What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-11 compared with 2023-02-27 · 438 added, 328 removed, 452 unchanged (63% of the section changed)

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

We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit.

We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("TPG Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit.

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

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

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

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

Currently, our Residential Investments primarily consist of newly originated Non-Agency Loans and Agency-Eligible Loans, which we refer to as our target assets.

In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets.

Our investment portfolio also includes commercial loans, commercial-mortgage backed securities ("CMBS") and other securities (collectively, the "Legacy WMC Commercial Investments") that were acquired in the WMC acquisition.

We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

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

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

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

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

management agreement.

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

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

Our Manager has delegated to TPG Angelo Gordon, a diversified credit and real estate investing platform within TPG Inc.

("TPG"), the overall responsibility of its day-to-day duties and obligations arising under the management agreement.

TPG) is a leading global alternative asset management firm.

WMC Acquisition

On December 6, 2023 (the "Closing Date"), we completed the acquisition of Western Asset Mortgage Capital Corporation ("WMC"), a Delaware corporation and externally managed mortgage REIT that focused on investing in, financing and managing a portfolio of residential mortgage loans, real estate related securities, and commercial real estate loans.

On the Closing Date, WMC merged with and into AGMIT Merger Sub, LLC, a Delaware limited liability company and our wholly owned subsidiary ("Merger Sub"), with Merger Sub continuing as the surviving company (the "Merger").

Refer to "Item 1—WMC Acquisition" and the section entitled "WMC Acquisition" in Note 1 to the "Notes to Consolidated Financial Statements" for further information related to the Merger.

2023 Executive summary

During 2022, we continued to grow our portfolio of newly-originated residential mortgage loans and completed eight securitizations in order to obtain long-term, non-recourse financing without mark-to-market margin calls.

We also utilized excess liquidity to make accretive common stock repurchases throughout the year.

We ended 2022 with $86.7 million of liquidity to provide for continued growth and execution of our business strategy.

See below for additional detail related to these activities occurring during the year ended December 31, 2022.

Financial Highlights

• $10.46 Book Value per share and $10.20 Adjusted Book Value per share;

• $1.68 of Net Income/(Loss) Available to Common Stockholders per diluted common share and $0.39 of Earnings Available for Distribution ("EAD") per diluted common share;

◦ Refer to the "Earnings Available for Distribution" section below for further details related to our reconciliation of Net Income/(Loss) Available to Common Stockholders to EAD;

• 10.5x GAAP Leverage Ratio and 1.5x Economic Leverage Ratio;

• $0.72 dividend per common share declared during the year.

Strategic Acquisition

• Completed the WMC acquisition on December 6, 2023, providing meaningful growth in our investment portfolio and scale to support our return profile;

• Issued approximately 9.2 million shares of MITT's common stock to former WMC common stockholders as consideration, increasing our market capitalization by approximately 46%;

• Acquired $1.2 billion of assets consisting primarily of securitized residential mortgage loans, increasing our investment portfolio by approximately 25%;

• Assumed $1.1 billion of liabilities inclusive of securitized debt, financing arrangements, and convertible senior unsecured notes ("Legacy WMC Convertible Notes");

• Increased our equity by $81.4 million and recorded a bargain purchase gain of $30.2 million;

• Added two independent board members from the WMC board of directors.

Investment Activity

• Purchased Non-Agency Loans with a fair value of $1.6 billion, $0.9 billion of which were purchased from Arc Home, our residential mortgage loan originator in which we own an approximate 44.6% interest;

• Purchased Agency-Eligible Loans with a fair value of $1.0 billion, $0.2 billion of which were purchased from Arc Home;

• Reduced the size of our Agency RMBS through net sales of $428.2 million;

• Sold certain Non-Agency Loans and Agency-Eligible Loans with a fair value of $53.8 million;

◦ As of December 31, 2022, $65.0 million of loans were classified as held for sale, and subsequently sold in January 2023 for gross proceeds from Non-Agency Loans of $46.9 million and gross proceeds of $18.5 million Agency-Eligible Loans.

• The table below summarizes the fair value of purchases and proceeds from sales of investments, as well as the fair value of assets acquired through the WMC acquisition, during the year ended December 31, 2023 (in thousands).

Investment Purchases Sales Assets acquired from WMC

Non-Agency Loans $ 587,643 $ 330,742 $ 977,827

Agency-Eligible Loans 642,010 18,474 —

Re/Non-Performing Loans — 68,693 —

Agency RMBS 277,989 266,298 745

Non-Agency RMBS 15,729 20,058 48,200

CMBS — — 56,301

Other Securities — — 1,159

Commercial Loans — — 78,459

Financing Activity

• Executed eight rated securitizations converting recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls;

◦ Securitized Non-Agency Loans with a total unpaid principal balance of $2.1 billion;

◦ Securitized Agency-Eligible Loans with a total unpaid principal balance of $1.3 billion;

• Subsequent to year end, executed a rated securitization of Non-Agency Loans with a total unpaid principal balance of $271.2 million.

• Executed three rated securitizations converting recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls;

◦ Securitized Non-Agency Loans with a total unpaid principal balance of $677.5 million;

◦ Securitized Agency-Eligible Loans with a total unpaid principal balance of $318.3 million;

• Assumed liabilities of $1.1 billion from the WMC acquisition, which included:

◦ Securitized debt with a fair value of $837.3 million;

◦ Financing arrangements of $171.2 million;

◦ Legacy WMC Convertible Notes with a fair value of $85.2 million;

• Subsequent to December 31, 2023:

◦ Executed a rated securitization of Agency-Eligible Loans with a total unpaid principal balance of $377.5 million;

◦ Completed the issuance of $34.5 million aggregate principal amount of 9.500% senior notes due in 2029 for net proceeds of approximately $32.8 million;

◦ Repurchased $7.1 million aggregate principal amount of the outstanding Legacy WMC Convertible Notes.

Capital Activity

• Utilized the remaining capacity under our 2015 Repurchase Program and our Board of Directors authorized a new stock repurchase program (the "2022 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock;

◦ Repurchased 2.7 million shares of common stock for $18.2 million, representing a weighted average cost of $6.82 per share;

◦ Subsequent to year end, repurchased 0.1 million shares of common stock for $0.5 million, representing a weighted average cost of $5.66 per share;

• As of February 17, 2023, the remaining amount authorized under our repurchase program is $7.3 million.

• As of December 31, 2023, we have approximately $16.5 million of capacity remaining under our authorized common stock repurchase programs;

◦ Repurchased 1.1 million shares of common stock for $6.4 million during the year ended December 31, 2023, representing a weighted average cost of $5.72 per share.

Repurchases resulted in approximately 2.7% accretion to December 31, 2022 adjusted book value per share.

Market Conditions

Financial markets experienced volatility throughout 2023 due to multiple factors including the impacts of inflation, the path of monetary policy and interest rates, the U.S.

debt ceiling, market uncertainty from the ongoing conflicts in Ukraine and Israel and other geopolitical risks.

The Federal Reserve continued executing on its monetary policy tightening cycle during 2023.

The Federal Reserve raised the short-term federal funds target rate eleven times between March 2022 and July 2023 and has since held rates steady.

Year-to-date through October 2023, the 10-year U.S.

treasury yield increased by approximately 100 basis points to 4.88% and the 30-year fixed rate mortgage increased by 137 basis points peaking at 7.8%.

In November, the Federal Reserve left rates unchanged for the fourth consecutive meeting, spoke increasingly of a more balanced approach to setting policy, and suggested that the recent rise in longer-term interest rates could displace the need to tighten policy rates further.

Although the Federal Reserve cautioned that it was premature to discuss cutting rates, financial markets took this as a dovish shift in sentiment.

At the December meeting, the Federal Reserve confirmed its dovish pivot with an updated Summary of Economic Projections that showed no further rate increases and a faster pace of rate normalization, further driving interest rates lower.

By the end of the year, the 10-year U.S.

treasury yield retraced to 3.88%, where it started the year, and the 30-year fixed rate mortgage declined to 6.6%.

Although market participants began pricing in rate cuts as soon as March 2024, it is not clear when the Federal Reserve will initiate rate cuts and it is possible longer-term rates may remain elevated for longer than anticipated.

The second quarter ended with the spread between the 2-year and 10-year U.S.

treasury yields peaking at approximately 106 basis points inverted.

At the end of the fourth quarter, the curve inversion was only 37 basis points providing some relief.

While the Federal Reserve’s policy tightening has slowed the U.S economy, growth in GDP, low unemployment and strength in consumer spending persist, leaving the Federal Reserve seeking economic data that will provide greater confidence that inflation is moving sustainably toward the target rate of 2%.

RMBS spreads mostly tightened during the fourth quarter of 2023.

Trends in credit spreads on credit risk transfer ("CRT") assets are generally utilized by market participants as a proxy for evaluating credit related assets given the observability of transactions.

CRT tranches were tighter by up to 50 basis points, with tranches at or near investment grade tightening the most during the quarter.

For the full year 2023, CRT experienced impressive gains, particularly for lower credit tranches which were as much as 500 basis points tighter while tranches in the middle part of the capital structure tightened by approximately 300 basis points.

Senior Non-QM spreads tightened by approximately 20 basis points during the quarter while strong demand for BBB-rated Non-QM securities drove spreads in by approximately 50 basis points during the quarter and an additional 25 basis points in the month of January.

The Non-QM sector finished the year with spreads tighter overall however still remaining wide of February 2022 levels, which suggests ample runway for additional upside potential.

