Common Stockholders

Interest income

Interest income increased from December 31, 2017 to December 31, 2018 primarily due to an increase in the weighted average cost of our GAAP investment portfolio and U.S.

Treasury securities, if any, period over period by $0.4 billion from $2.9 billion for the year ended December 31, 2017 to $3.3 billion for the year ended December 31, 2018 .

Additionally, there was an increase in the weighted average yield on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period of 0.35% from 4.45% for the year ended December 31, 2017 to 4.80% for the year ended December 31, 2018 .

Interest expense

Interest expense increased from December 31, 2017 to December 31, 2018 primarily due to an increase in the weighted average financing rate on our GAAP investment portfolio and U.S.

Treasury securities, if any, during the period, by 0.69% from 1.86% for the year ended December 31, 2017 to 2.55% for the year ended December 31, 2018 .

Additionally, there was an increase in the weighted average financing balance on our GAAP investment portfolio and U.S.

Treasury securities, if any, of $0.5 billion from $2.3 billion for the year ended December 31, 2017 to $2.8 billion for the year ended December 31, 2018 .

For the year ended December 31, 2018 , interest expenses includes $0.1 million of deferred financing costs that were excluded from core earnings in transaction related expenses.

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the years ended December 31, 2018 and December 31, 2017 (in thousands):

December 31, 2018

December 31, 2017

Sale of real estate securities

Sale of loans and loans transferred to or sold from Other assets

Settlement of derivatives and other instruments

Total Net realized gain/(loss)

Net interest component of interest rate swaps

Net interest component of interest rate swaps increased from December 31, 2017 to December 31, 2018 due to an increase in three-month LIBOR, coupled with an increase in swap notional amount for the period.

Three-month LIBOR increased from 1.694 % at December 31, 2017 to 2.808 % at December 31, 2018 .

In addition, the weighted average swap notional increased from $1.4 billion for the year ended December 31, 2017 to $2.3 billion for the year ended December 31, 2018 .

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

For the year ended December 31, 2018 , the $(20.9) million loss was comprised of unrealized losses on securities of $20.0 million and unrealized losses on loans of $0.9 million during the year.

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

For the year ended December 31, 2018 , the $(13.5) million loss was comprised of unrealized losses on certain derivatives of $13.4 million and unrealized losses on TBAs of $0.1 million during the year.

Other income increased from December 31, 2017 to December 31, 2018 primarily as a result of a premium received on a credit default swap.

Management fee to affiliate

Our management fees decreased from December 31, 2017 to December 31, 2018 primarily due to the decrease in our Stockholders’ Equity as calculated pursuant to our Management Agreement.

Other operating expenses

The following table presents a summary of expenses within Other operating expenses broken out between non investment portfolio related expenses and investment portfolio related expenses for the years ended December 31, 2018 and December 31, 2017 (in thousands):

December 31, 2018

December 31, 2017

Non Investment Related Expenses

Affiliate reimbursement - Operating expenses

Professional Fees

D&O insurance

Directors' compensation

Total Corporate Expenses (1)

Investment Related Expenses

Affiliate expense reimbursement - Deal related expenses

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

Professional fees

Residential mortgage loan related expenses

Transaction related expenses and deal related performance fees (2)

Total Investment Expenses (1)

Total Other operating expenses

Total Corporate Expenses and Total Investment Expenses for the three months ended December 31, 2018 were $2.7 million and $2.0 million, respectively.

Total Corporate Expenses and Total Investment Expenses for the three months ended December 31, 2017 were $2.3 million and $0.4 million, respectively.

For the years ended December 31, 2018 and December 31, 2017 , total transaction related expenses and deal related performance fees were $2.1 million and $0.1 million , respectively.

For the year ended December 31, 2018 , the $2.1 million was comprised of $1.8 million and $0.2 million per the above as well as $0.1 million of deferred financing costs that are included within interest expense.

Refer to our "Core Earnings" section below for more detail on transaction related expenses and deal related performance fees for the year ended December 31, 2017 .

Equity based compensation to affiliate

For the years ended December 31, 2018 and December 31, 2017 , our equity based compensation to affiliate decreased as a result of a decreased stock price for the year.

For the years ended December 31, 2018 and December 31, 2017 our excise tax remained relatively unchanged.

Servicing fees

For the years ended December 31, 2018 and December 31, 2017 our servicing fees increased primarily due to net purchases of residential mortgage loans during the period.

Equity in earnings/(loss) from affiliates

The increase for the year ended December 31, 2018 to the year ended December 31, 2017 primarily pertains to increased security prices causing an increase in unrealized gains on securities and loans.

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

The decrease from the year ended December 31, 2020 to the year ended December 31, 2019 primarily pertains to unrealized losses on investments held within affiliated entities, offset by our share of income generated by Arc Home.

During the year ended December 31, 2020, we recognized $23.3 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.

See Note 2 to the "Notes to Consolidated Financial Statements" for additional information on equity in earnings/(loss) from affiliates.

Discontinued operations

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

Gain on Exchange Offers, net

We completed a public exchange offer and two privately negotiated exchange offers (collectively, the "Exchange Offers") during the the year ended December 31, 2020.

As a result of the Exchange Offers, we exchanged a total of 253,482 shares of our 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 435,272 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") and 716,822 shares of our and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") for a total of 5,095,934 shares of common stock and cash consideration of $8.0 million.

We recognized a gain of $10.6 million in connection with the Exchange Offers, which is net of related expenses.

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

Results of Operations for Fiscal Year 2019 and 2018

For a comparison of our results of operations for the fiscal years ended December 31, 2019 and December 31, 2018, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.

Book value per share

As of December 31, 2019 and December 31, 2018 , our book value per common share was $17.61 and $17.21 , respectively.

Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP, including all vested shares granted to AG REIT Management, LLC, our external 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, 8.00% Series B Cumulative Redeemable Preferred Stock, and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock as the numerator.

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

As of December 31, 2020, the net proceeds for the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock is $43.8 million, $100.8 million and $93.9 million, respectively.

As of December 31, 2020, the liquidation preference for the issued and outstanding Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock is $45.4 million, $104.1 million and $97.1 million, respectively.

As of December 31, 2020 and December 31, 2019, our book value per common share calculated using stockholders’ equity less net proceeds on our preferred stock as the numerator was $4.13 and $17.61, respectively.

As of December 31, 2020 and December 31, 2019, our adjusted book value per common share calculated using stockholders’ equity less the liquidation preference of our preferred stock as the numerator was $3.94 and $17.33, respectively.

Presentation of investment, financing and hedging activities

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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 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" for a discussion of investments in debt and equity of affiliates and TBAs.

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" for a discussion of investments in debt and equity of affiliates.

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.

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, both of which 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 year-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 year-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 year-end, exclusive of repurchase agreements associated with U.S.

Treasury securities, if any.

The calculation of weighted average yield is weighted on fair value at year-end.

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 year-end.

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 March 2020, 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 to 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 December 31, 2019 , December 31, 2018 and December 31, 2017 , and a reconciliation to our GAAP investment portfolio:

December 31, 2019

Weighted Average

GAAP Investment

Investments in Debt and Equity of Affiliates

Investment Portfolio (a)

Cost of Funds (b)

Net Interest Margin

Leverage Ratio (c)

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

December 31, 2020

Weighted Average

GAAP Investment

Investments in Debt and Equity of Affiliates

Investment Portfolio (a)

Weighted Average GAAP Investment

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

Yield 3.73 % 7.78 % 4.36 %

Cost of Funds (b) 1.82 % 4.87 % 2.09 %

Net Interest Margin 1.91 % 2.91 % 2.27 %

Leverage Ratio (c)

Leverage Ratio (c) 2.4x (d) 1.5x

December 31, 2019

Weighted Average

GAAP Investment

Investments in Debt and Equity of Affiliates

Investment Portfolio (a)

Weighted Average GAAP Investment

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

Yield 4.57 % 6.75 % 4.82 %

Cost of Funds (b) 2.23 % 3.94 % 2.35 %

Net Interest Margin 2.34 % 2.81 % 2.47 %

Leverage Ratio (c)

Excludes any net TBA position.

Includes cost of non-recourse financing arrangements.

Leverage Ratio (c) 4.1x (d) 4.1x

(a) Excludes any net TBA position.

(b) Includes cost of non-recourse financing arrangements.

Non-recourse financing arrangements include securitized debt.

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.

