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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-23 · 489 added, 799 removed, 280 unchanged (82% 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 Credit Investments and Agency RMBS.

Our Credit Investments include Residential Investments and Commercial Investments.

We are a Maryland corporation and are externally managed by our Manager, a wholly-owned subsidiary of Angelo Gordon, pursuant to a management agreement.

Our Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement.

We are a residential mortgage REIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S.

mortgage market.

Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation.

Our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans within the growing non-agency segment of the housing market.

We obtain our assets through Arc Home, our residential mortgage loan originator in which we own an approximate 44.6% interest, and through other third-party origination partners.

We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo Gordon’s proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit.

Through our ownership in Arc Home, we also have exposure to mortgage banking activities.

Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with the loans that it originates.

Our investment portfolio (which excludes our ownership in Arc Home) includes Residential Investments and Agency RMBS.

Currently, our Residential Investments primarily consist of Non-QM Loans and GSE Non-Owner Occupied Loans.

We may also invest in other types of residential mortgage loans and other mortgage related assets.

We were incorporated in Maryland on March 1, 2011 and commenced operations in July 2011.

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

federal income tax purposes.

Accordingly, we generally will not be subject to U.S.

federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a REIT.

We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act.

Prior to December 31, 2019, we conducted our business through the following segments;

(i) Securities and Loans and (ii) Single-Family Rental Properties.

On November 15, 2019, we sold our portfolio of single-family rental properties and no longer separate our business into segments.

We reclassified the operating results of our Single-Family Rental Properties segment to discontinued operations and excluded the income associated with the portfolio from continuing operations for all periods presented.

See Note 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.

We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act.

We are externally managed by our Manager, an affiliate of Angelo Gordon, pursuant to a management agreement.

Our Manager has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement.

Angelo Gordon is a leading privately-held alternative investment firm focusing on credit and real estate strategies.

Executive summary

During the year ended 2021, we focused on executing our mission to become a pure-play residential mortgage REIT by simplifying our portfolio through exiting all of our commercial investments, growing our portfolio of newly-originated non-agency loans, and increasing our pace of securitization activity in order to obtain long-term, non-recourse financing without mark-to-market margin calls.

During 2021, we significantly increased the size of our investment portfolio and also completed five Non-QM securitizations through Angelo Gordon's proprietary securitization platform.

Further, we focused on strengthening our capital base by entering into various financing facilities and raising capital in order to provide for continued growth and execution of our business strategy.

Subsequent to year end, we continued to grow our portfolio of newly-originated non-agency loans and completed two additional securitizations.

See below for detail on these activities during 2021 and subsequent to year end.

Investment Activity

• Purchased $2.5 billion of Non-QM Loans and GSE Non-Owner Occupied Loans, $833.4 million of which were purchased from Arc Home;

• Participated in two rated securitizations alongside other Angelo Gordon funds in which Non-QM Loans with a fair value of $397.3 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;

◦ $171.4 million were securitized through our unconsolidated ownership interest in MATT, in which we have an approximate 44.6% interest;

◦ $225.9 million were securitized alongside one private fund under the management of Angelo Gordon and we contributed approximately 41% of the underlying loans;

• Sold Non-Agency RMBS for gross proceeds of $44.6 million;

• Exited remaining commercial investments;

◦ Received gross proceeds of $148.4 million from the full repayment or sales of our Commercial Loans, inclusive of receiving all accrued or deferred interest outstanding;

◦ Sold our remaining CMBS portfolio for gross proceeds of $67.7 million.

Financing Activity

• Executed three rated securitizations in which Non-QM Loans with a fair value of $880.9 million were securitized, converting financing from recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls;

• Entered into certain financing arrangements with a maximum uncommitted borrowing capacity of $2.3 billion to finance non-agency mortgage loans, of which approximately $1.0 billion of the maximum uncommitted borrowing capacity remains available as of December 31, 2021;

• Repaid $10 million secured note and accrued interest to our Manager upon maturity on March 31, 2021.

Capital Activity

• Completed a public offering issuing 8.1 million shares of common stock for net proceeds of approximately $80.0 million after deducting estimated offering expenses;

• Utilized ATM program to issue 1.0 million shares of common stock, raising net proceeds of approximately $13.1 million;

• Repurchased 0.3 million shares of common stock for $3.6 million;

• Entered into two privately negotiated exchange offers with existing holders of our preferred stock, issuing 1.4 million shares of common stock in exchange for 0.7 million shares of preferred stock;

• Implemented a reverse stock split primarily to decrease volatility in trading for our common stock.

The reverse stock split was effective following the close of business on July 22, 2021 (the "Effective Time").

At the Effective Time, every three issued and outstanding shares of our common stock was converted into one share of common stock.

No fractional shares were issued in connection with the reverse stock split.

Instead, each stockholder holding fractional shares was entitled to receive, in lieu of such fractional shares, cash in an amount determined based on the closing price of our common stock on the date of the Effective Time.

Subsequent Event Activity

• Purchased $519.0 million of non-agency mortgage loans, inclusive Non-QM Loans, GSE Non-Owner Occupied Loans, and other qualifying mortgage loans.

$233.0 million of these non-agency mortgage loans were purchased from Arc Home;

• Participated in our first rated securitization of GSE Non-Owner Occupied Loans, in which loans with a fair value of $474.9 million were securitized;

• Participated in a rated securitization in which Non-QM Loans with a fair value of $301.7 million were securitized;

• Announced that on February 18, 2022 our Board of Directors declared first quarter 2022 preferred stock dividends on our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock in the amount of $0.51563, $0.50 and $0.50 per share, respectively.

The dividends will be paid on March 17, 2022 to holders of record on February 28, 2022.

Presentation of investment, financing and hedging activities

In the "Investment activities," "Financing activities," "Hedging activities" and "Liquidity and capital resources" sections of this Part II, Item 7, we present information on our investment portfolio and the related financing arrangements inclusive of unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method.

Our investment portfolio excludes our investment in Arc Home.

Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP.

This presentation of our investment portfolio is consistent with how our management team evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition.

See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.

See below for further terms used when describing our investment portfolio.

• Our "Investment portfolio" includes Agency RMBS and our credit portfolio.

• Our "Credit portfolio" or "credit investments" refer to our residential investments, inclusive of loans and credit securities.

◦ "Loans" refer to our Non-QM Loans and Re/Non-Performing Loans, exclusive of retained tranches from unconsolidated securitizations, GSE Non-Owner Occupied Loans, and Land Related Financing.

◦ "Credit securities" refer to the retained tranches from unconsolidated securitizations of Non-QM Loans and Re/Non-Performing Loans.

• "Real estate securities" refers to our Agency RMBS and our credit securities.

• Our "GAAP Investment portfolio" includes Agency RMBS and our GAAP Credit portfolio.

• Our "GAAP Credit portfolio" refers to our credit portfolio exclusive of all investments held within affiliated entities.

For a reconciliation of our Investment portfolio to our GAAP Investment portfolio, see the GAAP Investment Portfolio Reconciliation Table below.

Special Note Regarding COVID-19 Pandemic

In March 2020, the global pandemic associated with COVID-19 and the 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.

Refer to the "Financing activities–Forbearance and Reinstatement Agreements" section below for further details related to the impact these economic conditions had on us.

Although market conditions improved during 2021, the COVID-19 pandemic is ongoing with new variants emerging despite growing vaccination rates.

As a result, the full impact of COVID-19 (including the impact of any significant variants) on the mortgage REIT industry, credit markets, and, consequently, on our financial condition and results of operations for future periods remains uncertain.

Future developments with respect to the COVID-19 pandemic, including among others, the emergence of new variants, the effectiveness and durability of current vaccines and government stimulus measures, could materially and adversely affect our business, operations, operating results, financial condition, liquidity, or capital levels.

Market Conditions

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.

During 2021, the financial markets generally continued their recovery from the unprecedented dislocation caused by the COVID-19 pandemic and the resulting economic shutdown across much of the U.S.

In addition, mortgage and housing fundamentals continued to be favorable throughout the year.

Delinquency and forbearance rates continued to decline and home prices reached another record high, rising 19.1% year-over-year.

Limited availability of homes against fundamentally strong housing demand has been a driving factor for persistent home price appreciation.

Other fundamentals continued to be favorable due to strong labor conditions and residual support from federal stimulus and payment accommodations, whose positive effects should persist into 2022.

Some near-term headwinds could be created by the term-driven expiration of mortgage payment forbearance, resumption of foreclosure activity and sunset of other relief programs.

However, we believe these risks should be offset by strong demand for labor, rising collateral prices and persistently tight new mortgage underwriting, the latter of which remains near 2014 levels, according to the Mortgage Bankers Association.

Non-Agency Loans and Securitizations :

Non-QM securitization issuance topped $10 billion in a record quarter for the sector driven by strong origination volume as well as older vintages exiting their respective non-call windows Annual issuance also hit a record at approximately $25 billion, which was in line with the market’s expectations for 2020 prior to the COVID-19 pandemic disruption.

Despite the amount of supply in the market during the fourth quarter, execution was orderly with spreads slightly widening.

The prospect of raising rates did bring about concerns on extension risk among buyers of the most senior bonds, causing issuers to transition from pro-rata capital structures to sequential capital structures.

Non-QM loan volumes remained elevated, with some originators doubling their monthly production over the course of 2021.

During the third quarter, an increased amount of agency-eligible mortgage loans backed by investment properties and second homes were being issued into the Private Label Securities ("PLS") market as originators looked for liquidity away from the GSE’s as a result of amendments made to the Preferred Stock Purchase Agreement between Treasury and the GSEs earlier in the year.

However these volumes declined during the fourth quarter as originators returned to delivering most, if not all, of their production back to the GSEs due to the September 14, 2020 suspension of certain amendments made to the Preferred Stock Purchase Agreement.

Agency RMBS :

Despite the Federal Reserve’s commencement of tapering its monthly bond purchases during the fourth quarter, spreads on Agency RMBS modestly tightened.

Valuations continued to be supported by bank demand, moderating supply, and strong carry due to persistent specialness of TBA dollar roll income.

Payups on specified pools have also held steady as holders of TBA rotate into specified pools in anticipation of a shrinking Federal Reserve presence and subsequent weakening of TBA dollar roll income.

Post year-end however, spreads have begun to widen in response to the Federal Reserve communicating its desire to begin winding down their balance sheet earlier than the market had anticipated.

Non-Agency RMBS :

Spreads for securitized residential debt sectors were mixed during the fourth quarter.

Most Credit Risk Transfer tranches generally widened 10-20 basis points while other new-issue senior tranches widened 10-15 basis points.

Legacy mortgages were mostly unchanged during the quarter.

Many of the same themes that have supported the sector persisted during the quarter, including favorable collateral fundamentals, record high home prices, demand for yield, and continued employment gains.

Issuance of new RMBS rose approximately 14% to $55 billion in the fourth quarter, and for the full year 2021, RMBS issuance totaled $200 billion, surpassing the post-Great Financial Crisis peak of $137 billion in 2019, though some of this year’s issuance was delayed from 2020.

The rise was mostly due to issuance of Jumbo 2.0 and Agency-eligible securities, which collectively comprised over half of the annual growth.

Non-QM, Single-Family Rental, and Non-Performing Loans also saw meaningful annual increases in 2021.

In light of various market uncertainties, in particular the pervasive uncertainties of the COVID-19 pandemic for the U.S.

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Results of Operations for the Fiscal Year 2021 and 2020

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.

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 investments in residential mortgages 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 economic hedges in place on our investment portfolio, as well as any income or losses from our equity investments in affiliates.

Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

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):

The table below presents certain information from our consolidated statements of operations for the years ended December 31, 2021 and 2020 (in thousands):

Year Ended Increase/(Decrease)

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Other Income/(Loss)

Net realized gain/(loss) (256,522) (50,822) (205,700)

Net interest component of interest rate swaps (4,862) 731 (5,593)

Unrealized gain/(loss) on real estate securities and loans, net (159,466) 83,832 (243,298)

Unrealized gain/(loss) on derivative and other instruments, net (10,347) (312) (10,035)

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

Other income 6 1,182 (1,176)

Net realized gain/(loss) 1,698 (256,522) 258,220

Net unrealized gain/(loss) 62,699 (169,813) 232,512

Other income/(loss), net 37 1,534 (1,497)

Total Other Income/(Loss) 59,572 (424,070) 483,642

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Other operating expenses 13,357 15,911 (2,554)

Transaction related expenses 7,328 (1,235) 8,563

Restructuring related expenses — 10,200 (10,200)

Equity based compensation to affiliate 163 349 (186)

Excise tax — (815) 815

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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 income decreased from December 31, 2020 to December 31, 2021 primarily due to the decrease in the weighted average yield of our GAAP investment portfolio which decreased by 1.00% from 4.61% for the year ended December 31, 2020 to 3.61% for the year ended December 31, 2021.

This was offset by a $0.4 billion increase in the weighted average cost of our GAAP investment portfolio from $1.6 billion for the year ended December 31, 2020 to $2.0 billion for the year ended December 31, 2021.

Interest expense

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.

Interest expense decreased from December 31, 2020 to December 31, 2021 primarily due to a decrease in the weighted average financing rate on our GAAP investment portfolio, inclusive of securitized debt, which decreased by 1.20% from 2.79% for the year ended December 31, 2020 to 1.59% for the year ended December 31, 2021.

This was offset by an increase in the weighted average financing balance on our GAAP investment portfolio, inclusive of securitized debt, during the period which increased by $0.4 billion from $1.3 billion for the year ended December 31, 2020 to $1.7 billion for the year ended December 31, 2021.

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.

We recognized losses on the net interest component of interest rate swaps for the year ended December 31, 2021 compared with gains for the year ended December 31, 2020 primarily due to the difference in terms on the outstanding interest rate swaps during the periods.

We also exited our entire interest rate swap portfolio in the first quarter of 2020 and began growing our interest rate swap portfolio in the fourth quarter of 2020 and throughout 2021 in connection with the growth of our GAAP investment portfolio.

As of the December 31, 2021, we held an interest rate swap portfolio with a notional value of $888.5 million, a weighted average receive-variable rate of 0.15%, and a weighted average pay-fix rate of 0.85%.

Net realized gain/(loss)

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):

The following table presents a summary of Net realized gain/(loss) for the years ended December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020

Sales of Residential mortgage loans and loans transferred to or sold from Other assets $ 6,374 $ (56,815)

Sales/Seizures of real estate securities (1) (6,088) (130,567)

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

Sales of Commercial loans (2,518) (6,470)

Settlement of derivatives and other instruments 3,930 (62,670)

OTTI — (17,541)

Total Net realized gain/(loss) $ 1,698 $ (256,522)

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 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, 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, 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.

dollars using foreign currency exchange rates at the end of the reporting period.

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.

(1) Certain realized losses on real estate securities during the year ended December 31, 2020 were a result of financing counterparty seizures.

There were no financing counterparty seizures during the year ended December 31, 2021.

Net unrealized gain/(loss)

The following table presents a summary of Net unrealized gain/(loss) for the years ended December 31, 2021 and 2020 (in thousands):

December 31, 2021

December 31, 2020

Residential mortgage loans $ 25,018 $ (5,851)

Real estate securities (2,648) (136,773)

Commercial loans 16,148 (16,842)

Excess mortgage servicing rights 1,515 457

Derivatives 19,137 (9,864)

Securitized debt 3,529 (940)

Total Net unrealized gain/(loss) $ 62,699 $ (169,813)

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 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.

Management fees decreased from December 31, 2020 to December 31, 2021 primarily due to a decrease in our Stockholders’ Equity as calculated pursuant to our Management Agreement.

Other operating expenses

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.

Other operating expenses is primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ fees, and certain non-investment related and investment related 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 compensation 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):

The following table presents a summary of Other operating expenses broken out between non-investment related expenses and investment related expenses for the years ended December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020

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Directors' compensation 672 680

Equity based compensation to affiliate — 163

Other 877 711

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Affiliate expense reimbursement - Deal related expenses 1,157 1,116

Affiliate expense reimbursement - Transaction related expenses and deal related performance fees (2) — 42

Professional fees 188 186

Residential mortgage loan related expenses 2,218 3,064

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

Other 237 322

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Total Other operating expenses $ 13,357 $ 15,911

(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, 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.

(1) For the year ended December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $0.8 million.

Transaction related expenses

Transaction related expenses are expenses associated with securitizing residential mortgage loans as well as certain other transaction and performance related fees associated with assets we invest in.

These fees increased from the year ended December 31, 2020 to December 31, 2021 primarily as a result of the various securitizations of Non-QM Loans transacted in 2021.

Additionally, in the period ended March 31, 2020, the Company reversed previously accrued deal related performance fees due to a decline in the price of the related assets and 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.

Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement during 2020.

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

During the year ended December 31, 2020, we reversed previously accrued excise taxes primarily as a result of losses associated with COVID-19.

We did not record any excise taxes for the year ended December 31, 2021.

Servicing fees

We incur servicing fee expenses in connection with the servicing of our Residential mortgage loans.

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 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.

The weighted average cost of our GAAP Residential mortgage loan portfolio increased by $0.6 billion from $0.6 billion for the year ended December 31, 2020 to $1.2 billion for the year ended December 31, 2021.

This increase was primarily the result of purchases of Non-QM

Loans and GSE Non-Owner Occupied Loans in 2021.

As a result, servicing fees increased from the year ended December 31, 2020 to the year ended December 31, 2021.

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 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

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.

Substantially all of these investments are comprised of real estate securities, loans, and our investment in AG Arc which holds our investment in Arc Home.

The below table reconciles the net income/(loss) to the "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands):

December 31, 2021

December 31, 2020

Non-QM Loans (1) $ 12,594 $ (26,511)

AG Arc (2) 3,681 23,260

Land Related Financing 2,455 2,620

Other (3) 13,159 (998)

Equity in earnings/(loss) from affiliates

$ 31,889 $ (1,629)

(1) The earnings within MATT for the year ended December 31, 2021 were primarily the result of mark-to-market gains on its Non-QM Loan portfolio and net interest income, offset by expenses.

The losses generated within MATT for the year ended December 31, 2020 were primarily the result of mark-to-market losses on its Non-QM Loan portfolio and related financing, offset by net interest income.

(2) The earnings/(loss) at AG Arc during the year ended December 31, 2021 were primarily the result of $5.4 million of net income related to Arc Home's lending and servicing operations, offset by $(2.3) million related to changes in the fair value of the MSR portfolio held by Arc Home.

Earnings/(loss) recognized by AG Arc do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us.

For the year ended December 31, 2021, we eliminated $5.3 million of intra-entity profits recognized by Arc Home and also decreased the cost basis of the underlying loans we purchased by the same amount.

(3) The earnings for the year ended December 31, 2021 were primarily the result of accelerated accretion as a result of paydowns on certain Re/Non-Performing Loans held at discounts.

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

We completed two privately negotiated exchange offers during the year ended December 31, 2021.

As a result of the exchange offers, we exchanged 153,325 shares of our 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 437,087 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), and 154,383 shares of our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") (collectively, "preferred stock") for a total of 1,367,264 shares of common stock.

We recognized a gain of $0.5 million in connection with the offers.

We completed a public exchange offer and two privately negotiated exchange offers during the year ended December 31, 2020.

As a result of the exchange offers, we exchanged a total of 253,482 shares of our Series A Preferred Stock, 435,272 shares of our Series B Preferred Stock, and 716,822 shares of our Series C Preferred Stock for a total of 1,698,645 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.

Book value and Adjusted book value per share

On July 12, 2021, we announced a one-for-three reverse stock split of our outstanding shares of common stock.

The reverse stock split was effected following the close of business on July 22, 2021.

All per share amounts and common shares outstanding for all periods presented have been adjusted on a retroactive basis to reflect the one-for-three reverse stock split.

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

In the "Investment activities," "Financing activities," "Hedging activities" and "Liquidity and capital resources" sections of this Part II, Item 7, where we disclose our investment portfolio and the related financing arrangements, we have presented this information inclusive of (i) unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method and (ii) TBAs, which are accounted for as derivatives under GAAP.

Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP.

See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.

As of December 31, 2021, the net proceeds on our preferred stock were $220.5 million.

As of December 31, 2021, the liquidation preference for our issued and outstanding preferred stock was $228.0 million.

As of December 31, 2021 and 2020, our book value per common share calculated using stockholders’ equity less net proceeds on our preferred stock as the numerator was $14.64 and $12.40, respectively.

As of December 31, 2021 and 2020, our adjusted book value per common share calculated using stockholders’ equity less the liquidation preference of our preferred stock as the numerator was $14.32 and $11.81, respectively.

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, 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 at year-end.

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.

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.

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 and our investment portfolio, respectively, both of which exclude cash held by us.

The weighted average yield on our investment portfolio represents an effective interest rate, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end.

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

The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost, which is the weighted average of the net pay rate on our interest rate swaps.

GAAP and non-GAAP cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio and our investment portfolio, respectively, and the fair value of securitized debt at quarter-end.

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 available capacity to finance our assets, and anticipated regulatory developments.

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

The table below sets forth the net interest margin and leverage ratio on our investment portfolio as of December 31, 2021 and 2020 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio:

December 31, 2021

Weighted Average GAAP Investment

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

Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio

Yield 3.72 % 9.21 % 3.84 %

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

Cost of Funds (a) 2.06 % 3.41 % 2.08 %

Net Interest Margin 1.66 % 5.80 % 1.76 %

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

Leverage Ratio (b) 4.9x (c) 2.4x

December 31, 2020

Weighted Average GAAP Investment

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

Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio

Yield 3.73 % 7.78 % 4.36 %

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

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

Net Interest Margin 1.91 % 2.91 % 2.27 %

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.

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

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

(b) The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage.

The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section.

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

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, 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.

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings, as one of several metrics, 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 to help evaluate our financial performance.

However, management also believes that our definition of Core Earnings has important limitations as it does not include certain earnings or losses our management team considers in evaluating our financial performance.

Our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations.

This non-GAAP measure should not be considered a substitute for, or superior to, Net Income/(loss) available to common stockholders or Net income/(loss) per diluted common share calculated in accordance with GAAP.

Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

AG Arc, and (b) net realized gains/(losses) on the sale or termination of such instruments, (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) any foreign currency gain/(loss) relating to monetary assets and liabilities, (vii) 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.

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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 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.

Our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations.

This non-GAAP measure should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP.

Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

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, 2020 and December 31, 2019 is set forth below (in thousands, except per share data):

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

A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the years ended December 31, 2021 and 2020 is set forth below (in thousands, except per share data):

December 31, 2021 December 31, 2020

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Net realized (gain)/loss (1,698) 256,522

Unrealized (gain)/loss on real estate securities and loans, net 159,466 (83,832)

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

Net unrealized (gain)/loss (62,699) 169,813

Transaction related expenses and deal related performance fees (1) 8,558 (613)

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Net interest income and expenses from equity method investments (2)(3) 23,807 38,025

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

Net (income)/loss from discontinued operations — (666)

Other (income)/loss, net (14) (1,528)

(Gains) from Exchange Offers, net (472) (10,574)

Dollar roll income 322 1,012

Other income — (27)

Dollar roll income/(loss) (3,377) 322

Core Earnings $ 18,089 $ 22,036

Core Earnings, per Diluted Share (4) $ 1.11 $ 1.88

(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.

(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.

(1) For the years ended December 31, 2021 and 2020, total transaction related expenses and deal related performance fees included $7.3 million and $(1.2 million), respectively, recorded within the "Transaction related expenses" line item and $1.2 million and $0.6 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the years ended December 31, 2021 and 2020, $2.5 million or $0.15 per share and $(3.9 million) or $(0.33) 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.

(3) Core income or loss recognized by AG Arc does not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us.

We did not eliminate any intra-entity profits for the year ended December 31, 2020.

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

(4) All per share amounts for all periods presented have been adjusted to reflect the one-for-three reverse stock split.

Investment activities

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.

We aim to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes.

Our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans.

We finance our acquired loans through various financing lines on a short-term basis and securitize the loans to obtain long-term, non-recourse, non-mark-to-market financing as market conditions permit.

We are also currently investing in 30 Year Fixed Rate Agency RMBS to utilize excess liquidity.

Our investment and capital allocation decisions depend on prevailing market conditions and compliance with Investment Company Act and REIT tests, among other factors, and may change over time in response to opportunities available in different economic and capital market environments.

The risk-reward profile of our investment opportunities changes continuously with the market, with labor, housing and economic fundamentals, and with U.S.

monetary policy, among others.

As a result, in reacting to market conditions

and taking into account a variety of other factors, including liquidity, duration, interest rate expectations and hedging, the mix of our assets changes over time as we opportunistically deploy capital.

During the 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.

As a result, in reacting to market conditions and

taking into account a variety of other factors, including liquidity, duration, and interest rate expectations, the mix of our assets changes over time as we opportunistically deploy capital.

We actively evaluate our investments based on factors including, among others, the characteristics of the underlying collateral, geography, expected return, expected future prepayment trends, supply of and demand for our investments, costs of financing, costs of hedging, expected future interest rate volatility, and the overall shape of the U.S.

Treasury and interest rate swap yield curves.

Prepayment speeds, as reflected by the CPR, and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty.

In general, as prepayment speeds on our Agency RMBS portfolio increase, the related purchase premium amortization increases, thereby reducing the net yield on such assets.

Our credit investments are subject to risk of loss with regard to principal and interest payments.

We evaluate each investment in our credit portfolio based on the characteristics of the underlying collateral, the securitization structure, expected return, geography, collateral type, and the cost and availability of financing, among others.

We maintain a comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management team and a quarterly credit review process for each investment that examines the need for a potential reduction in accretable yield, missed or late contractual payments, significant declines in collateral performance, prepayments, projected defaults, loss severities and other data 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.

Therefore, potential future losses may also stem from issues with our investments that are not identified by our credit reviews.

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

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

We allocate all non-investment portfolio related assets and liabilities to our investment portfolio based on the characteristics of such assets and liabilities in order to sum to stockholders' equity per the consolidated balance sheets.

Our equity allocation method is a non-GAAP methodology and may not be comparable to the similarly titled measure or concepts of other companies, who may use different calculations and allocation methodologies.

The following table presents a summary of the allocated equity of our investment portfolio as of December 31, 2021 and 2020 ($ in thousands):

Allocated Equity Percent of Equity

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Residential Investments $ 459,058 $ 229,183 80.5 % 56.0 %

Commercial Investments — 99,668 — % 24.3 %

Agency RMBS 111,322 80,854 19.5 % 19.7 %

Total $ 570,380 $ 409,705 100.0 % 100.0 %

The following table presents a summary of our investment portfolio as of December 31, 2021 and 2020 and a reconciliation to our GAAP Investment Portfolio ($ in thousands):

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

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

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

Residential Investments $ 2,725,889 $ 691,478 84.6 % 49.5 % 2.1x 0.2x

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

Commercial Investments — 182,296 — % 13.1 % — 0.9x

Agency RMBS 495,713 521,843 15.4 % 37.4 % 3.7x 6.1x

Investment Portfolio $ 3,221,602 $ 1,395,617 100.0 % 100.0 % 2.4x 1.5x

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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 Economic Leverage Ratio excludes any fully non-recourse financing arrangements and includes any net receivables or payables on TBAs.

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

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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).

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, 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 %

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):

Weighted Average

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

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

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2021 and 2020 ($ in thousands):

December 31, 2021

December 31, 2020

Instrument Current Face Amortized Cost Unrealized Mark-to-Market Fair Value (1) Weighted Average

Coupon (2) Weighted

Average Yield Weighted Average

Life (Years) (3) Fair Value (1)

Credit Investments:

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 (4) $ 1,780,012 $ 1,846,162 $ 12,636 $ 1,858,798 4.91 % 3.85 % 4.78 $ —

GSE Non-Owner Occupied Loans

429,424 439,463 1,374 440,837 3.64 % 3.19 % 6.84 —

MATT Non-QM Loans (5) 488,364 46,795 (958) 45,837 0.91 % 4.04 % 0.77 153,200

Re/Non-Performing Loans 428,472 345,650 14,481 360,131 3.55 % 6.82 % 6.57 478,565

Land Related Financing 16,891 16,891 — 16,891 14.50 % 14.50 % 0.46 22,824

Interest Only (6) 160,154 3,507 (112) 3,395 0.38 % 10.12 % 1.81 320

Non-Agency RMBS — — — — — % — % — 36,569

Total Residential Investments 3,303,317 2,698,468 27,421 2,725,889 4.12 % 4.21 % 4.52 691,478

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

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

Total Commercial Investments — — — — — % — % — 182,296

Total Credit Investments 3,303,317 2,698,468 27,421 2,725,889 4.12 % 4.21 % 4.52 873,774

Investment Portfolio $ 4,160,113 $ 1,412,410 $ (16,793) $ 1,395,617 1.91 % 4.36 % 3.85

Investments in Debt and Equity of Affiliates $ 1,466,453 $ 216,450 $ 1,514 $ 217,964 1.67 % 7.78 % 1.68

GAAP Investment Portfolio $ 2,693,660 $ 1,195,960 $ (18,307) $ 1,177,653 2.01 % 3.73 % 5.03

(1) Refer to "Off-balance sheet arrangements" section below and Note 2 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheet and a discussion of Investments in debt and equity of affiliates.

(2) Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation.

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

Typically, actual maturities of investments and loans are shorter than stated contractual maturities.

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

(4) 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.

The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 739 and 687, respectively.

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

(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):

Weighted Average

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

30 Year Fixed Rate 490,435 502,362 (6,649) 495,713 2.18 % 1.78 % 7.46 518,352

Inverse Interest Only 217,031 37,611 627 38,238 4.37 % 6.66 % 4.97

Interest Only 259,161 35,333 570 35,903 3.56 % 5.02 % 4.01

Excess MSR (4) 3,042,841 20,188 (2,001) 18,187 N/A 8.33 % 5.56

Excess MSR — — — — — — % — 3,491

Total Agency RMBS 490,435 502,362 (6,649) 495,713 2.18 % 1.78 % 7.46 521,843

Credit Investments:

Residential Investments

Prime (5) 297,932 213,056 28,831 241,887 4.92 % 7.44 % 11.63

Alt-A/Subprime (5) 141,464 110,605 12,107 122,712 4.40 % 6.89 % 8.23

Credit Risk Transfer 270,397 270,988 8,967 279,955 5.17 % 5.27 % 5.66

RMBS 44,867 54,340 3,391 57,731 3.21 % 3.58 % 2.53

Interest Only and Excess MSR (4) 244,115 1,592 (376) 1,216 0.77 % 7.73 % 6.34

Re/Non-Performing Loans 605,844 493,734 16,449 510,183 4.14 % 6.48 % 6.56

Non-QM Loans 1,141,131 250,087 4,189 254,276 1.69 % 5.35 % 1.71

Land Related Financing 25,607 25,395 514 25,909 12.27 % 12.40 % 3.00

Total Residential Investments 2,771,357 1,419,797 74,072 1,493,869 3.53 % 6.24 % 4.99

Commercial Investments

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

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

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

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

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

Total Commercial Investments 4,322,209 567,266 22,443 589,709 0.82 % 7.25 % 3.33

Total Credit Investments 7,093,566 1,987,063 96,515 2,083,578 1.74 % 6.53 % 3.98

Investment Portfolio $ 3,793,752 $ 3,200,830 $ 20,772 $ 3,221,602 3.85 % 3.84 % 4.90 $ 1,395,617

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GAAP Investment Portfolio $ 3,245,172 $ 3,128,110 $ 21,466 $ 3,149,576 4.04 % 3.72 % 5.59 $ 1,177,653

(2) Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation.

(1) Refer to Note 10 to the "Notes of the Consolidated Financial Statements" for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

Our assets held through Investments in debt and equity of affiliates are included in the "MATT Non-QM Loans," "Re/Non-Performing Loans," "Land Related Financing," and "Excess MSR" line items above.

(2) Equity residuals with a zero coupon rate are excluded from this calculation.

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

Typically, actual maturities of investments and loans are shorter than stated contractual maturities.

Typically, actual maturities are shorter than stated contractual maturities.

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

(4) 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.

The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 719 and 674, respectively.

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

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

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:

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 %

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

Interest Only (3) — 35,903 — % 10.3 %

Total/Weighted Average $ 518,352 $ 2,315,439 2.7 % 8.2 %

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

(3) CPRs are shown only for securities with fair values as of period end.

The following table presents the fair value of the securities and loans in our credit portfolio, and a reconciliation to our GAAP credit portfolio (in thousands) for the year ends presented:

(4) Prior to 2021, we acquired Non-QM Loans through our equity method investment in MATT.

This line item represents direct purchases of Non-QM Loans, which began in Q1 2021, and retained tranches of certain Non-QM securitizations.

(5) As of December 31, 2021, this line item primarily includes retained tranches from past securitizations.

(6) As of December 31, 2021, this line item includes Non-QM interest-only bonds.

Credit Investments

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, 2021 December 31, 2020

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

CMBS (2) 56,788 431,023

Total Credit securities 184,919 1,266,348

Residential loans (1) $ 2,663,992 $ 563,263

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Total loans 2,663,992 688,771

Non-Agency RMBS (2) 61,897 128,215

CMBS (3) — 56,788

Total Credit securities 61,897 185,003

Total Credit Investments $ 2,725,889 $ 873,774

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Total GAAP Credit Portfolio $ 2,653,863 $ 656,227

(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.

(1) Includes Non-QM Loans, GSE Non-Owner Occupied Loans, Re/Non-Performing Loans, and Land Related Financing not held in securitized form.

(2) Includes Non-QM Loans and Re/Non-Performing Loans held in securitized form, as well as Prime, Alt-A/Subprime, Credit Risk Transfer, Non-U.S RMBS, and Interest-Only Securities.

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

Residential loans

The following table presents information regarding credit quality for certain categories within our Residential loan portfolio ($ in thousands):

December 31, 2021

December 31, 2020

Unpaid Principal Balance Weighted Average (1)(2) Aging by Unpaid Principal Balance (1)(2)

Fair Value Original LTV Ratio Current FICO (3) Current 30-59 Days 60-89 Days 90+ Days Fair Value

Non-QM Loans $ 1,765,118 $ 1,844,198 68.19 % 742 $ 1,735,644 $ 15,596 $ 2,666 $ 11,212 $ —

GSE Non-Owner Occupied Loans 429,424 440,837 65.44 % 754 425,594 3,830 — — —

MATT Non-QM Loans 11,250 11,839 58.13 % 677 6,558 575 — 4,117 100,264

Re/Non-Performing Loans 384,659 350,227 79.20 % 639 256,096 35,974 12,324 73,736 440,175

Land Related Financing 16,891 16,891 N/A N/A N/A N/A N/A N/A 22,824

Total Residential loans $ 2,607,342 $ 2,663,992 69.71 % 723 $ 2,423,892 $ 55,975 $ 14,990 $ 89,065 $ 563,263

Investments in Debt and Equity of Affiliates 28,349 28,886 58.42 % 677 6,560 575 — 4,322 127,822

Total GAAP Residential Loans $ 2,578,993 $ 2,635,106 69.76 % 723 $ 2,417,332 $ 55,400 $ 14,990 $ 84,743 $ 435,441

(1) Weighted average and aging data excludes residual positions where we consolidate a securitization and the positions are recorded on our balance sheet as Re/Non-Performing Loans.

There may be limited data available regarding the underlying collateral of the residual positions.

(2) Weighted average and aging data excludes Land Related Financing.

(3) Weighted average current FICO excludes borrowers where FICO scores were not available.

See Note 3 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" and "Securitized residential mortgage loans, at fair value" line items on our consolidated balance sheets.

Credit securities

The following table presents the fair value of our credit securities portfolio by credit rating as of December 31, 2021 and 2020 (in thousands):

Credit Rating - Credit Securities (1)(2) December 31, 2021 December 31, 2020

AAA $ — $ 630

BB 9,037 106,311

B 10,528 25,318

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

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

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

December 31, 2020

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 CMBS

The following table presents the geographic concentration of the underlying collateral for our Non-Agency RMBS portfolio ($ in thousands):

December 31, 2021 December 31, 2020

Non-Agency RMBS Non-Agency RMBS

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

California $ 31,480 50.9 % California $ 40,593 32.5 %

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 %

New York 11,092 17.9 % New York 17,742 14.2 %

Florida 3,661 5.9 % Florida 10,982 8.8 %

New Jersey 1,684 2.7 % Texas 4,216 3.4 %

Texas 1,511 2.4 % New Jersey 4,028 3.2 %

Other 12,469 20.2 % Other 50,654 37.9 %

Total $ 61,897 100.0 % Total $ 128,215 100.0 %

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

(1) As of December 31, 2020 Non-Agency RMBS fair value includes $3.2 million of investments where there was no data regarding the underlying collateral.

These positions were excluded from the percent calculation.

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):

The following table presents the fair value ($ in thousands) and the Constant Prepayment Rate ("CPR") experienced on our GAAP Agency RMBS portfolio for the periods presented:

Fair Value CPR (1)(2)

Agency RMBS December 31, 2021 December 31, 2020

December 31, 2021 December 31, 2020

30 Year Fixed Rate $ 495,713 $ 518,352 6.1 % 2.7 %

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

Investments in debt and equity of affiliates

The below table details our investments in debt and equity of affiliates as of December 31, 2021 and December 31, 2020 (in thousands):

December 31, 2021

Non-Agency RMBS*

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 %

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 — %

December 31, 2020

Non-Agency RMBS*

Category Fair Value Weighted Average 60+

Days Delinquent Weighted Average

Loan Age (Months) Weighted Average

Credit Enhancement

Prime $ 241,887 10.6 % 136.7 9.8 %

Alt-A/Subprime 122,712 12.8 % 162.3 17.7 %

Credit Risk Transfer 279,955 0.4 % 24.5 1.8 %

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 %

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.

Assets Liabilities Equity Net Income/(Loss) Assets Liabilities Equity Net Income/(Loss)

MATT Non-QM Loans (1) $ 45,837 $ (30,471) $ 15,366 $ 12,594 $ 153,200 $ (111,135) $ 42,065 $ (26,511)

Re/Non-Performing Loans (2) 9,298 (5,538) 3,760 13,191 41,523 (5,588) 35,935 2,483

Land Related Financing (3) 16,891 — 16,891 2,455 22,824 — 22,824 2,620

Residential Investments - Fair Value / Net income/(loss) 72,026 (36,009) 36,017 28,240 217,547 (116,723) 100,824 (21,408)

Other — — — (32) 417 — 417 (3,481)

Total Investments excluding AG Arc - Fair value / Net income/(Loss) 72,026 (36,009) 36,017 28,208 217,964 (116,723) 101,241 (24,889)

AG Arc - Fair value / Net income/(loss) 53,435 — 53,435 3,681 45,341 — 45,341 23,260

Cash and Other assets/(liabilities) 3,698 (1,127) 2,571 — 5,279 (1,194) 4,085 —

Investments in debt and equity of affiliates / Equity in earnings/(loss) from affiliates $ 129,159 $ (37,136) $ 92,023 $ 31,889 $ 268,584 $ (117,917) $ 150,667 $ (1,629)

(1) As of December 31, 2021, MATT primarily holds retained tranches from past securitizations which continue to reduce in size due to ongoing principal repayments and we do not expect to acquire additional investments within this equity method investment.

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

(3) Land Related Financing continues to reduce in size due to ongoing principal repayments and we do not expect to originate new loans within this equity method investment.

Financing activities

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.

We use leverage to finance the purchase of our investment portfolio.

Our leverage has primarily been in the form of repurchase agreements, revolving 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 and typically have a term 30 to 90 days.

The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset.

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

We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the 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, 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.

We have also entered into revolving facilities to purchase certain loans in our investment portfolio.

These facilities typically have longer stated maturities than repurchase agreements.

We have also used revolving facilities, which are typically longer term in nature than repurchase agreements, to finance loans.

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, 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 .

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.

Repurchase agreements and revolving facilities, which we refer to as our financing arrangements, are generally mark-to-market with respect to margin calls and recourse to us.

We had outstanding financing arrangements with five counterparties as of December 31, 2021 and 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 financing arrangement, typical supplemental terms include requirements of minimum equity and liquidity, leverage ratios, and performance triggers.

In addition, some of the financing arrangements contain cross default features, whereby default under an agreement with one lender simultaneously causes default under agreements with other lenders.

To the extent that we fail to comply with the covenants contained in these financing arrangements or is otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement.

As of December 31, 2021, we are in compliance with all of our financial covenants.

We also use securitized debt to finance our loan portfolio.

Securitized debt is generally non-mark-to-market with respect to margins calls and non-recourse to us.

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.

In connection with the market disruption created by the COVID-19 pandemic, in March 2020, we received notifications of alleged events of default and deficiency notices from several of our financing counterparties.

We engaged in discussions with our financing counterparties and, as a result, entered into a series of forbearance agreements (collectively, the "Forbearance Agreement") with certain of our financing counterparties (the "Participating Counterparties") pursuant to which each Participating Counterparty agreed to forbear from exercising its rights and remedies with respect to events of default and any and all other defaults under the applicable financing arrangement (each, a "Bilateral Agreement") for the period ending June 15, 2020.

On June 10, 2020, we and the Participating Counterparties entered into a reinstatement agreement (the "Reinstatement Agreement"), pursuant to which the Forbearance Agreement was terminated and each Participating Counterparty permanently waived all existing and prior events of default under the applicable Bilateral Agreements.

Pursuant to the Reinstatement Agreement, the Bilateral Agreements were reinstated with certain amendments to reflect current market terms (i.e., increased haircuts and higher coupons), updated financial covenants, and various reporting requirements from us to the Participating Counterparties, releases, certain netting obligations and cross-default provisions.

As a result of the Reinstatement Agreement, default interest on our outstanding borrowings under the Bilateral Agreements ceased to accrue as of June 10, 2020, all cash margin was applied to outstanding balances owed by us, and principal and interest payments on the underlying collateral were permitted to flow to and be used by us, just as it was prior to the Forbearance Agreements.

In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the Forbearance Agreement 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.

Concurrently, on June 10, 2020, we entered a separate reinstatement agreement with one of our financing counterparties on substantially the same terms as those set forth in the Reinstatement Agreement.

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):

The below table provides detail on the breakout between recourse and non-recourse financing as of December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020

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.

Recourse financing - Financing arrangements $ 1,791,596 $ 569,644

Recourse financing - Secured debt (1) — 10,393

Non-recourse financing - Securitized debt, at fair value 999,215 355,159

Non-recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates (2) 22,156 111,135

Total Financing 2,812,967 1,046,331

Recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates 13,853 5,597

Non-recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates (2) 22,156 111,135

Total Financing in Investments in Debt and Equity of Affiliates 36,009 116,732

Total GAAP Financing $ 2,776,958 $ 929,599

(1) See the "Contractual obligations–Secured debt" section below for more detail on Secured debt from our Manager.

(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

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)

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

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 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.

The amendment converted the existing financing to a mark-to-market facility with respect to margin calls that is recourse to us and the private funds managed by Angelo Gordon that invest in MATT up to our and each funds' allocation of the $50.0 million commitment to MATH, which is further described in the "Contractual Obligations–MATT Financing Arrangement Restructuring" section below and Note 12 to the "Notes of the Consolidated Financial Statements."

See Note 6 to the "Notes to Consolidated Financial Statements" for a breakout of the "Financing arrangements" line item on our consolidated balance sheets.

See Note 2 and Note 3 to the "Notes to Consolidated Financial Statements" for more detail on securitized debt and our consolidated variable interest entities.

We define GAAP leverage as the sum of (1) our GAAP financing arrangements, net of any restricted cash posted on such financing arrangements, (2) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled, and (3) securitized debt, at fair value.

We define Economic Leverage, a non-GAAP metric, as the sum of:

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

Our calculations of GAAP leverage and Economic Leverage exclude financing arrangements and net receivables/payables on unsettled trades pertaining to U.S.

Treasury securities due to the highly liquid and temporary nature of these investments.

(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 non-recourse financing arrangements and (iii) our net TBA position (at cost), if any.

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).

The following tables present a reconciliation of our Economic Leverage ratio to GAAP Leverage ($ in thousands):

December 31, 2021 Leverage Stockholders' Equity Leverage Ratio

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Non-recourse financing arrangements (1) (1,021,371)

Net TBA receivable/(payable) adjustment (394,212)

Economic Leverage $ 1,392,255 $ 570,380 2.4x

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

(1) Non-recourse financing arrangements include securitized debt and other non-recourse financing held within MATT.

December 31, 2020 Leverage Stockholders' Equity Leverage Ratio

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

(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.

(1) Non-recourse financing arrangements include securitized debt and other non-recourse financing held within MATT.

Hedging activities

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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.

Treasury securities.

In addition, we may utilize Eurodollar Futures, U.S.

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

We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in to-be-announced securities.

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.

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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.

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, (vi) methods of depreciation and (vii) differences between GAAP income or losses in our TRSs’ and taxable income resulting from dividend distributions to the REIT from our TRSs.

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, 2021.

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.

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, 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, in order to conserve capital and improve our liquidity position during the market volatility due to the COVID-19 pandemic.

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:

On December 22, 2020, our Board of Directors declared a dividend of $0.09 per common share for the fourth quarter 2020 which was paid on January 29, 2021 to shareholders of record at the close of business on December 31, 2020.

During 2021, we declared our preferred and common dividends in the ordinary course of business.

On July 12, 2021, we announced a one-for-three reverse stock split of our outstanding shares of common stock.

The reverse stock split was effected following the close of business on July 22, 2021.

All per share amounts and common shares outstanding for all periods presented have been adjusted on a retroactive basis to reflect the one-for-three reverse stock split.

The following tables detail our common stock dividends declared during the years ended December 31, 2021 and 2020:

Declaration Date Record Date Payment Date Dividend Per Share

3/22/2021 4/1/2021 4/30/2021 $ 0.18

Declaration Date Record Date Payment Date Dividend Per Share

6/15/2021 6/30/2021 7/30/2021 0.21

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12/15/2021 12/31/2021 1/31/2022 0.21

Declaration Date Record Date Payment Date Dividend Per Share

12/22/2020 12/31/2020 1/29/2021 $ 0.09

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

The following tables detail our preferred stock dividends declared during the years ended December 31, 2021 and 2020:

Cash Dividend Per Share

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5/17/2021 5/28/2021 6/17/2021 0.51563 0.50 0.50

7/30/2021 8/31/2021 9/17/2021 0.51563 0.50 0.50

11/5/2021 11/30/2021 12/17/2021 0.51563 0.50 0.50

Total $ 2.06252 $ 2.00 $ 2.00

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

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 $ 2.00

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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.

Our principal sources of cash as of December 31, 2021 consisted of borrowings under financing arrangements, principal and interest payments we receive on our investment portfolio, cash generated from our operating results, and proceeds from capital market transactions.

We typically use cash to repay principal and interest on our financing arrangements, to purchase loans, real estate securities, and other real estate related assets, to make dividend payments on our capital stock, and to fund our operations.

At December 31, 2021, we had $137.3 million of liquidity, which consisted of $68.1 million of cash and $69.2 million of unencumbered assets available to support our liquidity needs.

At January 31, 2022, we had $134.3 million of liquidity, which consisted of $67.8 million of cash and $66.5 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

The fair value of our real estate securities and loans fluctuate according to market conditions.

The fair value of our loans and real estate securities fluctuate according to market conditions.

When the fair value of the assets pledged as collateral to secure a financing arrangement decreases to the point where the difference between the collateral fair value and the financing arrangement amount is less than the haircut, our lenders may issue a "margin call," which requires us to post additional collateral to the lender in the form of additional assets or cash.

Under our repurchase facilities, our lenders have full discretion to determine the fair value of the securities we pledge to them.

Our lenders typically value assets based on recent trades in the market.

Our lenders typically value assets based on recent transactions in the market.

Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly.

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

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

Typically, if interest rates increase or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will need to use our liquidity to meet the margin calls.

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In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness.

We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in our target assets.

We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which may force us to liquidate assets into potentially unfavorable market conditions and harm our results of operations and financial condition.

Further, an unexpected rise in interest rates and a corresponding fall in the fair value of our securities may also force us to liquidate assets under difficult market conditions, thereby harming our results of operations and financial condition, in an effort to maintain sufficient liquidity to meet increased margin calls.

Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair values decline.

Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair value declines.

This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the terms of the derivatives involved.

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Our posting of collateral with our counterparties can be done in cash or securities, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us.

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

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).

Refer to the "Liquidity risk – derivatives" section of Item 7A below for a further discussion on margin.

Refer to the "Financing activities–Forbearance and Reinstatement Agreements" section above for information on the impact of COVID-19 on margin calls in 2020.

The below details changes to our cash, cash equivalents, and restricted cash for the years ended December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020 Change

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Cash, cash equivalents, and restricted cash, End of Period $ 100,229 $ 62,318 $ 37,911

(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.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the years ended December 31, 2021 and 2020, respectively.

Our investment portfolio grew in 2021 following a significant reduction in our investment portfolio size in 2020 as a result of the COVID-19 pandemic.

In addition, distributions received from our equity method investments increased period over period.

(2) Cash used in investing activities for the year ended December 31, 2021 was primarily attributable to purchases of investments less sales of investments and principal repayments of investments.

Cash used 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.

The difference period over period is primarily due to the increased level of investment activity during 2021 as we focused on growing our investment portfolio as compared to significant sales in 2020 as a result of the COVID-19 pandemic.

(3) Cash provided by financing activities for the year ended December 31, 2021 was primarily attributable to borrowing of financing arrangements, proceeds from the issuance of securitized debt, and net proceeds from the issuance of common stock offset by offset by repayment of borrowings under financing arrangements, principal repayments of securitized debt, and dividend payments.

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, under the Securities Act of 1933.

The Equity Distribution Agreements were amended on May 2, 2018 in conjunction with the filing of our shelf registration statement registering up to $750.0 million of our securities, including capital stock (the "2018 Registration Statement").

The difference period over period is primarily due to financing added to support the increased level of investment and securitization activity during 2021 as compared to a reduction in financing arrangements as a result of significant sales in 2020 due to the COVID-19 pandemic.

Stock repurchase programs

On November 3, 2015, our Board of Directors authorized a stock repurchase program ("Repurchase Program") to repurchase up to $25.0 million of our outstanding common stock.

Such authorization does not have an expiration date.

As part of the Repurchase Program, shares may be purchased in open market transactions, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.

Open market repurchases will be made in accordance with Exchange Act Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of open market stock repurchases.

Subject to applicable securities laws, the timing, manner, price and amount of any repurchases of common stock under the Repurchase Program may be determined by our discretion, using available cash resources.

Shares of common stock repurchased by us under the Repurchase Program, if any, will be cancelled and, until reissued, will be deemed to be authorized but unissued shares of common stock as required by Maryland law.

The Repurchase Program may be suspended or discontinued by us at any time and without prior notice and the authorization does not obligate us to acquire any particular amount of common stock.

The cost of the acquisition of shares of our own stock in excess of the aggregate par value of the shares first reduces additional paid-in capital, to the extent available, with any residual cost applied against retained earnings.

We repurchased 0.3 million shares under the Repurchase Program during the year ended December 31, 2021.

We did not repurchase shares under the Repurchase Program during the year ended December 31, 2020.

Approximately $11.0 million of common stock remained authorized for future share repurchases under the Repurchase Program as of December 31, 2021.

Equity distribution agreements

Agents, under the Securities Act of 1933.

For the year ended December 31, 2021, we sold 1.0 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $13.1 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.

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.

For the year ended December 31, 2020, we sold 0.7 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $7.1 million.

Since inception of the program, the Company has sold approximately 2.2 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $48.3 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.

On November 22, 2021, we completed a public offering of 7.0 million shares of our common stock and subsequently issued an additional 1.1 million shares pursuant to the underwriters' exercise of their over-allotment option at a price of $9.98 per share.

Net proceeds to us from the offering were approximately $80.0 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 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.

The Series C Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption.

Under certain circumstances upon a change of control, the Series C Preferred Stock is convertible to shares of our common stock.

Holders of Series C Preferred Stock have no voting rights, except under limited conditions, and holders are entitled to receive cumulative cash dividends before holders of our common stock are entitled to receive any dividends.

The initial dividend rate for the Series C Preferred Stock, from and including the date of original issue to, but not including, September 17, 2024, will be equal to 8.000% per annum of the $25.00 per share liquidation preference.

On and after September 17, 2024, dividends on the Series C Preferred Stock will accumulate at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the three-month LIBOR plus a spread of 6.476% per annum.

Shares of our Series C Preferred Stock are redeemable at $25.00 per share plus accumulated and unpaid dividends (whether or not declared) exclusively at our option commencing on September 17, 2024, or earlier under certain circumstances intended to preserve our qualification as a REIT for Federal income tax purposes.

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

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.

The below details the privately negotiated exchange agreements with existing holders of our preferred shares exchanged for common shares during the year ended December 31, 2021.

Subsequent to each transaction closed, the Preferred Stock exchanged pursuant to the exchange agreement was reclassified as authorized but unissued shares of preferred stock without designation as to class or series ($ in thousands).

Preferred Shares Exchanged

Date Shares of Series A Preferred Stock Shares of Series B Preferred Stock Shares of Series C Preferred Stock Total Preferred Stock Par Value Common Shares Exchanged

March 17, 2021

153,325 350,609 — $ 12,598 937,462

June 14, 2021 — 86,478 154,383 6,022 429,802

As of December 31, 2021, we had outstanding 1.7 million shares of Series A Preferred Stock, 3.7 million shares of Series B Preferred Stock, and 3.7 million shares of Series C Preferred Stock.

Common Stock Issuance to the Manager

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

Refer to "Contractual obligations–Management agreement" below for more detail related to the Second Management Agreement Amendment.

Forward-looking statements regarding liquidity

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Management agreement

On June 29, 2011, we entered into an agreement with our Manager pursuant to which our Manager is entitled to receive a management fee and the reimbursement of certain expenses.

On June 29, 2011, we entered into a management agreement with our Manager, pursuant to which our Manager is entitled to receive a management fee and the reimbursement of certain expenses.

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

For purposes of calculating the management fee, "Stockholders’ Equity" means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus our retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that we pay for repurchases of our common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in our financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP, and certain other non-cash charges after discussions between the Manager and our independent directors and after approval by a majority of our independent directors.

Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements.

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

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, 2021 and 2020, we have incurred management fees of $6.8 million and $7.2 million, respectively.

As of December 31, 2021 and 2020, we have recorded management fees payable of $1.8 million and $1.7 million, respectively.

Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us.

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however, the reimbursement is subject to an annual budget process which combines guidelines from the Management Agreement with oversight by our Board of Directors and discussions with our Manager.

Of the $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.

For the years ended December 31, 2021 and 2020, we have accrued $6.3 million and $7.4 million, respectively, representing a reimbursement of expenses which are recorded within the "Other operating expenses" and "Transaction related expenses" line items on the consolidated statements of operations.

As of December 31, 2021 and 2020, we recorded a reimbursement payable to the Manager of $2.1 million and $1.8 million, respectively.

For the year ended December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $0.8 million.

On April 6, 2020, we executed an amendment to the management agreement, pursuant to which the Manager agreed to defer our payment of the management fee and reimbursement of expenses, effective the first quarter of 2020 through September 30, 2020.

All deferred expense reimbursements were paid as of September 30, 2020.

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

Pursuant to the Second Management Agreement Amendment, the Manager agreed to purchase (i) 405,123 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) 51,500 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 $9.45 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.

Incentive fee

In connection with our common stock offering in November 2021, including the Manager's purchase of 700,000 shares in the offering, on November 22, 2021, we and the Manager executed an amendment (the "Third Amendment") to the management agreement, pursuant to which we will pay the Manager an annual incentive fee in addition to the base management fee.

Pursuant to the Third Amendment, the Manager waived the annual incentive fee with respect to the fiscal years ending December 31, 2021 and December 31, 2022, and the annual incentive fee will first be payable with respect to the fiscal year ending December 31, 2023.

The annual incentive fee with respect to each applicable fiscal year will be equal to 15% of the amount by which our cumulative adjusted net income from the date of the Third Amendment exceeds the cumulative hurdle amount, which represents an 8% return (cumulative, but not compounding) on an equity hurdle base consisting of the sum of (i) our adjusted book value (calculated in the manner described in our public filings) as of October 31, 2021, (ii) $80.0 million, and (iii) the gross proceeds of any subsequent public or private common stock offerings by us.

The annual incentive fee will be payable in cash, or, at the option of our Board of Directors, shares of our common stock or a combination of cash and shares.

In addition, pursuant to the Third Amendment, the term of the management agreement was extended until June 30, 2023, unless earlier terminated in accordance with its terms.

Thereafter, the management agreement will continue to renew automatically each year for an additional one-year period, unless the Company or the Manager exercise its respective termination rights.

All other terms and conditions of the management agreement continued without change.

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.

The $10 million loan made by the Manager on April 10, 2020 was repaid in full with interest when it matured 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

The unpaid balance of the Note accrued interest at a rate of 6.0% per annum.

Interest on the Note was payable monthly in kind through the addition of such accrued monthly interest to the outstanding principal balance of the Note.

The Note and accrued interest on the Note, when outstanding, were included within the due to affiliates amount, which is included within the "Other Liabilities" line item in the consolidated balance sheets.

Share-based compensation

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As of December 31, 2021, 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.

Following approval of our stockholders at our 2021 annual meeting of stockholders, the AG Mortgage Investment Trust, Inc.

2021 Manager Equity Incentive Plan (the "2021 Manager Plan") became effective on April 7, 2021 and provides for a maximum of 573,425 shares of common stock that may be subject to awards thereunder to our Manager.

As of December 31, 2021, there were no shares or awards issued under the 2021 Manager Plan.

Further, since our IPO, we have issued 13,416 shares of restricted common stock and 40,000 restricted stock units to our Manager under our 2011 Equity Incentive Plans.

As of July 1, 2020, all shares of restricted common stock and restricted stock units granted to our Manager have fully vested.

Unfunded commitments

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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 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.

See Note 10 and Note 12 of the "Notes to Consolidated Financial Statements" for detail on the MATT Restructured Financing Arrangement and our commitments as of December 31, 2021.

Off-balance sheet arrangements

We may enter into long TBA positions to facilitate the future purchase or sale of Agency RMBS.

We may also enter into short TBA positions to hedge Agency RMBS.

We record TBA purchases/shorts and sales/covers on the trade date and present the

amount net of the corresponding payable or receivable until the settlement date of the transaction.

As of December 31, 2020, we had no TBA positions.

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.

See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.

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

December 31, 2020 December 31, 2019

Assets Liabilities Equity Assets Liabilities Equity

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

Total Agency RMBS 417 — 417 555 — 555

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

Total Residential Investments 217,547 (116,723) 100,824 358,471 (257,068) 101,403

Freddie Mac K-Series — — — 12,237 — 12,237

CMBS Interest Only — — — 1,863 — 1,863

Total Commercial Investments — — — 14,100 — 14,100

Total Credit Investments 217,547 (116,723) 100,824 372,571 (257,068) 115,503

Total Investments excluding AG Arc 217,964 (116,723) 101,241 373,126 (257,068) 116,058

AG Arc, at fair value 45,341 — 45,341 28,546 — 28,546

Cash and Other assets/(liabilities) (3) 5,279 (1,194) 4,085 12,953 (1,246) 11,707

Investments in debt and equity of affiliates $ 268,584 $ (117,917) $ 150,667 $ 414,625 $ (258,314) $ 156,311

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

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

As of 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.

Exclusive of our TBAs and our investments in debt and equity of affiliates described above, we do not expect these off-balance sheet arrangements, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations, given our ability to finance such arrangements.

Certain related person transactions

Our Board of Directors has adopted a policy regarding the approval of any "related person transaction," which is any transaction or series of transactions in which (i) we or any of our subsidiaries is or are to be a participant, (ii) the amount involved exceeds $120,000, and (iii) a "related person" (as defined under SEC rules) has a direct or indirect material interest.

Under the policy, a related person would need to promptly disclose to our Secretary or Assistant Secretary any related person transaction and all material facts about the transaction.

Our Secretary or Assistant Secretary, in consultation with outside counsel, to the extent appropriate, would then assess and promptly communicate that information to the audit committee of our

Board of Directors.

Based on its consideration of all of the relevant facts and circumstances, the audit committee will review, approve or ratify such transactions as appropriate.

The audit committee will not approve or ratify a related person transaction unless it shall have determined that such transaction is in, or is not inconsistent with, our best interests and does not represent a conflict of interest.

If we become aware of an existing related person transaction that has not been approved under this policy, the transaction will be referred to the audit committee which will evaluate all options available, including ratification, revision or termination of such transaction.

Our policy requires any director who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction.

Grants of restricted common stock

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

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 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 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, 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, 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 "MATT Financing Arrangement Restructuring" section above.

LOT SP I LLC and LOT SP II LLC

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

Management agreement

On June 29, 2011 we entered into a management agreement with our Manager, which governs the relationship between us and our Manager and describes the services to be provided by our Manager and its compensation for those services.

The terms of our management agreement, including the fees payable by us to Angelo Gordon, were not negotiated at arm’s length, and its terms may not be as favorable to us as if they had been negotiated with an unaffiliated party.

Our Manager, pursuant to the delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under our management agreement.

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

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

Other transactions with affiliates

Our Board of Directors has adopted a policy regarding the approval of any "affiliated transaction," which is any transaction or series of transactions in which Angelo Gordon arranges for the purchase and sale of a security or other investment between or among us, on the one hand, and an entity or entities under Angelo Gordon’s management, on the other hand (an "Affiliated Transaction").

In order for us to enter into an Affiliated Transaction, the Affiliated Transaction must be approved by our Chief Risk Officer and the Chief Compliance Officer of Angelo Gordon.

For most instruments, if market bids are available, the trading desk will request external bids from the market while simultaneously submitting an internal bid to Compliance and/or Risk.

If the highest bid is an external bid, the security or other instrument will be sold to the external bidder and no affiliated transaction will take place.

If the highest bid is the internal bid, the price will be the midpoint between the internal bid and the highest external bid.

If market bids are not available or prove to be impracticable in Angelo Gordon's reasonable judgment, appropriate pricing will generally be based on a valuation analysis prepared by a third-party.

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

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

As of the date of the trade, the security acquired from the March 2019 Selling Affiliate had a total fair value of $0.9 million.

The March 2019 Selling Affiliate sold the real estate security through a BWIC.

Prior to the submission of the BWIC by the March 2019 Selling Affiliate, we submitted our bid for the real estate security to the March 2019 Selling Affiliate.

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

In June 2019, we, alongside private funds under the management of Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $408.0 million were securitized.

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

In July 2019, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "July 2019 Selling Affiliate").

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

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

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

In September 2019, we, alongside private funds managed by Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $415.1 million were securitized.

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

In October 2019, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "October 2019 Selling Affiliate").

As of the date of the trade, the real estate securities acquired from the October 2019 Selling Affiliate had a total fair value of $2.2 million.

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

Prior to 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 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.

Certain of our investments in debt and equity of affiliates securitize residential mortgage loans and retain interests in the subordinated tranches of the transferred assets.

These retained interests are included in the MATT Non-QM Loans and Re/Non-Performing Loans line items of our investment portfolio.

See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of investments i n debt and equity of affiliates.

We have entered into TBA positions in connection with purchases of GSE Non-Owner Occupied Loans .

We record TBA purchases and sales on the trade date and present the purchase or receipt net of the corresponding payable or receivable until the settlement date of the transaction.

As of December 31, 2021 , we had a net short TBA position with a net receivable amount and fair market valu e of $394.2 million and recorded $13 thousand in the "Other liabilities" line item on our consolidated balance sheets.

In addition to our investments in debt and equity of affiliates and TBA positions described above, we also have commitments outstanding on certain loans.

For additional information on our commitments as of December 31, 2021, refer to Note 12 of the "Notes to Consolidated Financial Statements." Exclusive of our investments in debt and equity of affiliates described above, we do not expect these commitments, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations.

Critical accounting policies

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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 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.

Our most critical accounting policies are believed to include (i) Valuation of financial instruments, (ii) Accounting for loans, (iii) Accounting for real estate securities, (iv) Interest income recognition, (v) Financing arrangements, and (vi) Investment consolidation.

These policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses.

1 unchanged sentence

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".

For a review of our significant accounting policies and the recent accounting pronouncements that may impact our results of operations, see Note 2 to the "Notes to Consolidated Financial Statements."

Virtually all of our assets and liabilities are interest rate sensitive in nature.

As a result, interest rates and other factors influence our performance far more than inflation.

Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates.

Compliance with Investment Company Act and REIT tests

We intend to conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes of, the Investment Company Act.

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 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.

We also calculate that a sufficient portion of our revenue qualifies for the 75% gross income test and for the 95% gross income test rules for the year ended December 31, 2020.

Overall, we believe that we met the REIT income and asset tests.

We also believe that we met all other REIT requirements, including the ownership of our stock and the distribution of our taxable income.

Therefore, for the year ended December 31, 2020, we believe that we qualified as a REIT under the Code.

For more information on our fair value measurements, see Note 5 to the "Notes to Consolidated Financial Statements." For a review of our significant accounting policies and the recent accounting pronouncements that may impact our results of operations, see Note 2 to the "Notes to Consolidated Financial Statements."

REIT Qualification

We have elected to be taxed as a REIT for U.S.

federal income tax purposes.

Provided that we maintain our qualification as a REIT, we generally will not be subject to U.S.

federal income tax on our REIT taxable income that we distribute currently to our stockholders.

Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code, relating to, among other things, the sources of our gross income and the composition and values of our assets (which, based on the types of assets we own, can fluctuate rapidly, significantly and unpredictably), our distribution levels and the diversity of ownership of our shares.

We cannot assure you that we will be able to comply with such requirements.

Failure to qualify as a REIT in any taxable year would cause us to be subject to U.S.

federal income tax on our taxable income at regular corporate rates (and any applicable state and local taxes).

Even if we qualify for taxation as a REIT, we may be subject to certain U.S.

federal, state, local, and non-U.S.

taxes on our income.

For example, any income generated by our domestic TRSs will be subject to U.S.

federal, state, and local income tax.

Any taxes paid by a TRS will reduce the cash available for distribution to our stockholders.

Exclusion From Regulation Under the Investment Company Act

We conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes, of the Investment Company Act.

Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities.

Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis (the "40% Test").

"Investment securities" do not include, among other things, U.S.

government securities, and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private investment company" exemptions).

We conduct our operations such that we will not be considered an investment company under Section 3(a)(1) of the Investment Company Act by complying with the 40% Test and not engaging primarily (or holding ourselves out as being engaged primarily) in the business of investing, reinvesting, or trading in securities.

Rather, through wholly-owned or majority-owned subsidiaries, we are primarily engaged in the non-investment company businesses of these subsidiaries, namely the real estate finance business of purchasing or otherwise acquiring mortgage loans and other interests in real estate.

We currently have several subsidiaries that rely on the exclusion provided by Section 3(c)(7) of the Investment Company Act, each a "3(c)(7) subsidiary." In addition, we currently have several subsidiaries that rely on the exclusion provided by Section 3(c)(5)(C) of the Investment Company Act, each a "3(c)(5)(C) subsidiary."

While investments in 3(c)(7) subsidiaries are considered investment securities for the purposes of the 40% Test, investments in 3(c)(5)(C) subsidiaries are not considered investment securities for the purposes of the 40% Test, nor are investments in subsidiaries that rely on the exclusion provided by Section 3(a)(1)(C).

Therefore, our investments in 3(c)(7) subsidiaries and other investment securities cannot exceed 40% of the value of our total assets (excluding U.S.

government securities and cash) on an unconsolidated basis.

Section 3(c)(5)(C) of the Investment Company Act exempts from the definition of "investment company" entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.

The SEC staff generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" and at least another 25% in additional qualifying assets or in "real estate-related" assets (with no more than 20% comprised of miscellaneous assets).

Both the 40% Test and the requirements of the Section 3(c)(5)(C) exclusion limit the types of businesses in which we may engage and the types of assets we may hold, as well as the timing of sales and purchases of assets.

The determination that we qualify for this exemption from being regulated as an investment company depends on various factual matters and circumstances.

We closely monitor our holdings to ensure continuing and ongoing compliance with these tests.

If we failed to comply with the 40% Test or another exemption under the Investment Company Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this report.

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