RMBS issuance during the fourth quarter was in-line with the prior two quarters at $16 billion.

However, issuance for the full year 2023 totaled only $65 billion, roughly half of the $137 billion of issuance recorded in 2022, and was the slowest year since 2016.

Issuance of nearly every type of RMBS fell, in most cases sharply, except for the second lien and home equity line of credit sector which is still in its infancy.

Issuance of benchmark CRT fell 60% to $8.3 billion amid lighter origination volumes and a shift away from high-cost subordinate tranches by the issuers.

Non-QM was the most active sector with issuance of $28 billion resulting in a relatively modest 25% year-over-year decline.

Various reports from bank research departments estimate 2024 issuance will be $65 to $90 billion, higher than 2023 but still down from $127 billion in 2022 and $213 billion in 2021.

Home prices continued to rise with the S&P CoreLogic Case-Shiller U.S.

National Home Price Index up 5.5% for the full year 2023 which exceeds the prior peak in June 2022 by 0.8%.

A survey of third-party research illustrates varied home price expectations for 2024 ranging from a decline of 5% to an increase of 4%.

Prevailing mortgage rates were considerably lower over the final two months of the year, falling to 6.6% after reaching 7.8% at the end of October 2023, the highest level since 2000.

Nationally, the average effective mortgage rate was 3.7% as of September 2023.

Current interest rates thus leave the well-publicized “lock-in effect,” or disincentive for existing homeowners to sell their homes because their current mortgage rate is well below current market rates, in force, albeit modestly weaker.

According to the National Association of Realtors, total existing home listings amounted to 1 million in December 2023, in line with most of 2023 but down significantly from pre-pandemic years.

New listings, which offer a timelier view of current supply, have totaled 4.13 million year-to-date through December 2023, which was almost 1.8 million units less than the same period in 2021.

Despite prevailing mortgage rates at multi-decade highs, sufficient demand continues to exist to support the housing market.

While homeownership affordability is near all-time lows, housing supply continues to be constrained and demand for housing remains evident as borrowers reset in a higher-rate environment.

Presentation of investment, financing and hedging activities

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

See Notes 2 and 10 to the "Notes to Consolidated Financial

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

See Notes 2 and 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.

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

• Our "Investment portfolio" includes our Residential Investments and Agency RMBS, inclusive of TBAs.

• Our "Investment portfolio" includes our Residential Investments, Agency RMBS, inclusive of TBAs, and Legacy WMC Commercial Investments.

• Our "Residential Investments" refer to our residential mortgage loans and Non-Agency RMBS.

◦ "Residential mortgage loans" or "Loans" refer to our Non-Agency Loans, Agency-Eligible Loans, and Re/Non-Performing Loans (exclusive of retained tranches from unconsolidated securitizations) and Land Related Financing.

◦ "Non-Agency RMBS" refer to the retained tranches from unconsolidated securitizations of Non-Agency Loans and Re/Non-Performing Loans, as well as Agency-Eligible Loans held in securitized form.

• "Real estate securities" refers to our Non-Agency RMBS and Agency RMBS, inclusive of TBAs.

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

◦ "Non-Agency RMBS" refer to the retained tranches from unconsolidated securitizations of Non-Agency Loans and Re/Non-Performing Loans issued under the GCAT shelf, as well as Non-Agency RMBS issued by third-parties.

• "Real estate securities" refers to our Non-Agency RMBS and Agency RMBS, inclusive of TBAs, as well as Legacy WMC CMBS and Other Securities that were acquired in the WMC acquisition.

• Our "Legacy WMC Commercial Investments" refer to the commercial loans and CMBS that we acquired in the WMC acquisition.

We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

• Our "GAAP Residential Investments" refer to our Residential Investments excluding investments held within affiliated entities.

• Our "GAAP Investment portfolio" includes our GAAP Residential Investments, Agency RMBS, and Legacy WMC Commercial Investments and Other Securities.

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

Market Conditions

During 2022, the financial markets experienced significant volatility in managing the impacts of inflation, elevated interest rate volatility, market uncertainty from geopolitical risks, and the lingering impact of the COVID-19 pandemic.

Market participants saw benchmark rates continue to rise throughout the year coupled with the widening of credit spreads across various asset classes.

According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed-rate mortgage ended the fourth quarter at 6.42%, declining slightly from its multi-decade high in the third quarter but up over 300 basis points from a year ago.

This has driven home ownership affordability and mortgage prepayments to historical lows.

As a result, housing and residential debt sectors remained challenged for most of 2022 with new issuance of RMBS falling and full-year origination volume expected to have nearly halved in 2022, according to the Mortgage Bankers Association.

While credit spreads continued to widen at the start of the fourth quarter, they began experiencing notable tightening in the latter half of the quarter and into January 2023, providing some relief to the securitization markets.

Trends in credit spreads on Credit risk transfer ("CRT") assets are generally utilized by market participants as a proxy for evaluating credit related assets given the observability of transactions.

CRT tranches tightened by 30 to 60 basis points during the quarter.

In addition, Senior Non-QM spreads, which impacts our securitization business, tightened 50 to 60 basis points.

Despite this tightening, CRT and Non-QM spreads ended the year materially wider than one year ago.

Tranches in the middle of the CRT structure were approximately 300 to 350 basis points wider, while lower tranches were as much as 500 to 600 basis points wider than at the end of 2021.

Senior Non-QM tranches were more than 100 basis points wider, and BB Non-QM tranches were approximately 370 basis points wider than a year ago.

Nominal spreads on Agency mortgage-backed securities tightened sharply during the fourth quarter.

The Federal Reserve began to signal a deceleration of its aggressive campaign to tighten policy rates, helping to moderate implied interest rate volatility off peak levels of the last decade that had been weighing on mortgage asset valuations.

When combined with subdued supply and an underweight investor base, the spread between current coupon and a blend of 5-year and 10-year U.S.

Treasury yields tightened by 27 basis points during the fourth quarter of 2022.

Despite the performance during the quarter, this spread remains roughly 77 basis point wider year-over-year as considerable uncertainty remains over the broad macroeconomic backdrop.

New RMBS issuance for the quarter fell sharply to $5.4 billion, down from $26 billion in the third quarter and $64 billion a year ago.

Non-QM, Jumbo/Agency-Eligible and CRT issuance was $127 billion for the full year, approximately 40% lower compared to 2021.

Issuances in 2021 were elevated due to $4.4 trillion of mortgage origination volume during the year resulting from a large refinance wave coupled with postponed issuances from 2020.

The decline in originations in 2022 contributed to less securitization activity, where it was most apparent in Jumbo/Agency-Eligible which was down approximately 66% in 2022 as compared to 2021.

Originators continue to face considerable margin pressure with the significant reduction in non-cash out refinance activity, resulting in right-sizing across the industry.

Conversely, the increase in mortgage rates on new production should provide for attractive reinvestment opportunities into higher yielding assets for market participants with capital available to deploy.

The October reading of the S&P/CoreLogic Case-Shiller Index fell 0.53%, bringing national home prices to 7% higher this year through October 2022.

As negative monthly home price readings have persisted since July, this reading marked the fourth consecutive month of falling prices, totaling a decrease of approximately 3%, reversing some of the strong gains made in the

first half of 2022.

Housing activity declined in 2022 with fewer new listings and pending sales, and buyers were slower to transact as the year continued given home ownership affordability set a new low in June 2022.

However, homeowners are likely better positioned to weather a decrease in home prices compared to the mid-2000s given the significant appreciation recognized in recent years, leaving households with substantial equity.

In addition, most new mortgage debt has been originated under tighter underwriting guidelines to borrowers with prime credit scores.

In light of various market uncertainties for the U.S.

and global economy, geopolitical risks, and interest rate volatility, there can be no assurance that the trends and conditions described above will not change in a manner materially adverse to the mortgage REIT industry and/or our Company.

Book value and Adjusted book value per share

The below table details book value and adjusted book value per common share.

Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of quarter-end.

Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of year-end.

December 31, 2023

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Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our investments in residential mortgage loans in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose residential mortgage loans are included in our investment portfolio and other unanticipated events in our markets.

Our primary source of net income or loss available to common stockholders is our net interest income, less our cost of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and economic hedges in place on our investment portfolio, as well as any income or losses from our equity investments in affiliates.

Our primary source of net income or loss available to common stockholders is our net interest income, inclusive of our cost or benefit of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and economic hedges in place on our investment portfolio, as well as any income or losses from our equity investments in affiliates.

Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

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Net unrealized gain/(loss) 1,450 (137,634) 139,084

Other income/(loss), net — 37 (37)

Bargain purchase gain 30,190 — 30,190

Total Other Income/(Loss) 46,017 (61,167) 107,184

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Net Income/(Loss) 53,784 (53,100) 106,884

Gain on Exchange Offers, net — 472 (472)

Dividends on preferred stock (18,344) (18,344) —

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Interest income increased from December 31, 2022 to December 31, 2023 primarily due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period.

This was coupled with an increase in the weighted average yield of our investment portfolio resulting from purchasing higher yielding assets as interest rates increased during the period.

The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the years ended December 31, 2023 and 2022 ($ in millions).

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Interest expense

Interest expense is calculated based on the actual financing rate and the outstanding financing balance, inclusive of our financing arrangements and securitized debt, on our GAAP investment portfolio.

Interest expense increased from December 31, 2021 to December 31, 2022 due to an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of $3.0 billion of securitized debt in 2022.

Additionally, there was an increase in the weighted average financing rate during the period resulting from increased interest rates during 2022.