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

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

Core Earnings

We define Core Earnings, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on real estate securities, loans, derivatives and other investments, (b) net realized gains/(losses) on the sale or termination of such instruments, and (c) any OTTI, (ii) beginning with Q2 2018, as a policy change, any transaction related expenses incurred in connection with the acquisition or disposition of our investments, (iii) beginning with Q3 2018, as a policy change, accrued deal related performance fees payable to Arc Home and third party operators to the extent the primary component of the accrual relates to items that are excluded from Core Earnings, such as unrealized and realized gains/(losses), (iv) beginning with Q4 2018 and applied retrospectively, as a policy change, realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights as well as realized and unrealized changes in the fair value of derivatives that are intended to offset changes in the fair value of those net mortgage servicing rights, (v) beginning with Q3 2019, concurrent with a change in our business, any foreign currency gains/(losses) relating to monetary assets and liabilities, and (vi) beginning with Q4 2019 and applied retrospectively, concurrent with a change in our business, income from discontinued operations.

Items (i) through (vi) above include any amounts related to those items held in affiliated entities.

We define Core Earnings, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on real estate securities, loans, derivatives and other investments, inclusive of our investment in AG Arc, (b) net realized gains/(losses) on the sale or termination of such instruments, and (c) any OTTI, (ii) any transaction related expenses incurred in connection with the acquisition or disposition of our investments, (iii) accrued deal-related performance fees payable to Arc Home and third party operators to the extent the primary component of the accrual relates to items that are excluded from Core Earnings, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, (vi) beginning with the third quarter of 2019, concurrent with a change in our business, any foreign currency gain/(loss) relating to monetary assets and liabilities, (vii) beginning with the fourth quarter of 2019 and applied retrospectively, concurrent with a change in our business, income from discontinued operations, and (viii) any gains/(losses) associated with exchange transactions on our common and preferred stock.

Items (i) through (viii) above include any amount related to those items held in affiliated entities.

Management considers the transaction related expenses referenced in (ii) above to be similar to realized losses incurred at the acquisition or disposition of an asset and does not view them as being part of its core operations.

Management views the exclusion described in (iv) above to be consistent with how it calculates Core Earnings on the remainder of its portfolio.

Management excludes all deferred taxes because it believes deferred taxes are not representative of current operations.

As defined, Core Earnings include the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income or any other investment activity that may earn or pay net interest or its economic equivalent.

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings to help measure this objective.

Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors as it enables them to evaluate our current core performance using the same measure that management uses to operate the business.

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings to help measure our performance against this objective.

Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors as it enables them to evaluate our current core performance using the same methodology that management uses to operate the business.

This metric, in conjunction with related GAAP measures, provides greater transparency into the information used by our management team in its financial and operational decision-making.

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Refer to the "Results of Operations" section above for a detailed discussion of our GAAP financial results.

A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the years ended December 31, 2019 , December 31, 2018 and December 31, 2017 is set forth below (in thousands, except per share data):

December 31, 2019

December 31, 2018

December 31, 2017

A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the years ended December 31, 2020 and December 31, 2019 is set forth below (in thousands, except per share data):

December 31, 2020 December 31, 2019

Net Income/(loss) available to common stockholders $ (430,894) $ 76,800

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Unrealized (gain)/loss on derivative and other instruments, net 10,347 312

Transaction related expenses and deal related performance fees (a)(b)(c)

Transaction related expenses and deal related performance fees (1) (613) 4,517

Equity in (earnings)/loss from affiliates 1,629 (7,644)

Net interest income and expenses from equity method investments (d)

Net interest income and expenses from equity method investments (2) 38,025 6,005

Foreign currency (gain)/loss, net (1,528) 2,512

Net (income)/loss from discontinued operations (666) 4,416

(Gains) from Exchange Offers, net (10,574) —

Dollar roll income 322 1,012

Other income — (27)

Core Earnings $ 22,036 $ 54,893

Core Earnings, per Diluted Share $ 0.63 $ 1.70

For the year ended December 31, 2017 and the three months ended March 31, 2018, the above chart was not adjusted for transaction related expenses of $0.3 million and $0.1 million , respectively.

Neither had a material impact on Core Earnings for those periods.

Our policy with respect to transaction related expenses was modified in Q2 2018.

For the year ended December 31, 2017 and the six months ended June 30, 2018, the above chart was not adjusted for deal related performance fees of $0.1 million .

Neither had a material impact on Core Earnings for those periods.

Our policy with respect to deal related performance fees was modified in Q3 2018.

(1) Refer to changes in Interest expense and Other operating expenses in our "Results of Operations" section above for a breakout of transaction related expenses and deal related performance fees for the years ended December 31, 2020 and December 31, 2019.

For the years ended December 31, 2019 , December 31, 2018 , and December 31, 2017 , $(8.5) million or $(0.26) per share, $0.5 million or $0.02 per share, and $1.1 million or $0.04 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives were excluded from Core Earnings per diluted share as a result of our modification to the definition and calculation of Core Earnings in Q4 2018.

(2) For the years ended December 31, 2020 and December 31, 2019, $(3.9 million) or $(0.11) per share and $(8.5 million) or $(0.26) per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives were excluded from Core Earnings per diluted share.

We did not disclose Core Earnings during the first three quarters of 2020 as we determined that this measure, as we have historically calculated it, did not appropriately capture our business, liquidity, results of operations, financial condition, or our ability to make distributions to our stockholders.

During the fourth quarter of 2020 we began disclosing Core Earnings in conjunction with the reinstatement of our dividends on our common stock and preferred stock.

Investment activities

We opportunistically invest in a diversified risk-adjusted portfolio of Agency RMBS and Credit Investments, which include Residential Investments and Commercial Investments.

Overall, our intention is to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes.

Historically, our investment portfolio has consisted of Agency RMBS, Residential Investments and Commercial Investments.

Our capital 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.

We evaluate investments in Agency RMBS using factors including expected future prepayment trends, supply of and demand for Agency RMBS, costs of financing, costs of hedging, expected future interest rate volatility and the overall shape of the U.S.

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 year ended December 31, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $1.2 billion, and at December 31, 2020, our equity capital allocation was 19.7% to Agency RMBS and 80.3% 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.

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.

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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 and the securitization structure.

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.

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 that 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 to 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.

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

Percent of Investment Portfolio Fair Value

Leverage Ratio (a)

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Residential Investments

Commercial Investments

Investment Portfolio

Investments in Debt and Equity of Affiliates (b)

GAAP Investment Portfolio

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).

The Economic Leverage Ratio excludes any non-recourse financing arrangements, including securitized debt.

Fair Value Percent of Investment Portfolio Fair Value Leverage Ratio (a)

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

Agency RMBS $ 521,843 $ 2,333,626 37.4 % 52.8 % 6.1x 7.1x

Residential Investments 691,478 1,493,869 49.5 % 33.8 % 0.2x 2.7x

Commercial Investments 182,296 589,709 13.1 % 13.4 % 0.9x 2.1x

Investment Portfolio $ 1,395,617 $ 4,417,204 100.0 % 100.0 % 1.5x 4.1x

Investments in Debt and Equity of Affiliates (b) $ 217,964 $ 373,126 N/A N/A (c) (c)

GAAP Investment Portfolio $ 1,177,653 $ 4,044,078 N/A N/A 2.4x 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's 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.

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

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

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

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

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

Allocated Equity

Percent of Equity

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Allocated Equity Percent of Equity

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

Agency RMBS $ 80,854 $ 295,358 19.7 % 34.8 %

Residential Investments 229,183 359,923 56.0 % 42.4 %

Commercial Investments 99,668 193,765 24.3 % 22.8 %

Discontinued Operations

Total $ 409,705 $ 849,046 100.0 % 100.0 %

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

Amortized Cost

Unrealized Mark-to-

Fair Value (1)

Weighted Average

Average Yield

Weighted Average

Life (Years) (3)

Instrument Current Face Amortized Cost Unrealized Mark-to-Market Fair Value (1) Coupon (2) Yield Life (Years) (3)

30 Year Fixed Rate $ 494,307 $ 516,675 $ 1,677 $ 518,352 2.10 % 1.17 % 5.55

Inverse Interest Only

Interest Only

Excess MSR (4)

Excess MSR (4) 642,377 4,986 (1,495) 3,491 N/A 3.80 % 6.08

Total Agency RMBS 1,136,684 521,661 182 521,843 2.10 % 1.19 % 5.85

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Residential Investments

Prime (5) 15,093 8,012 653 8,665 3.68 % 8.97 % 12.99

Alt-A/Subprime (5) 16,287 6,910 4,586 11,496 4.25 % 12.52 % 9.70

Credit Risk Transfer 13,880 13,880 (572) 13,308 4.71 % 4.70 % 5.86

Non-U.S.RMBS 2,435 3,141 (41) 3,100 6.45 % 6.41 % 4.59

Interest Only and Excess MSR (4) 191,362 265 55 320 0.53 % 3.44 % 0.70

Re/Non-Performing Loans 582,329 470,440 8,125 478,565 3.62 % 6.49 % 6.17

Non-QM Loans 1,271,998 156,109 (2,909) 153,200 1.08 % 4.95 % 1.29

Land Related Financing 22,824 22,824 — 22,824 14.59 % 14.59 % 0.84

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Commercial Investments

Conduit 4,925 3,901 (606) 3,295 4.62 % 11.89 % 3.51

Single-Asset/Single-Borrower 50,480 48,986 (8,796) 40,190 4.15 % 4.81 % 2.27

Freddie Mac K-Series 22,572 10,510 (1,510) 9,000 3.83 % 9.00 % 10.32

Interest Only (6)

CMBS Interest Only (6) 687,077 4,116 187 4,303 0.10 % 6.93 % 4.12

Commercial Real Estate Loans (7) 142,167 141,655 (16,147) 125,508 4.60 % 4.96 % 2.33

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

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.

