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Risks Related to our Company, Business, and Operations
−Removed: • The COVID-19 pandemic has had and may continue to have a material adverse effect on our business.
−Removed: • Our ability to execute our new focused mission and grow our business are dependent upon our Manager's ability to source, acquire and finance a large volume of desirable non-agency loans and other target assets on attractive terms.
+Added: • Our ability to grow our business is dependent upon our Manager's ability to source, acquire and finance a large volume of desirable non-agency loans and other target assets on attractive terms.
+Added: • Disruptive, exogenous geopolitical or other macroeconomic events or large-scale conflicts, including warfare among countries could materially and adversely affect our business.
• The mortgage loans we acquire or that underlie our RMBS expose us to significant credit risk that could negatively affect the value of those investments.
−Removed: • We may engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks.
+Added: • We engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks.
• Our Manager’s due diligence of potential investments may be insufficient, which could lead to investment losses.
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• Valuations of our investments may at times be unavailable or unreliable.
−Removed: • Disruptive, exogenous geopolitical or other macroeconomic events could lead to declines in the fair value of our investments which could materially and adversely affect our business.
+Added: • The outbreak of highly infectious or contagious diseases could adversely impact or cause disruption to our financial condition and results of operations.
+Added: • Increases in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could negatively affect our profitability and our ability to make distributions.
+Added: • Failure of the U.S.
+Added: federal government to manage its fiscal matters or to raise or further suspend the debt ceiling, and changes in the amount of federal debt, may negatively impact the economic environment and adversely impact our results of operations.
• We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from climate change or other unfavorable changes in the related geographic regions.
+Added: • Climate change, climate change-related initiatives and regulation and the increased focus on environmental, social and governance (ESG) issues, may adversely affect our business and financial results and damage our reputation.
• Cybersecurity risks may cause a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our business.
−Removed: • The failure of servicers to effectively service the mortgage loans in our portfolio and the MSRs in Arc Home's portfolio may materially and adversely affect us, and market disruptions caused by COVID-19 may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
−Removed: • Increases in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could negatively affect our profitability and our ability to make distributions.
+Added: • The failure of servicers to effectively service the mortgage loans in our portfolio and the MSRs in Arc Home's portfolio may materially and adversely affect us, and market disruptions may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
• Arc Home is highly dependent upon programs administered by the GSEs, and changes in the GSEs’ servicing or origination guidelines or overall operations could have a material adverse effect on Arc Home’s business.
+Added: • Arc Home is subject to extensive licensing requirements and regulation, which could materially and adversely affect us.
• An economic slowdown or a deterioration of the housing market could increase both interest expense on servicing advances and operating expenses and could cause a reduction in income from, and the value of, Arc Home’s servicing portfolio.
−Removed: • Our business is subject to extensive regulation.
Risks Related to our Investments
• Our investments in non-agency residential mortgage loans, including Non-QM Loans in particular, subject us to legal, regulatory and other risks.
−Removed: • We invest in GSE Non-Owner Occupied Loans, which exposes us to an increased risk of loss.
+Added: • We invest in GSE Non-Owner Occupied Loans, which expose us to an increased risk of loss.
• Changes in prepayment rates may adversely affect the return on our investments.
• Prepayment rates are difficult to predict, and market conditions may disrupt the historical correlation between interest rate changes and prepayment trends.
+Added: • Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.
• Our investment in lower rated Non-Agency RMBS resulting from the securitization of our assets or otherwise, exposes us to the first loss on the mortgage assets held by the securitization vehicle.
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government, may adversely affect our business.
−Removed: • We are subject to the risk that agencies of and entities sponsored by the U.S.
−Removed: government may not be able to fully satisfy their guarantees of Agency RMBS or that these guarantee obligations may be repudiated, which may adversely affect the value of our investment portfolio and our ability to sell or finance these securities.
−Removed: • Mortgage loan modification and refinancing programs may adversely affect the value of, and our returns on, mortgage-backed securities and residential mortgage loans.
Risks Related to Financing Activities
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• Pursuant to the terms of borrowings under our financing arrangements, we are subject to margin calls that could result in defaults or force us to sell assets under adverse market conditions or through foreclosure.
−Removed: • Changes in the method pursuant to which LIBOR is determined, or a discontinuation of LIBOR, may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.
+Added: • The Federal Reserve's actions and statements regarding monetary policy and the management of its balance sheet can affect the fixed income and mortgage finance markets in ways that could adversely affect our future business and financial results and the value of, and returns on, real estate-related investments and other assets we own or may acquire.
+Added: • The replacement of LIBOR with SOFR-based rates or other alternative reference rates may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.
Risks Related to our Management and our Relationships with our Manager and its Affiliates
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• We may enter into transactions to purchase or sell investments with entities or accounts managed by our Manager or its affiliates.
−Removed: • Our Board of Directors has approved very broad investment policies for our Manager, may change such policies without stockholder consent, and does not review or approve each investment or financing decision made by our Manager.
• Our Manager's fee structure may not create proper incentives or may induce our Manager and its affiliates to make riskier or more speculative investments, which increase the risk of our portfolio.
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• Termination of our management agreement would be costly and, in certain cases, not permitted.
−Removed: • Our Manager may terminate our management agreement, which could materially adversely affect our business.
−Removed: • We have engaged Red Creek Asset Management LLC, an affiliate of our Manager (the "Asset Manager"), to manage certain of our residential mortgage loans.
−Removed: The terms of the asset management agreement with the Asset Manager may not be as favorable to us as if the agreement was negotiated with unaffiliated third-parties.
Risks Related to Taxation
• Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders.
−Removed: • Complying with the REIT requirements can be difficult and may cause us to be forced to liquidate assets or to forego otherwise attractive opportunities.
−Removed: • The REIT distribution requirements could adversely affect our ability to execute our business strategies.
−Removed: • Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow.
• The failure of assets subject to repurchase agreements to be treated as owned by us for U.S.
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• Complying with the REIT requirements may limit our ability to hedge effectively.
−Removed: • Certain financing activities may subject us to U.S.
−Removed: federal income tax and could have negative tax consequences for our stockholders.
• The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S.
federal income tax purposes.
−Removed: • The share ownership limits applicable to us that are imposed by the Code for REITs and our charter may restrict our business combination opportunities.
• There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR.
Risks Related to our Organization and Strategy
−Removed: • Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to distribute cash to our stockholders.
−Removed: • If we were required to register with the CFTC as a Commodity Pool Operator, it could materially adversely affect our business, financial condition and results of operations.
+Added: • Loss of our exemption from regulation under the Investment Company Act would impose significant limits on our operations, which would negatively affect the value of shares of our common stock and our ability to distribute cash to our stockholders.
• Certain provisions of Maryland law could inhibit a change in our control.
−Removed: • Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions taken not in your best interest.
−Removed: • Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders.
Other Risks Related to Ownership of Our Common Stock
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Investors in our common stock may experience losses, volatility, and poor liquidity, and we may reduce our dividends in a variety of circumstances.
−Removed: • Future sales of our common stock by us or by our officers and directors may have adverse consequences for investors.
−Removed: • We have not established a minimum distribution payment level and cannot assure you of our ability to pay distributions in the future.
−Removed: • The market price of our common stock has been and may continue to be volatile and holders of our common stock could lose all or a significant portion of their investment due to drops in the market prices of our common stock.
Risks Related to our Company, Business, and Operations
−Removed: The COVID-19 pandemic has had and may continue to have a material adverse effect on our business.
−Removed: The COVID-19 pandemic continues to cause significant disruptions to the U.S.
−Removed: and global economies and has contributed to volatility and negative pressure in financial markets.
−Removed: The outbreak has led governments and other authorities around the world to impose measures intended to control its spread.
−Removed: The impact of the pandemic, including the emergence of new variants of the virus, and measures to prevent its spread have negatively impacted us and could further negatively impact our business.
−Removed: In particular, the COVID-19 pandemic has impacted, and may continue to impact, our financing strategy and liquidity.
−Removed: We finance many of the mortgage loans and real estate related securities we acquire with borrowings under repurchase facilities and other financing arrangements and, as market conditions permit, refinance these assets through securitization transactions.
−Removed: During the first and second quarters of 2020 with the onset of the pandemic, we experienced significant declines in the value of our assets financed through repurchase facilities and other financing arrangements as well as adverse developments with respect to the cost and terms of such financing, and received margin calls, default notices and deficiency letters from certain of our financing counterparties well in excess of historical norms.