The following table presents a summary of the weighted average financing balance and the weighted average financing rate on our GAAP investment portfolio for the years ended December 31, 2022 and 2021 ($ in millions).

Interest expense is inclusive of our financing cost related to our financing arrangements on our GAAP investment portfolio, securitized debt, and Legacy WMC Convertible Notes.

Interest expense increased from December 31, 2022 to December 31, 2023 due to an increase in the weighted average financing rate resulting from rising interest rates during the period, coupled with an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of securitized debt.

The following table presents a summary of the weighted average financing balance and the weighted average financing rate for the years ended December 31, 2023 and 2022 ($ in millions).

December 31, 2023 December 31, 2022 Increase/(Decrease)

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$ 4,635 $ 3,655 $ 980

Weighted average financing rate on our GAAP investment portfolio 3.25 % 1.59 % 1.66 %

Weighted average financing rate 4.58 % 3.25 % 1.33 %

Net interest component of interest rate swaps

Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps.

The net interest component of interest rate swap expense increased from December 31, 2021 to December 31, 2022 primarily due to an increase in the weighted average swap notional value, which was offset by a reduction in the net pay rate as interest rates rose throughout 2022.

The following table presents a summary of the weighted average swap notional value for the years ended December 31, 2022 and 2021 ($ in millions).

December 31, 2022 December 31, 2021 Increase/(Decrease)

Weighted average swap notional

$ 934 $ 848 $ 86

We recorded income on the net interest component of interest rate swaps during the year ended December 31, 2023 as a result of our swap portfolio being in a net receive position during the entire period, compared with an expense for the year ended December 31, 2022 as a result of our swap portfolio being in a net pay position during part of the period.

The following table presents a summary of our interest rate swap portfolio as of December 31, 2023 and 2022 ($ in millions).

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3.65 % 2.77 % 0.88 %

Net weighted average (pay)/receive rate 1.73 % 1.53 % 0.20 %

Net realized gain/(loss)

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The realized gain during the year ended December 31, 2023 was driven by unwinding pay-fix, receive-variable interest rate swaps which were previously held at unrealized gains as a result of rising interest rates.

This was offset by realized losses on sales of Agency RMBS and residential mortgage loans.

This was offset by realized losses on sales of residential mortgage loans and real estate securities.

December 31, 2023 December 31, 2022

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Settlement of derivatives and other instruments 21,334 118,851

Sales of commercial loans — (2,518)

Total Net realized gain/(loss) $ 7,697 $ 81,389

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The following table presents a summary of net unrealized gain/(loss) for the years ended December 31, 2023 and 2022 (in thousands).

During the year ended December 31, 2022, unrealized losses on residential mortgage loans and unrealized gains on securitized debt were the result of rising interest rates and credit spread widening during the period.

During the year ended December 31, 2023, unrealized gains on real estate securities, residential mortgage loans, and commercial loans and unrealized losses on securitized debt and derivatives were primarily driven by a decrease in interest rates during the fourth quarter of 2023.

December 31, 2023

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Residential mortgage loans $ 111,714 $ (539,987)

Commercial loans 95 —

Real estate securities 3,475 3,010

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Derivatives (24,465) (2,124)

Commercial loans — 16,148

Excess mortgage servicing rights — 1,515

Total Net unrealized gain/(loss) $ 1,450 $ (137,634)

Bargain purchase gain

Per ASC 805, "Business Combinations," a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred is less than the fair value of the identifiable net asset acquired.

In connection with the WMC acquisition, we recorded a bargain purchase gain of $30.2 million, which represents the difference between our consideration transferred of $51.2 million and the fair value of the net assets we acquired of $81.4 million.

As a result of macroeconomic factors and interest rate volatility, the price per share of common stock of certain companies within the mortgage REIT industry have traded at discounts to book values per share in recent periods, which contributed to the bargain purchase gain recorded on the WMC acquisition.

Management fee to affiliate

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

Management fees increased from December 31, 2021 to December 31, 2022 primarily due to an increase in our Stockholders’ Equity as calculated pursuant to our Management Agreement resulting from our November 2021 common stock offering.

In connection with the WMC acquisition, we and our Manager entered into the MITT Management Agreement Amendment pursuant to which the base management fee will be reduced by $0.6 million for the first four quarters following the transaction closing, beginning with the fiscal quarter in which the transaction closing occurs (i.e., resulting in an aggregate $2.4 million waiver of base management fees).

As a result of the transaction closing on December 6, 2023, the base management fee was reduced by $0.6 million during the year ended December 31, 2023.

This was offset by an increase in stockholders' equity as calculated pursuant to the management agreement as a result of the WMC acquisition.

Non-investment related expenses

Non-investment related expenses is primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to the Manager.

Non-investment related expenses are primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to our Manager or its affiliates.

We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain compensation expenses and other expenses relating to legal, accounting, and other services.

Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to the Manager.

Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to our Manager or its affiliates.

The following table presents a summary of our non-investment related expenses for the years ended December 31, 2023 and 2022 (in thousands).

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Total Non-investment related expenses $ 10,077 $ 9,292

(1) For the years ended December 31, 2022 and December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $1.5 million and $0.8 million, respectively.

(1) For the years ended December 31, 2023 and 2022, the Manager agreed to waive its right to receive expense reimbursements of $1.7 million and $1.5 million, respectively.

Investment related expenses

Investment related expenses is primarily comprised of servicing fees, asset management fees, and certain investment related expenses reimbursable to the Manager.

Investment related expenses are primarily comprised of servicing fees, asset management fees, and certain investment related expenses reimbursable to the Manager or its affiliates.

We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf associated with our investment portfolio.

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Total Investment related expenses $ 9,808 $ 9,198

(1) We incur servicing fees and asset management fees in connection with our residential mortgage loans.

(1) We incur servicing fees, asset management fees, and trustee and bank fees in connection with our residential mortgage loans.

These expenses increased from the year ended December 31, 2022 to the year ended December 31, 2023 primarily due to an increase in our GAAP residential mortgage loan portfolio.

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Transaction related expenses

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

These fees increased from the year ended December 31, 2021 to December 31, 2022 primarily as a result of the upfront expenses on the eight securitizations completed during the year ended December 31, 2022, as compared with upfront expenses on three securitizations completed during the year ended December 31, 2021.

Historically, transaction related expenses have included expenses primarily associated with purchasing and securitizing residential mortgage loans as well as certain other transaction and performance related fees associated with assets we invest in.

However, in 2023, we also recorded transaction related expenses in connection with the WMC acquisition.

Transaction related expenses decreased from the prior period as we completed three securitizations during the year ended December 31, 2023, as compared to eight securitizations during the year ended December 31, 2022.

This decrease was partially offset by $6.0 million of transaction related expenses incurred in connection with the WMC acquisition.

Equity in earnings/(loss) from affiliates

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December 31, 2022

MATT Non-QM Loans (1) $ 1,261 $ 12,594

MATT Non-QM Securities (1) $ 3,992 $ 1,261

Land Related Financing (2) 758 1,621

Other (2) 594 13,159

Re/Non-Performing Securities 782 594

AG Arc (3) (6,922) (13,734)

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$ (1,390) $ (10,258)

(1) The earnings within MATT for the year ended December 31, 2022 were primarily the result of net interest income offset by realized losses on its Non-QM Loan portfolio.

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

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

(3) Refer to the table below for a breakout of changes in earnings from AG Arc.

(1) The earnings within MATT for the year ended December 31, 2023 were primarily the result of net interest income of $3.5 million and unrealized gains of $0.7 million offset by expenses of $(0.2) million.

The earnings within MATT for the year ended December 31, 2022 were primarily the result of net interest income of $2.7 million and unrealized gains of $0.1 million offset by realized losses of $(1.2) million and other expenses of $(0.3) million.

(2) Throughout the year ended December 31, 2023, Land Related Financing continued to pay down and paid off in full during the fourth quarter 2023, contributing to the decrease in earnings from the year ended December 31, 2022 to the year ended December 31, 2023.

(3) Refer to the table below for additional detail on the earnings/(loss) generated from our investment in AG Arc.

The below table further disaggregates our "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).

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$ (1,390) $ (10,258)

(1) Interest income decreased from the year ended December 31, 2021 to the year ended December 31, 2022 as a result of a smaller portfolio held through our investments in debt and equity of affiliates during 2022.

Additionally, interest income for the year ended December 31, 2021 includes accelerated accretion resulting from paydowns on certain Re/Non-Performing Loans held at discounts.

(1) The earnings/(loss) at AG Arc during the year ended December 31, 2023 were primarily the result of $(3.8) million related to changes in the fair value of the MSR portfolio held by Arc Home coupled with $(0.2) million of losses related to Arc Home's lending and servicing operations.

The earnings/(loss) at AG Arc during the year ended December 31, 2022 were primarily the result of $(5.5) million of losses related to Arc Home's lending and servicing operations, offset by $3.4 million related to changes in the fair value of the MSR portfolio held by Arc Home.

The earnings/(loss) at AG Arc during the year ended December 31, 2021 were primarily the result of $10.7 million of net income related to Arc Home's lending and servicing operations, offset by $(2.3) million related to changes in the fair value of the MSR portfolio held by Arc Home.

(3) Our investment in AG Arc was valued at 0.94x book value as of December 31, 2022 compared with 1.06x book value as of December 31, 2021.

This resulted in unrealized losses during the year ended December 31, 2022.