(4) Excess MSRs whose underlying collateral is securitized in a trust held by a U.S.

government agency or GSE are included within Agency RMBS.

Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S.

government agency or GSE are included within Residential Investments.

(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.

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(7) Yield on Commercial Real Estate Loans includes any exit fees.

Refer to Note 4 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Commercial Loans" line item on our consolidated balance sheet.

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2019 (in thousands):

Amortized Cost

Unrealized Mark-to-

Fair Value (1)

Weighted Average

Average Yield

Weighted Average

Life (Years)(3)

Instrument Current Face Amortized Cost Unrealized Mark-to-Market Fair Value (1) Coupon (2) Yield Life (Years) (3)

30 Year Fixed Rate $ 2,125,067 $ 2,184,190 $ 57,108 $ 2,241,298 3.73 % 3.17 % 5.85

Fixed Rate CMO

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)

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

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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

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

Interest Only (6)

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

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

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

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.

(4) Excess MSRs whose underlying collateral is securitized in a trust held by a U.S.

government agency or GSE are included within Agency RMBS.

Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S.

government agency or GSE are included within Residential Investments

(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.

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(7) Yield on Commercial Real Estate Loans includes any exit fees.

Refer to Note 4 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Commercial Loans" line item on our consolidated balance sheet.

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

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Fair Value CPR (1)(2)

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

30 Year Fixed Rate $ 518,352 $ 2,241,298 2.7 % 8.1 %

Fixed Rate CMO (3)

Inverse Interest Only (3) — 38,238 — % 11.7 %

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

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

We held ARMs during 2018, but sold them prior to December 31, 2018 .

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):

December 31, 2019

December 31, 2018

(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) for the year ends presented:

December 31, 2020 December 31, 2019

Non-Agency RMBS (1) $ 128,131 $ 835,325

CMBS (2) 56,788 431,023

Total Credit securities 184,919 1,266,348

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Commercial real estate loans 125,508 158,686

Total loans 688,855 817,230

Total Credit Investments $ 873,774 $ 2,083,578

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Total GAAP Credit Portfolio $ 656,227 $ 1,711,007

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.

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

(1) Includes 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.

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:

Amortized Cost

Unrealized Mark-to-

Fair Value (1)

Weighted Average

Average Yield

Weighted Average

Life (Years) (3)

Credit Securities

Investments in Debt and Equity of Affiliates

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

Equity residual investments and principal only securities are excluded from this calculation.

Weighed 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, 2018 ($ in thousands).

We have also presented a reconciliation to GAAP.

Credit Securities:

Amortized Cost

Unrealized Mark-to-

Fair Value (1)

Weighted Average

Life (Years) (3)

Credit Securities

Investments in Debt and Equity of Affiliates

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

Equity residual investments and principal only securities are excluded from this calculation.

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

Credit Rating - Credit Securities (1)

December 31, 2019 (2)

December 31, 2018 (2)

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

AAA $ 630 $ 4,975

BB 9,037 106,311

B 25,318 226,083

Below B 17,046 103,985

Not Rated 132,888 745,748

Credit Securities $ 184,919 $ 1,266,348

Investments in Debt and Equity of Affiliates $ 89,725 $ 131,955

GAAP Basis $ 95,194 $ 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.

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

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

December 31, 2020

Non-Agency RMBS

Fair Value (2)

Percentage (2)

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

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

Non-Agency RMBS CMBS

State Fair Value (1) Percentage (1) State Fair Value Percentage

California $ 40,593 32.5 % Texas $ 6,454 11.4 %

New York 17,742 14.2 % New York 6,264 11.0 %

Florida 10,982 8.8 % California 4,801 8.5 %

Texas 4,216 3.4 % Florida 4,014 7.1 %

New Jersey 4,028 3.2 % Missouri 2,753 4.8 %

Other 50,570 37.9 % Other 32,502 57.2 %

Total $ 128,131 100.0 % Total $ 56,788 100.0 %

(1) Non-Agency RMBS fair value includes $3.1 million of investments where there were no data regarding the underlying collateral.

These positions were excluded from the percent calculation.

December 31, 2019

Non-Agency RMBS

Fair Value (2)

Percentage (2)

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

Non-Agency RMBS fair value includes $78.8 million of investments where there was no data regarding the underlying collateral.

Non-Agency RMBS CMBS

State Fair Value (1) Percentage (1) 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 23,736 3.3 % New Jersey 31,396 7.3 %

Other 482,403 50.5 % Other 210,012 48.8 %

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

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

These positions were excluded from the percent calculation.

See Note 4 to the "Notes to the Consolidated Financial Statements" 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.

See Note 4 to the "Notes to Consolidated Financial Statements" 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):

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Non-Agency RMBS*

Weighted Average 60+

Days Delinquent

Weighted Average

Loan Age (Months)

Weighted Average

Category Fair Value Weighted Average 60+

Days Delinquent Weighted Average

Loan Age (Months) Weighted Average

Credit Enhancement

Prime $ 8,665 4.0 % 26.4 2.9 %

Alt-A/Subprime 11,496 9.5 % 95.0 0.1 %

Credit Risk Transfer 13,308 6.8 % 5.3 0.4 %

Weighted Average 60+

Days Delinquent

Weighted Average

Loan Age (Months)

Weighted Average

RMBS 3,100 2.4 % 41.4 1.3 %

Category Fair Value Weighted Average 60+

Days Delinquent Weighted Average

Loan Age (Months) Weighted Average

Credit Enhancement

Conduit $ 3,295 10.6 % 81.0 8.7 %

Single-Asset/Single-Borrower 40,190 — % 29.2 6.1 %

Freddie Mac K Series 9,000 0.2 % 25.9 — %

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Non-Agency RMBS*

Weighted Average 60+

Days Delinquent

Weighted Average

Loan Age (Months)

Weighted Average

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 %

Weighted Average 60+

Days Delinquent

Weighted Average

Loan Age (Months)

Weighted Average

RMBS 57,731 7.3 % 147.8 15.8 %

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 %

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

Gross Unrealized

Weighted Average

Amortized Cost

Initial Stated

Maturity Date

Loan H (7)(8)

March 9, 2019

February 9, 2021

February 9, 2023

January 1, 2023

January 1, 2024

February 22, 2024

July 22, 2022

July 22, 2024

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

See our "Off-balance sheet arrangements" section below for details on our commitments on commercial real estate loans as of December 31, 2019 .

Each commercial real estate loan investment has a variable coupon rate.

Yield includes any exit fees.

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

Weighted average maturities are affected by prepayments of principal.

Represents the maturity date of the last possible extension option.

Loan G, Loan H, and Loan J are first mortgage loans.

Subsequent to quarter end, Loan H has been extended to the extended maturity date.

Loan I is a mezzanine loan.

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

The following table presents detail on our commercial real estate loan portfolio on December 31, 2018 ($ in thousands).

Gross Unrealized

Weighted Average

Amortized Cost

Initial Stated

Maturity Date

September 9, 2018

September 9, 2019

March 9, 2019

March 9, 2020

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

Each commercial real estate loan investment has a variable coupon rate.

Yield includes any exit fees.

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

Maturities are affected by prepayments of principal.

Represents the maturity date of the last possible extension option.

Loan B is comprised of a first mortgage and mezzanine loan.

As of December 31, 2018, Loan B has been extended to the extended maturity date shown above.

Loan B paid off at par in Q3 2019 and we received $32.8 million of principal proceeds.

Loan F is a mezzanine loan.

As of December 31, 2018, Loan F has been extended to January 2019.

Loan F paid off at par in Q1 2019, and we received proceeds of $10.4 million.

Loan G and Loan H are first mortgage loans.

In our Re/Non-Performing Loan portfolio, 28% of the overall population has requested COVID-19-related assistance as of December 31, 2020;

approximately 48% of the population requesting assistance is being reported as contractually current as of year end as this population no longer owes any past due payments.

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

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

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

On February 9, 2021, the FHFA announced that it was extending the maximum time a borrower can be in COVID-19 forbearance to 15 months, up from 12 months previously.

The FHFA also announced that it had extended its moratorium on foreclosure on single-family homes through March 31, 2021.

As guidelines continue to evolve, the servicers will adapt their practices accordingly.

Prior to March 2020, 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 the fourth quarter of 2020 was 4.8%.

COVID-19 related delinquencies made up approximately 33% of those defaults in the fourth quarter of 2020.

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

In our Non-QM Loan portfolio, 34% of the overall population has requested COVID-19 related assistance as of December 31, 2020;

approximately 67% of the population requesting assistance is being reported as contractually current as of year end as this population no longer owes any past due payments.

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 March 2020, the three month average monthly default rate was 1.3%.

The default rate for the fourth quarter of 2020 was 0.8%.

COVID-19 related delinquencies made up approximately 38% of those defaults in the fourth quarter of 2020.

Financing activities

We use leverage to purchase our target assets.

In 2019 and 2018 , our leverage has primarily been in the form of repurchase agreements, facilities, and securitized debt.

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, credit 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.

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

We did not experience fluctuations in our haircuts that caused us to alter our business and financing strategies for the year ended December 31, 2019 , but we continue to monitor the regulatory environment, which may influence the timing and amount of our financing activity.

We seek to obtain financing from multiple different counterparties in order to reduce our financing risk related to any single counterparty.

We had outstanding debt with 30 and 31 counterparties at December 31, 2019 and December 31, 2018 , respectively.

The vast majority of our financing arrangements are repurchase agreements.

We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the year ended December 31, 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 5 as of December 31, 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.

If we do not maintain the beneficial interest in the specific assets pledged during the term of the borrowing, the lender will remit to us the related principal and interest payments.

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.

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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.

Additionally, these facilities contain representations, warranties, covenant, including financial covenant, 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 .

As of December 31, 2019 and December 31, 2018 , we have met all margin call requirements.

For the year ended December 31, 2019 , we noted no material changes in the spread of our financing arrangements.

However, our cost of financing decreased.

The Fed elected to cut the federal funds interest rate by a total of 75 basis points during 2019.

As a result, our cost of financing decreased by 62 bps from 3.13% at December 31, 2018 to 2.51% at December 31, 2019 .

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

Average Quarterly

Maximum Balance at

Any Month-End

December 31, 2019

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

September 30, 2019

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

June 30, 2019

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

March 31, 2019

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

December 31, 2018

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

September 30, 2018

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

June 30, 2018

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

March 31, 2018

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

December 31, 2017

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

September 30, 2017

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

June 30, 2017

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

March 31, 2017

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

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.

Forbearance and Reinstatement Agreements

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 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 and, in turn, 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.

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.

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").

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 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 12 in the "Notes to Consolidated Financial Statements" for more information on deficiencies that are now settled.

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, as further described in the "Contractual obligations–Secured debt" section below, and other recourse financing.

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

December 31, 2020 December 31, 2019

Recourse financing $ 580,037 $ 3,490,884

Non-recourse financing 466,294 224,348

Total (1) $ 1,046,331 $ 3,715,232

Recourse financing - Investments in Debt and Equity of Affiliates 5,597 257,416

Non-recourse financing - Investments in Debt and Equity of Affiliates (2) 111,135 —

Total Investments in Debt and Equity of Affiliates 116,732 257,416

GAAP Basis $ 929,599 $ 3,457,816

(1) As of December 31, 2020, total financing includes $680.8 million of financing arrangements, collateralized by various asset types in our investment portfolio;

$355.2 million of securitized debt, collateralized by Re/Non-Performing Loans;

and $10.4 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.

(2) On January 29, 2021, we and private funds under the management of Angelo Gordon entered into an amendment with respect to our Restructured Financing Arrangement in MATT.

The amendment serves to convert the existing financing to a mark-to-market facility that is recourse to us and the private funds managed by Angelo Gordon that invest in MATT.

Financing arrangements on our investment portfolio

As of December 31, 2019 and December 31, 2018 , we have entered into financing arrangements on our investment portfolio with 44 counterparties under which we had outstanding debt with 30 and 31 counterparties, respectively, inclusive of financing arrangements with affiliated entities.

See Note 7 to the "Notes to Consolidated Financial Statements" for a description of our material financing arrangements.

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

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

The following table presents a summary of financing arrangements on our investment portfolio as of December 31, 2019 and December 31, 2018 (in thousands).

December 31, 2019

December 31, 2018

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

December 31, 2020 December 31, 2019

Weighted Average Collateral (1)

Carrying Value Stated Maturity Funding Cost Life (Years) Amortized Cost Basis Fair Value Carrying Value

Repurchase Agreements

Repurchase Agreements on Agency RMBS

30 Year Fixed Rate $ 435,893 Jan 2021 0.21 % 0.04 $ 459,684 $ 460,949 $ 2,047,739

Inverse Interest Only — N/A — — — — 31,761

Interest Only — N/A — — — — 29,778

435,893 0.21 % 0.04 459,684 460,949 2,109,278

Repurchase Agreements on Credit Investments

Non-Agency RMBS (2) 37,744 Jan 2021 - Oct 2021 3.72 % 0.43 87,607 92,111 637,893

Residential Loans (3) 25,590 Mar 2021 2.38 % 0.21 44,520 46,571 131,594

63,334 3.18 % 0.34 132,127 138,682 769,487

CMBS (4) 24,881 Jan 2021 - Feb 2021 2.66 % 0.04 51,961 42,669 312,627

Commercial Real Estate Loans — N/A — — — — 3,017

24,881 2.66 % 0.04 51,961 42,669 315,644

Total Repurchase Agreements 524,108 0.69 % 0.07 643,772 642,300 3,194,409

Revolving Facilities (5)(6)(7)

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

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

Financing Arrangements Maturing Within:

Weighted Average

30 days or less

Greater than 180 days

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

As of December 31, 2019 , our weighted average days to maturity was 94 days and our weighted average original days to maturity was 164 days on a GAAP Basis.

As of December 31, 2019 , our weighted average days to maturity was 92 days and our weighted average original days to maturity was 196 days on a Non-GAAP Basis.

The following table presents a summary of financing arrangements on our Investment Portfolio as of December 31, 2018 ($ in thousands):

Financing Arrangements Maturing Within:

Weighted Average

30 days or less

Greater than 180 days

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

As of December 31, 2018 , our weighted average days to maturity was 83 days and our weighted average original days to maturity was 156 days on a GAAP Basis.

As of December 31, 2018 , our weighted average days to maturity was 85 days and our weighted average original days to maturity was 168 days on a Non-GAAP Basis.

Repurchase agreements

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

It also reconciles these items to GAAP:

Repurchase Agreements Maturing Within:

Weighted Average

Days to Maturity

Average Haircut

30 days or less

Greater than 180 days

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

The following table presents, as of December 31, 2018 , a summary of our repurchase agreements on our real estate securities ($ in thousands).

It also reconciles these items to GAAP:

Repurchase Agreements Maturing Within:

Weighted Average

Days to Maturity

Average Haircut

30 days or less

Greater than 180 days

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

The increase in the balance of our repurchase agreements from December 31, 2018 to December 31, 2019 is due primarily to financing added on securities purchased during the year.

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

Repurchase Agreements Maturing Within:

Weighted Average

Days to Maturity

Average Haircut

Greater than 180 days

The following table presents, as of December 31, 2018 , a summary of repurchase agreements on our Re/Non-performing loans ($ in thousands).

Repurchase Agreements Maturing Within:

Weighted Average

Days to Maturity

Average Haircut

Greater than 180 days

The increase in the balance of our repurchase agreements from December 31, 2018 to December 31, 2019 on our Re/Non-performing loans is due primarily to financing added on loans purchased in 2019.

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:

Weighted Average

Days to Maturity

Average Haircut

Greater than 180 days

There were no repurchase agreements on our commercial real estate loans as of December 31, 2018 .

Financing facilities

The following table presents information regarding revolving facilities as of December 31, 2019 and December 31, 2018 ($ in thousands).

It also reconciles these items to GAAP.

December 31, 2019

December 31, 2018

Maturity Date

Funding Cost (1)

Maximum Aggregate Borrowing Capacity

Funding Cost (1)

Revolving facility A (2)(3)

Commercial loans

Revolving facility B (2)(4)

Re/Non-performing loans

June 28, 2021

Revolving facility C (2)(4)

Commercial loans

August 10, 2023

Revolving facility D (2)(4)(5)

February 16, 2021

Revolving facility E (2)

Re/Non-performing loans

November 25, 2020

Revolving facility F (2)

Re/Non-performing loans

July 25, 2021

Commercial Real Estate Loans (8)(9) 63,133 Aug 2023 2.79 % 2.60 110,114 96,862 89,956

Residential Loans (10)(11) 93,529 July 2021-Oct 2021 4.94 % 0.74 105,957 104,383 204,751

Real Estate Owned (12) 9 July 2021 1.94 % 0.56 22 22 1,768

Total Revolving Facilities 156,671 4.07 % 1.49 216,093 201,267 296,475

Non-GAAP Basis $ 680,779 1.47 % 0.40 $ 859,865 $ 843,567 $ 3,490,884

Investments in Debt and Equity of Affiliates $ 116,732 4.87 % 0.73 $ 169,577 $ 167,863 $ 257,416

Funding costs represent the stated rate inclusive of any deferred financing costs.

Under the terms of our financing agreements, the counterparties may, in certain cases, sell or re-hypothecate the pledged collateral.

This facility was paid off in July 2019.

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

Subsequent to quarter end, this facility was renewed with a maturity date of February 16, 2021 and the maximum aggregate borrowing capacity was increased to $312.1 million.

The increase in our Revolving facility C balance from December 31, 2018 to December 31, 2019 is due primarily to the financing obtained to purchase certain commercial real estate loans during the year.

The increase in our Revolving facility D balance from December 31, 2018 to December 31, 2019 is due primarily to the financing obtained by Mortgage Acquisition Trust I LLC ("MATT") during the year in order to acquire Non-QM Loans.

GAAP Basis $ 564,047 0.76 % 0.33 $ 690,288 $ 675,704 $ 3,233,468

(1) We also had $1.5 million of cash pledged under repurchase agreements as of December 31, 2020, which included $45.0 thousand pledged under repurchase agreements held at Investments in Debt and Equity of Affiliates.

(2) Includes repurchase agreements on 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.

(3) These amounts represent certain of our retained interests in securitizations.

Refer to "Other financing transactions" below for more information on the August 2019 VIE and September 2020 VIE.

(4) Includes repurchase agreements on Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments.

(5) All revolving facilities listed above are interest only until maturity.

(6) Under the terms of our financing agreements, our financial counterparties may, in certain cases, sell or re-hypothecate the pledged collateral.

(7) Increasing the Company's borrowing capacity under these facilities requires consent of the lender.

(8) The funding cost on this facility is inclusive of the impact of deferred financing costs.

The stated rate was 2.30% as of December 31, 2020.

(9) The borrowing capacity on the commercial loan revolving facility is $100 million.

(10) Includes financing on Re/Non-Performing Loans and Non-QM Loans not held in securitized form.

(11) As of December 31, 2020, there are two revolving facilities used to finance residential loans, including one which is also used to finance Real Estate Owned.

As of December 31, 2019, there were four revolving facilities used to finance residential loans, two of which were also used to finance real estate owned.

Two of these facilities paid off during 2020.

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 5 as of December 31, 2020.

See Note 6 to the "Notes to Consolidated Financial Statements" for a description of our material financing arrangements as of December 31, 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.

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" for more detail on Consolidated 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

Life (Years) (1)

Consolidated tranche (2)

Retained tranche

Total resecuritized asset (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.

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.

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

The following table details certain information related to the Consolidated December 2014 VIE as of December 31, 2018 ($ in thousands):

Weighted Average

Life (Years) (1)

Consolidated tranche (2)

Retained tranche

Total resecuritized asset (3)

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.

As of December 31, 2018 , we have recorded secured financing of $10.9 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.

As of December 31, 2018 , the fair value of the total resecuritized asset is included on our consolidated balance sheets as "Non-Agency RMBS."

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

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

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

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

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

Weighted Average

Current Unpaid Principal Balance

Life (Years) (1)

Residential mortgage loans (2)

Securitized debt (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.

This represents all loans contributed to the consolidated VIE.

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

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.

We did not have an interest in the Consolidated August 2019 VIE as of December 31, 2018 .

We define GAAP leverage as the sum of (1) our GAAP 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.

In addition to our financing arrangements, we also finance our Re/Non-performing loans with securitized debt.

From time to time, we enter into securitization transactions of certain Re/Non-performing loans where special purpose entities ("SPEs") are created to facilities the transactions.

These SPEs are considered variable interest entities ("VIEs"), which should be consolidated under ASC 810-10.

As of December 31, 2020 and December 31, 2019, we have recorded secured financing in connection with these VIEs of $355.2 million and $224.4 million, respectively, on the consolidated balance sheets in the "Securitized debt, at fair value" line item.

See Note 2, Note 3, and Note 4 to the "Notes to Consolidated Financial Statements" for more detail on securitized debt and our consolidated VIEs.

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 non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, exclusive of any financing utilized through AG Arc, any adjustment related to unsettled trades as described in (2) in the previous sentence, and any non-recourse financing arrangements and (iii) our net TBA position (at cost).

(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).

December 31, 2019

Stockholders' Equity

Leverage Ratio

GAAP Leverage

Non-recourse financing arrangements*

December 31, 2020 Leverage Stockholders' Equity Leverage Ratio

GAAP Leverage $ 979,303 $ 409,705 2.4x

Financing arrangements through affiliated entities 116,688

Economic Leverage

* Non-recourse financing arrangements includes securitized debt.

December 31, 2018

Stockholders' Equity

Leverage Ratio

GAAP Leverage

Non-recourse financing arrangements (1) (466,294)

Economic Leverage $ 629,697 $ 409,705 1.5x

(1) Non-recourse financing arrangements include securitized debt.

December 31, 2019 Leverage Stockholders' Equity Leverage Ratio

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

Financing arrangements through affiliated entities 257,416

Economic Leverage

* Non-recourse financing arrangements includes securitized debt.

Non-recourse financing arrangements (1) (224,348)

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

(1) Non-recourse financing arrangements include securitized debt.

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 limitation 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 thirty (30) as of December 31, 2019 to five (5) as of December 31, 2020 with debt outstanding of $0.7 billion, inclusive of financing arrangements through affiliated entities.

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

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

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.

During the second quarter of 2020, 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 December 31, 2020 with respect to each counterparty that provides us with financing for which we had greater than 5% of our stockholders’ equity at risk ($ in thousands).

Counterparty Stockholders' Equity

at Risk Weighted Average

Maturity (days) Percentage of

Stockholders' Equity

Credit Suisse AG, Cayman Islands Branch - Non-GAAP $ 67,704 130 16.5 %

Non-GAAP Adjustments (a) (41,399) (95) (10.1) %

Credit Suisse AG, Cayman Islands Branch - GAAP $ 26,305 35 6.4 %

BofA Securities, Inc.

$ 28,091 19 6.9 %

Barclays Capital Inc.

24,890 15 6.1 %

(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.

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.

We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in U.S.

2 unchanged sentences

Treasury Futures, British Pound Futures and Euro Futures (collectively, "Futures").

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.

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

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

Beginning in the first quarter of 2017, as a result of an amendment to the CCPs' rule book, which governs their central clearing activities, the daily exchange of variation margin associated with a CCP instrument is legally characterized as the daily settlement of the derivative instrument itself, as opposed to a pledge of collateral.

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

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

See Note 7 in the "Notes to Consolidated Financial Statements" for more information.

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

December 31, 2019

December 31, 2018

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)

Payer Swaptions

Long positions on U.S.

Treasury Futures (3)

Short positions on Eurodollar Futures (4)

Short positions on British Pound Futures (5)

Short positions on Euro Futures (6)

Short positions on U.S.

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.

There was no notional amount of pay fix/receive float interest rate swap agreements held through investments in debt and equity of affiliates as of December 31, 2018 .

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.

There were no interest rate swaps held through investments in debt and equity of affiliates as of December 31, 2018 .

Treasury Future contract embodies $100,000 of notional value.

Each Eurodollar Future contract embodies $1,000,000 of notional value.

Each British Pound Future contract embodies £62,500 of notional value.

Each Euro Future contract embodies €125,000 of notional value.

Interest rate swaps

To help mitigate exposure to increases in interest rates, we use currently-paying and may use 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 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.

Notional Amount

Weighted Average

Pay-Fixed Rate

Weighted Average

Receive-Variable Rate (1)

Weighted Average

Years to Maturity

Total/Wtd Avg:

Non-GAAP Basis

Investments in Debt and Equity of Affiliates

Total/Wtd Avg:

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

As of December 31, 2018 , 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, 2018 ($ in thousands):

Notional Amount

Weighted Average

Pay-Fixed Rate

Weighted Average

Receive-Variable

Weighted Average

Years to Maturity

Total/Wtd Avg

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

We intend to continue to make regular quarterly distributions to holders of our common stock if and to the extent authorized by our Board of Directors.

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

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

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

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

As of December 31, 2019 , we had estimated undistributed taxable income of approximately $1.10 per share.

The following tables detail our common stock dividends during the years ended December 31, 2019 , 2018 and 2017 :

Declaration Date

Dividend Per Share

Declaration Date

Dividend Per Share

Declaration Date

Dividend Per Share (1)

The combined dividend of $0.575 includes a dividend of $0.475 per common share and a special cash dividend of $0.10 per common share.

The following tables detail our preferred stock dividends on our 8.25% Series A Preferred Stock, 8.00% Series B Preferred Stock, and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable preferred stock during the years ended December 31, 2019 , 2018 and 2017 :

Declaration Date

Dividend Per Share

8.25% Series A

Declaration Date

Dividend Per Share

8.00% Series B

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.

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

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

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

We did not have any undistributed taxable income as of December 31, 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 Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, beginning with the preferred dividend that would have been declared in May 2020, in order to conserve capital and improve its liquidity position during the market volatility due to the COVID-19 pandemic, as well as a suspension of the quarterly dividend on the common stock, beginning with the dividend that normally would have been declared in March 2020.

Under the terms of the Articles Supplementary governing our series of preferred stock, we cannot pay cash dividends with respect to our common stock if dividends on our preferred stock are in arrears.

On December 17, 2020, we paid our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock dividends 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.

On December 22, 2020, our Board of Directors declared a dividend of $0.03 per common share for the fourth quarter 2020.

The dividend was paid on January 29, 2021 to shareholders of record at the close of business on December 31, 2020.

The following tables detail the Company's common stock dividends during the years ended December 31, 2020 and December 31, 2019:

Declaration Date Record Date Payment Date Dividend Per Share

12/22/2020 12/31/2020 1/29/2021 $ 0.03

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

12/13/2019 12/31/2019 1/31/2020 0.45

The following tables detail our preferred stock dividends during the years ended December 31, 2020 and December 31, 2019:

2020 Cash Dividend Per Share

Declaration Date Record Date Payment Date 8.25% Series A

8.00% Series B

Declaration Date

Dividend Per Share

8.000% Series C

Declaration Date

Dividend Per Share

8.25% Series A

Declaration Date

Dividend Per Share

8.00% Series B

Declaration Date

Dividend Per Share

8.25% Series A

Declaration Date

Dividend Per Share

8.00% Series B

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

11/6/2020 11/30/2020 12/17/2020 1.54689 1.50 1.50

Total $ 2.06252 $ 2.00 $ 2.00

2019 Cash Dividend Per Share

Declaration Date Record Date Payment Date 8.25% Series A

8.00% Series B

8.000% Series C

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 —

11/15/2019 11/29/2019 12/17/2019 0.51563 0.50 0.50

Total $ 2.06252 $ 2.00 $ 0.50

Liquidity and capital resources

Our liquidity determines our ability to meet our cash obligations, including commitments to make distributions to our stockholders, pay our expenses, finance our investments and satisfy other general business needs.

Our principal sources of cash as of December 31, 2019 consisted of borrowings under financing arrangements, principal and interest we receive on our Agency RMBS and credit portfolio, cash generated from our operating results, and proceeds from capital market transactions.

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 December 31, 2020 consisted of proceeds from sales of assets in an effort to prudently manage our portfolio through unprecedented market volatility resulting from the COVID-19 global pandemic, borrowings under financing arrangements, principal and interest payments we receive on our investment portfolio, 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 December 31, 2019 , we had $163.3 million available to support our liquidity needs, comprised of $81.7 million of cash, $80.5 million of Agency fixed rate securities and CMOs that have not been pledged as collateral under any of our financing arrangements and $1.1 million of U.S.

Treasury securities that have not been pledged as collateral under any of our financing arrangements.

Refer to the "Contractual obligations" section of this Part

II, Item 7 for additional obligations that could impact our liquidity.

The amount of leverage 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.

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 of December 31, 2019 , we had financing arrangements with 44 counterparties, allowing us to utilize leverage in our operations.

As of December 31, 2019 , we had debt outstanding of $3.5 billion from 30 counterparties, inclusive of financing arrangements through affiliated entities.

The borrowings under financing arrangements have maturities between January 2, 2020 and August 10, 2023 .

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.

If we fail to meet or satisfy any covenants, supplemental terms or representations and warranties, we would be in default under these agreements and our lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable, enforce their respective interests against collateral pledged under such agreements and restrict our ability to make additional borrowings.

Certain financing arrangements may contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.

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

See "Financing arrangements on our investment portfolio" section above for information on the contractual maturity of our financing arrangements at December 31, 2019 and December 31, 2018 .

As described above in the "Financing activities" section of this Part II, Item 7, 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 Note 4 to the "Notes to Consolidated Financial Statements" for more detail.

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

Stockholders' Equity

Weighted Average

Maturity (days)

Percentage of

Stockholders' Equity

Credit Suisse Securities, LLC - Non-GAAP

Non-GAAP Adjustments (a)

Credit Suisse Securities, LLC - GAAP

Barclays Capital Inc

Citigroup Global Markets Inc.

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

The following table presents information at December 31, 2018 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).

Stockholders' Equity

Weighted Average

Maturity (days)

Percentage of

Stockholders' Equity

Credit Suisse Securities, LLC - Non-GAAP

Non-GAAP Adjustments (a)

Credit Suisse Securities, LLC - GAAP

Barclays Capital Inc

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.

At December 31, 2020, we had $54.2 million of liquidity, which consisted of $47.9 million of cash and $6.3 million of unencumbered assets available to support our liquidity needs.

Refer to the "Contractual obligations" section of this Part II, Item 7 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

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

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

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

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

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Refer to the "Liquidity risk – derivatives" section of Part II, Item 7A of this Annual Report on Form 10-K for a further discussion on margin.

As of December 31, 2019 , our cash, cash equivalents, and restricted cash totaled $125.4 million , representing a net increase from $84.4 million at December 31, 2018 .

Cash provided by continuing operating activities of $67.5 million was attributable to net interest income less operating expenses.

Cash used by continuing investing activities of $(882.4) million was attributable to purchases of investments, less sales and principal repayments of investments.

Cash provided by continuing financing activities of $825.7 million was primarily attributable to borrowings under financing arrangements and proceeds from the issuance of common stock, preferred stock and securitized debt offset by repayments of financing arrangements and dividend payments.

Cash provided by discontinued operations of $30.2 million was attributable to the disposition of our single-family rental properties portfolio, offset by the repayment of financing on the portfolio.

We do not expect the disposition of this portfolio to have a material impact on our liquidity and capital resources going forward.

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, 2020, 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 December 31, 2020, we have met all margin calls.

Refer to Note 12 in the "Notes to Consolidated Financial Statements" for more information on deficiencies which have since been settled.

The below details changes to our cash, cash equivalents, and restricted cash for the years ended December 31, 2020 and December 31, 2019 (in thousands).

December 31, 2020 December 31, 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) 4,156 65,238 (61,082)

Net cash provided by (used in) investing activities (2) 2,193,455 (746,963) 2,940,418

Net cash provided by (used in) financing activities (3) (2,260,500) 722,695 (2,983,195)

Net change in cash, cash equivalents and restricted cash (62,889) 40,970 (103,859)

Effect of exchange rate changes on cash (162) 41 (203)

Cash, cash equivalents, and restricted cash, End of Period $ 62,318 $ 125,369 $ (63,051)

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the years ended December 31, 2020 and December 31, 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 year ended December 31, 2020 was primarily attributable to sales of investments and principal repayments of investments less purchases of investments.

Cash used by investing activities for the year ended December 31, 2019 was primarily attributable to purchases of investments less sales of investments and principal repayments of investments.

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

(3) Cash used in financing activities for the year ended December 31, 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 year ended December 31, 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, as defined in Rule 415 under the Securities Act of 1933.

The Equity Distribution Agreements were amended on May 22, 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 year ended December 31, 2019 , we sold 503.7 thousand shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $8.6 million .

For the year ended December 31, 2018 , we sold 511.8 thousand shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $9.3 million.

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 our securities, including capital stock (the "2018 Registration Statement").

For the year ended December 31, 2020, we sold 2.1 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $7.1 million.

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

Common offering

On February 14, 2019 , we completed a public offering of 3,000,000 shares of its common stock and subsequently issued an additional 450,000 shares pursuant to the underwriters' over-allotment option at a price of $16.70 per share.

Since inception of the program, the Company has sold approximately 3.6 million shares of common stock under

the Equity Distribution Agreements for gross proceeds of $34.7 million.

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 (the "Series C Preferred Stock") and subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' over-allotment option with a liquidation preference of $25.00 per share.

On September 17, 2019, we completed a public offering of 4,000,000 shares of Series C Preferred Stock and subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' over-allotment option with a liquidation preference of $25.00 per share.

We received total gross proceeds of $115.0 million and net proceeds of approximately $111.2 million, net of underwriting discounts, commissions and expenses.

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Dividends are payable quarterly in arrears on the 17th day of each March, June, September and December.

Exchange Offers

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.

On September 30, 2020, we agreed to issue an aggregate of 3,679,634 shares of our common stock and agreed to pay aggregate cash consideration of $6.3 million in exchange for 210,662 shares of Series A Preferred Stock, 404,187 shares of Series B Preferred Stock, and 427,467 shares of Series C Preferred Stock, pursuant to a privately negotiated exchange agreement entered into on September 30, 2020 with existing holders of the preferred stock.

After the transaction closed, the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series.

On October 2, 2020, we agreed to issue an aggregate of 900,000 shares of our common stock and agreed to pay aggregate cash consideration of $1.7 million in exchange for 260,000 shares of Series C Preferred Stock, pursuant to a privately negotiated exchange agreement entered into on October 2, 2020 with existing holders of the Series C Preferred Stock.

After the transaction closed, the Series C Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series.

After the settlement of all three exchanges, we had outstanding 1,816,518 shares of Series A Preferred Stock, 4,164,728 shares of Series B Preferred Stock and 3,883,178 shares of Series C Preferred Stock.

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 above exchange transactions, certain provisions of our charter, and the declaration and payment of the Preferred Stock dividends on December 17, 2020, the Board decided to ratify the above exchange transactions.

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 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 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 was paid in the normal course of business.

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

Forward-looking statements regarding liquidity

Based upon our current portfolio, leverage and available borrowing arrangements, we believe that the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operations and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.

Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operations and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.

Contractual obligations

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The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum.

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.

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 years ended December 31, 2019 , December 31, 2018 , and December 31, 2017 , we incurred management fees of approximately $9.8 million , $9.5 million and $9.8 million , respectively.

For the years ended December 31, 2020 and December 31, 2019, we have incurred management fees of $7.2 million and $9.8 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.

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 $18.6 million , $14.9 million and $11.0 million of Other operating expenses for the years ended December 31, 2019 , December 31, 2018 , and December 31, 2017 , respectively, we have accrued $7.5 million , $7.2 million and $6.3 million , respectively, representing a reimbursement of expenses.

The Manager waived its right to receive expense reimbursements of $0.5 million for the year ended December 31, 2018 .

The Manager did not waive any expense reimbursements for the years ended December 31, 2019 and December 31, 2017 .

Of the $14.5 million and $18.6 million of Other operating expenses for the years ended December 31, 2020 and December 31, 2019, respectively, we have accrued $7.4 million and $7.5 million, respectively, representing a reimbursement of expenses.

As of December 31, 2020 and December 31, 2019, we recorded a reimbursement payable to the Manager of $1.8 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 the first quarter of 2020 through September 30, 2020, or such other time as we and the Manager agreed.

As of December 31, 2020, the Company has reimbursed the Manager for expenses through the fourth quarter of 2020.

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 purchase (i) 1,215,370 shares of common stock in full satisfaction of the deferred base management fee of $3.8 million payable by us in

respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter of 2020.

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

The remaining third quarter 2020 management fee was paid in the normal course of business.

On April 10, 2020, in connection with the first Forbearance Agreement, we issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to us.

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

Pursuant to the Manager Equity Incentive Plan and the Equity Incentive Plan, we can award up to 277,500 shares of common stock in the form of restricted stock, stock options, restricted stock units or other types of awards to our directors, officers, advisors, consultants and other personnel and to our Manager.

As of December 31, 2019 , 17,921 shares of common stock were available to be awarded under the equity incentive plans.

Awards under the equity incentive plans are forfeitable until they become vested.

An award will become vested only if the vesting conditions set forth in the applicable award agreement (as determined by the compensation committee) are satisfied.

The vesting conditions may include performance of services for a specified period, achievement of performance goals, or a combination of both.

The compensation committee also has the authority to provide for accelerated vesting of an award upon the occurrence of certain events in its discretion.

As of December 31, 2019 , we have granted an aggregate of 99,329 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 December 31, 2019 , all the shares of restricted common stock granted to our Manager and independent directors have vested and 99,991 restricted stock units granted to our Manager have vested.

The 20,009 restricted stock units that have not vested as of December 31, 2019 were granted to the Manager on July 1, 2017, and represent the right to receive an equivalent number of shares of our common stock when the units vest on July 1, 2020.

The units do not entitle the participant the rights of a holder of our common stock, such as dividend and voting rights, until shares are issued in settlement of the vested units.

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

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

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 December 31, 2020, 1,879,680 shares of common stock were available to be awarded under the Equity Incentive Plan.

Since our IPO, we have granted an aggregate of 226,114 and 120,320 shares of restricted common stock to our independent directors under our equity incentive plans, dated July 6, 2011 (the "2011 Equity Incentive Plans") and our 2020 Equity Incentive Plan, respectively.

As of December 31, 2020, all the shares of restricted common stock granted to our independent directors have vested.

Further, since our IPO, we have issued 40,250 shares of restricted common stock to our Manager and 120,000 restricted stock units to our Manager under our 2011 Equity Incentive Plans.

Unfunded commitments

See our "Off-balance sheet arrangements" section below and Note 13 of the "Notes to Consolidated Financial Statements" for details on our commitments as of December 31, 2019 .

We have presented a table that details the contractual maturity of our financing arrangements at December 31, 2019 in the "Financing activities" section of Part II, Item 7.

See Note 12 of the "Notes to Consolidated Financial Statements" for details on our commitments as of December 31, 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.

The Restructured Financing Arrangement was amended subsequent to quarter end.

Refer to Note 16 of the "Notes to Consolidated Financial Statements" for further details.

As of December 31, 2020 and December 31, 2019, we are obligated to pay accrued interest on our financing arrangements in the amount of $1.3 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 decrease in one-month LIBOR from 2.503% at December 31, 2018 to 1.763% at December 31, 2019 .

As many of our financing arrangements have maturities or roll dates of one month or less, the change in one-month LIBOR contributed significantly to the decrease in our accrued interest.

Our contractual obligations as of December 31, 2019 consisted of the following (in thousands):

Repurchase agreements

Revolving facilities

Securitized debt

Our contractual obligations through investments in debt and equity of affiliates is $257.4 million .

Securitized debt is contractually scheduled to mature between August 27, 2036 and October 25, 2068.

However, the weighted average life of the securitized debt is estimated to be 4.91 years.

The table above does not include interest payable, amounts due under our management agreement, amounts due under our derivative agreements, or unfunded commitments on our commercial real estate loans, MATT, LOTS, and Residential mortgage loans as those contracts do not have fixed or determinable payments.

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

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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.

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 December 31, 2020, we had no TBA positions.

Our investments in debt and equity of affiliates are primarily comprised of real estate securities, Excess MSRs, loans, our interest in AG Arc, and certain derivatives.

Our investments in debt and equity of affiliates primarily consist of real estate securities, loans, and our interest in AG Arc.

Investments in debt and equity of affiliates are accounted for using the equity method of accounting.

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

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Assets Liabilities Equity Assets Liabilities Equity

Agency Excess MSR $ 417 $ — $ 417 $ 555 $ — $ 555

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Re/Non-Performing Loans (1) 41,523 (5,588) 35,935 87,216 (56,811) 30,405

Non-QM Loans (2) 153,200 (111,135) 42,065 254,276 (200,257) 54,019

Land Related Financing 22,824 — 22,824 16,979 — 16,979

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

Includes financing arrangements on real estate owned as of December 31, 2019 and December 31, 2018 of $(0.3) million and $(0.8) million, respectively.

The table below details our additional commitments as of December 31, 2019 (in thousands):

Commitment Type

Date of Commitment

Total Commitment

Funded Commitment

Remaining Commitment

March 29, 2018

Commercial loan G (b)(c)

July 26, 2018

Commercial loan I (b)

January 23, 2019

Commercial loan J (b)(d)

February 11, 2019

Commercial loan K (b)

February 22, 2019

Revolving loan (a)

October 31, 2019

Residential mortgage loans (f)

December 16, 2019

Refer to "Contractual obligations" section above for more information regarding MATH, LOTS, and our revolving loan.

We entered into commitments on commercial loans relating to construction projects.

See Note 4 to the "Notes to the Consolidated Financial Statements" for further details.

We expect to receive financing of approximately $25.1 million on our remaining commitment, which would cause our remaining equity commitment to be approximately $13.5 million .

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

We expect to receive financing of approximately $16.5 million on our remaining commitment, which would cause our remaining equity commitment to be approximately $8.9 million .

Of the expected financing, $8.2 million is committed by the financing counterparty.

Actual financing could vary significantly from our expectations.

Subsequent to quarter end, our total commitment and remaining commitment increased to $33.4 million and $16.4 million , respectively.

On December 16, 2019, we entered into a commitment to purchase residential mortgage loans with an unpaid principal balance of $502.3 million.

This purchase was subject to due diligence and customary closing conditions.

Subsequent to quarter end, the transaction settled with an unpaid principal balance of $481.7 million, a cost of $450.3 million and financing of $413.3 million.

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

As of December 31, 2020, Non-QM Loans excludes loans with an unpaid principal balance of $17.3 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 December 31, 2020 and December 31, 2019 of $(9.4) thousand and $(0.3) million, respectively.

For additional information on our commitments as of December 31, 2020, refer to Note 12 of the "Notes to Consolidated Financial Statements."

Management views our TBA position and our investments in debt and equity of affiliates as part of our investment portfolio.

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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.

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.

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Grants of restricted common stock

See "Share-based compensation" section above for detail on our grants of restricted common stock.

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"), a related party of the Manager and direct subsidiary of Angelo Gordon, as the asset manager for certain of our Re/Non-Performing Loans.

See "Share-based compensation" section above for detail on our grants of restricted common stock and restricted stock units.

In connection with our investments in Re/Non-Performing Loans and Non-QM Loans, we engage asset managers to provide advisory, consultation, asset management and other services.

Beginning in November 2015, we 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.

During 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 during 2019.

For the years ended December 31, 2019 , December 31, 2018 , and December 31, 2017 , the fees paid by us to the Asset Manager, totaled $0.9 million , $0.4 million , and $0.2 million , respectively.

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 years ended December 31, 2020 and December 31, 2019, the fees paid by us to the Asset Manager, totaled $2.7 million and $0.9 million, respectively.

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

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, through its subsidiary, 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.

Arc Home originates conforming, Government, Jumbo, Non-QM and other non-conforming residential mortgage loans and retains the mortgage servicing rights associated with the loans it originates.

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 December 31, 2019 and December 31, 2018 .

See "Off-balance sheet arrangements" section above for the fair value of AG Arc as of December 31, 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 December 31, 2019 and December 31, 2018 , these Excess MSRs had fair value of approximately $18.2 million and $27.3 million , respectively.

We, directly or through our subsidiaries, have entered into agreements with Arc Home to purchase rights to receive the excess servicing spread related to certain of its MSRs and as of December 31, 2020 and December 31, 2019, these Excess MSRs had fair values of approximately $3.5 million and $18.2 million, respectively.

See below "Other Transactions with affiliates" and Note 10 to the "Notes to Consolidated Financial Statements" 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 paid an administrative fee to Arc Home.

For the years ended December 31, 2019 , December 31, 2018 , and December 31, 2017 , the administrative fees paid by us to Arc Home totaled $0.3 million , $0.2 million , and $10.8 thousand respectively.

For the years ended December 31, 2020 and December 31, 2019, the administrative fees paid by us to Arc Home totaled $0.2 million and $0.3 million, respectively.

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

Arc Home sold $57.4 million of unpaid principal balance of Non-QM Loans to this affiliate of the Manager during 2020.

Mortgage Acquisition Trust I LLC

See our "Off-balance sheet arrangements" section above.

See our "MATT Financing Arrangement Restructuring" section above.

LOT SP I LLC and LOT SP II LLC

See our "Off-balance sheet arrangements" section above.

Refer to Note 12 of the "Notes to Consolidated Financial Statements."

Management agreement

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For further detail on the Management Agreement, see the "Contractual obligations–Management agreement" section of this Part II, Item 7.

See our "Contractual obligations–Secured debt" section above.

Other transactions with affiliates

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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.

The price at which the security or investment is traded is the

market price or market bid for such security or investment.

Independent third-party valuations are used when market prices or bids are not available or prove to be impracticable to acquire.

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 a third-party.

Our Affiliated Transactions are reviewed by our Audit Committee on a quarterly basis to confirm compliance with the policy.

In February 2017, 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 "February Selling Affiliate").

As of the date of the trade, the security acquired from the February Selling Affiliate had a total fair value of $2.0 million.

The February Selling Affiliate sold the real estate security through a BWIC (Bids Wanted in Competition).

Prior to the submission of the BWIC by the February Selling Affiliate, we submitted our bid for the real estate security to the February Selling Affiliate.

The pre-submission of our bid allowed us to confirm third-party market pricing and best execution.

In July 2017, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "July Selling Affiliate").

As of the date of the trade, the securities acquired from the July Selling Affiliate had a total fair value of $0.2 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 an independent third-party pricing vendor.

The third-party pricing vendor allowed us to confirm third-party market pricing and best execution.

In October 2017, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities and loans from two separate affiliates of the Manager (the "October Selling Affiliates").

As of the date of the trade, the securities and loans acquired from the October Selling Affiliates had a total fair value of $8.4 million.

As procuring market bids for the real estate securities and loans was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by independent third-party pricing vendors.

The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.

In October 2018, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities and loans from an affiliate of the Manager (the "October 2018 Selling Affiliate").

As of the date of the trade, the real estate securities and loans acquired from the October 2018 Selling Affiliate had a total fair value of $0.5 million.

The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.

In March 2019, in accordance with our Affiliated Transactions Policy, we executed one trade whereby we acquired a real estate security from an affiliate of the Manager (the "March 2019 Selling Affiliate").

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As of the date of the trade, the real estate securities acquired from the July 2019 Selling Affiliate had a total fair value of $2.0 million.

The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.

In September 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 $415.1 million were securitized.

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.

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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 October 2019 Selling Affiliate sold the real estate securities through a BWIC.

Prior to our submission of the BWIC by the October 2019 Selling Affiliate, we submitted our

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 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 $322.1 million were securitized.

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.

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.

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

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

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

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

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

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

In August 2020, we, alongside private funds under the management of Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $226.0 million were securitized.

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

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

The portfolio had a total unpaid principal balance of $3.5 billion.

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

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

In October 2020, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities and Excess MSRs from an affiliate of the Manager (the "October 2020 Selling Affiliate").

As of the date of the trade, the real estate securities and Excess MSRs acquired from the October 2020 Selling Affiliate had a total fair value of $0.5 million and $20.0 thousand, respectively.

The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.

Critical accounting policies

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

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

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 December 31, 2020 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in arriving at 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 estimate and assumption inherently less certain than would be the case absent the current and potential impacts of the COVID-19 pandemic.

Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties.

Our most critical accounting policies are believed to be the following:

Valuation of financial instruments

Accounting for real estate securities

Accounting for residential and commercial mortgage loans

Interest income recognition

Financing arrangements

Our most critical accounting policies are believed to include (i) Valuation of financial instruments, (ii) Accounting for real estate securities, (iii) Accounting for loans,

(iv) Interest income recognition, and (v) Financing arrangements.

See Note 2 to the "Notes to Consolidated Financial Statements" for more detail on these critical accounting policies.

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We believe that all of the decisions and assessments upon which our consolidated financial statements are based are reasonable at the time made and based upon information available to us at that time.

We rely upon independent pricing of our assets at each-quarter end to arrive at what we believe to be reasonable estimates of fair value, whenever available.

We rely upon third-party 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 5 to the "Notes to Consolidated Financial Statements".

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If we failed to maintain our exempt status 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, we monitor our compliance with both the 55% Test and the 80% Test of the Investment Company Act in order to maintain our exempt status.

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

Accordingly, we monitor our compliance with each of the 40% test, the 55% test, and the 80% test of the Investment Company Act in order to maintain our exempt status.

As of December 31, 2020, we determined that we maintained compliance with each of the 40% test, 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, 2020.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis