2 unchanged sentences
While we do not seek to avoid risk completely, we seek to assume risk that can be reasonably quantified from historical experience and to actively manage that risk, to earn sufficient returns to justify taking those risks and to maintain capital levels consistent with the risks we undertake.
−Removed: Many of these risks have become particularly heightened due to the COVID-19 pandemic and related economic and market conditions.
+Added: Many of these risks have become particularly heightened due to sustained inflation, rising mortgage rates, the Federal Reserve's monetary policy actions, and the COVID-19 pandemic.
Interest rate risk
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Another component of interest rate risk is the effect that changes in interest rates will have on the fair value of the assets that we acquire.
−Removed: Generally, in a rising interest rate environment, the fair value of our real estate securities and loan portfolios would be expected to decrease, all other factors being held constant.
−Removed: In particular, the portion of our real estate securities and loan portfolios with fixed-rate coupons would be expected to decrease in value more severely than that portion with a floating-rate coupon.
+Added: Generally, in a rising interest rate environment, the fair value of our loan and real estate securities portfolios would be expected to decrease, all other factors being held constant.
+Added: In particular, the portion of our loan and real estate securities portfolios with fixed-rate coupons would be expected to decrease in value more severely than that portion with a floating-rate coupon.
This is because fixed-rate coupon assets tend to have significantly more duration, or price sensitivity to changes in interest rates, than floating-rate coupon assets.
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We allocate the net duration by asset type based on the interest rate sensitivity.
−Removed: Duration does not include our investment in AG Arc LLC.
−Removed: The following chart details information about our duration gap as of June 30, 2022.
+Added: The following chart details information about our duration gap as of September 30, 2022.
Duration (1)(2) Years
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(1) Duration related to financing arrangements is netted within its respective line items.
−Removed: (2) Residential Investments are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of June 30, 2022.
+Added: (2) Duration does not include our investment in AG Arc LLC.
+Added: (3) Residential Investments are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of September 30, 2022.
The following table quantifies the estimated percent changes in GAAP equity, the fair value of our assets, and projected net interest income should interest rates go up or down instantaneously by 25, 50, and 75 basis points, assuming (i) the yield curves of the rate shocks will be parallel to each other and the current yield curve and (ii) all other market risk factors remain constant.
1 unchanged sentence
All changes in equity, assets and income are measured as percentage changes from the projected net interest income and GAAP equity from our base interest rate scenario.
−Removed: The base interest rate scenario assumes spot and forward interest rates existing as of June 30, 2022.
+Added: The base interest rate scenario assumes spot and forward interest rates existing as of September 30, 2022.
Actual results could differ materially from these estimates.
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Moreover, if different models were employed in the analysis, materially different projections could result.
−Removed: In addition, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio as of June 30, 2022, our Manager may from time to time sell any of our investments as a part of the overall management of our investment portfolio.
+Added: In addition, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio as of September 30, 2022, our Manager may from time to time sell any of our investments as a part of the overall management of our investment portfolio.
Change in Interest Rates (basis
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(2) Does not include cash investments, which typically have overnight maturities and are not expected to change in value as interest rates change.
−Removed: (3) Changes in fair value as a percentage of GAAP equity and assets are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of June 30, 2022.
−Removed: (4) Interest income includes trades settled as of June 30, 2022.
+Added: (3) Changes in fair value as a percentage of GAAP equity and assets are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of September 30, 2022.
+Added: (4) Interest income includes trades settled as of September 30, 2022.
The information set forth in the interest rate sensitivity table above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
4 unchanged sentences
Our Manager seeks to mitigate our liquidity risks by maintaining a prudent level of leverage, monitoring our liquidity position on a daily basis and maintaining a substantial cushion of cash and unpledged real estate securities and loans in our portfolio in order to meet future margin calls.
−Removed: In addition, our Manager seeks to further mitigate our liquidity risk by (i) maintaining relationships with a carefully selected group of financing counterparties and (ii) monitoring the ongoing financial stability and future business plans of our financing counterparties.
+Added: In addition, our Manager seeks to further mitigate our
+Added: liquidity risk by (i) maintaining relationships with a carefully selected group of financing counterparties and (ii) monitoring the ongoing financial stability and future business plans of our financing counterparties.
Liquidity risk – financing arrangements
−Removed: We pledge real estate securities or mortgage loans and cash as collateral to secure our financing arrangements.
−Removed: Should the fair value of our real estate securities or mortgage loans pledged as collateral decrease (as a result of rising interest rates, changes in prepayment speeds, widening of credit spreads or otherwise), we will likely be subject to margin calls for additional collateral from our financing counterparties.
−Removed: Should the fair value of our real estate securities or mortgage loans decrease materially and suddenly, margin calls will likely increase causing an adverse change to our liquidity position which could result in substantial losses.
+Added: We pledge mortgage loans or real estate securities and cash as collateral to secure our financing arrangements.
+Added: Should the fair value of our mortgage loans or real estate securities pledged as collateral decrease (as a result of rising interest rates, changes in prepayment speeds, widening of credit spreads or otherwise), we will likely be subject to margin calls for additional collateral from our financing counterparties.
+Added: Should the fair value of our mortgage loans or real estate securities decrease materially and suddenly, margin calls will likely increase causing an adverse change to our liquidity position which could result in substantial losses.
In addition, we cannot be assured that we will always be able to roll our financing arrangements at their scheduled maturities, which could cause material additional harm to our liquidity position and result in substantial losses.
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As further discussed in Note 2 of the "Notes to Consolidated Financial Statements (unaudited)," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS and interest-only securities) and mortgage loans accounted for under ASC 310-30.
−Removed: In addition, our interest rate hedges are structured in part based upon assumed levels of future prepayments within our real estate securities or mortgage loan portfolio.
+Added: In addition, our interest rate hedges are structured in part based upon assumed levels of future prepayments within our mortgage loan or real estate securities portfolio.
If prepayments are slower or faster than assumed, the life of the real estate securities or mortgage loans will be longer or shorter than assumed, respectively, which could reduce the effectiveness of our Manager’s hedging strategies and may cause losses on such transactions.
9 unchanged sentences
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.