(2) During the years ended December 31, 2023 and December 31, 2022, we recorded unrealized losses on our investment in AG Arc as a result of the valuation decreasing from 0.94x book value as of December 31, 2022 to 0.89x book value as of December 31, 2023 and from 1.06x book value as of December 31, 2021 to 0.94x book value as of December 31, 2022, respectively.

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

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

Gain on Exchange Offers, net

We did not complete any exchange offers during the year ended December 31, 2022.

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

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

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

Net interest margin and leverage ratio

Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio.

GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial measure, are calculated by subtracting the weighted average cost of funds from the weighted average yield for our GAAP investment portfolio and our investment portfolio, respectively.

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

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

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

interest rate swaps.

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

Our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the available capacity to finance our assets, and anticipated regulatory developments.

See the "Financing activities" section below for more detail on our leverage ratio.

The table below sets forth the net interest margin and leverage ratio on our investment portfolio as of December 31, 2022 and 2021 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio.

December 31, 2022

Weighted Average GAAP Investment

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

Yield 4.99 % 18.05 % 5.14 %

Cost of Funds (b)(c) 4.31 % 5.19 % 4.31 %

Net Interest Margin 0.68 % 12.86 % 0.83 %

Leverage Ratio (d) 8.4x (e) 1.3x

December 31, 2021

Weighted Average GAAP Investment

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

Yield 3.72 % 9.21 % 3.84 %

Cost of Funds (b)(c) 2.06 % 3.41 % 2.08 %

Net Interest Margin 1.66 % 5.80 % 1.76 %

Leverage Ratio (d) 4.9x (e) 2.4x

(a) Excludes any net TBA positions.

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

The benefit of hedging as of December 31, 2022 was 0.13% and the cost of hedging as of December 31, 2021 was 0.22%.

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

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

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

Refer to Note 2 and Note 10 to the "Notes to Consolidated Financial Statements" for more information on this accounting policy.

Earnings Available for Distribution

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Earnings Available for Distribution ("EAD"), as one of several metrics, to help measure our performance against this objective.

EAD replaces our prior presentation of Core Earnings with no changes to the definition.

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses EAD, as one of several metrics, to help measure our performance against this objective.

Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our financial performance.

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

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

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

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

We define EAD, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on loans, real estate securities, derivatives and other investments, inclusive of our investment in AG Arc, and (b) net realized gains/(losses) on the sale or termination of such instruments, (ii) any transaction related expenses incurred in connection with the acquisition, disposition, or securitization of our investments as well as transaction related expenses incurred in connection with the WMC acquisition, (iii) accrued deal-related performance fees payable to third party operators to the extent the primary component of the accrual relates to items that are excluded from EAD, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, (vi) any gains/(losses) associated with exchange transactions on our common and preferred stock, and (vii) any bargain purchase gains recognized.

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

Management considers the transaction related expenses referenced in (ii) above

to be similar to realized losses incurred at the acquisition, disposition, or securitization of an asset and does not view them as being part of its core operations.

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

Management excludes all deferred taxes because it believes deferred taxes are not

representative of current operations.

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

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

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

A reconciliation of "Net Income/(loss) available to common stockholders" to EAD for the years ended December 31, 2023 and 2022 is set forth below (in thousands, except per share data).

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EAD from equity method investments (2)(3) (452) (12,320)

Other (income)/loss, net — (14)

(Gains) from Exchange Offers, net — (472)

Dollar roll income/(loss) — 1,999

Bargain purchase gain (30,190) —

Earnings available for distribution $ 8,274 $ 1,900

Earnings available for distribution, per Diluted Share $ 0.39 $ 0.08

(1) For the year ended December 31, 2022 and 2021, total transaction related expenses and deal related performance fees included $16.5 million and $7.3 million, respectively, recorded within the "Transaction related expenses" line item and $0.7 million and $1.2 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the year ended December 31, 2022 and 2021, $9.2 million or $0.40 per share and $2.5 million or $0.15 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights, changes in the fair value of corresponding derivatives, and other asset impairments were excluded from EAD, net of deferred tax expense.

Additionally, for the year ended December 31, 2022 and 2021, $(5.6) million or $(0.24) per share and $0.6 million or $0.04 per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.

(1) For the years ended December 31, 2023 and 2022, total transaction related expenses and deal related performance fees included $11.1 million and $16.5 million, respectively, recorded within the "Transaction related expenses" line item and $0.1 million and $0.7 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the years ended December 31, 2023 and 2022, $(0.3) million or $(0.01) per share and $9.2 million or $0.40 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights, changes in the fair value of corresponding derivatives, and other asset impairments were excluded from EAD, net of deferred tax expense.

Additionally, for the years ended December 31, 2023 and 2022, $(1.5) million or $(0.07) per share and $(5.6) million or $(0.24) per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.

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

For the year ended December 31, 2022 and 2021, we eliminated $6.0 million or $0.26 per share and $5.3 million or $0.33 per share of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount.

For the years ended December 31, 2023 and 2022, we eliminated $1.4 million or $0.07 per share and $6.0 million or $0.26 per share of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount.

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

(4) Per share amounts presented have been adjusted to reflect the one-for-three reverse stock split effected July 22, 2021, where applicable.

Investment activities

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

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Treasury and interest rate swap yield curves.

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

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

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

The following table presents a summary of the allocated equity of our investment portfolio as of December 31, 2022 and 2021 ($ in thousands):

Allocated Equity Percent of Equity

December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021

In December 2023, through our acquisition of WMC, we increased our investment portfolio by $1.2 billion, which primarily consisted of Securitized Non-Agency Loans.

For more information on the WMC acquisition, refer to "Item 1—WMC Acquisition" and the section entitled "WMC Acquisition" in Note 1 to the "Notes to Consolidated Financial Statements."

Net interest margin and leverage ratio

Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio.

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

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

See the "Financing activities" section below for more detail on our leverage ratio.

Investment portfolio

The following tables present a summary of our investment portfolio, inclusive of net interest margin and leverage ratios, as of December 31, 2023 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

December 31, 2023

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Instrument Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Residential Investments:

Agency RMBS 8,389 111,322 1.8 % 19.5 %

Total $ 462,800 $ 570,380 100.0 % 100.0 %

The following table presents a summary of our investment portfolio as of December 31, 2022 and 2021 and a reconciliation to our GAAP Investment Portfolio ($ in thousands):

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

December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021

Residential Investments $ 4,202,801 $ 2,725,889 99.5 % 84.6 % 1.3x 2.1x

Agency RMBS 19,124 495,713 0.5 % 15.4 % 1.7x 3.7x

Investment Portfolio $ 4,221,925 $ 3,221,602 100.0 % 100.0 % 1.3x 2.4x

Investments in Debt and Equity of Affiliates $ 49,609 $ 72,026 N/A N/A (b) (b)

GAAP Investment Portfolio $ 4,172,316 $ 3,149,576 N/A N/A 8.4x 4.9x

(a) The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements by its allocated equity (described in the chart above).

Cash posted as collateral has been allocated pro-rata by each respective asset class's Economic Leverage amount.

Securitized Non-Agency Loans $ 5,567,710 $ 5,175,169 5.51 % $ 4,904,017 $ 4,597,490 $ 301,205 4.99 % $ 276,474 0.52 % 0.9x

Securitized Re/Non-Performing Loans 199,633 183,112 6.30 % 122,714 114,133 44,928 4.39 % 24,051 1.91 % 1.9x

Non-Agency Loans 92,868 94,516 7.29 % — — 77,345 5.65 % 17,171 1.64 % 4.5x

Agency-Eligible Loans 215,885 220,709 7.28 % — — 200,617 6.31 % 20,092 0.97 % 10.0x

Residential Whole Loans 974 2,406 112.97 % — — — — % 2,406 112.97 % N/A

Non-Agency RMBS 111,612 112,448 14.08 % — — 54,856 6.63 % 57,592 7.45 % 0.9x

Total Residential Investments $ 6,188,682 $ 5,788,360 5.84 % $ 5,026,731 $ 4,711,623 $ 678,951 5.05 % $ 397,786 0.79 % 1.5x

Agency RMBS $ 16,714 $ 15,694 10.20 % $ — $ — $ 12,594 6.23 % $ 3,100 3.97 % 3.0x

Legacy WMC Commercial Investments (e)

Commercial Loans $ 66,208 $ 66,303 9.50 % $ — $ — $ 48,032 7.86 % $ 18,271 1.64 % 2.6x

CMBS 56,533 56,349 21.90 % — — 31,620 7.81 % 24,729 14.09 % 1.2x

Total Legacy WMC Commercial Investments $ 122,741 $ 122,652 15.20 % $ — $ — $ 79,652 7.84 % $ 43,000 7.36 % 1.9x

Other Securities $ 1,174 $ 1,156 18.16 % $ — $ — $ — — % $ 1,156 18.16 % N/A

Total Investment Portfolio $ 6,329,311 $ 5,927,862 6.05 % $ 5,026,731 $ 4,711,623 $ 771,197 5.09 % $ 445,042 0.96 % 1.6x

Cash and Cash Equivalents (f) 111,534 5.25 %

Interest Rate Swaps (g) 12,146 1.73 %

Arc Home 33,574

Convertible senior unsecured notes (85,266) (8.42) %

Non-Interest Earning Assets, net 11,338

Total Stockholders' Equity $ 528,368 1.5x

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Total Investment Portfolio $ 6,329,311 $ 5,927,862 6.05 % $ 5,026,731 $ 4,711,623 $ 771,197 5.09 % $ 445,042 0.96 % 1.6x

Investments in Debt and Equity of Affiliates 17,451 22,826 31.44 % — — 3,605 8.02 % 19,221 23.42 % (h)

GAAP Investment Portfolio $ 6,311,860 $ 5,905,036 5.95 % $ 5,026,731 $ 4,711,623 $ 767,592 5.09 % $ 425,821 0.86 % 10.5x

(a) Excludes any net TBA positions.

(b) Includes the cost (interest expense) or benefit (interest income) from our interest rate swap hedges.

The benefit of hedging as of December 31, 2023 was 0.16%.

(c) Allocated equity represents the investment fair value less the associated securitized debt at fair value and financing arrangements, where applicable.

(d) The leverage ratio on each asset class and on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements less any cash posted as collateral by its equity invested inclusive of any cash collateral posted on financing arrangements.

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

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

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

The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage as defined below in the "Financing Activities" section.

(e) We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

(f) Cash and cash equivalents may include a portion of cash invested in money market funds.

The yield represents the interest earned on money market funds as of period end.

(g) Interest rate swaps represents the sum of the net fair value of interest rate swaps and the margin posted on interest rate swaps as of period end.

Yield on interest rate swaps represents the weighted average net receive/(pay) rate as of period end.

The impact of the net interest component of interest rate swaps on the cost of funds is included within the respective investment portfolio asset line items.

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

The following tables present a summary of our investment portfolio, inclusive of net interest margin and leverage ratios, as of December 31, 2022 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

December 31, 2022

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Instrument Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Residential Investments:

Securitized Non-Agency Loans $ 3,904,841 $ 3,436,201 4.65 % $ 3,470,695 $ 3,078,593 $ 197,937 4.28 % $ 159,671 0.37 % 1.2x

Securitized Re/Non-Performing Loans 288,138 270,945 6.66 % 196,134 183,759 34,151 3.68 % 53,035 2.98 % 0.6x

Non-Agency Loans 398,392 371,161 5.54 % — — 315,915 4.81 % 55,246 0.73 % 5.7x

Agency-Eligible Loans 48,675 46,862 5.99 % — — 44,326 5.08 % 2,536 0.91 % 17.5x

Residential Whole Loans 1,520 3,428 72.78 % — — — — % 3,428 72.78 % N/A

Land Related Financing 10,688 10,688 14.50 % — — — — % 10,688 14.50 % N/A

Non-Agency RMBS 67,580 63,516 16.41 % — — 35,510 5.42 % 28,006 10.99 % 0.7x

Total Residential Investments $ 4,719,834 $ 4,202,801 5.13 % $ 3,666,829 $ 3,262,352 $ 627,839 4.31 % $ 312,610 0.82 % 1.9x

Agency RMBS $ 19,771 $ 19,124 7.54 % $ — $ — $ 14,163 4.54 % $ 4,961 3.00 % 2.3x

Total Investment Portfolio $ 4,739,605 $ 4,221,925 5.14 % $ 3,666,829 $ 3,262,352 $ 642,002 4.31 % $ 317,571 0.83 % 1.9x

Cash and Cash Equivalents (e) 84,621 4.11 %

Interest Rate Swaps (f) 8,727 1.53 %

Arc Home 39,680

Non-Interest Earning Assets, net 12,201

Total Stockholders' Equity $ 462,800 1.3x

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Total Investment Portfolio $ 4,739,605 $ 4,221,925 5.14 % $ 3,666,829 $ 3,262,352 $ 642,002 4.31 % $ 317,571 0.83 % 1.9x

Investments in Debt and Equity of Affiliates 50,592 49,609 18.05 % — — 20,815 5.19 % 28,794 12.86 % (g)

GAAP Investment Portfolio $ 4,689,013 $ 4,172,316 4.99 % $ 3,666,829 $ 3,262,352 $ 621,187 4.31 % $ 288,777 0.68 % 8.4x

(a) Excludes any net TBA positions.

(b) Includes the cost (interest expense) or benefit (interest income) from our interest rate swap hedges.

The benefit of hedging as of December 31, 2022 was 0.13%.

(c) Allocated equity represents the investment fair value less the associated securitized debt at fair value and financing arrangements, where applicable.

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

The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage as defined below in the "Financing Activities" section.

(e) Cash and cash equivalents may include a portion of cash invested in money market funds.

The yield represents the interest earned on money market funds as of period end.

(f) Interest rate swaps represents the sum of the net fair value of interest rate swaps and the margin posted on interest rate swaps as of period end.

Yield on interest rate swaps represents the weighted average net receive/(pay) rate as of period end.

The impact of the net interest component of interest rate swaps on the cost of funds is included within the respective investment portfolio asset line items.

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

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2023 and 2022 ($ in thousands).

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Residential Mortgage Loans

Securitized Non-Agency Loans (4) $ 5,599,960 $ 5,567,710 $ (392,541) $ 5,175,169 5.19 % 5.51 % 10.37 $ 3,436,201

Securitized Re- and Non-Performing Loans 217,098 199,633 (16,521) 183,112 3.88 % 6.30 % 6.10 270,945

Non-Agency Loans 92,033 92,868 1,648 94,516 8.10 % 7.29 % 3.14 371,161

Agency-Eligible Loans 212,350 215,885 4,824 220,709 7.94 % 7.28 % 3.37 46,862

Re- and Non-Performing Loans 328,640 289,658 (15,285) 274,373 3.68 % 7.49 % 6.28 350,227

MATT Non-QM Loans — — — — — % — % — 11,839

Re- and Non-Performing Loans 2,604 974 1,432 2,406 N/A 112.97 % 1.69 3,428

Land Related Financing — — — — — % — % — 10,688

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Non-Agency RMBS

Non-Agency Securities 14,894 14,693 (4,834) 9,859 4.34 % 4.60 % 12.21 14,600

Agency-Eligible Securities 16,819 10,145 (467) 9,678 3.22 % 8.47 % 14.06 —

MATT Non-QM Bonds (4) 350,361 31,933 (866) 31,067 0.99 % 20.30 % 3.63 33,998

GCAT Non-Agency RMBS (5)

GCAT Non-Agency Securities 43,794 41,513 (8,971) 32,542 4.67 % 5.99 % 10.08 9,859

GCAT Non-Agency RMBS Interest Only (6) N/A 2,541 2,450 4,991 — % 37.74 % 5.21 5,058

MATT Non-QM Securities (6) 4,497 9,906 5,351 15,257 0.34 % 39.76 % 3.64 31,067

Re/Non-Performing Securities (6) 5,516 7,545 24 7,569 0.92 % 14.68 % 1.70 7,854

Non-Agency RMBS Interest Only (5) 108,464 2,838 2,220 5,058 0.38 % 34.42 % 4.68 3,395

Total GCAT Non-Agency RMBS 53,807 61,505 (1,146) 60,359 1.01 % 18.24 % 4.42 53,838

Non-Agency Securities 82,390 48,991 2,015 51,006 4.99 % 9.11 % 16.21 9,678

Non-Agency RMBS Interest Only (6) N/A 1,116 (33) 1,083 0.35 % 16.04 % 2.61 —

Total Non-Agency RMBS 136,197 111,612 836 112,448 1.50 % 14.08 % 5.48 63,516

Total Residential Investments 6,260,242 6,188,682 (400,322) 5,788,360 5.08 % 5.84 % 9.41 4,202,801

30 Year Fixed Rate — — — — — % — % — 495,713

Interest Only 127,356 19,771 (647) 19,124 2.87 % 7.54 % 6.63 —

Total Agency RMBS 127,356 19,771 (647) 19,124 2.87 % 7.54 % 6.63 495,713

Agency RMBS Interest Only (6) N/A 16,714 (1,020) 15,694 3.74 % 10.20 % 6.54 19,124

Legacy WMC Commercial Investments (7)

Commercial Loans 67,204 66,208 95 66,303 9.27 % 9.50 % 1.52 —

CMBS 103,458 56,533 (184) 56,349 7.39 % 21.90 % 2.62 —

Total Legacy WMC Commercial Investments 170,662 122,741 (89) 122,652 8.13 % 15.20 % 2.18 —

Other Securities (8) N/A 1,174 (18) 1,156 N/A 18.16 % 7.33 —

Investment Portfolio $ 6,430,904 $ 6,329,311 $ (401,449) $ 5,927,862 5.06 % 6.05 % 9.20 $ 4,221,925

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

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

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

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

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

(4) As of December 31, 2022, this line item only includes retained tranches from securitizations.

(5) As of December 31, 2022 and 2021, this line item includes Non-QM interest-only bonds.

(4) Securitized Non-Agency Loans include loans that were considered to be Agency-Eligible prior to our securitization.

(5) GCAT Non-Agency RMBS are securities issued under Gold Creek Asset Trust ("GCAT"), which is the TPG Angelo Gordon securitization shelf under which we or private funds under the management of TPG Angelo Gordon securitize loans.

(6) Interest Only have no principal balances and bear interest based on a notional balance.

The notional balance is used solely to determine interest distributions on the interest only classes of securities.

The GCAT Non-Agency RMBS Interest Only, MATT Non-QM Securities, Re/Non-Performing Securities, Non-Agency RMBS Interest Only and Agency RMBS Interest Only line items include interest only classes with notional balances of $98.3 million, $310.4 million, $24.3 million, $128.8 million and $92.2 million, respectively.

(7) We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

(8) Other securities include residual interests in asset-backed securities which have no principal balance.

Residential mortgage loans

The following tables present certain information regarding credit quality for certain categories within our Residential mortgage loan portfolio ($ in thousands).

December 31, 2022

December 31, 2021

Unpaid Principal Balance Weighted Average (1)(2)(3) Aging by Unpaid Principal Balance (1)(2)

Fair Value Original LTV Ratio Current FICO (4) Current 30-59 Days 60-89 Days 90+ Days Fair Value

Non-Agency Loans $ 3,003,137 $ 2,725,909 69.41 % 730 $ 2,949,670 $ 31,177 $ 9,819 $ 12,471 $ 1,844,198

Agency-Eligible Loans 1,293,079 1,128,315 66.43 % 756 1,287,032 5,801 246 — 440,837

MATT Non-QM Loans — — — % — — — — — 11,839

Re/Non-Performing Loans 328,640 274,373 79.61 % 643 220,124 34,865 10,937 59,194 350,227

Land Related Financing 10,688 10,688 N/A N/A N/A N/A N/A N/A 16,891

Total Residential mortgage loans $ 4,635,544 $ 4,139,285 69.29 % 731 $ 4,456,826 $ 71,843 $ 21,002 $ 71,665 $ 2,663,992

Residential mortgage loans in Investments in Debt and Equity of Affiliates 10,688 10,688 N/A N/A N/A N/A N/A N/A 28,886

Total GAAP Residential mortgage Loans $ 4,624,856 $ 4,128,597 69.29 % 731 $ 4,456,826 $ 71,843 $ 21,002 $ 71,665 $ 2,635,106

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

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

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

(3) Amounts are weighted based on unpaid principal balance.

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

Data is as of November 30, 2022.

See Note 3 to the "Notes to Consolidated Financial Statements" for a breakout of geographic concentration of credit risk within loans we include in the "Securitized residential mortgage loans, at fair value" and "Residential mortgage loans, at fair value" line items on our consolidated balance sheets.

Non-Agency RMBS

The following table presents the fair value of our Non-Agency RMBS by credit rating as of December 31, 2022 and 2021 (in thousands):

Credit Rating - Non-Agency RMBS (1) December 31, 2022

December 31, 2021

See Note 3 to the "Notes to Consolidated Financial Statements" for information on credit quality and a breakout of geographic concentration of credit risk within loans we include in the "Securitized residential mortgage loans, at fair value," "Residential mortgage loans, at fair value," and "Residential mortgage loans held for sale, at fair value" line items on our consolidated balance sheets.

Securitized Non-Agency Loans

As noted above, our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans.

These securitization trusts ("Non-Agency VIEs") are collateralized by Non-Agency and Agency-Eligible Loans.

In each securitization transaction, we transfer a pool of loans to a wholly-owned subsidiary and the loans are deposited into a newly created securitization trust.

The securitization trust issues various classes of mortgage pass-through certificates backed by the cash flows from the underlying residential mortgage loans (the "Certificates").

When we sponsor a residential mortgage loan securitization, we are generally required to retain at least 5% of the fair value of the Certificates issued in the securitization ("Risk Retention Rules").

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") .

In order to comply with the Risk Retention Rules in each securitization transaction, we generally purchase the most subordinated classes of Certificates and the excess cash flow Certificates.

We also purchase the Certificates entitled to excess servicing fees and may purchase other Certificates issued by the securitization trust, while typically selling the senior classes of Certificates to unrelated third parties.

If we are determined to be the primary beneficiary of these securitization transactions, we consolidate the respective VIE created to facilitate the transaction and record "Securitized residential mortgage loans" and "Securitized debt" on the consolidated balance sheets in accordance with U.S.

However, as noted above, our equity at risk represents certain Certificates from each securitization which we retain.

The following table summarizes our Securitized residential mortgage loans and Securitized debt, as well as the economic interest on retained Certificates related to our Non-Agency VIEs (in thousands).

December 31, 2023 December 31, 2022

Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value

Securitized residential mortgage loans in Non-Agency VIEs $ 5,599,960 $ 5,175,169 $ 3,841,265 $ 3,436,201

Securitized debt in Non-Agency VIEs (1) 5,069,689 4,597,490 3,527,304 3,078,593

Other assets (2) N/A 1,150 N/A —

Retained Certificates from Non-Agency VIEs (3)(4)(5)(6) $ 578,829 $ 357,608

Retained interests in Non-Agency VIEs Current Face Fair Value Current Face Fair Value

Senior Bonds $ 14,243 $ 14,682 $ — $ —

Mezzanine Bonds 35,946 33,460 17,382 15,472

Subordinate Bonds 480,764 335,860 296,215 193,906

Interest Only / Excess Servicing Bonds (1)(7) N/A 194,827 N/A 148,230

Retained Certificates from Non-Agency VIEs (3)(4)(5)(6) $ 578,829 $ 357,608

Financing arrangements on retained Certificates from Non-Agency VIEs 301,205 197,937

Retained Certificates from Non-Agency VIEs, net of financing arrangements $ 277,624 $ 159,671

(1) Interest Only have no principal balances and bear interest based on a notional balance.

The notional balance is used solely to determine interest distributions on the interest only classes of securities.

As of December 31, 2023 and 2022, the Securitized debt in Non-Agency VIEs line item includes interest only classes with notional balances of $133.8 million and $144.3 million, respectively.

As of December 31, 2023 and 2022 the notional balance on Interest Only / Excess Servicing Bonds was $11.1 billion and $8.0 billion, respectively.

(2) Represents the fair value of real estate owned within Non-Agency VIEs.

We record real estate owned at the lower of cost or fair value less estimated costs to sell.

As of December 31, 2023, we recorded real estate owned within our Non-Agency VIEs at $0.9 million.

(3) Maximum loss exposure from our involvement with VIEs pertains to the fair value of the Certificates retained from the VIEs.

We have no obligation to provide any other explicit or implicit support to the securitization trusts.

(4) As of December 31, 2023 and 2022, our equity at risk included bonds with a fair value of $389.5 million and $215.1 million, respectively, held in order to comply with Risk Retention Rules.

We are generally 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 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.

(5) As of December 31, 2023 and 2022, a portion of our equity at risk included bonds exposed to the first loss of the securitization with a fair value of $115.1 million and $84.7 million, respectively.

(6) Excludes net other asset/(liabilities) held within the VIEs of $6.9 million and $4.4 million as of December 31, 2023 and 2022, respectively.

(7) As the sponsor and depositor of each securitization, we may purchase all of the outstanding Certificates (an "Optional Redemption") following the earlier of (1) an applicable anniversary date (typically two or three years) of the respective securitization or (2) the date at which the unpaid principal balance of the applicable collateral has declined below a certain percentage (typically 10% to 30%) of the principal balance originally contributed to the securitization.

As of December 31, 2023, there were three securitizations with an unpaid principal balance of $458.7 million that met the criteria for an Optional Redemption.

As of December 31, 2022, there were no securitizations which met the criteria for an Optional Redemption.

Legacy WMC Commercial loans

See Note 3 to the "Notes to Consolidated Financial Statements" for information on the geographic concentration, collateral characteristics, LTV, and maturities of the loans we include in the "Commercial loans, at fair value," line item on our consolidated balance sheets.

Non-Agency RMBS and Legacy WMC CMBS & Other Securities

The following table presents the fair value of our Non-Agency RMBS and Legacy WMC CMBS and Other Securities by credit rating as of December 31, 2023 (in thousands).

Credit Rating (1) Non-Agency RMBS CMBS Other Securities

AAA $ 183 $ — $ —

BBB 14,119 3,977 —

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B 8,682 20,057 —

Below B — 11,438 —

Not Rated 67,716 20,877 1,156

Non-Agency RMBS $ 63,516 $ 61,897

Total $ 112,448 $ 56,349 $ 1,156

Investments in Debt and Equity of Affiliates $ 22,826 $ — $ —

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(1) Represents the minimum rating for rated assets of S&P, Moody, Morningstar, and Fitch credit ratings, stated in terms of the S&P equivalent.

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

December 31, 2022 December 31, 2021

State Fair Value Percentage State Fair Value Percentage

The following table presents certain characteristics of our Non-Agency RMBS and Legacy WMC CMBS portfolio as of December 31, 2023 ($ in thousands).

Instrument Current Face Fair Value Weighted Average Life (Years) (1)

Non-Agency RMBS

Non-QM Loans (2) $ 54,013 $ 57,472 4.66

Re- and Non-Performing Loans (2) 43,770 24,727 6.21

Prime (2) 29,370 20,081 9.86

Credit Risk Transfer 9,044 10,168 4.73

Total Non-Agency RMBS $ 136,197 $ 112,448 5.48

Legacy WMC CMBS

Single-Asset/Single-Borrower - Fixed Rate $ 53,900 $ 28,201 3.36

Single-Asset/Single-Borrower - Floating Rate 34,509 19,630 1.04

Conduit - Fixed Rate 15,049 8,518 3.58

Total Legacy WMC CMBS $ 103,458 $ 56,349 2.62

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

Typically, actual maturities are shorter than stated contractual maturities.

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

(2) The current face on our Non-Agency RMBS excludes interest only classes which have no principal balances and bear interest based on a notional balance.

The notional balance is used solely to determine interest distributions on the interest only classes of securities.

As of December 31, 2023, the notional balance on interest only classes included in the Non-QM Loans, Re-and Non-Performing Loans and Prime line items was $408.7 million, $122.2 million and $30.9 million, respectively.

The following table presents the geographic concentration of the underlying collateral for our Non-Agency RMBS and Legacy WMC CMBS portfolios as of December 31, 2023 ($ in thousands).

Non-Agency RMBS Legacy WMC CMBS

Geographic Location Concentration Fair Value Geographic Location Concentration Fair Value

California 39.2 % $ 44,027 California 43.4 % $ 24,460

New York 9,733 15.3 % New York 11,092 17.9 %

Florida 3,955 6.2 % Florida 3,661 5.9 %

Texas 2,248 3.5 % New Jersey 1,684 2.7 %

New York 13.3 % 14,957 Bahamas 26.6 % 15,015

Florida 7.0 % 7,822 Minnesota 10.4 % 5,859

New Jersey 3.5 % 3,970 Texas 4.6 % 2,571

Texas 3.4 % 3,853 New York 2.2 % 1,266

Other 33.6 % 37,819 Other 12.8 % 7,178

Total 100.0 % $ 112,448 Total 100.0 % $ 56,349

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

Although our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans, from time to time we invest excess liquidity into Agency RMBS.

The following table presents the fair value and the Constant Prepayment Rate ("CPR") experienced on our Agency RMBS portfolio as of December 31, 2023 ($ in thousands).

Fair Value CPR (1)

Agency RMBS December 31, 2022 December 31, 2021

December 31, 2022 December 31, 2021

30 Year Fixed Rate $ — $ 495,713 — % 6.1 %

Interest Only 19,124 — 11.0 % — %

Total/Weighted Average $ 19,124 $ 495,713 11.0 % 6.1 %

Agency RMBS Interest Only $ 15,694 5.7 %

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

Financing activities

In December 2023, through our acquisition of WMC, we assumed liabilities of $1.1 billion, which primarily consisted of securitized debt, financing arrangements, and convertible senior unsecured notes.

For more information on the acquisition of WMC, refer to "Item 1—WMC Acquisition" and the section entitled "WMC Acquisition" in Note 1 to the "Notes to Consolidated Financial Statements."

Financing Arrangements

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

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Repurchase agreements are generally mark-to-market with respect to margin calls and recourse to us.

We had outstanding financing arrangements with six and five counterparties as of December 31, 2022 and 2021, respectively.

We had outstanding financing arrangements with seven and six counterparties as of December 31, 2023 and 2022, respectively.

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

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

Legacy WMC Convertible Notes

Through our acquisition of WMC, we assumed the Legacy WMC Convertible Notes.

See Note 6 to the "Notes to Consolidated Financial Statements" for additional information on the Legacy WMC Convertible Notes.

Recourse and non-recourse financing

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Recourse financing - Financing arrangements, including those in Investments in Debt and Equity of Affiliates $ 708,225 $ 625,593

Recourse Financing - Legacy WMC Convertible Notes 85,266 —

Non-recourse financing - Securitized debt, at fair value 4,711,623 3,262,352

Non-recourse financing - Financing arrangements 62,972 —

Non-recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates — 16,409

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Total GAAP Financing $ 5,564,481 $ 3,883,539

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

We use leverage to increase potential returns to our stockholders and to fund the acquisition of our investment portfolio.

Our financing strategy is designed to increase the size of our investment portfolio by borrowing against the fair value of the assets in our portfolio.

When acquiring residential mortgage loans and other assets, we finance our investments using repurchase agreements or similar financing arrangements, which we refer to collectively as "financing arrangements." Upon accumulating a targeted amount of residential mortgage loans, we finance these assets utilizing long-term, non-recourse, non-mark-to-market securitizations as market conditions permit.

Financing arrangements are generally recourse to the Company whereas securitized debt used to finance our Non-Agency VIEs and RPL/NPL VIEs is generally non-recourse to the Company.

In addition to disclosing GAAP leverage, we also disclose Economic Leverage, which excludes non-recourse financing.

Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our use of leverage and the related risk associated with our leverage profile.

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

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

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

We define GAAP leverage as the sum of (1) GAAP Securitized debt, at fair value, (2) our GAAP Financing arrangements, net of any restricted cash posted on such financing arrangements, (3) Convertible senior unsecured notes, and (4) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled.

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

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December 31, 2023 Leverage Stockholders' Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 3,262,352

Securitized debt, at fair value $ 4,711,623

GAAP Financing arrangements 767,592

Convertible senior unsecured notes 85,266

Restricted cash posted on Financing arrangements (1,696)

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Economic Leverage $ 782,632 $ 528,368 1.5x

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

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

December 31, 2022 Leverage Stockholders’ Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 999,215

Securitized debt, at fair value $ 3,262,352

GAAP Financing arrangements 621,187

Restricted cash posted on Financing arrangements (3,357)

Purchase price payable on loans 87

GAAP Leverage $ 3,880,182 $ 462,800 8.4x

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Economic Leverage $ 583,005 $ 462,800 1.3x

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

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

Hedging activities

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

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

Undistributed taxable income is based on current estimates and is not finalized until we file our annual

tax return for that tax year, typically in October of the following year.

We did not have any undistributed taxable income as of December 31, 2023.

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

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

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

The following tables detail our common stock dividends declared during the years ended December 31, 2022 and 2021:

Year Ended December 31, 2022

Year Ended December 31, 2021

Declaration Date Record Date Payment Date Cash Dividend Per Share Declaration Date Record Date Payment Date Cash Dividend Per Share

3/18/2022 3/31/2022 4/29/2022 $ 0.21 3/22/2021 4/1/2021 4/30/2021 $ 0.18

6/15/2022 6/30/2022 7/29/2022 0.21 6/15/2021 6/30/2021 7/30/2021 0.21

9/15/2022 9/30/2022 10/31/2022 0.21 9/15/2021 9/30/2021 10/29/2021 0.21

12/19/2022 12/30/2022 1/31/2023 0.18 12/15/2021 12/31/2021 1/31/2022 0.21

Total $ 0.81 Total $ 0.81

The following tables detail our preferred stock dividends declared and paid during the years ended December 31, 2022 and 2021:

Cash Dividend Per Share

Declaration Date Record Date Payment Date 8.25% Series A

8.00% Series B

8.000% Series C

2/18/2022 2/28/2022 3/17/2022 $ 0.51563 $ 0.50 $ 0.50

5/2/2022 5/31/2022 6/17/2022 0.51563 0.50 0.50

8/3/2022 8/31/2022 9/19/2022 0.51563 0.50 0.50

11/3/2022 11/30/2022 12/19/2022 0.51563 0.50 0.50

Total $ 2.06252 $ 2.00 $ 2.00

Cash Dividend Per Share

Declaration Date Record Date Payment Date 8.25% Series A

8.00% Series B

8.000% Series C

2/16/2021 2/26/2021 3/17/2021 $ 0.51563 $ 0.50 $ 0.50

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

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

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

Total $ 2.06252 $ 2.00 $ 2.00

During the twelve months ended December 31, 2023, the Company declared common stock dividends of $0.72 per share.

During the same period, the Company declared preferred stock dividends on its 8.25% Series A, 8.00% Series B, and 8.000% Series C of $2.06252, $2.00, and $2.00, respectively.

Liquidity and capital resources

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

Lenders also issue margin calls as the published current principal balance factors change on the pool

of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly.

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

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

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

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

Refer to the "Liquidity risk – derivatives" section of Item 3 below for a further discussion on margin.

The table below details changes to our cash, cash equivalents, and restricted cash for the years ended December 31, 2023 and 2022 (in thousands).

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Net change in cash, cash equivalents and restricted cash 26,770 (1,426) 28,196

Effect of exchange rate changes on cash — 10 (10)

Cash, cash equivalents, and restricted cash, End of Period $ 125,573 $ 98,803 $ 26,770

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the years ended December 31, 2022 and 2021, respectively.

(2) Cash used in investing activities for the year ended December 31, 2022 was primarily attributable to purchases of investments, offset by sales of investments, principal repayments on investments, and the settlement of derivatives.

(3) Cash provided by financing activities for the year ended December 31, 2022 was primarily attributable to issuance of securitized debt, offset by net repayments of financing arrangements, dividend payments, and common share repurchases.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the years ended December 31, 2023 and 2022.

(2) Cash used in investing activities for the year ended December 31, 2023 was primarily attributable to purchases of investments, offset by sales of investments and principal repayments on investments.

(3) Cash provided by financing activities for the year ended December 31, 2023 was primarily attributable to the issuance of securitized debt, offset by principal repayments on securitized debt, net repayments of repurchase agreements, dividend payments, and common share repurchases.

Stock repurchase programs

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

As of June 30, 2022, the $25.0 million maximum repurchase amount authorized under the 2015 Repurchase Program was fully utilized.

See Note 11 in the "Notes to Consolidated Financial Statements" for additional details on the shares repurchased under the 2015 Repurchase Program during the year ended December 31, 2022.

On August 3, 2022, our Board of Directors authorized a stock repurchase program (the "2022 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2015 Repurchase Program.

The 2022 Repurchase Program does not have an expiration date and permits us to repurchase its shares through

various methods, including open market repurchases, privately negotiated block transactions and Rule 10b5-1 plans.

The 2022 Repurchase Program does not have an expiration date and permits us to repurchase our shares through various methods, including open market repurchases, privately negotiated block transactions and Rule 10b5-1 plans.

We may repurchase shares of our common stock from time to time in compliance with SEC regulations and other legal requirements.

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The 2022 Repurchase Program does not obligate us to acquire any particular amount of shares and may be modified or discontinued at any time.

As of December 31, 2022, approximately $7.8 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.

As of the date of this filing, approximately $1.5 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.

See Note 11 in the "Notes to Consolidated Financial Statements" for additional details on the shares repurchased under the 2022 Repurchase Program during the year ended December 31, 2023.

On May 4, 2023, our Board of Directors authorized a stock repurchase program (the "2023 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2022 Repurchase Program.

As of the date of this filing, the full $15.0 million authorized amount remains available for repurchase under the 2023 Repurchase Program.

This authorization is in addition to the amount remaining under the 2022 Repurchase Program.

On February 22, 2021, our Board of Directors authorized a stock repurchase program (the "Preferred Repurchase Program") pursuant to which our Board of Directors granted a repurchase authorization to acquire shares of our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock having an aggregate value of up to $20.0 million.

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Equity distribution agreements

We have entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933.

For the year ended December 31, 2022, we did not issue any shares of common stock under the Equity Distribution Agreements.

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

On May 5, 2017, we entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933.

For the year ended December 31, 2023, we did not issue any shares of common stock

under the Equity Distribution Agreements.

Since inception of the program, we have issued approximately 2.2 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $48.3 million.

Common stock offering

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

Net proceeds to us from the offering were approximately $80.0 million, after deducting estimated offering expenses.

Exchange Offers

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

We did not complete any exchange offers during 2022.

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

Preferred Shares Exchanged

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

March 17, 2021

153,325 350,609 — $ 12,598 937,462

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

As of December 31, 2022, we had outstanding 1.7 million shares of Series A Preferred Stock, 3.7 million shares of Series B Preferred Stock, and 3.7 million shares of Series C Preferred Stock.

Common Stock Issuance to the Manager

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

Forward-looking statements regarding liquidity

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

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

Contractual obligations

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The management agreement, as amended, provides for payment to the Manager of a management fee, an incentive fee, and reimbursements of certain expenses incurred by the Manager or its affiliates on behalf of us.

Pursuant to our management agreement, the closing of the TPG Transaction resulted in an assignment of the management agreement.

Our independent directors unanimously consented to such assignment on July 31, 2023 in advance of the TPG Transaction closing.

There were no changes to the management agreement in connection with the TPG Transaction and the assignment of the management agreement became effective upon the closing of the TPG Transaction.

In connection with the Merger with WMC, which was completed on December 6, 2023, and contemporaneously with the execution of the Merger Agreement, on August 8, 2023, we and our Manager entered into the MITT Management Agreement Amendment, pursuant to which (i) our Manager’s base management fee will be reduced by $0.6 million for the first four quarters following the Effective Time, beginning with the fiscal quarter in which the Effective Time occurs (i.e., resulting in an aggregate $2.4 million waiver of base management fees), and (ii) our Manager will waive its right to seek reimbursement from us for any expenses otherwise reimbursable by us under the management agreement in an amount equal to approximately $1.3 million, which is the excess of $7.0 million over the aggregate Per Share Additional Merger Consideration paid by our Manager to the holders of WMC Common Stock under the Merger Agreement.

The MITT Management Agreement Amendment became effective automatically upon the closing of the Merger.

Management fee

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Management fee to affiliate (1) $ 7,711 $ 8,096

(1) For the year ended December 31, 2023, the Manager agreed to waive its right to receive management fees of $0.6 million pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

As of December 31, 2023 and 2022, we recorded management fees payable of $1.5 million and $2.1 million, respectively.

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Incentive fee

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

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

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

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

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

Thereafter, the management agreement will continue to renew automatically

each year for an additional one-year period, unless the Company or the Manager exercise its respective termination rights.

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

The Manager is entitled to an annual incentive fee with respect to each applicable fiscal year, which will be equal to 15% of the amount by which our cumulative adjusted net income from November 22, 2021 exceeds the cumulative hurdle amount, which represents an 8% return (cumulative, but not compounding) on an equity hurdle base consisting of the sum of (i) $341.5 million and (ii) the gross proceeds of any subsequent public or private common stock offerings by us.

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

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

During the year ended December 31, 2023, we did not incur any incentive fee expense.

Termination fee

Upon the occurrence of (i) our termination of the management agreement without cause or (ii) the Manager’s termination of the management agreement upon a breach by the Company of any material term of the management agreement, the Manager will be entitled to a termination fee equal to three times the average annual management fee during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter.

As of December 31, 2023 and December 31, 2022, no event of termination of the management agreement had occurred.

Expense Reimbursement

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Expense reimbursements to Manager or its affiliates $ 6,458 $ 8,158

(1) For the years ended December 31, 2022 and December 31, 2021, our Manager agreed to waive its right to receive expense reimbursements of $1.5 million and $0.8 million, respectively.

(1) For the years ended December 31, 2023 and December 31, 2022, our Manager agreed to waive its right to receive expense reimbursements of $1.7 million million and $1.5 million, respectively.

As of December 31, 2023 and 2022, we recorded a reimbursement payable to our Manager or its affiliates of $1.5 million and $1.3 million, respectively.

The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" item within the "Other liabilities" line item on the consolidated balance sheets.

The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" line item within the "Other liabilities" line item on the consolidated balance sheets.

Share-based compensation

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Following the execution of the Third Amendment to our management agreement in November 2021 related to the incentive fee, our compensation committee no longer expects to continue its historical practice of making periodic equity grants to the Manager pursuant to the 2021 Manager Equity Incentive Plan.

On December 6, 2023, in connection with the WMC acquisition, we granted an aggregate 25,962 restricted stock units to the two independent directors added to our Board of Directors who previously served on WMC's board of directors.

These restricted stock units and associated dividend equivalent units will vest in full on June 23, 2024, and will be settled in shares of our common stock upon each of the independent director's separation from service with our Board of Directors.

Unfunded commitments

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Off-balance sheet arrangements

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

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

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

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

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

See Notes 2 and 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments i n debt and equity of affiliates.

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

See Note 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments i n debt and equity of affiliates.

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

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For additional information on our commitments as of December 31, 2023, refer to Note 12 of the "Notes to Consolidated Financial Statements." We do not expect these commitments, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations.

Critical accounting policies

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

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

Critical accounting policies and estimates

For additional information related to our significant accounting policies, see Note 2 to the "Notes to Consolidated Financial Statements."

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

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The significant unobservable inputs used in the fair value measurement of our financial instruments are yields, prepayment rates, probability of default, and loss severity in the event of default.

Significant increases (decreases) in any of those inputs in

isolation would result in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement.

Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

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A decrease in the prepayment rate will have a directionally opposite impact on the yield or interest income.

As further discussed in Note 2 of the "Notes to Consolidated Financial Statements," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS and interest-only securities) and mortgage loans accounted for under ASC 310-10.

adjustment of the yield over the remaining life of the investment for securities accounted for under ASC 325-40 and mortgage loans accounted for under ASC 310-10.

Investment consolidation

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The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity.

Our risks associated with our involvement with these VIEs are limited to

our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller to the securitization entities.

Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller to the securitization entities.

Our interest in the assets held by consolidated securitization vehicles, which are consolidated on our consolidated balance sheets, is restricted by the structural provisions of these trusts, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions.

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We perform ongoing reassessments of whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion to change.

Accounting for business combinations

When the assets acquired and liabilities assumed constitute a business, the acquisition is a business combination.

Business combinations are accounted for under ASC 805, "Business Combinations" using the acquisition method which requires, among other things, that the assets acquired and liabilities assumed be recognized at fair value as of the acquisition date.

Goodwill is calculated as the excess of the consideration transferred over the net assets acquired that meet the criteria for separate recognition and represents the estimated future economic benefits arising from these and other assets acquired that could not be individually identified or do not qualify for recognition as a separate asset.

Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred is less than the fair value of the identifiable net assets acquired.

Acquisition related costs recognized in connection with a business combination are expensed as incurred.

The results of operations of acquired businesses are included from the date of acquisition.

In a business combination, the initial allocation of the purchase price is considered preliminary and therefore subject to change until the end of the measurement period (up to one year from the acquisition date).

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, a measurement-period adjustment will be recognized during the period in which the amount of the adjustment is determined, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date.

Recent accounting pronouncements

Recent accounting pronouncements impacting us include (i) Reference rate reform and (ii) Debt with conversion and other options.

For additional information related to these recent accounting pronouncements and their impact on our consolidated financial statements, see Note 2 to the "Notes to Consolidated Financial Statements."

REIT Qualification

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

federal income tax purposes.

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

We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the "Code").

Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares.

We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT.

We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Code.

Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio.

As a REIT, we generally are not subject to U.S.

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

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

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

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

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

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

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

taxes on our income.

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

federal, state, and local income tax.

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

Exclusion From Regulation Under the Investment Company Act

If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S.

federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification.

Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and our ability to pay distributions, if any, to our stockholders.

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

federal, state and local taxes on our income or property.

In addition, any income earned by a domestic taxable REIT subsidiary, or TRS, will be subject to corporate income taxation.

Investment Company Act Exemption

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

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

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

Both the 40% Test and the requirements of the Section 3(c)(5)(C) exclusion limit the types of businesses

in which we may engage and the types of assets we may hold, as well as the timing of sales and purchases of assets.

For example, these restrictions limit our and our subsidiaries’ ability to invest directly in Agency RMBS mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans or debt and equity tranches of Non-Agency RMBS (in each case to the extent such interest are not retained interest in securitizations consisting of mortgage loans that were owned by us and such securitizations were not sponsored by us in order to obtain financing to acquire additional mortgage loans), certain real estate companies and assets not related to real estate.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis