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Duration does not include our investment in AG Arc LLC.
−Removed: The following chart details information about our duration gap as of June 30, 2021:
+Added: The following chart details information about our duration gap as of September 30, 2021:
Duration (1) Years
−Removed: Residential Loans (2) 1.29
Agency RMBS 1.30
+Added: Residential Investments (2) 3.05
Hedges (2.91)
−Removed: Subtotal 0.44
−Removed: Credit Investments, excluding Residential Loans (2) 0.02
Duration Gap 1.44
(1) Duration related to financing arrangements is netted within its respective line items.
−Removed: (2) Residential Loans include Re/Non Performing Loans, Non-QM Loans, and Land Related Financing.
−Removed: The following table quantifies the estimated percent changes in GAAP equity, the fair value of our assets, and projected net interest income should interest rates go up or down instantaneously by 25, 50, and 75 basis points, assuming (i) the yield curves of the rate shocks will be parallel to each other and the current yield curve and (ii) all other market risk factors remain constant.
+Added: (2) Residential Investments are presented pro-forma for forward purchase commitments to purchase GSE Non-Owner Occupied Loans as of September 30, 2021 as the hedges related to these purchase commitments have already been added to the portfolio.
+Added: The duration gap exclusive of these commitments would have been 1.00.
+Added: The following tables quantify the estimated percent changes in GAAP equity, the fair value of our assets, and projected net interest income should interest rates go up or down instantaneously by 25, 50, and 75 basis points, assuming (i) the yield curves of the rate shocks will be parallel to each other and the current yield curve and (ii) all other market risk factors remain constant.
These estimates were compiled using a combination of third-party services and models, market data and internal models.
All changes in equity, assets and income are measured as percentage changes from the projected net interest income and GAAP equity from our base interest rate scenario.
−Removed: The base interest rate scenario assumes spot and forward interest rates existing as of June 30, 2021.
+Added: The base interest rate scenario assumes spot and forward interest rates existing as of September 30, 2021.
Actual results could differ materially from these estimates.
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Moreover, if different models were employed in the analysis, materially different projections could result.
−Removed: In addition, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio as of June 30, 2021, our Manager may from time to time sell any of our investments as a part of the overall management of our investment portfolio.
+Added: In addition, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio as of September 30, 2021, our Manager may from time to time sell any of our investments as a part of the overall management of our investment portfolio.
Change in Interest Rates (basis
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(2) Does not include cash investments, which typically have overnight maturities and are not expected to change in value as interest rates change.
−Removed: (3) Interest income includes trades settled as of June 30, 2021.
−Removed: The information set forth in the interest rate sensitivity table above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
−Removed: Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.
+Added: (3) Interest income includes trades settled as of September 30, 2021.
+Added: The below table quantifies the estimated percent changes in GAAP equity, the fair value of our assets, and projected net interest income should interest rates go up or down instantaneously, including the forward purchase commitments on GSE Non-Owner Occupied Loans as of September 30, 2021 mentioned in the footnote 2 of the duration gap chart above as of September 30, 2021.
+Added: Change in Interest Rates (basis
+Added: points) (1)(2)
+Added: Change in Fair
+Added: Value as a Percentage
+Added: of GAAP Equity (3) Change in Fair Value as a
+Added: Percentage of Assets (3) Percentage Change in
+Added: Projected Net Interest
+Added: 75 (3.9) % (0.8) % (4.9) %
+Added: 50 (2.6) % (0.5) % (3.2) %
+Added: 25 (1.3) % (0.3) % (1.6) %
+Added: (25) 1.3 % 0.3 % (0.8) %
+Added: (50) 2.7 % 0.6 % (3.9) %
+Added: (75) 4.0 % 0.8 % (7.1) %
+Added: (1) Includes investments held through affiliated entities that are reported as "Investments in debt and equity of affiliates" on our consolidated balance sheet, but excludes AG Arc.
+Added: (2) Does not include cash investments, which typically have overnight maturities and are not expected to change in value as interest rates change.
+Added: (3) Changes in fair value as a percentage of GAAP equity and assets are presented pro-forma for forward purchase commitments to purchase GSE Non-Owner Occupied Loans as of September 30, 2021, as the hedges related to these potential purchases have already been added to the portfolio.
+Added: (4) Interest income includes trades settled as of September 30, 2021.
+Added: The information set forth in the interest rate sensitivity tables above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
+Added: Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity tables.
See below for additional risks which may impact the fair value of our assets, GAAP equity and net income.
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We pledge real estate securities or mortgage loans and cash as collateral to secure our financing arrangements.
−Removed: Should the fair value of our real estate securities or mortgage loans pledged as collateral decrease (as a result of rising interest rates, changes in prepayment speeds, widening of credit spreads or otherwise), we will likely be subject to margin calls for additional collateral from our financing counterparties.
+Added: Should the fair value of our real estate securities or mortgage loans pledged as collateral decrease (as a result of rising interest rates, changes in
+Added: prepayment speeds, widening of credit spreads or otherwise), we will likely be subject to margin calls for additional collateral from our financing counterparties.
Should the fair value of our real estate securities or mortgage loans decrease materially and suddenly, margin calls will likely increase causing an adverse change to our liquidity position which could result in substantial losses.
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Real estate value risk
−Removed: Residential and commercial property values are subject to volatility and may be affected adversely by a number of factors
−Removed: outside of our control, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors);
+Added: Residential property values are subject to volatility and may be affected adversely by a number of factors outside of our control, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors);
local real estate conditions (such as an oversupply of housing or commercial real estate);
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and retroactive changes to building or similar codes.
−Removed: Decreases in property values could cause us to suffer losses and reduce the value of the collateral underlying our RMBS and CMBS portfolios as well as the potential sale proceeds available to repay our loans in the event of a default.
+Added: Decreases in property values could cause us to suffer losses and reduce the value of the collateral underlying our RMBS portfolio as well as the potential sale proceeds available to repay our loans in the event of a default.
In addition, substantial decreases in property values can increase the rate of strategic defaults by residential mortgage borrowers which can impact and create significant uncertainty in the recovery of principal and interest on our investments.
Given the combination of low interest rates, government stimulus and high unemployment, and other disruptions related to the COVID-19 pandemic, it has become more difficult to predict prepayment levels for the securities in our portfolio.
−Removed: We are exposed to the risk of potential credit losses from an unanticipated increase in borrower defaults as well as general credit spread widening on any Non-Agency assets in our portfolio, including residential and commercial mortgage loans as well as Non-Agency RMBS, CMBS, Excess MSRs and Interest Only investments related to Non-Agency and CMBS.
+Added: We are exposed to the risk of potential credit losses from an unanticipated increase in borrower defaults as well as general credit spread widening on any Non-Agency assets in our portfolio, including residential mortgage loans as well as Non-Agency RMBS and Interest Only investments related to Non-Agency.
We seek to manage this risk through our Manager’s pre-acquisition due diligence process and, if available, through the use of non-recourse financing, which limits our exposure to credit losses to the specific pool of collateral which is the subject of the non-recourse financing.
Our Manager’s pre-acquisition due diligence process includes the evaluation of, among other things, relative valuation, supply and demand trends, the shape of various yield curves, prepayment rates, delinquency and default rates, recovery of various sectors and vintage of collateral.
−Removed: Concern surrounding the ongoing COVID-19 pandemic and certain of the actions taken to reduce its spread have caused and may continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and property vacancy and lease default rates, reduced profitability and ability for property owners to make loan, mortgage and other payments, and overall economic and financial market instability, all of which may cause an increase in credit risk of our credit sensitive assets.
−Removed: Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from residential loans, mezzanine loans and RMBS and CMBS investments, the fair value of these assets, our ability to liquidate the collateral that may underlie these investments and obtain additional financing and the future profitability of our investments.
+Added: Concern surrounding the ongoing COVID-19 pandemic and certain of the actions taken to reduce its spread have caused and may continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages,
+Added: supply chain interruptions, increased unemployment and property vacancy and lease default rates, reduced profitability and ability for property owners to make loan, mortgage and other payments, and overall economic and financial market instability, all of which may cause an increase in credit risk of our credit sensitive assets.
+Added: Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from residential loans and RMBS investments, the fair value of these assets, our ability to liquidate the collateral that may underlie these investments and obtain additional financing and the future profitability of our investments.
Further, in the event of delinquencies, defaults and foreclosure, regulatory changes and policies designed to protect borrowers and renters may slow or prevent us from taking remediation actions.
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Generally, if prepayments on our Non-Agency RMBS or mortgage loans are less than anticipated, we expect that the income recognized on such assets would be reduced due to the slower accretion of purchase discounts.
−Removed: As further discussed in Note 2 of the "Notes to Consolidated Financial Statements (unaudited)," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS, CMBS, Excess MSR and interest-only securities) and mortgage loans accounted for under ASC 310-30.
+Added: As further discussed in Note 2 of the "Notes to Consolidated Financial Statements (unaudited)," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS and interest-only securities) and mortgage loans accounted for under ASC 310-30.
In addition, our interest rate hedges are structured in part based upon assumed levels of future prepayments within our real estate securities or mortgage loan portfolio.
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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.