−Removed: We were able to resolve these deficiencies and related matters with lenders during 2020, but at significant expense and the size of our investment portfolio and market capitalization decreased
−Removed: substantially as a result of satisfying margin calls and defaults.
−Removed: If as a result of the COVID-19 pandemic or another pandemic in the future, the financing markets were to experience another period of extreme volatility and illiquidity, we may be forced to sell our mortgage loans, real estate related securities and other assets that secure our repurchase and other financing arrangements on less favorable terms to us than might otherwise be available in a regularly functioning market and such actions could result in deficiency judgments and other claims against us.
−Removed: These conditions would have a materially negative effect on our results of operations, and, in turn, cash available for distribution to our stockholders and on the value of our assets.
−Removed: The COVID-19 pandemic also adversely impacted U.S.
−Removed: unemployment rates, and may do so again in the future.
−Removed: If the COVID-19 pandemic, or any future pandemic, leads to a prolonged economic downturn with sustained high unemployment rates, the financial condition of the mortgage loans and mortgage loan borrowers underlying the residential securities and loans that we own may deteriorate and, as a result, borrowers on our loans may experience difficulties meeting their obligations, seek forbearance arrangements, become delinquent or default on their loans, which would have an adverse impact on our income, the value of our assets and our financing arrangements.
−Removed: Moreover, the onset of the COVID-19 pandemic prompted a number of states to implement temporary moratoriums on the ability of lenders to initiate foreclosures, which, when effective, could further limit our ability to foreclose and recover against our collateral, or pursue recourse claims (should they exist) against a borrower in the event of a default or failure to meet its financial obligations to us.
−Removed: Furthermore, any such economic slowdown may materially decrease or limit the volume of mortgages we acquire or originate, which could have an adverse impact on our ability to grow.
−Removed: In response to these conditions created by the COVID-19 pandemic, the U.S.
−Removed: government has implemented unprecedented financial support and relief measures to support the economy and the continued functioning of the financial markets.
−Removed: However, the success of such measures cannot be predicted, and we can offer no assurance that these programs, or any new programs that may be implemented in the future, will be effective, sufficient or otherwise have a positive impact on our business.
−Removed: Moreover, certain actions taken by U.S.
−Removed: or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may harm our business, including foreclosure moratoriums.
−Removed: The rapid development and fluidity of the circumstances resulting from the COVID-19 pandemic, or any future pandemic, makes it extremely difficult to predict its ultimate impact.
−Removed: Moreover, the risk factors discussed below in this section "Risk Factors" are likely to also be impacted directly or indirectly by the ongoing impact of the pandemic.
−Removed: Nevertheless, the pandemic and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
−Removed: Our ability to execute our new focused mission and grow our business are dependent upon our Manager's ability to source, acquire and finance a large volume of desirable non-agency loans and other target assets on attractive terms.
−Removed: During 2021, we adopted a new mission to focus our investment strategy primarily on acquiring and securitizing newly-originated residential non-agency mortgage loans.
−Removed: Our ability to successfully execute this new strategy, grow our business, and achieve attractive risk-adjusted returns for our stockholders are dependent upon our Manager's ability to source, acquire and finance on our behalf a large volume of desirable non-agency loans and other target assets on attractive terms, and our Manager may be unable to do so for many reasons.
+Added: Our ability to grow our business is dependent upon our Manager's ability to source, acquire and finance a large volume of desirable non-agency loans and other target assets on attractive terms.
+Added: Our investment strategy is focused on acquiring and securitizing newly-originated residential non-agency mortgage loans.
+Added: Our ability to successfully execute this strategy, grow our business, and achieve attractive risk-adjusted returns for our stockholders are dependent upon our Manager's ability to source, acquire and finance on our behalf a large volume of desirable non-agency loans and other target assets on attractive terms, and our Manager may be unable to do so for many reasons.
We derive a portion of our non-agency loans through Arc Home.
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In addition, Arc Home has no obligation to sell non-agency loans and other target assets to us and our Manager may be unable to locate other originators that are able or willing to originate non-agency loans and other target assets that meet our standards on favorable terms or at all.
−Removed: General economic factors, such as recession, declining home values, unemployment and high interest rates, may limit the supply of available non-agency loans and other target assets.
+Added: General economic factors, such as recession, declining home values, unemployment and high interest rates, all of which we are currently experiencing, have and may continue to limit the supply of available non-agency loans and other target assets.
Moreover, competition for non-agency loans and other target assets or changes in GSE regulations may drive down supply or drive up prices, making it uneconomical to purchase such loans or other target assets.
−Removed: For instance, in acquiring non-agency loans and other target assets from unaffiliated parties, we will compete with a broad spectrum of institutional investors, many of which have greater financial resources than us.
+Added: For instance, in acquiring non-agency loans and other target assets from unaffiliated parties, we compete with a broad spectrum of institutional investors, many of which have greater financial resources than us.
Increased competition for, or a reduction in the available supply of, qualifying investments could result in higher prices for (and thus lower yields on) such investments, which could narrow the yield spread over borrowing costs.
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Further, the success of our investment strategy is highly dependent upon our ability to finance our target assets through non-recourse, non-mark-to-market securitization transactions.
−Removed: Market conditions for securitizations have, and may continue to be, challenging.
+Added: During 2022, market conditions for securitizations grew increasingly challenging with market spreads widening to unprecedented levels.
+Added: While there have been signs of improvement in the securitization markets in 2023, there is no guarantee that conditions will continue to improve.
Prior to executing a securitization transaction, we typically acquire assets with warehouse financing subject to margin calls which typically are associated with a higher level of risk than other non-recourse, non-mark-to-market financing.
−Removed: In executing securitization transactions, we rely on third-party service providers, including custodians, rating agencies, servicers, and due diligence firms, to support the completion of such transactions in a timely and efficient manner.
+Added: In executing securitization transactions, we rely on third-party service providers, including custodians, rating agencies, servicers, and due diligence firms, to support the
+Added: completion of such transactions in a timely and efficient manner.
These third-party service providers may not have sufficient resources to dedicate the appropriate time and attention needed for securitization transactions conducted by us and our competitors.
−Removed: Resources, including sufficient personnel resources, of third-party service providers may be negatively impacted by a variety of factors, including the COVID-19 pandemic.
+Added: Resources, including sufficient personnel resources, of third-party service providers may be negatively impacted by a variety of factors.
To the extent that third-party service providers on which we rely are not able to dedicate sufficient resources to provide the necessary services to us, we may be delayed in completing, or unable to complete, securitization transactions on the pace anticipated in our business plan and our operating results may be materially and adversely impacted.
+Added: Further, certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans.
+Added: We may contribute our loans to entities, including one or more trusts whose trustee is a national bank, which rely on exemptions from state licensing requirements.
+Added: Certain states have and others could seek to challenge such analysis and ultimately require us to obtain any necessary state license.
+Added: There can be no assurance that the use of trusts will satisfy an exemption from licensing requirements because regulatory agencies may adopt a different interpretation of various laws.
+Added: If a license is required, there can be no assurance that we will be able to obtain the requisite licenses in a timely manner or at all or in all necessary jurisdictions, or that the use of the trusts will reduce the requirement for licensing, any of which could limit our ability to invest in residential mortgage loans.
+Added: Our failure to obtain and maintain required licenses may expose us to penalties or other claims and may affect our ability to acquire an adequate and desirable supply of mortgage loans to conduct our securitization program and, as a result, could harm our business.
+Added: Disruptive, exogenous geopolitical or other macroeconomic events or large-scale conflicts, including warfare among countries could materially and adversely affect our business.
+Added: From time to time, tensions between countries may erupt into warfare and may adversely affect neighboring countries and those who conduct trade or foreign relations with those affected regions.
+Added: Such acts of war may cause widespread and lingering damage on a global scale, including, but not limited to, (i) safety and cyber security, (ii) the economy, and (iii) global relations.
+Added: In February 2022, Russia invaded Ukraine following years of strained diplomatic relations between the two countries, which was heightened in 2021 when Russia amassed large numbers of military ground forces and support personnel on the Ukraine-Russia border.
+Added: In response to the invasion and ensuing war, many countries, including the U.S., imposed significant economic and other sanctions against Russia.
+Added: The war has created the largest refugee crisis in Europe since World War II and has inflicted significant damage to Ukraine’s infrastructure and economy.
+Added: Both countries’ economies may be significantly affected, which may also adversely impact the global economy, including the U.S.
+Added: The humanitarian crisis that has resulted from the war is likely to have pronounced and enduring impact on Ukraine, as well as a significant impact to neighboring countries that have accepted refugees.
+Added: Further, Russia has launched an onslaught of cyberwarfare against Ukraine as part of its ongoing invasion, targeting the country’s critical infrastructure, government agencies, media organizations, and related think tanks in the U.S.
+Added: federal government has cautioned Americans on the possibility of Russia targeting the U.S.
+Added: with cyber attacks in retaliation for sanctions that the U.S.
+Added: has imposed and has urged both the public and private sectors to strengthen their cyber defenses and protect critical services and infrastructure.
+Added: Additionally, President Biden directed government bodies to mandate cybersecurity and network defense measures within their respective jurisdictions and has initiated action plans to reinforce cybersecurity within the electricity, pipeline, and water sectors.
+Added: The current administration also launched joint efforts with Cybersecurity and Infrastructure Security Agency (CISA) through its “Shields Up” campaign to defend the U.S.
+Added: against possible cyber attacks.
+Added: CISA published advisories warning of Russian state-sponsored threat actors targeting “COVID-19 research, governments, election organizations, healthcare and pharmaceutical, defense, energy, video gaming, nuclear, commercial facilities, water, aviation, and critical manufacturing” sectors in the U.S.
+Added: and other Western nations.
+Added: While we have not experienced such cyber attacks and have not detected activity that would indicate a planned cyber attack, to date, it is yet unknown whether Russia would be successful in breaching our network defenses or, more broadly, those within the areas listed above, which, if successful, may cause disruptions to critical infrastructure required for our operations and livelihoods, or those of borrowers of our loans or underlying our investments and service providers.
+Added: Disruption, instability, volatility, and decline in economic activity, regardless of where it occurs, whether caused by acts of war, other acts of aggression, or terrorism, could in turn also cause higher interest rates, inflation or general economic uncertainty, which could negatively impact borrowers of our loans or underlying our investments , service providers, or otherwise adversely impact the value of our assets .
+Added: In addition, during 2020, we experienced a significant amount of realized and unrealized losses on our assets as a result of the volatile conditions created by the COVID-19 pandemic.
+Added: Similarly disruptive exogenous events may occur in the future.
+Added: The subsequent disposition or sale of such impacted assets could further affect our future losses or gains, as they are based on the
+Added: difference between the sale price received and adjusted amortized cost of such assets at the time of sale.
+Added: These risks may be more pronounced for investments with significant credit risk, as discussed above.
+Added: If we experience a decline in the fair value of our investments, it could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.
The mortgage loans we acquire or that underlie our RMBS expose us to significant credit risk that could negatively affect the value of those investments.
−Removed: As of December 31, 2021, our residential loan portfolio and Agency RMBS were our sole asset classes, and we expect to continue to seek investment opportunities primarily focused on residential whole loans.
+Added: As of December 31, 2022, our residential loan portfolio was our predominant asset class, and we expect to continue to seek investment opportunities primarily focused on residential whole loans.
We are exposed to significant credit risk primarily through direct investments in residential real estate mortgage loans and the ownership of RMBS.
−Removed: Investors in residential mortgage assets assume the risk that the related borrowers may default on their obligations to make full and timely payments of principal and interest, as well as the risk discussed below.
+Added: Investors in residential mortgage assets assume the risk that the related borrowers may default on their obligations to make full and timely payments of principal and interest, as well as the risks discussed below, among other risks.
Government Guarantee or Structural Credit Enhancement .
−Removed: We acquire residential mortgage loans primarily within the non-agency segment of the housing market, and also own re/non-performing loans (the borrower is or at one time was severely delinquent), all of which are subject to significant risk of loss.
+Added: We acquire residential mortgage loans primarily within the non-agency segment of the housing market, including agency-eligible loans, and also own re/non-performing loans (the borrower is or at one time was severely delinquent), all of which are subject to significant risk of loss.
Unlike Agency RMBS, residential mortgage loans generally are not guaranteed by the U.S.
government or any government-sponsored enterprise such as Fannie Mae and Freddie Mac.
+Added: Agency-eligible loans are underwritten in accordance with guidelines defined by GSEs and are primarily secured by investment properties, but such loans are not guaranteed by a GSE.
Additionally, by directly acquiring residential mortgage loans, we do not receive the structural credit enhancements that benefit senior tranches of RMBS.
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Enhanced Non-QM Loan Risks .
−Removed: A significant portion of our residential loan portfolio is Non-QM Loans.
+Added: A significant portion of our residential loan portfolio is comprised of Non-QM Loans.
Non-QM Loans are generally loans to finance (or refinance) one- to four-family residential properties that are not considered to meet the definition of a "Qualified Mortgage" in accordance with guidelines adopted by the Consumer Financial Protection Bureau, or CFPB, and may be considered to be lower credit quality.
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and personal events affecting borrowers, such as reduction in income and job loss.
+Added: Recent concerns about the real estate market, rising interest rates, inflation, energy costs and geopolitical issues have contributed to increased volatility and diminished expectations for the economy and markets going forward.
All of the risks discussed above could negatively impact the value of our investments and have a material adverse effect on our business.
−Removed: These risks may be more pronounced during times of market volatility and negative economic conditions, such as those being experienced in connection with the COVID-19 pandemic.
−Removed: We may engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks.
+Added: These risks may be more pronounced during times of market volatility and negative economic conditions, such as those being experienced currently.
+Added: We engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks.
A significant part of our business and growth strategy is to engage in securitization transactions to finance newly-acquired residential mortgage loans.
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Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and related laws and regulations relating to credit risk retention for securitizations (the "Risk Retention Rules"), when we sponsor a residential mortgage loan securitization, we are required to retain at least 5% of the fair value of the mortgage-backed securities issued in the securitization.
−Removed: We can retain either an “eligible vertical interest” (which consists of at least 5% of each class of securities issued in the securitization), an “eligible horizontal residual interest” (which is the most subordinate class of securities with a fair market value of at least 5% of the aggregate credit risk) or a combination of both totaling 5% (the "Required Credit Risk").
+Added: We may also co-sponsor a securitization where we are the party obligated to comply with the Risk Retention Rules.
+Added: We can retain either an “eligible vertical interest” (which consists of at least 5% of each class of securities issued in the securitization), an “eligible horizontal residual interest” (which is the most subordinate class of securities with a fair value of at least 5% of the aggregate credit risk) or a combination of both totaling 5% (the "Required Credit Risk").
We are required to hold the Required Credit Risk until the later of (i) the fifth anniversary of the securitization closing date and (ii) the date on which the aggregate unpaid principal balance of the mortgage loans in such securitization has been reduced to 25% of the aggregate unpaid principal balance of the mortgage loans as of the securitization closing date, but no longer than the seventh anniversary of the closing date (such date, the "Sunset Date").
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Our Manager’s default estimates may not prove accurate, which could lead to investment losses (particularly as related to investments with significant credit risk, as discussed above).
−Removed: This risk may be more pronounced during times of market volatility and negative economic conditions, such as those experienced in connection with the COVID-19 pandemic.
+Added: This risk may be more pronounced during times of market volatility and negative economic conditions, such as those currently being experienced.
Our Manager’s investment models may be incorrect either due to inaccurate models or incorrect third-party data, which could lead to investment losses.
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Furthermore, since predictive models are usually constructed based on historical data supplied by third-parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data and the ability of these historical models accurately to reflect future periods.
−Removed: Many of the models we use include LIBOR as an input.
−Removed: The expected transition away from LIBOR may require changes to models and may change the underlying economic relationships being modeled.
−Removed: We may incorrectly value LIBOR-based instruments because our models do not currently properly account for LIBOR cessation.
−Removed: See the Risk Factor captioned “ — Risks Related to Financing Activities — The elimination of LIBOR may affect our financial results.” in this Annual Report for more details.
All valuation models rely on correct market data inputs.
If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect.
−Removed: Third-party data may be more prone to inaccuracies in light of the unprecedented conditions created by the COVID-19 pandemic because the catalyst for these conditions (i.e., a global pandemic) is an event unparalleled in modern history and therefore is unpredictable.
+Added: Third-party data may be more prone to inaccuracies in light of volatile market conditions and unprecedented conditions created by geopolitical uncertainty or other conditions or events.
However, even if the input of market data is correct, "model prices" often differ substantially from prices that could be achieved in a market transaction, especially for securities that are illiquid and have complex characteristics or embedded structural leverage, such as derivative securities.
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We also acquire non-agency residential mortgage loans and other target assets from unaffiliated third parties, including through the secondary market when market conditions and asset prices are conducive to making attractive purchases.
−Removed: In acquiring non-agency residential mortgage loans and other target assets from unaffiliated third parties, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities.
+Added: In acquiring non-agency residential mortgage loans and other target assets from unaffiliated third parties, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies, hedge funds and other entities.
Additionally, we may also compete with the U.S.
Federal Reserve and the U.S.
−Removed: Treasury to the extent
−Removed: they purchase assets meeting our objectives pursuant to various purchase programs.
+Added: Treasury to the extent they purchase assets meeting our objectives pursuant to various purchase programs.
Many of our competitors are significantly larger than us, have greater access to capital and other resources and may have other advantages over us.
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Future market developments or disruptions, including adverse developments in financial and capital markets, could reduce the liquidity in the markets of the assets that we own.
−Removed: For example, upon the onset of the volatility created by the COVID-19 pandemic, we were unable to liquidate efficiently certain assets to raise capital, and residential whole loans present more acute liquidity risks as they are generally more cumbersome to sell (unlike RMBS, which normally trade in an active market).
+Added: For example, upon the onset of the volatility created by the COVID-19 pandemic, we were unable to efficiently liquidate certain assets to raise capital, and residential whole loans present more acute liquidity risks as they are generally more cumbersome to sell (unlike RMBS, which normally trade in an active market).
Such decreased liquidity can cause us to sell our assets at a price lower than we would normally sell them or cause us to hold our assets longer than we would normally hold them.
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Depending on the complexity and illiquidity of a security, valuations of the same security can vary substantially from one dealer or pricing service to another.
−Removed: Wide disparities in asset valuations may be more pronounced during periods when market participants are engaged in distressed sales, as was experienced in the early stage of the market volatility related to COVID-19.
+Added: Wide disparities in asset valuations may be more pronounced during periods when market participants are engaged in distressed sales.
Therefore, our results of operations for a given period could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.
−Removed: Disruptive, exogenous geopolitical or other macroeconomic events could lead to declines in the fair value of our investments which could materially and adversely affect our business.
−Removed: During 2020, we experienced a significant amount of realized and unrealized losses on our assets as a result of the volatile conditions created by the COVID-19 pandemic.
−Removed: Similarly disruptive exogenous events may occur in the future.
−Removed: The subsequent disposition or sale of such impacted assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale.
−Removed: These risks may be more pronounced for investments with significant credit risk, as discussed above.
−Removed: If we experience a decline in the fair value of our investments, it could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.
+Added: The outbreak of highly infectious or contagious diseases could adversely impact or cause disruption to our financial condition and results of operations.
+Added: Further, the COVID-19 pandemic has had and may continue to have a material adverse effect on our business.
+Added: and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.
+Added: In March 2020, the World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions quarantines, curfews, “stay-at-home” or “shelter in place” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.
+Added: While government restrictions eased throughout 2022 and have continued to ease in 2023, and people have largely resumed pre-pandemic activities, the effects of COVID-19 continue to linger in the U.S.
+Added: and global economies.
+Added: The COVID-19 pandemic has disrupted global supply chains, contributed to increased inflation, increased rates of unemployment and adversely impacted many industries.
+Added: Future disruptions and governmental actions, due to COVID-19 or a different epidemic or pandemic, combined with any associated economic and/or social instability or distress, may have an adverse impact on our results of operations, financial condition and cash available for distribution.
+Added: In particular, the COVID-19 pandemic impacted, and may in the future impact, our financing strategy and liquidity.
+Added: We finance many of the mortgage loans and real estate related securities we acquire with borrowings under repurchase facilities and other financing arrangements and, as market conditions permit, refinance these assets through securitization transactions.
+Added: During the first and second quarters of 2020 with the onset of the pandemic, we experienced significant declines in the value of our assets financed through repurchase facilities and other financing arrangements as well as adverse developments with respect to the cost and terms of such financing, and received margin calls, default notices and deficiency letters from certain of our financing counterparties well in excess of historical norms.
+Added: We were able to resolve these deficiencies and related matters with lenders during 2020, but at significant expense and the size of our investment portfolio and market capitalization decreased substantially as a result of satisfying margin calls and defaults.
+Added: If as a result of the COVID-19 pandemic or another pandemic in the future, the financing markets were to experience another period of extreme volatility and illiquidity, we may be forced to sell our mortgage loans, real estate related securities and other assets that secure our repurchase and other financing arrangements on less favorable terms to us than might otherwise be available in a regularly functioning market and such actions could result in deficiency judgments and other claims against us.
+Added: These conditions would have a materially negative effect on our results of operations, and, in turn, cash available for distribution to our stockholders and on the value of our assets.
+Added: The full extent of the impact and effects resulting from the COVID-19 pandemic, or any future pandemic, will depend on future developments, including, among other factors, how rapidly variants develop, availability, acceptance and effectiveness of vaccines along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown.
+Added: COVID-19 or any future pandemic, and resulting impacts on the financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
+Added: Moreover, the risk factors discussed in this "Risk Factors" section are likely to also be impacted directly or indirectly by the impact of the COVID-19 pandemic or another pandemic.
+Added: Increases in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could negatively affect our profitability and our ability to make distributions.
+Added: Our investment portfolio is primarily comprised of residential mortgage loans and RMBS.
+Added: An investment in such assets will generally decline in value if interest rates increase, particularly long-term interest rates.
+Added: Declines in market value may ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders.
+Added: The relationship between short-term and longer-term interest rates is often referred to as the "yield curve." Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
+Added: In a normal yield curve environment, short-term interest rates are lower than longer-term interest rates.
+Added: If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs will generally increase more rapidly than the interest income earned on our assets.
+Added: Because our investments will generally bear interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net interest margin, net income, and book value.
+Added: It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), in which event our borrowing costs may exceed our interest income and we could incur operating losses.
+Added: Additionally, to the extent cash flows from investments that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new investments and available borrowing rates may decline, which would likely decrease our net income.
+Added: A significant risk associated with our target assets is the risk that both long-term and short-term interest rates will increase significantly.
+Added: If long-term rates increase significantly, the market value of these investments will decline, and the duration and weighted average life of the investments will increase due to the slowing of the prepayment rate.
+Added: At the same time, an increase in short-term interest rates will increase the amount of interest owed on the financing arrangements we enter into to finance the purchase of our investments.
+Added: Subject to maintaining our qualification as a REIT and our exclusion from regulation as an investment company under the Investment Company Act, we have utilized and expect to continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, but there can be no assurances that our hedges will be successful, or that we will be able to enter into or maintain such hedges.
+Added: As a result, interest rate fluctuations can cause significant losses, reductions in income, and could materially and adversely affect us.
+Added: In addition, in periods of rising interest rates, such as what we are currently experiencing, there is generally reduced demand for mortgage loans due to the higher cost of borrowing.
+Added: A reduction in the volume of mortgage loans originated has and may continue to affect the volume of target assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment objectives.
+Added: If rising interest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, it could materially and adversely affect us.
+Added: Failure of the U.S.
+Added: federal government to manage its fiscal matters or to raise or further suspend the debt ceiling, and changes in the amount of federal debt, may negatively impact the economic environment and adversely impact our results of operations.
+Added: federal government has established a limit on the level of federal debt that the U.S.
+Added: federal government can have outstanding, often referred to as the debt ceiling.
+Added: Congress has authority to raise or suspend the debt ceiling and to approve the funding of U.S.
+Added: federal government operations within the debt ceiling, and has done both frequently in the past, often on a relatively short-term basis.
+Added: On January 19, 2023, the U.S.
+Added: reached its borrowing limit and currently faces risk of defaulting on its debt.
+Added: Generally, if effective legislation to manage the level of federal debt is not enacted and the debt ceiling is reached in any given year, the federal government may suspend its investments for certain government accounts, among other available options, in order to prioritize payments on its obligations.
+Added: It is anticipated that the U.S.
+Added: federal government will be able to fund its operations through approximately mid-2023.
+Added: However, contention among policymakers, among other factors, may hinder the enactment of policies to further increase the borrowing limit or address its debt balance timely.
+Added: A failure by the U.S.
+Added: Congress to raise the debt limit would increase the risk of default by the U.S.
+Added: on its obligations, the risk of a lowering of the U.S.
+Added: federal government’s credit rating, and the risk of other economic dislocations.
+Added: Such a failure, or the perceived risk of such a failure, could consequently have a material adverse effect on the financial markets and economic conditions in the U.S.
+Added: and globally.
+Added: If economic conditions severely deteriorate as a result of U.S.
+Added: federal government fiscal gridlock, our operations, or those of our tenants, could be affected, which may adversely impact our financial condition and results of operations.
+Added: These risks may also impact our overall liquidity, our borrowing costs, or the market price of our common stock.
We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from climate change or other unfavorable changes in the related geographic regions.
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Moreover, a geographic concentration of our investments in an area which has been or may become adversely impacted by climate change (including flooding, drought, wildfire, tornados, and other severe weather) may negatively impact the performance of those investments.
−Removed: For example, as of December 31, 2021, 35% of the total fair value of our residential mortgage loan portfolio was secured by properties located in California, which are particularly susceptible to natural disasters such as fires, earthquakes and mudslides.
+Added: As of December 31, 2022, 33% of the total fair value of our residential mortgage loan portfolio was secured by properties located in California, which are particularly susceptible to natural disasters such as fires, earthquakes and mudslides.
In addition, as of December 31, 2022, 11% of the total fair value of our residential mortgage loan portfolio, was secured by properties located in Florida, which are particularly susceptible to natural disasters such as hurricanes and floods.
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Lack of diversification can further increase the correlation of non-performance and foreclosure risks among our investments.
+Added: Climate change, climate change-related initiatives and regulation and the increased focus on environmental, social and governance (ESG) issues, may adversely affect our business and financial results and damage our reputation.
+Added: Recently, there has been growing concern from advocacy groups and the general public over the effects of climate change on the environment.
+Added: Government mandates, standards and regulations enacted in response to these projected impacts of climate change could result in restrictions on land development in certain areas or increased energy, transportation and raw material costs.
+Added: These concerns have also resulted in increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to
+Added: control, assess, and report.
+Added: These and other rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, may create challenges for us, including our compliance and ethics programs, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows.
+Added: If we are unable to adequately address such ESG matters or we fail or are perceived to fail to comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results.
+Added: Further, significant physical effects of climate change including extreme weather events such as hurricanes or floods can also have an adverse impact on real estate assets that secure our residential mortgage loans.
+Added: See "- We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from climate change or other unfavorable changes in the related geographic regions."
Cybersecurity risks may cause a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our business.
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Further, in response to the outbreak of the COVID-19 pandemic, the majority of our Manager's personnel worked remotely at least a few days a week and may in the future return to working remotely, which may increase the risk of cyber-security incidents and cyber-attacks.
−Removed: The failure of servicers to effectively service the mortgage loans in our portfolio and the MSRs in Arc Home's portfolio may materially and adversely affect us, and market disruptions caused by COVID-19 may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
+Added: The failure of servicers to effectively service the mortgage loans in our portfolio and the MSRs in Arc Home's portfolio may materially and adversely affect us, and market disruptions may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
In connection with our business of acquiring and holding residential mortgage loans and investing in RMBS, we rely on third-party service providers, principally loan servicers, to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms.
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In addition, when servicing is transferred, servicing fees may increase, which may have an adverse effect on the RMBS held by us or the MSRs held by Arc Home.
−Removed: COVID-19 effect on servicing activities .
−Removed: The economic and market disruptions caused by COVID-19 have adversely impacted and may continue to adversely impact the financial condition of the borrowers of our residential mortgage loans and the loans that underlie our RMBS investments.
−Removed: If the current conditions of the COVID-19 pandemic worsen, the number of borrowers who request a payment deferral or forbearance arrangement or become delinquent or default on their financial obligations may increase significantly, and such increase may place greater stress on the servicers’ finances and human capital, which may make it more difficult for these servicers to successfully service these loans.
+Added: Market disruptions on servicing activities .
+Added: The economic and market disruptions, including those directly or indirectly caused by COVID-19, have adversely impacted and may continue to adversely impact the financial condition of the borrowers of our residential mortgage loans and the loans that underlie our RMBS investments.
+Added: If the current economic conditions worsen, the number of borrowers who request a payment deferral or forbearance arrangement or become delinquent or default on their financial obligations may increase significantly, and such increase may place greater stress on the servicers’ finances and human capital, which may make it more difficult for these servicers to successfully service these loans.
In addition, many loan servicing activities are not permitted to be done through a remote work setting.
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As a result, we could be materially and adversely affected if a mortgage servicer is unable to adequately or successfully service our residential mortgage loans and the loans that underlie our RMBS or if any such servicer experiences financial distress.
−Removed: COVID-19 effect on servicer liquidity .
−Removed: The COVID-19 pandemic and the resulting economic disruption it has caused may result in liquidity pressures on servicers and other third-party vendors that we rely upon.
−Removed: For instance, as a result of an increase in mortgagors requesting relief in the form of forbearance plans and/or other loss mitigation, servicers and other parties responsible in capital markets securitization transactions for funding advances with respect to delinquent mortgagor payments
−Removed: of principal and interest may begin to experience financial difficulties if mortgagors do not make monthly payments as a result of the COVID-19 pandemic.
+Added: Market disruptions on servicer liquidity .
+Added: The economic and market disruptions, including those directly or indirectly caused by COVID-19, have resulted and may continue to result in liquidity pressures on servicers and other third-party vendors that we rely upon.
+Added: For instance, as a result of an increase in mortgagors requesting relief in the form of forbearance plans and/or other loss mitigation, servicers and other parties responsible in capital markets securitization transactions for funding advances with respect to delinquent mortgagor payments of principal and interest may begin to experience financial difficulties if mortgagors do not make monthly payments.
The negative impact on the business and operations of such servicers or other parties responsible for funding such advances could be significant.
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The extent of such liquidity pressures in the future is not known at this time and is subject to continual change.
−Removed: Increases in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could negatively affect our profitability and our ability to make distributions.
−Removed: Our investment portfolio is primarily comprised of residential mortgage loans and RMBS.
−Removed: An investment in such assets will generally decline in value if interest rates increase, particularly long-term interest rates.
−Removed: Declines in market value may ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders.
−Removed: The relationship between short-term and longer-term interest rates is often referred to as the "yield curve." Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
−Removed: In a normal yield curve environment, short-term interest rates are lower than longer-term interest rates.
−Removed: If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs will generally increase more rapidly than the interest income earned on our assets.
−Removed: Because our investments will generally bear interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net interest margin, net income, and book value.
−Removed: It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), in which event our borrowing costs may exceed our interest income and we could incur operating losses.
−Removed: Additionally, to the extent cash flows from investments that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new investments and available borrowing rates may decline, which would likely decrease our net income.
−Removed: A significant risk associated with our target assets is the risk that both long-term and short-term interest rates will increase significantly.
−Removed: If long-term rates increase significantly, the market value of these investments will decline, and the duration and weighted average life of the investments will increase due to the slowing of the prepayment rate.
−Removed: At the same time, an increase in short-term interest rates will increase the amount of interest owed on the financing arrangements we enter into to finance the purchase of our investments.
−Removed: Subject to maintaining our qualification as a REIT and our exclusion from regulation as an investment company under the Investment Company Act, we expect to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, but there can be no assurances that our hedges will be successful, or that we will be able to enter into or maintain such hedges.
−Removed: As a result, interest rate fluctuations can cause significant losses, reductions in income, and could materially and adversely affect us.
−Removed: In addition, rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing.
−Removed: A reduction in the volume of mortgage loans originated may affect the volume of target assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment objectives.
−Removed: If rising interest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, it could materially and adversely affect us.
Arc Home is highly dependent upon programs administered by the GSEs, and changes in the GSEs’ servicing or origination guidelines or overall operations could have a material adverse effect on Arc Home’s business.
−Removed: Arc Home sells a majority of its mortgage loans to Fannie Mae and Freddie Mac.
+Added: Arc Home sells a portion of its mortgage loans to Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac remain in conservatorship, and a path forward to emerge from conservatorship is unclear.
Their roles could be reduced, modified or eliminated, and the nature of their guarantees could be limited or eliminated relative to historical measurements.
−Removed: Any discontinuation of, or significant reduction in, the role or operation of these agencies, or any significant adverse change in the
−Removed: level of activity of these agencies in the primary or secondary mortgage markets could materially and adversely affect Arc Home’s business, which in turn would have a negative impact on our results.
+Added: Any discontinuation of, or significant reduction in, the role or operation of these agencies, or any significant adverse change in the level of activity of these agencies in the primary or secondary mortgage markets could materially and adversely affect Arc Home’s business, which in turn would have a negative impact on our results.
Arc Home is subject to extensive licensing requirements and regulation, which could materially and adversely affect us.
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Adverse economic conditions could also negatively impact Arc Home's lending businesses.
−Removed: For example, during the economic crisis that began in 2007, total U.S.
−Removed: residential mortgage originations volume decreased substantially.
−Removed: Moreover, declining home prices and increasing loan-to-value ratios may preclude many potential borrowers from refinancing their existing loans.
−Removed: Further, an increase in prevailing interest rates could decrease originations volume.
+Added: For example, during 2022 following the Federal Reserve's rapid interest rate hikes, total U.S.
+Added: residential mortgage originations volume, including origination volumes at Arc Home, decreased substantially and may continue to decrease if interest rates continue to increase as anticipated.
+Added: Moreover, adverse economic conditions accompanied by declining home prices generally reduce the level of new mortgage loan originations and refinancing activity, since borrowers often use increases in the value of their existing properties to support the purchase of, or investment in, additional properties.
+Added: Borrowers may also be less able to make payments on loans in a weakened economy.
The risks associated with an economic slowdown or a deterioration of the housing or lending markets are more pronounced due to the conditions created by the COVID-19 pandemic.
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a safe harbor and a rebuttable presumption for higher priced loans.
−Removed: The "safe harbor" under the ATR Rules applies to a covered transaction that meets the definition of "qualified mortgage" and is not a "higher-priced covered transaction." For any covered transaction that meets the definition of a "qualified mortgage" and is not a "higher-priced covered transaction," the creditor or assignee will be deemed to have complied with the ability-to-repay requirement and, accordingly, will be conclusively presumed to have made a good faith and reasonable determination of the consumer’s ability to repay.
+Added: The "safe harbor" under the ATR Rules applies to a covered transaction that meets the definition of "qualified mortgage" and is not a "higher-priced covered transaction." For any covered transaction that meets the definition of a "qualified mortgage" and is not a "higher-priced covered transaction," the creditor or assignee will be deemed to have complied with the ability-to-repay requirement and, accordingly, will be conclusively presumed to have made a good faith and reasonable determination of the consumer’s ability to
Creditors or assignees will have the benefit of a rebuttable presumption of compliance with the applicable ATR Rules if they have complied with the qualified mortgage characteristics of the ATR Rules other than the residential mortgage loan being higher-priced in excess of certain thresholds.
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Recent trends among federal and state lawmakers and regulators have been toward increasing laws, regulations, and investigative procedures concerning the mortgage industry generally, which is likely to continue increasing the economic and compliance costs for participants in the mortgage origination and securitization industries, including us.
−Removed: We invest in GSE Non-Owner Occupied Loans, which expose us to an increased risk of loss.
−Removed: We invest in GSE Non-Owner Occupied Loans, which are residential mortgage loans that are underwritten in accordance with GSE guidelines and are secured by investment properties.
+Added: We invest in Agency-Eligible Loans, which expose us to an increased risk of loss.
+Added: We invest in Agency-Eligible Loans, which are residential mortgage loans that are underwritten in accordance with GSE guidelines and are primarily secured by investment properties.
The repayment of such a loan by the property owner (i.e., the borrower) often depends primarily on its tenant's continuing ability to pay rent to the property owner.
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In periods following home price declines, "strategic defaults" (decisions by borrowers to default on their mortgage loans despite having the ability to pay) also may become more prevalent.
−Removed: In the event of defaults under residential mortgage loans backing any of our Non-Agency RMBS, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the residential mortgage loan.
+Added: In the event of defaults under residential mortgage loans backing any of our Non-Agency RMBS, we will bear a risk
+Added: of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the residential mortgage loan.
Moreover, in the event of the bankruptcy of a residential mortgage loan borrower, the residential mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the residential mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
Foreclosure of a residential mortgage loan can be an expensive and lengthy process which could have a substantial negative effect on our anticipated return on the foreclosed residential mortgage loan.
−Removed: If borrowers default on the residential mortgage loans backing
−Removed: our Non-Agency RMBS and we are unable to recover any resulting loss through the foreclosure process, we could be materially and adversely affected.
+Added: If borrowers default on the residential mortgage loans backing our Non-Agency RMBS and we are unable to recover any resulting loss through the foreclosure process, we could be materially and adversely affected.
+Added: Investments in second lien mortgage loans could subject us to increased risk of losses.
+Added: We may invest in second-lien mortgage loans or RMBS backed by such loans.
+Added: If a borrower defaults on a second lien mortgage loan or on its senior debt (i.e., a first-lien loan, in the case of a residential mortgage loan), or in the event of a borrower bankruptcy, such loan will be satisfied only after all senior debt is paid in full.
+Added: As a result, if we invest in second-lien mortgage loans and the borrower defaults, we may lose all or a significant part of our investment.
+Added: In certain instances, second lien investments may include home equity lines of credit, which may subject us to future funding obligations, which could have an adverse impact on our liquidity.
Risks Related to U.S.
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The interest and principal payments we receive on the Agency RMBS in which we invest are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
−Removed: Unlike the Ginnie Mae certificates in which we may invest, the principal and interest on securities
−Removed: issued by Fannie Mae and Freddie Mac are not guaranteed by the U.S.
+Added: Unlike the Ginnie Mae certificates in which we may invest, the principal and interest on securities issued by Fannie Mae and Freddie Mac are not guaranteed by the U.S.
All the Agency RMBS in which we invest depend on a steady stream of payments on the mortgages underlying the securities.
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It is anticipated that as a result of financial difficulties due to the COVID-19 pandemic, borrowers will continue to request forbearance or other relief with respect to their mortgage payments.
−Removed: Further, across the country, moratoriums are in place in certain states to stop evictions and foreclosures in an effort to lessen the financial burden created by the COVID-19 pandemic.
−Removed: It is anticipated that other forbearance programs, foreclosure moratoriums or other programs or mandates will be imposed or extended, including those that will impact mortgage related assets.
+Added: Further, across the country, moratoriums were imposed in certain states to stop evictions and foreclosures in an effort to lessen the financial burden created by the COVID-19 pandemic.
+Added: It is anticipated that other forbearance programs, foreclosure moratoriums or other programs or mandates may be imposed or extended, including those that will impact mortgage related assets.
These forbearance and foreclosure moratorium programs may adversely affect the value of, and the returns on, mortgage-backed securities and residential mortgage loans that we own or may purchase.
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Pursuant to our leverage strategy, we borrow against a substantial portion of the market value of our mortgage investments and use the borrowed funds to finance our investment portfolio and the acquisition of additional investment assets.
−Removed: The risks associated with leverage are more acute during periods of economic slowdown or recession, which the U.S.
−Removed: economy experienced in connection with the COVID-19 pandemic.
+Added: The risks associated with leverage are more acute during periods of market volatility and disruption and economic slowdown or recession, which the U.S.
+Added: economy is currently experiencing.
We may not be able to achieve our desired leverage ratio for a number of reasons, including if:
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The amount of financing that we receive under our repurchase agreements will be directly related to our counterparties’ valuation of our assets that collateralize the outstanding financing.
−Removed: Typically, repurchase agreements grant the repurchase agreement counterparty the right to reevaluate the fair market value of the assets that cover the amount financed under the repurchase agreement at any time.
+Added: Typically, repurchase agreements grant the repurchase agreement counterparty the right to reevaluate the fair value of the assets that cover the amount financed under the repurchase agreement at any time.
If a repurchase agreement counterparty determines that the value of the assets subject to the repurchase agreement financing has decreased, it has the right to initiate a margin call.
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The terms we receive on such financings are influenced by the demand for similar funding by our competitors, including other REITs, specialty finance companies and other financial entities.
−Removed: Many of our competitors are significantly larger than us, have greater financial resources and significantly larger balance sheets than we do.
+Added: Many of our competitors are significantly larger than us, have greater financial resources and significantly
+Added: larger balance sheets than we do.
Any sizable interest rate shock or disruption in secondary mortgage markets resulting in the failure of one or more of our largest competitors may have a materially adverse effect on our ability to access or maintain short-term financing for our target assets.
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We depend upon a limited number of financing counterparties to fund our investments.
−Removed: The aggregate number of our financing counterparties was five as of December 31, 2021.
+Added: The aggregate number of our financing counterparties was six as of December 31, 2022.
The limited number of financing counterparties may reduce our ability to obtain financing on favorable terms and increases our counterparty credit risk.
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If major lenders stop financing our target assets, the value of our target assets could be negatively impacted, thus reducing net stockholders’ equity, or book value.
−Removed: If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash,
−Removed: which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.
−Removed: COVID-19 effects.
−Removed: Issues related to financing are exacerbated in times of significant dislocation in the financial markets, such as those experienced in connection with the COVID-19 pandemic.
+Added: If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.
+Added: Market Volatility/Periods of Market Dislocation.
+Added: Issues related to financing are exacerbated in times of significant dislocation in the financial markets, such as those experienced in connection with the COVID-19 pandemic in 2020 as well as more recently as a result of macroeconomic conditions, including inflationary pressures.
It is possible that our financing counterparties will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed or markets are illiquid, which could cause significant losses.
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Further, we may have limited or no recourse against the seller from whom we purchased the loans.
−Removed: Such recourse may be limited due to a variety of factors, including the absence of a representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof.
+Added: Such recourse may be limited due to a variety of factors, including the absence of a
+Added: representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof.
+Added: In certain instances, we rely on the seller to directly make representations and warranties regarding loans in a securitization.
+Added: Any failure by the seller to fulfill its obligations to repurchase or make indemnification payments may negatively impact our bond ratings and our ability to execute future securitization terms on desirable terms or at all.
A breach of a representation or warranty could adversely affect our results of operations and liquidity and give rise to material litigation.
+Added: In addition, we may engage in securitizations in which the loans serving as collateral have or may in the future have unfunded draw amounts.
+Added: To the extent such amounts are drawn upon by the borrowers, it is expected that such draws will be funded by the servicer.
+Added: We may be obligated to reimburse the servicer for such draws to the extent principal collections on the loans or any reserves that have been established are insufficient to reimburse the servicer.
Certain of our financing arrangements are rated by one or more rating agencies, and we may sponsor financing facilities in the future that are rated by credit agencies.
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Our financing arrangements contain restrictive operating covenants.
−Removed: As of December 31, 2021, we, either directly or through our equity method investments in affiliates, have outstanding master repurchase agreements or loan agreements with multiple counterparties.
+Added: We, either directly or through our equity method investments in affiliates, have outstanding master repurchase agreements or loan agreements with multiple counterparties.
These agreements generally include customary representations, warranties and covenants, but may also contain more restrictive supplemental terms and conditions.
Although specific to each agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.
−Removed: The negative impacts on our business caused by COVID-19 have and may make it more
−Removed: difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
+Added: The negative impacts on our business caused by macroeconomic conditions and market volatility may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
Future lenders may impose similar or more onerous restrictions.
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Bankruptcy Code, the effect of which, among other things, would be to allow the lender under the applicable repurchase agreements to avoid the automatic stay provisions of the U.S.
−Removed: Bankruptcy Code and to foreclose on the pledged collateral without delay, impacting our legal title and the right to proceeds.
+Added: Bankruptcy Code and to foreclose on the pledged collateral
+Added: without delay, impacting our legal title and the right to proceeds.
In the event of the insolvency or bankruptcy of a lender during the term of a repurchase agreement, the lender may be permitted, under applicable insolvency laws, to repudiate the contract, and our claim against the lender for damages may be treated simply as that of an unsecured creditor.
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The threat of or occurrence of a margin call could force us to sell, either directly or through a foreclosure, our collateral under adverse market conditions.
−Removed: Because of the leverage we expect to have, we may incur substantial losses upon the
−Removed: threat or occurrence of a margin call.
+Added: Because of the leverage we expect to have, we may incur substantial losses upon the threat or occurrence of a margin call.
The risks associated with leverage are more acute during periods of economic slowdown or recession, which the U.S.
−Removed: economy has experienced in connection with the conditions created by the COVID-19 pandemic.
+Added: economy has experienced and may continue to experience in connection with the conditions created by the COVID-19 pandemic.
The Federal Reserve’s actions and statements regarding monetary policy and the management of its balance sheet can affect the fixed income and mortgage finance markets in ways that could adversely affect our future business and financial results and the value of, and returns on, real estate-related investments and other assets we own or may acquire.
Actions taken by the Federal Reserve to set or adjust monetary policy or to manage the overall size and composition of its balance sheet, and statements it makes regarding the foregoing, may affect the expectations and outlooks of market participants in ways that disrupt our business and adversely affect the value of, and returns on, our portfolio of real-estate related investments and the pipeline of mortgage loans we own or may originate or acquire.
−Removed: In response to the Covid-19 pandemic in 2020, the Federal Reserve lowered the target federal funds rate from a range of 2.25-2.5% to its current target level of 0-0.25%.
−Removed: In addition, the Federal Reserve initiated a $1.25 trillion program to purchase agency mortgage-backed securities (MBS) to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally in response to the impact of the pandemic.
−Removed: The statements and the actions of the Federal Reserve significantly impacted many market participants’ expectations and outlooks regarding the expected yields these market participants would require to invest in agency MBS as well as non-agency MBS such as the residential MBS that we acquire and own.
−Removed: During the second half of 2021, the United States economy began to experience inflation in consumer prices at their highest levels in the last 40 years.
−Removed: The rapid acceleration of inflation led to an abrupt shift in the Federal Reserve’s monetary policy stance as they no longer consider these price pressures to be “transitory”.
−Removed: The market currently expects the Federal Reserve to raise the target federal funds rate several times over the coming 12-24 months.
−Removed: In addition, there is wide speculation about the method and timing of the Federal Reserve’s balance sheet curtailment with some believing that the Federal Reserve may engage in outright asset sales.
−Removed: These conditions have resulted in a significant rise in short term benchmark interest rates and a significant flattening of the yield curve.
+Added: In March 2022, in an attempt to curb the inflation rate, the Federal Reserve raised its benchmark federal funds rate by 0.25% to a range between 0.25% and 0.50%, the first increase since December 2018.
+Added: In addition, through a series of rapid federal funds rate increases in May 2022, June 2022, July 2022, September 2022, November 2022, December 2022 and February 2023, the Federal Reserve increased the federal funds rate to a range between 4.50% and 4.75%.
+Added: Further, the Federal Reserve confirmed its plan to reduce its balance sheet at a rapid pace beginning in May 2022, effectively concluding the nearly 15-year-long quantitative easing era (in which the Federal Reserve effectively increased liquidity to consumers and businesses) and launching a reverse process known as quantitative tightening.
+Added: In addition, the Federal Reserve has indicated that it expects continued increases in interest rates in 2023 and 2024.
+Added: These conditions have resulted in an inversion of the yield curve, which may be a signal that we are entering into a recessionary period.
To the extent benchmark interest rates rise or the yield curve flattens further as a result of the Federal Reserve’s policy actions or statements, one of the immediate potential impacts on our business would be a reduction in the overall value of the pool of mortgage loans that we own and the overall value of the pipeline of mortgage loans that we have identified for origination or purchase.
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These and other impacts of developments of the type described above may have a negative impact on our business and results of operations and we cannot accurately predict the full extent of these impacts or for how long they may persist.
−Removed: Changes in the method pursuant to which LIBOR is determined, or a discontinuation of LIBOR, may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.
−Removed: The interest rates on our repurchase agreements, as well as adjustable-rate mortgage loans in our securitizations, are generally based on LIBOR, which is subject to recent national, international, and other regulatory guidance and proposals for reform or discontinuation.
−Removed: On December 31, 2021, GBP, CHF, EUR and JPY LIBOR, as well as 1-week and 2-month tenors of USD LIBOR were discontinued.
−Removed: The UK Financial Conduct Authority (FCA), which regulates LIBOR, has noted in a March 5, 2021 announcement that June 30, 2023 is the cessation date for the other five tenors (overnight, 1-month, 3-month, 6-month, and 12-
−Removed: These reforms or discontinuation events may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted.
−Removed: Currently, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented in the U.K.
−Removed: or elsewhere.
−Removed: Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the rates on our repurchase facilities, securitizations or residential loans held for longer-term investment.
−Removed: If LIBOR is discontinued or is no longer quoted, the applicable base rate used to calculate interest on our repurchase agreements will be determined using alternative methods.
−Removed: In the U.S., the Alternative Reference Rates Committee, the working group tasked with assisting in the industry wide transition away from LIBOR, has supported the FCA’s announcement of USD LIBOR cessation and has recommended the market adopt the Secured Overnight Financing Rate ("SOFR").
−Removed: To accelerate the transition away from LIBOR, the Federal Reserve Board, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued joint supervisory guidance to cease entering into new contracts referencing USD LIBOR after December 31, 2021 (note there are limited exceptions related to derivative product use).
−Removed: The Federal Reserve Bank of New York began publishing SOFR rates in April 2018.
−Removed: The market transition away from LIBOR and towards SOFR is expected to be gradual and complicated.
−Removed: There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate and SOFR a secured lending rate, another is SOFR is an overnight rate and LIBOR reflects term rates at different maturities.
−Removed: While a term rate is now being published for SOFR, there are restrictions on its use and continued uncertainty on market adoption of this rate.
−Removed: These and other differences create the potential for basis risk between the two rates.
−Removed: The impact of any basis risk difference between LIBOR and SOFR may negatively affect our net interest margin.
−Removed: Any of these alternative methods may result in interest rates that are higher than if the LIBOR Rate was available in its current form, which would increase our borrowering costs, and could have a material adverse effect on our net interest margin.
+Added: The replacement of LIBOR with SOFR-based rates or other alternative reference rates may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.
+Added: The interest rates on our repurchase agreements, as well as adjustable-rate mortgage loans in our securitizations, are generally based on LIBOR.
+Added: The cessation of LIBOR will occur on June 30, 2023.
+Added: Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
+Added: CME Term SOFR is a forward-looking term rate based on SOFR that, when added to a spread adjustment, is recommended by the Alternative Reference Rates Committee as a LIBOR replacement in certain cash products.
+Added: CME Term SOFR, plus the statutory spread adjustment, has also been selected by the Board of Governors of the Federal Reserve as the benchmark replacement applicable to many products that will transition away from LIBOR automatically under the Adjustable Interest Rate (LIBOR) Act.
+Added: The transition to SOFR, Term SOFR or another alternative reference rate may present challenges, which could make it difficult for financial institutions to offer SOFR-based debt products, including but not limited to, the determination of the spread adjustment required to convert LIBOR to SOFR, and that such transition may require substantial negotiations with counterparties.
+Added: There is no guarantee that the transition from LIBOR to SOFR or SOFR-based rates will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could affect our interest expense and earnings and may have an adverse effect on our business, results of operations, financial condition, and stock price.
+Added: The impact of any basis risk difference between LIBOR and SOFR or Term SOFR may negatively affect our net interest margin.
+Added: Any of these alternative methods may result in interest rates that are higher than if LIBOR Rate was available in its current form, which would increase our borrowing costs, and could have a material adverse effect on our net interest margin.
In addition, the manner and timing of the shift is currently unknown.
−Removed: Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR.
It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time, and it is possible that not all of our assets and liabilities will transition to the same alternative reference rate, in each case increasing the difficulty of hedging.
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The process of transition involves operational risks.
−Removed: It is also possible that no transition will occur for many financial instruments.
−Removed: Although certain of our LIBOR based obligations provide for alternative methods of calculating the interest rate payable on certain of our obligations if LIBOR is not reported, which include requesting certain rates from major reference banks in London or New York, or alternatively using LIBOR for the immediately preceding interest period or using the initial interest rate, as applicable, uncertainty as to the extent and manner of future changes may result.
−Removed: In addition, there continues to be uncertainty regarding possible federal legislative solutions for tough legacy contracts in the U.S., which may impact alternative methods of calculating the interest rate payable on certain obligations if LIBOR is not reported.
+Added: Certain financial instruments will not be eligible for any legislative or regulatory fallback solution and thus will need to be amended through negotiation of the counterparties.
Holders of our fixed-to-floating preferred shares should refer to the relevant prospectus to understand the USD-LIBOR cessation provisions applicable to that class.
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Substantially all of our investment, financing and risk management decisions are made by our Manager and not by us, and our Manager also has significant discretion as to the implementation of our operating policies and strategies.
−Removed: Furthermore, our Manager has the sole discretion to hire and fire employees, and our Board of Directors and stockholders have no authority over the individual employees of our Manager or Angelo Gordon, although our Board of Directors does have direct
−Removed: authority over our officers who are supplied by our Manager.
+Added: Furthermore, our Manager has the sole discretion to hire and fire employees, and our Board of Directors and stockholders have no authority over the individual employees of our Manager or Angelo Gordon, although our Board of Directors does have direct authority over our officers who are supplied by our Manager.
Accordingly, we are completely reliant upon, and our success depends exclusively on, our Manager’s personnel, services, resources, facilities, relationships and contacts.
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Our Manager and Angelo Gordon and their respective employees also may have ongoing relationships with the obligors of investments or the clients’ counterparties and they or their clients may own equity or other securities or obligations issued by such parties.
−Removed: In addition, Angelo Gordon, either for its own accounts or for the accounts of other clients, may hold securities or obligations that are senior to, or have interests different from or adverse to, the securities or obligations that are acquired for us.
−Removed: Employees of our Manager and its affiliates may also invest in other entities managed by other Angelo Gordon entities which
−Removed: are eligible to purchase target assets.
+Added: In addition, Angelo Gordon, either for its own accounts or for the accounts of other clients, may hold securities or
+Added: obligations that are senior to, or have interests different from or adverse to, the securities or obligations that are acquired for us.
+Added: Employees of our Manager and its affiliates may also invest in other entities managed by other Angelo Gordon entities which are eligible to purchase target assets.
See Part I, Item 1 "Business - Investment Policies" for additional information related to target assets.
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The management agreement renews automatically each year for an additional one-year period, subject to certain termination rights.
−Removed: As of December 31, 2021, our management agreement has not been terminated.
+Added: As of the date hereof, our management agreement has not been terminated.
The management agreement provides that it may be terminated annually by us without cause upon the affirmative vote of at least two-thirds of our independent directors or by a vote of the holders of at least two-thirds of our outstanding common stock, in each case based upon (i) our Manager’s unsatisfactory performance that is materially detrimental to us or (ii) our determination that the management fees payable to our Manager are not fair, subject to our Manager’s right to prevent termination based on unfair fees by accepting a reduction of management fees agreed to by at least two-thirds of our independent directors.
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We may not terminate or elect not to renew the management agreement, even in the event of our Manager’s poor performance, without having to pay substantial termination fees.
−Removed: Upon any such termination without cause, the management agreement provides that we will pay our Manager a termination fee equal to three times the average annual base management fee earned by our Manager during the 24-month period prior to termination, calculated as of the end of the most recently
−Removed: completed fiscal quarter.
+Added: Upon any such termination without cause, the management agreement provides that we will pay our Manager a termination fee equal to three times the average annual base management fee earned by our Manager during the 24-month period prior to termination, calculated as of the end of the most recently completed fiscal
While under certain circumstances the obligation to make such a payment might not be enforceable, this provision may increase the cost to us of terminating the management agreement and adversely affect our ability to terminate the management agreement without cause.
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Treasury Department, which results in statutory changes as well as frequent revisions to Treasury regulations and interpretations.
−Removed: In addition, several proposals have been made that would make substantial changes to the federal income tax laws generally.
−Removed: We cannot predict whether any of these proposed changes will become law.
Revisions in U.S.
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There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR.
−Removed: The publication of LIBOR rates may be discontinued by 2023.
+Added: The publication of LIBOR rates will be discontinued after June 2023.
We are parties to loan agreements with LIBOR-based interest rates and derivatives with LIBOR-based terms used for hedging.
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Under current law, certain modifications of terms of LIBOR-based instruments may have tax consequences, including deemed taxable exchanges of the pre-modification instrument for the modified instrument.
−Removed: On January 4, 2022 the US Internal Revenue Service and Department of Treasury published the final regulations (“Final Regulations”) providing guidance on the tax consequences of the discontinuation of LIBOR and certain other interbank offered rates (“IBORs”).
−Removed: The Final Regulations allow for the treatment of certain modifications to be deemed non-taxable events.
+Added: Treasury regulations, effective March 7, 2022 (the "IBOR Regulations") provide guidance on the tax consequences of the discontinuation of LIBOR and certain other interbank offered rates.
+Added: The IBOR Regulations allow for the treatment of certain modifications to be deemed non-taxable events.
We intend to migrate to a post-LIBOR environment without recognizing taxable income from deemed taxable exchanges in excess of our economic income or suffering other adverse tax consequences, but there can be no assurance that we succeed in such efforts.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.