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Risks Related to our Company, Business, and Operations
−Removed: • Our ability to grow our business is dependent upon our Manager's ability to source, acquire and finance a large volume of desirable non-agency loans and other target assets on attractive terms.
+Added: • Our ability to grow our business is dependent upon our Manager's ability to source, acquire and finance a large volume of desirable residential mortgage loans and other target assets on attractive terms.
• Disruptive, exogenous geopolitical or other macroeconomic events or large-scale conflicts, including warfare among countries could materially and adversely affect our business.
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• Our Manager’s due diligence of potential investments may be insufficient, which could lead to investment losses.
−Removed: • Our Manager’s investment models may be incorrect which could lead to investment losses.
+Added: • Our Manager’s investment models may be incorrect due to inaccurate models or incorrect third-party data, which could lead to investment losses.
• We operate in a highly competitive market.
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• Increases in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could negatively affect our profitability and our ability to make distributions.
−Removed: • Failure of the U.S.
−Removed: federal government to avoid a government shutdown may negatively impact the economic environment and adversely impact our results of operations.
• We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from climate change or other unfavorable changes in the related geographic regions.
−Removed: • Climate change, climate change-related initiatives and regulation and the increased focus on environmental, social and governance (ESG) issues, may adversely affect our business and financial results and damage our reputation.
+Added: • Climate change, climate change-related initiatives and regulation and environmental, social and governance (ESG) issues, may adversely affect our business and financial results and damage our reputation.
• Cybersecurity risks may cause a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our business.
−Removed: • The failure of servicers to effectively service the mortgage loans in our portfolio and the MSRs in Arc Home's portfolio may materially and adversely affect us, and market disruptions may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
−Removed: • Arc Home is highly dependent upon programs administered by the GSEs, and changes in the GSEs’ servicing or origination guidelines or overall operations could have a material adverse effect on Arc Home’s business.
+Added: • The failure of servicers to effectively service the mortgage loans in our portfolio may materially and adversely affect us, and market disruptions may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
+Added: • If Arc Home's ability to sell loans in the secondary market is impaired, it could affect its volume and margins, which adversely affect its business and, in turn, would have a negative impact on our results.
• Arc Home is subject to extensive licensing requirements and regulation, which could materially and adversely affect us.
−Removed: • An economic slowdown or a deterioration of the housing market could increase both interest expense on servicing advances and operating expenses and could cause a reduction in income from, and the value of, Arc Home’s servicing portfolio.
−Removed: • We may fail to realize all of the expected benefits of the WMC acquisition.
+Added: • An economic slowdown or a deterioration of the housing market could negatively impact Arc Home's lending and servicing businesses.
Risks Related to our Investments
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• We invest in Agency-Eligible Loans, which expose us to an increased risk of loss.
+Added: • We invest in Home Equity Loans and may invest in other second lien mortgage loans, which expose us to an increased risk of loss.
• Changes in prepayment rates may adversely affect the return on our investments.
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• Our business strategy involves the use of leverage, and we may become overleveraged or not achieve what we believe is optimal leverage, which may materially adversely affect our liquidity, results of operations or financial condition.
−Removed: • The securitization process expose us to risks, which could result in losses to us.
+Added: • The securitization process exposes us to risks, which could result in losses to us.
• Our financing arrangements contain restrictive operating covenants.
−Removed: • If a counterparty to our repurchase transaction defaults on its obligation to resell or return the underlying security back to us at the end of the transaction term, we may lose money on such financing arrangement.
+Added: • If a counterparty to a repurchase agreement defaults on its obligation to resell or return the underlying security back to us at the end of the transaction term, we may lose money on such financing arrangement.
• Our rights under our repurchase agreements may be subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders under the financing arrangements, which may allow our lenders to repudiate our financing arrangements.
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• Our Manager's fee structure may not create proper incentives or may induce our Manager and its affiliates to make riskier or more speculative investments, which increase the risk of our portfolio.
−Removed: • Our Manager will not be liable to us for any acts or omissions performed in accordance with our management agreement.
+Added: • Our Manager will not be liable to us for any acts or omissions performed in accordance with the management agreement, including with respect to the performance of our investments.
• Termination of our management agreement would be costly and, in certain cases, not permitted.
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federal income tax purposes.
−Removed: • There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR.
+Added: • We or our TRS may not be able to fully utilize our respective net operating loss or net capital loss carryforwards.
Risks Related to our Organization and Strategy
−Removed: • Loss of our exemption from regulation under the Investment Company Act would impose significant limits on our operations, which would negatively affect the value of shares of our common stock and our ability to make distributions.
+Added: • Loss of our exemption from regulation under the Investment Company Act would impose significant limits on our operations, which would negatively affect the value of shares of our common stock and our ability to distribute cash to our stockholders.
• Certain provisions of Maryland law could inhibit a change in our control.
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Risks Related to our Company, Business, and Operations
−Removed: Our ability to grow our business is dependent upon our Manager's ability to source, acquire and finance a large volume of desirable non-agency loans and other target assets on attractive terms.
−Removed: Our investment strategy is focused on acquiring and securitizing newly-originated residential non-agency mortgage loans.
−Removed: Our ability to successfully execute this strategy, grow our business, and achieve attractive risk-adjusted returns for our stockholders are dependent upon our Manager's ability to source, acquire and finance on our behalf a large volume of desirable non-agency loans and other target assets on attractive terms, and our Manager may be unable to do so for many reasons.
−Removed: We derive a portion of our non-agency loans through Arc Home.
+Added: Our ability to grow our business is dependent upon our Manager's ability to source, acquire and finance a large volume of desirable residential mortgage loans and other target assets on attractive terms.
+Added: Our investment strategy is focused on acquiring and securitizing newly-originated residential mortgage loans.
+Added: Our ability to successfully execute this strategy, grow our business, and achieve attractive risk-adjusted returns for our stockholders are dependent upon our Manager's ability to source, acquire and finance on our behalf a large volume of desirable residential mortgage loans and other target assets on attractive terms, and our Manager may be unable to do so for many reasons.
+Added: We derive a portion of our residential mortgage loans through Arc Home.
Arc Home is heavily dependent on its ability to fund its non-agency loans through warehouse facilities, which are generally short-term in nature.
−Removed: If Arc Home is unable to renew or obtain new facilities, it would adversely impact its ability to grow its non-agency loan production and its overall business.
−Removed: In addition, Arc Home has no obligation to sell non-agency loans and other target assets to us and our Manager may be unable to locate other originators that are able or willing to originate non-agency loans and other target assets that meet our standards on favorable terms or at all.
−Removed: General economic factors, such as recession, declining home values, unemployment and high interest rates, all of which we are currently experiencing, have and may continue to limit the supply of available non-agency loans and other target assets.
−Removed: Moreover, competition for non-agency loans and other target assets or changes in GSE regulations may drive down supply or drive up prices, making it uneconomical to purchase such loans or other target assets.
−Removed: For instance, in acquiring non-agency loans and other target assets from unaffiliated parties, we compete with a broad spectrum of institutional investors, many of which have greater financial resources than us.
+Added: If Arc Home is unable to renew or obtain new facilities on commercially reasonable terms or at all, it would adversely impact its ability to maintain or grow its residential mortgage loan production and its overall business.
+Added: In addition, Arc Home has no obligation to sell residential mortgage loans and other target assets to us and our Manager may be unable to locate other originators that are able or willing to originate residential mortgage loans and other target assets that meet our standards on favorable terms or at all.
+Added: General economic factors, such as recession, declining home values, unemployment and high interest rates, certain of which we are currently experiencing, have and may continue to limit the supply of available residential mortgage loans and other target assets.
+Added: Moreover, competition for residential mortgage loans and other target assets or changes in GSE regulations may drive down supply or drive up prices, making it uneconomical to purchase such loans or other target assets.
+Added: For instance, in acquiring residential mortgage loans and other target assets from unaffiliated parties, we compete with a broad spectrum of institutional investors, many of which have greater financial resources than us.
Increased competition for, or a reduction in the available supply of, qualifying investments could result in higher prices for (and thus lower yields on) such investments, which could narrow the yield spread over borrowing costs.
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We may incur due diligence or other costs on investments which may not be successful or may not be completed at all.
−Removed: As a result, we may incur additional costs to acquire a sufficient volume of non-agency loans and other target assets or be unable to acquire such loans and other target assets at reasonable prices or at all.
+Added: As a result, we may incur additional costs to acquire a sufficient volume of residential mortgage loans and other target assets or be unable to acquire such loans and other target assets at reasonable prices or at all.
There can be no assurance that attractive investments will be available for us or that available investments will meet our strategies.
−Removed: If we cannot source, acquire and finance an adequate volume of desirable non-agency loans and other target assets on attractive terms or at all, we may be materially and adversely affected.
+Added: If we cannot source, acquire and finance an adequate volume of desirable residential mortgage loans and other target assets on attractive terms or at all, we may be materially and adversely affected.
Further, the success of our investment strategy is highly dependent upon our ability to finance our target assets through non-recourse, non-mark-to-market securitization transactions.
−Removed: Although market conditions for securitizations improved slightly in 2023 over the unprecedented spread level widening experienced in 2022, there is no guarantee that conditions will continue to improve.
+Added: Although market conditions for securitizations were generally strong during 2024, there is no guarantee that such conditions will be maintained or further improve.
Prior to executing a securitization transaction, we typically acquire assets with warehouse financing subject to margin calls which typically are associated with a higher level of risk than other non-recourse, non-mark-to-market financing.
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Such acts of war may cause widespread and lingering damage on a global scale, including, but not limited to, (i) safety and cybersecurity, (ii) the economy, and (iii) global relations.
−Removed: The wars between Russia and Ukraine and Hamas and Israel have and will continue to result in instability and adversely affect the global economy or specific markets.
+Added: The wars between Russia and Ukraine and the Middle East conflict have and will continue to result in instability and adversely affect the global economy or specific markets.
In addition, these geopolitical tensions can cause an increase in volatility in commodity and energy prices, creating supply chain issues, and causing instability in financial markets.
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Additionally, President Biden directed government bodies to mandate cybersecurity and network defense measures within their respective jurisdictions and has initiated action plans to reinforce cybersecurity within the electricity, pipeline, and water sectors.
−Removed: The current administration also launched joint efforts with Cybersecurity and Infrastructure Security Agency (CISA) through its “Shields Up” campaign to defend the U.S.
+Added: The Biden administration also launched joint efforts with Cybersecurity and Infrastructure Security Agency (CISA) through its “Shields Up” campaign to defend the U.S.
against possible cyber attacks.
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While we have not experienced such cyber attacks and have not detected activity that would indicate a planned cyber attack, to date, it is yet unknown whether Russia would be successful in breaching our network defenses or, more broadly, those within the areas listed above, which, if successful, may cause disruptions to critical infrastructure required for our operations and livelihoods, or those of borrowers of our loans or underlying our investments and service providers.
−Removed: Disruption, instability, volatility, and decline in economic activity, regardless of where it occurs, whether caused by acts of war, other acts of aggression, or terrorism, could in turn also cause higher interest rates, inflation or general economic uncertainty, which could negatively impact borrowers of our loans or underlying our investments , service providers, or otherwise adversely impact the value of our assets .
+Added: Disruption, instability, volatility, and decline in economic activity, regardless of where it occurs, whether caused by acts of war, other acts of aggression, or terrorism, could in turn also cause higher interest rates, inflation, tariffs or general economic uncertainty, which could negatively impact borrowers of our loans or underlying our investments , service providers, or otherwise adversely impact the value of our assets .
The subsequent disposition or sale of such impacted assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale.
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Government Guarantee or Structural Credit Enhancement .
−Removed: We acquire residential mortgage loans primarily within the non-agency segment of the housing market, including agency-eligible loans, and also own re/non-performing loans (the borrower is or at one time was severely delinquent), all of which are subject to significant risk of loss.
+Added: We acquire residential mortgage loans primarily within the non-agency segment of the housing market, including agency-eligible loans and home equity loans, and also own re/non-performing loans (the borrower is or at one time was severely delinquent), all of which are subject to significant risk of loss.
Unlike Agency RMBS, residential mortgage loans generally are not guaranteed by the U.S.
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A residential mortgage loan is directly exposed to losses resulting from a default by the borrower.
−Removed: Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower, and the priority and enforceability of the lien
−Removed: will significantly impact the value of such mortgage loan.
+Added: Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower, and the priority and enforceability of the lien will significantly impact the value of such mortgage loan.
In the event of a foreclosure, we may assume direct ownership of the underlying real estate.
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Enhanced Non-QM Loan Risks .
−Removed: A significant portion of our residential loan portfolio is comprised of Non-QM Loans.
+Added: The majority of our residential loan portfolio is comprised of Non-QM Loans.
Non-QM Loans are generally loans to finance (or refinance) one- to four-family residential properties that are not considered to meet the definition of a "Qualified Mortgage" in accordance with guidelines adopted by the Consumer Financial Protection Bureau, or CFPB, and may be considered to be lower credit quality.
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All of the risks discussed above could negatively impact the value of our investments and have a material adverse effect on our business.
−Removed: These risks may be more pronounced during times of market volatility and negative economic conditions, such as those being experienced currently.
+Added: These risks may be more pronounced during times of market volatility and negative economic conditions.
We engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks.
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In addition, before the Sunset Date, we may not engage in any hedging transactions if payments on the hedge instrument are materially related to the Required Credit Risk and the hedge position would limit our financial exposure to the Required Credit Risk.
−Removed: Also, we may not pledge our interest in any Required
−Removed: Credit Risk as collateral for any financing unless such financing is full recourse to us.
+Added: Also, we may not pledge our interest in any Required Credit Risk as collateral for any financing unless such financing is full recourse to us.
If we pledge our interest in Required Credit Risk as collateral on financing that is full recourse to us, which we generally seek to do, and the lender takes possession of the underlying collateral, we may not be in compliance with the Risk Retention Rules and it is uncertain as to what the consequences may be.
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In addition, the predictive models used by our Manager may differ substantially from those models used by other market participants, with the result that valuations based on these predictive models may be substantially higher or lower for certain investments than actual market prices.
−Removed: Furthermore, since predictive models are usually constructed based on historical data supplied by third-
−Removed: parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data and the ability of these historical models accurately to reflect future periods.
+Added: Furthermore, since predictive models are usually constructed based on historical data supplied by third-parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data and the ability of these historical models to accurately reflect future periods.
All valuation models rely on correct market data inputs.
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Our profitability depends, in large part, on our ability to acquire our target assets at favorable prices.
−Removed: Although we expect to acquire a portion of our loans from our mortgage originator, Arc Home, in which we own a 44.6% interest, Arc Home has no obligation to sell non-agency residential mortgage loans and other target assets to us.
−Removed: In addition, non-agency residential mortgage loans originated by Arc Home are generally allocated among us and other affiliated funds with substantially similar investment strategies to us.
−Removed: To the extent that Arc Home's volume production decreases or our allocation of such loans by our Manager decreases, we may experience difficulties in obtaining the volume of loans needed to grow our business and execute our investment strategy.
−Removed: We also acquire non-agency residential mortgage loans and other target assets from unaffiliated third parties, including through the secondary market when market conditions and asset prices are conducive to making attractive purchases.
−Removed: In acquiring non-agency residential mortgage loans and other target assets from unaffiliated third parties, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies, hedge funds and other entities.
+Added: Although we expect to acquire a portion of our loans from our mortgage originator, Arc Home, in which we own a 44.6% interest, Arc Home has no obligation to sell residential mortgage loans and other target assets to us.
+Added: In addition, residential mortgage loans originated by Arc Home are generally allocated among us and other funds managed by affiliates of our Manager with substantially similar investment strategies to us.
+Added: To the extent that Arc Home's volume production is insufficient or our allocation of such loans by our Manager decreases, we may experience difficulties in obtaining the volume of loans needed to grow our business and execute our investment strategy.
+Added: We also acquire residential mortgage loans and other target assets from unaffiliated third parties, including through the secondary market when market conditions and asset prices are conducive to making attractive purchases.
+Added: In acquiring residential mortgage loans and other target assets from unaffiliated third parties, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies, hedge funds and other entities.
Additionally, we may also compete with the U.S.
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In particular, the outbreak or spread of any highly infectious or contagious disease may impact our financing strategy and liquidity.
−Removed: We finance many of the mortgage loans and real estate related securities we acquire with borrowings under repurchase facilities and other financing arrangements and, as market conditions permit, refinance these assets through securitization transactions.
+Added: We finance many of the mortgage loans and real estate related securities we acquire with borrowings under
+Added: repurchase facilities and other financing arrangements and, as market conditions permit, refinance these assets through securitization transactions.
If as a result of an outbreak or pandemic, the financing markets were to experience another period of extreme volatility and illiquidity, we may be forced to sell our mortgage loans, real estate related securities and other assets that secure our repurchase facilities and other financing arrangements on less favorable terms to us than might otherwise be available in a regularly functioning market and such actions could result in deficiency judgments and other claims against us.
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An investment in such assets will generally decline in value if interest rates increase, particularly long-term interest rates.
−Removed: Declines in market value may
−Removed: ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders.
+Added: Declines in market value may ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders.
The relationship between short-term and longer-term interest rates is often referred to as the "yield curve." Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
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If interest rates continue to remain high or increase further and cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, it could materially and adversely affect us.
−Removed: Failure of the U.S.
−Removed: federal government to avoid a government shutdown may negatively impact the economic environment and adversely impact our results of operations.
−Removed: Congressional disagreement over the federal budget and the maximum amount of debt the federal government is permitted to have outstanding (commonly referred to as the "debt ceiling") has previously caused the U.S.
−Removed: federal government to shut down for periods of time.
−Removed: Generally, if effective legislation to fund government operations and manage the level of federal debt is not enacted, the federal government may suspend its investments for certain government accounts, among other available options, in order to prioritize payments on its obligations.
−Removed: A failure by the U.S.
−Removed: Congress to pass spending bills or address the debt ceiling at any point in the future would increase the risk of default by the U.S.
−Removed: on its obligations, the risk of a lowering of the U.S.
−Removed: federal government's credit rating, and the risk of other economic dislocations.
−Removed: Such a failure, or the perceived risk of such a failure, could consequently have a material adverse effect on the financial markets and economic conditions in the U.S.
−Removed: and globally.
−Removed: Twice in the past decade, by the appropriations legislation deadline Congress failed to pass a new appropriations bill or continuing resolution to temporarily extend funding, resulting in U.S.
−Removed: government shutdowns that caused federal agencies to halt non-essential operations.
−Removed: Current funding measures will fund only certain government programs through September 30, 2024, and if lawmakers cannot pass a continuing resolution or a new federal budget by such time, another federal government shutdown could begin.
−Removed: If economic conditions severely deteriorate as a result of U.S.
−Removed: federal government fiscal gridlock, our operations, or those of our tenants, could be affected, which may adversely impact our financial condition and results of operations.
−Removed: These risks may also impact our overall liquidity, our borrowing costs, or the market price of our common stock.
We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from climate change or other unfavorable changes in the related geographic regions.
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In addition, as of December 31, 2024, 11% of the total fair value of our residential mortgage loan portfolio, was secured by properties located in Florida, which are particularly susceptible to natural disasters such as hurricanes and floods.
−Removed: In addition, the effects of climate change have made, and may continue to make, certain types of insurance, such as flood insurance, increasingly difficult and/or expensive to obtain in these and certain other areas.
+Added: Further, the effects of climate change have made, and may continue to make, certain types of insurance, such as flood insurance, increasingly difficult and/or expensive to obtain in these and certain other areas.
+Added: If potential homeowners are unable to obtain affordable homeowner insurance coverage in these areas, which became more widespread during 2024 and is expected to be exacerbated by the recent Los Angeles County wildfires, demand for real estate in these areas may be materially and adversely affected.
A material decline in the demand for and value of real estate in these areas may materially and adversely affect us.
Lack of diversification can further increase the correlation of non-performance and foreclosure risks among our investments.
−Removed: Climate change, climate change-related initiatives and regulation and the increased focus on environmental, social and governance (ESG) issues, may adversely affect our business and financial results and damage our reputation.
−Removed: Recently, there has been growing concern from advocacy groups and the general public over the effects of climate change on the environment.
+Added: Climate change, climate change-related initiatives and regulation and environmental, social and governance (ESG) issues, may adversely affect our business and financial results and damage our reputation.
+Added: There has been and continues to be concern from advocacy groups and the general public over the effects of climate change on the environment.
Government mandates, standards and regulations enacted in response to these projected impacts of climate change could result in restrictions on land development in certain areas or increased energy, transportation and raw material costs.
−Removed: These concerns have also resulted in increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess, and report.
−Removed: These and other rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, may create challenges for us, including our compliance and ethics programs, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows.
+Added: These concerns have also resulted in increasing governmental and societal attention to ESG matters, including attempts to expand mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess, and report.
+Added: More recently, anti-ESG sentiment has gained momentum in the United States, with the Federal government and many states having enacted or proposed "anti-ESG" policies, legislation or issue related legal opinion.
+Added: These and other rapidly changing, and sometimes conflicting, laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, may create challenges for us, including our compliance and ethics programs, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows.
If we are unable to adequately address such ESG matters or we fail or are perceived to fail to comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results.
−Removed: Further, significant physical effects of climate change including extreme weather events such as hurricanes or floods can also have an adverse impact on real estate assets that secure our residential mortgage loans.
+Added: Further, significant physical effects of climate change including extreme weather events such as drought, wildfire, tornados, hurricanes or floods can also have an adverse impact on real estate assets that secure our residential mortgage loans.
See "—We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated at any given time, as well as from climate change or other unfavorable changes in the related geographic regions."
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System breaches in particular are evolving.
−Removed: Computer malware, viruses, computer hacking, phishing attacks, ransomware, and other electronic security breaches have become more frequent and more sophisticated.
−Removed: The result of these incidents may include disrupted operations, delays or other problems in our securities trading activities, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our investor relationships and reputation, any or all of which could have a material adverse effect on
−Removed: our results of operations and cash flows and negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
+Added: Computer malware, viruses, computer hacking, phishing
+Added: attacks, ransomware attacks, attacks enhanced or facilitated by artificial intelligence and other machine learning techniques, and other electronic security breaches have become more frequent and more sophisticated.
+Added: The result of these incidents may include disrupted operations, delays or other problems in our securities trading activities, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our investor relationships and reputation, any or all of which could have a material adverse effect on our results of operations and cash flows and negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
As our reliance on technology has increased, so have the risks posed to our information systems, including those provided by the Manager and third-party service providers (including, without limitation, affiliates and third parties with which we and our Manager do business, such as Arc Home and other mortgage originators, due diligence firms, pricing vendors and servicers, or that facilitate our business activities, including clearing agents or other financial intermediaries we use to facilitate our securitization transactions).
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Our Manager, its affiliates and third-party service providers have experienced and are and will continue to be from time to time the target of attempted cyber attacks, breaches and other security threats.
−Removed: We rely on our Manager to continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.
+Added: We rely on our Manager to continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact, and our Manager's ability to monitor our service providers' information systems may be limited or more difficult because our Manager may not have direct access.
There is no guarantee that these efforts, or similar efforts by affiliates of our Manager and third-party service providers, will be successful.
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Further, should the majority of our Manager's personnel return to working remotely in the future, the risk of cybersecurity incidents and cyber-attacks may increase.
−Removed: The failure of servicers to effectively service the mortgage loans in our portfolio and the MSRs in Arc Home's portfolio may materially and adversely affect us, and market disruptions may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
+Added: The failure of servicers to effectively service the mortgage loans in our portfolio may materially and adversely affect us, and market disruptions may make it more difficult for the loan servicers to perform a variety of services for us, which may adversely impact our business and financial results.
In connection with our business of acquiring and holding residential mortgage loans and investing in RMBS, we rely on third-party service providers, principally loan servicers, to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms.
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The servicer has a fiduciary obligation to act in the best interest of the securitization trust, but significant latitude exists with respect to its servicing activities.
−Removed: The servicer also has a contractual obligation to obey all laws and regulations (including federal, state, and local laws and regulations) and to act in accordance with applicable servicing standards;
+Added: The servicer also has a contractual obligation to obey all laws and regulations (including federal, state, and local laws and regulations) and to act in accordance with applicable servicing
however, as we do not control these servicers, we cannot be sure that they are acting in accordance with their contractual and legal obligations or applicable law.
The servicer's failure to comply with these obligations could expose us to regulatory scrutiny and litigation risk.
−Removed: If a third-party servicer fails to perform its duties under the securitization documents or its contractual duties to us, this may result in a material increase in delinquencies or losses on the RMBS or mortgage loans we own or the MSRs Arc Home owns or in a fine or adverse finding from a regulatory authority if the ownership of loans is tied to
−Removed: the servicing of those loans.
+Added: If a third-party servicer fails to perform its duties under the securitization documents or its contractual duties to us, this may result in a material increase in delinquencies or losses on the RMBS or mortgage loans we own or the MSRs Arc Home owns or in a fine or adverse finding from a regulatory authority if the ownership of loans is tied to the servicing of those loans.
Any such servicing failures and resulting delinquencies or losses may impact the value of the RMBS, mortgage loans or MSRs, and we may incur losses on our investment.
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The extent of such liquidity pressures in the future is not known at this time and is subject to continual change.
−Removed: Arc Home is highly dependent upon programs administered by the GSEs, and changes in the GSEs’ servicing or origination guidelines or overall operations could have a material adverse effect on Arc Home’s business.
+Added: If Arc Home’s ability to sell loans in the secondary market is impaired, it could affect its volume and margins, which could adversely affect its business and, in turn, would have a negative impact on our results.
+Added: Arc Home originates residential mortgage loans and may sell them to the GSEs or other third-party investors in the secondary market.
+Added: There can be no assurance that Arc Home will be able to continue to sell its loans into the secondary market at attractive prices, or at all.
Arc Home sells a portion of its mortgage loans to Fannie Mae and Freddie Mac.
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Their roles could be reduced, modified or eliminated, and the nature of their guarantees could be limited or eliminated relative to historical measurements.
−Removed: Any discontinuation of, or significant reduction in, the role or operation of these agencies, or any significant adverse change in the level of activity of these agencies in the primary or secondary mortgage markets could materially and adversely affect Arc Home’s business, which in turn would have a negative impact on our results.
+Added: Any discontinuation of, or significant reduction in, t he role or operation of these agencies, or any significant adverse change in the level of activity of these agencies in the primary or secondary mortgage markets could materially and adversely affect Arc Home’s business.
+Added: If Arc Home is unable to sell its mortgage loans to the GSEs or other third-party investors, or the prices for such loans decline, its liquidity may be negatively impacted, it may be unable to continue to fund such loans, the costs of borrowing under its warehouse facilities may increase, its revenues and margins on new loan originations could be reduced and its ability to repay its warehouse facilities could be impaired.
+Added: Any of the foregoing could adversely affect Arc Home’s business, which in turn would have a negative impact on our results.
Arc Home is subject to extensive licensing requirements and regulation, which could materially and adversely affect us.
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In the current regulatory environment, the policies, laws, rules and regulations applicable to Arc Home's mortgage origination and servicing businesses have been rapidly evolving.
−Removed: Federal, state or local governmental authorities may continue to enact laws, rules or regulations that will result in changes in Arc Homes’ business practices and may materially increase the costs of compliance.
+Added: New or modified regulations at the federal or state level to address concerns on a variety of fronts, including potential impacts from climate change, fair and equitable access to housing and consumer data privacy and security concerns, could increase Arc Home’s operational expenses or otherwise enhance regulatory supervision and enforcement efforts.
+Added: Federal, state or local governmental authorities may continue to enact laws, rules or regulations that will result in changes in Arc Home's business practices and may materially increase the costs of compliance.
We are unable to predict whether any such changes will adversely affect Arc Home's business and, in turn, our financial results.
In addition, over the years, regulators have vigilantly enforced the regulation of mortgage lenders and have penalized or, in some cases, even suspended non-compliant mortgage lenders' ability to originate loans in their jurisdictions for their failure to comply with regulatory requirements.
−Removed: We expect to acquire a portion of our target newly originated non-agency loans from Arc Home.
−Removed: If Arc Home is unable to originate loans in one or more jurisdictions as a result of regulatory issues or otherwise, it may
−Removed: result in fewer investment opportunities for us or in opportunities that are less geographically diversified.
−Removed: Further, any such regulatory issues for Arc Home could result in damage to our or our Manager's reputation in the market and impact Arc Home's ability to continue to source a desired volume of non-agency loan originations.
−Removed: If Arc Home is unable to originate the volume of loans anticipated, we may also be unable to identify other sources of non-agency loans for acquisition to satisfy our strategy and we may need to alter such strategy to seek other investments.
+Added: We expect to acquire a portion of our target newly originated residential mortgage loans from Arc Home.
+Added: If Arc Home is unable to originate loans in one or more jurisdictions as a result of regulatory issues or otherwise, it may result in fewer investment opportunities for us or in opportunities that are less geographically diversified.
+Added: Further, any such regulatory issues for Arc Home could result in damage to our or our Manager's reputation in the market and impact Arc Home's ability to continue to source a desired volume of residential mortgage loan originations.
+Added: If Arc Home is unable to originate the volume of loans anticipated, we may also be unable to identify other sources of residential loans for acquisition to satisfy our strategy and we may need to alter such strategy to seek other investments.
Further, if any of the foregoing events were to occur, the value of our investment in Arc Home may also be adversely impacted.
−Removed: An economic slowdown or a deterioration of the housing market could increase both interest expense on servicing advances and operating expenses and could cause a reduction in income from, and the value of, Arc Home’s servicing portfolio.
−Removed: During any period in which a borrower is not making payments, under most of its servicing agreements Arc Home is required to advance its own funds to meet contractual principal and interest remittance requirements for investors, pay property taxes and insurance premiums and process foreclosures.
−Removed: Arc Home also advances funds to maintain, repair and market real estate properties on behalf of investors.
−Removed: Most of its advances have the highest standing and are "top of the waterfall" so that Arc Home is entitled to repayment from respective loan or REO liquidations proceeds before most other claims on these proceeds, and in the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool level proceeds.
−Removed: Arc Home generally finances a large portion of its servicing advance obligations and an increase in such obligations could increase its interest expense.
−Removed: In addition, if Arc Home's servicing advance obligations exceed its financing capacity for such obligations or such financing otherwise becomes unavailable, Arc Home may need to use cash on hand or take additional actions, including selling assets and reducing its originations to generate liquidity to support its servicer advance obligations.
−Removed: Higher delinquencies also increase Arc Home’s cost to service loans as loans in default require more intensive effort to bring them current or manage the foreclosure process.
−Removed: An increase in delinquencies may delay the timing of revenue recognition because Arc Home recognizes servicing fees as earned, which is generally upon collection of payments from borrowers or proceeds from REO liquidations.
−Removed: An increase in delinquencies also generally leads to lower balances in custodial and escrow accounts (float balances) and lower net earnings on custodial and escrow accounts (float earnings).
−Removed: Additionally, an increase in delinquencies in its GSE servicing portfolio will result in lower revenue because Arc Home collects servicing fees from GSEs only on performing loans.
−Removed: Foreclosures are involuntary prepayments resulting in a reduction in unpaid principal balance.
−Removed: This may result in higher amortization expense and declines in the value of Arc Home’s MSRs.
−Removed: Adverse economic conditions could also negatively impact Arc Home's lending businesses.
+Added: An economic slowdown or a deterioration of the housing market could negatively impact Arc Home's lending and servicing businesses.
+Added: Adverse economic conditions or a deterioration of the housing market could negatively impact Arc Home's lending businesses.
For example, since 2022 following the Federal Reserve's rapid interest rate hikes, total U.S.
residential mortgage originations volume, including origination volumes at Arc Home, decreased substantially and has continued to remain low as interest rates continued to rise in 2023.
−Removed: While the financial markets are anticipating interest rate decreases in 2024, the Federal Reserve could determine to leave rates at current levels or even increase rates further should inflation remain elevated.
+Added: While there were modest interest rate decreases in 2024 and volume origination has been increasing, the Federal Reserve could determine to leave rates at current levels or even increase rates further should inflation become elevated.
Moreover, adverse economic conditions accompanied by declining home prices generally reduce the level of new mortgage loan originations and refinancing activity, since borrowers often use increases in the value of their existing properties to support the purchase of, or investment in, additional properties.
−Removed: Borrowers may also be less able to make payments on loans in a weakened economy.
−Removed: The risks associated with an economic slowdown or a deterioration of the housing or lending markets are more pronounced due to the conditions created by an outbreak of infectious disease or pandemic.
+Added: Borrowers may also be less able to make payments on loans in a weakened economy, which may lead to an increase in requests for forbearance or defaults.
+Added: In addition, for any loans that Arc Home services, it is required to advance its own funds to meet contractual principal and interest remittance requirements for GSEs or other investors, pay property taxes and insurance premiums and process foreclosures when a borrower is not making payments.
+Added: Arc Home generally finances a large portion of its servicing advance obligations and an increase in such obligations could increase its interest expense.
+Added: If Arc Home's servicing advance obligations exceed its financing capacity for such obligations or such financing otherwise becomes unavailable, Arc Home may need to use cash on hand or take additional actions, including selling assets and reducing its originations to generate liquidity to support its servicer advance obligations.
+Added: Higher delinquencies also increase Arc Home’s cost to service loans as loans in default require more intensive effort to bring them current or manage the foreclosure process, and may also result in delayed or lower revenues.
+Added: Foreclosures are involuntary prepayments resulting in a reduction in unpaid principal balance.
+Added: This may result in higher amortization expense and declines in the value of any MSRs Arc Home may own.
Any of the foregoing could adversely affect Arc Home’s business, which in turn would have a negative impact on our results.
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We are required to comply with numerous federal and state laws.
−Removed: The laws, rules and regulations comprising this regulatory framework change frequently, as can the interpretation and enforcement of existing laws, rules, and regulations.
+Added: The laws, rules and regulations
+Added: comprising this regulatory framework change frequently, as can the interpretation and enforcement of existing laws, rules, and regulations.
We may receive requests from federal and state agencies for records, documents, and information regarding our policies, procedures, and practices regarding our business activities.
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These requirements can and do change as statutes and regulations are enacted, promulgated, amended, and interpreted, and the recent trends among federal and state lawmakers and regulators have been toward increasing laws, regulations, and investigative proceedings concerning the mortgage industry generally;
−Removed: Although we believe that we have structured our
−Removed: operations and investments to comply with existing legal and regulatory requirements and interpretations, changes in regulatory and legal requirements, including changes in their interpretation and enforcement by lawmakers and regulators, could materially and adversely affect our business and our financial condition, liquidity, and results of operations.
−Removed: We may fail to realize all of the expected benefits of the WMC acquisition or those benefits may take longer to realize than expected.
−Removed: The full benefits of the WMC acquisition may not be realized by us as expected or may not be achieved within the anticipated time-frame, or at all.
−Removed: Failure to achieve the anticipated benefits of the WMC acquisition could adversely affect our results of operations or cash flows, cause dilution to our earnings per share or book value per share, decrease or delay the expected accretive effect of the WMC acquisition, and negatively impact the trading price of the notes.
−Removed: In addition, we may be required to devote significant attention and resources to successfully integrate the WMC portfolio and operating business into our existing structure.
−Removed: This integration process may disrupt our business and, if ineffective, would limit the anticipated benefits of the WMC acquisition and could adversely affect our business.
+Added: however, the current administration may implement changes in regulatory oversight.
+Added: The implications and any actual changes to current regulatory processes are currently unknown.
+Added: Such uncertainty could in itself lead to inefficiencies for lenders and services, confusion in the market and other impacts, which could materially adversely affect our business, financial condition and/or results of operations.
+Added: Although we believe that we have structured our operations and investments to comply with existing legal and regulatory requirements and interpretations, changes in regulatory and legal requirements, including changes in their interpretation and enforcement by lawmakers and regulators, could materially and adversely affect our business and our financial condition, liquidity, and results of operations.
+Added: Failure of the U.S.
+Added: federal government to avoid a government shutdown may negatively impact the economic environment and adversely impact our results of operations.
+Added: Congressional disagreement over the federal budget and the maximum amount of debt the federal government is permitted to have outstanding (commonly referred to as the "debt ceiling") has previously caused the U.S.
+Added: federal government to shut down for periods of time.
+Added: Generally, if effective legislation to fund government operations and manage the level of federal debt is not enacted, the federal government may suspend its investments for certain government accounts, among other available options, in order to prioritize payments on its obligations.
+Added: A failure by the U.S.
+Added: Congress to pass spending bills or address the debt ceiling at any point in the future would increase the risk of default by the U.S.
+Added: on its obligations, the risk of a lowering of the U.S.
+Added: federal government's credit rating, and the risk of other economic dislocations.
+Added: Such a failure, or the perceived risk of such a failure, could consequently have a material adverse effect on the financial markets and economic conditions in the U.S.
+Added: and globally.
+Added: Twice in the past decade, by the appropriations legislation deadline Congress failed to pass a new appropriations bill or continuing resolution to temporarily extend funding, resulting in U.S.
+Added: government shutdowns that caused federal agencies to halt non-essential operations.
+Added: If economic conditions severely deteriorate as a result of U.S.
+Added: federal government fiscal gridlock, our operations could be affected, which may adversely impact our financial condition and results of operations.
+Added: These risks may also impact our overall liquidity, our borrowing costs, or the market price of our common stock.
We have incurred, and may continue to incur, direct and indirect costs as a result of the WMC acquisition.
−Removed: We incurred substantial expenses in connection with and as a result of completing the WMC acquisition, and we may incur additional expenses in connection with combining the businesses, operations, policies and procedures of the two companies, including expenses related to litigation that may result in significant costs and divert management's attention and resources.
+Added: We incurred substantial expenses in connection with and as a result of completing the WMC acquisition, and we may incur additional expenses resulting from combining the businesses, operations, policies and procedures of the two companies, including expenses related to litigation that may result in significant costs and divert management's attention and resources.
Factors beyond our control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately.
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These rules generally focus on consumer protection and include, among others, rules promulgated under the Dodd-Frank Act, the Truth in Lending Act of 1968 (“Truth-in-Lending Act”), the Gramm-Leach-Bliley Financial Modernization Act of 1999 (“Gramm-Leach-Bliley”).
−Removed: The Dodd-Frank Act grants enforcement authority and broad discretionary regulatory authority to the CFPB to prohibit or condition terms, acts or practices relating to mortgage loans that the CFPB finds abusive, unfair, deceptive or predatory, as well as to take other actions that the CFPB finds are necessary or proper to ensure responsible affordable mortgage credit remains available to consumers.
+Added: The Dodd-Frank
+Added: Act grants enforcement authority and broad discretionary regulatory authority to the CFPB to prohibit or condition terms, acts or practices relating to mortgage loans that the CFPB finds abusive, unfair, deceptive or predatory, as well as to take other actions that the CFPB finds are necessary or proper to ensure responsible affordable mortgage credit remains available to consumers.
These laws and regulations include the "ability-to-repay" rules ("ATR Rules") under the Truth-in-Lending Act and "qualified mortgage" regulations.
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On December 10, 2020, the CFPB issued a final rule that adopts a set of “bright-line” loan pricing thresholds to replace the previous General Qualified Mortgage 43% debt-to-income threshold calculated in accordance with "Appendix Q" and removes Appendix Q (the "General QM Final Rule").
−Removed: Effective March 1, 2021, the General
−Removed: QM Final Rule provided certain changes to the definition of general qualified mortgage loans and the "Seasoned QM Final Rule" creates a new category of a qualified mortgage, referred to as a "Seasoned QM." A loan is eligible to become a Seasoned QM if it is a first-lien, fixed rate loan that meets certain performance requirements over a seasoning period of 36 months, is held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, complies with general restrictions on product features and points and fees, and meets certain underwriting requirements.
+Added: Effective March 1, 2021, the General QM Final Rule provided certain changes to the definition of general qualified mortgage loans and the "Seasoned QM Final Rule" creates a new category of a qualified mortgage, referred to as a "Seasoned QM." A loan is eligible to become a Seasoned QM if it is a first-lien, fixed rate loan that meets certain performance requirements over a seasoning period of 36 months, is held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, complies with general restrictions on product features and points and fees, and meets certain underwriting requirements.
These amendments and changes to the necessary policies and procedures to demonstrate compliance with these requirements for loans sold in the secondary market may increase the economic and compliance costs for participants in the mortgage origination and securitization industries, including us.
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As a result, we are unable to fully predict at this time how these, or other laws or regulations that may be adopted in the future, will affect our business and the results of operations and financial condition.
−Removed: Recent trends among federal and state lawmakers and regulators have been toward increasing laws, regulations, and investigative procedures concerning the mortgage industry generally, which is likely to continue increasing the economic and compliance costs for participants in the mortgage origination and securitization industries, including us.
+Added: Recent trends among federal and state lawmakers and regulators have been toward increasing laws, regulations, and investigative procedures concerning the mortgage industry generally;
+Added: however, the current administration may implement changes in regulatory oversight.
+Added: While the implications and any actual changes to current regulatory regimes are currently unknown, such uncertainty may result in increasing the economic and compliance costs for participants in the mortgage origination and securitization industries, including us.
We invest in Agency-Eligible Loans, which expose us to an increased risk of loss.
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If the property owner is unable to find or retain a tenant for the rental property, the property owner would cease to have a continuous rental income stream with respect to the property and, as a result, the property owner's ability to repay the loan on a timely basis or at all could be adversely affected.
−Removed: In addition, the physical condition of non-owner-occupied properties can be below that of owner-occupied properties due to lax property maintenance standards, which can have a negative impact on the value of the collateral properties.
+Added: In addition, the physical condition of non-owner-occupied properties can be below that of owner-occupied properties due to lax property maintenance standards, which can have a negative impact on the value of the collateral
Moreover, loans on non-owner-occupied residential properties generally involve larger principal amounts and a greater degree of risk than owner-occupied residential mortgage loans, resulting in a higher likelihood that we will be subject to losses on such investment property loans.
+Added: We invest in Home Equity Loans and may invest in other second lien mortgage loans, which expose us to an increased risk of loss.
+Added: We invest in Home Equity Loans, which include revolving lines of credit or closed-end loans secured primarily by a second lien on a residential mortgaged property.
+Added: Similar to our non-agency loans, our Home Equity Loans do not conform to underwritten GSE guidelines.
+Added: In addition, Home Equity Loans and other second lien investments (including RMBS backed by such loans) are subordinate to the primary or first lien mortgage loan on a residential property (i.e., the senior debt).
+Added: The repayment of Home Equity Loans by a borrower is highly dependent on the borrower's creditworthiness as well as the stability of home values.
+Added: If a borrower defaults on a Home Equity Loan or on its senior debt, or in the event of a borrower bankruptcy, such loan will be satisfied only after all senior debt is paid in full.
+Added: In such situation, there is a higher likelihood that we may lose all or a significant part of our investment, which could result in losses and have a material adverse effect on us.
+Added: This risk would be exacerbated in times of declining home values or recessionary periods.
+Added: Additionally, the lines of credit in certain Home Equity Loans and other second lien investments may subject us to future funding obligations.
+Added: Future funding obligations may adversely impact our liquidity and require us to maintain higher liquidity than we might otherwise maintain, which could reduce the overall return on our investment portfolio.
Changes in prepayment rates may adversely affect the return on our investments.
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In addition, the market value of investments subject to prepayment may, because of the risk of prepayment, benefit less than other fixed-income securities from declining interest rates.
−Removed: Conversely, in periods of rising interest rates, prepayments on investments, where contractually
−Removed: permitted, generally decrease, in which case we would not have the prepayment proceeds available to invest in comparable assets at higher yields and our cost to finance such assets would likely increase.
+Added: Conversely, in periods of rising interest rates, prepayments on investments, where contractually permitted, generally decrease, in which case we would not have the prepayment proceeds available to invest in comparable assets at higher yields and our cost to finance such assets would likely increase.
Under certain interest rate and prepayment scenarios, we may fail to recoup fully our cost of certain investments.
Prepayment rates are difficult to predict, and market conditions may disrupt the historical correlation between interest rate changes and prepayment trends.
−Removed: Our success depends, in part, on our ability predict prepayment behavior under a variety of economic conditions and particularly the relationship between changing interest rates and the rate of prepayments.
+Added: Our success depends, in part, on our ability to predict prepayment behavior under a variety of economic conditions and particularly the relationship between changing interest rates and the rate of prepayments.
As part of our overall portfolio risk management, we analyze interest rate changes and prepayment trends separately and collectively to assess their effects on our investment portfolio.
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If borrowers default on the residential mortgage loans backing our Non-Agency RMBS and we are unable to recover any resulting loss through the foreclosure process, we could be materially and adversely affected.
−Removed: Investments in second lien mortgage loans could subject us to increased risk of losses.
−Removed: We may invest in second-lien mortgage loans or RMBS backed by such loans.
−Removed: If a borrower defaults on a second lien mortgage loan or on its senior debt (i.e., a first-lien loan, in the case of a residential mortgage loan), or in the event of a borrower bankruptcy, such loan will be satisfied only after all senior debt is paid in full.
−Removed: As a result, if we invest in second-lien mortgage loans and the borrower defaults, we may lose all or a significant part of our investment.
−Removed: In certain instances, second lien investments may include home equity lines of credit, which may subject us to future funding obligations, which could have an adverse impact on our liquidity.
Risks Related to Legacy WMC Commercial Investments
3 unchanged sentences
Commercial real estate debt instruments (e.g., mortgages and mezzanine loans) that are secured by commercial property are subject to risks of delinquency and foreclosure and risks of loss that are arguably greater than similar risks associated with a pool of loans secured by single-family residential properties.
−Removed: The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower.
+Added: The ability of a borrower to repay a loan secured
+Added: by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower.
If the net operating income of the property is reduced, the borrower's ability to repay the loan may be impaired.
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If we do not control the special servicing of the mortgage loans included in the CMBS in which we invest and, in such cases, the special servicer may take actions that could adversely affect our interests.
−Removed: With respect to CMBS in which we invest, overall control over the special servicing of the related underlying mortgage loans will be held by a "directing certificate holder" or a "controlling class representative," which is appointed by the holders of the
−Removed: most subordinate class of CMBS in such series.
+Added: With respect to CMBS in which we invest, overall control over the special servicing of the related underlying mortgage loans will be held by a "directing certificate holder" or a "controlling class representative," which is appointed by the holders of the most subordinate class of CMBS in such series.
We may not have the right to appoint the directing certificate holder.
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All of the foregoing could materially adversely affect the pricing, supply, liquidity and value of our target assets and otherwise materially adversely affect our business, operations and financial condition.
−Removed: It remains uncertain whether, and if so on what timeline, the Biden administration will address the conservatorships of the GSEs and any comprehensive housing reform.
+Added: It remains uncertain whether the current presidential administration will address the GSE conservatorship, and if so on what timeline and how any potential action would be structured.
Moreover, personnel changes at the applicable regulatory agencies may alter the nature and scope of oversight affecting the mortgage finance industry generally (particularly with respect to the future role of Fannie Mae and Freddie Mac).
+Added: The several intended reforms announced by President Trump may increase the level of uncertainty in the overall federal regulatory environment, which could adversely affect our business.
We are subject to the risk that agencies of and entities sponsored by the U.S.
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The Housing and Economic Recovery Act of 2008, or HERA, requires the FHFA to exercise its right to disaffirm or repudiate most contracts within a reasonable period of time after its appointment as conservator.
−Removed: Fannie Mae and Freddie Mac have disclosed that the FHFA has disaffirmed certain consulting and other contracts that these entities entered into prior to the FHFA’s appointment as conservator.
−Removed: Freddie Mac and Fannie Mae have also disclosed that the FHFA has advised that it does not intend to repudiate any guarantee obligation relating to Fannie Mae and Freddie Mac’s mortgage-related securities, because the FHFA views repudiation as incompatible with the goals of the conservatorship.
In addition, HERA provides that mortgage loans and mortgage-related assets that have been transferred to a Freddie Mac or Fannie Mae securitization trust must be held for the beneficial owners of the related mortgage-related securities and cannot be used to satisfy the general creditors of Freddie Mac or Fannie Mae.
−Removed: If the guarantee obligations of Freddie Mac or Fannie Mae were repudiated by the FHFA, payments of principal and/or interest to holders of Agency RMBS issued by Freddie Mac or Fannie Mae would be reduced in the event of any borrowers’ late payments or failure to pay or a servicer’s failure to remit borrower payments to the trust.
+Added: FHFA has advised that it does not intend to repudiate any guarantee obligation relating to Fannie Mae and Freddie Mac’s mortgage-related securities.
+Added: However, if the guarantee obligations of Freddie Mac or Fannie Mae were repudiated by the FHFA, payments of principal and/or interest to holders of Agency RMBS issued by Freddie Mac or Fannie Mae would be reduced in the event of any borrowers’ late payments or failure to pay or a servicer’s failure to remit borrower payments to the trust.
In that case, trust administration and servicing fees could be paid from mortgage payments prior to distributions to holders of Agency RMBS.
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We have a material amount of corporate indebtedness, which could have significant effects on our business.
−Removed: As of December 31, 2023, we had $86.25 million aggregate principal amount of senior unsecured indebtedness, represented by the Legacy WMC Convertible Notes, which were assumed by one of our subsidiaries, and guaranteed by the Company, in the WMC acquisition.
−Removed: In addition, in January 2024, we issued an aggregate of $34.5 million in 9.500% Senior Notes due 2029 and, as of the date of this Annual Report, we have used approximately $7.1 million of the proceeds from such issuance to repurchase a portion of the Legacy WMC Convertible Notes.
−Removed: As a result, as of the date of this Annual Report, we had approximately $79.12 million aggregate principal amount of Legacy WMC Convertible Notes outstanding, which can be redeemed at our option on or after June 15, 2024, and mature on September 15, 2024.
−Removed: There can be no assurances we will be able to refinance our corporate indebtedness, including the remaining Legacy WMC Convertible Notes, (1) on commercially reasonable terms, (2) on terms, including with respect to interest rates, as favorable as our current debt, or (3) at all.
+Added: During 2024, we issued an aggregate of $99.5 million principal amount Senior Unsecured Notes, $34.5 million of which are due in February 2029 and the remaining $65.0 million are due in May 2029.
+Added: There can be no assurances we will be able to refinance our corporate indebtedness (1) on commercially reasonable terms, (2) on terms, including with respect to interest rates, as favorable as our current debt, or (3) at all.
If we are unable to generate cash flow from operations in the future sufficient to address the maturity of our corporate indebtedness, we may be required to adopt one or more alternatives, such as selling assets at inopportune times, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.
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We depend upon a limited number of financing counterparties to fund our investments.
−Removed: The aggregate number of our financing counterparties was seven as of December 31, 2023.
+Added: The aggregate number of our financing counterparties was six as of December 31, 2024.
The limited number of financing counterparties may reduce our ability to obtain financing on favorable terms and increases our counterparty credit risk.
2 unchanged sentences
Such counterparties have and may continue to impose more onerous conditions when rolling such financings.
−Removed: If major lenders stop financing our target assets, the value of our target assets could be negatively impacted, thus reducing net stockholders’ equity, or book value.
+Added: If major lenders stop financing our
+Added: target assets, the value of our target assets could be negatively impacted, thus reducing net stockholders’ equity, or book value.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.
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Our financing counterparties also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance or the terms of such financings, including increased haircuts and requiring additional cash collateral, based on, among other factors, the regulatory environment and their management of actual and perceived risk, particularly with respect to assignee liability.
−Removed: The securitization process expose us to risks, which could result in losses to us.
+Added: The securitization process exposes us to risks, which could result in losses to us.
We use securitization financing for certain of our residential whole loan investments.
22 unchanged sentences
The related agency or rating agencies may suspend rating notes at any time.
−Removed: Rating agency delays may result in our inability to obtain timely ratings on new notes, which could adversely impact the availability of borrowings or the interest rates, advance rates or other financing terms and adversely affect our results of operations and liquidity.
+Added: Rating agency delays may result in our inability to obtain timely ratings on new notes, which could adversely impact the availability of
+Added: borrowings or the interest rates, advance rates or other financing terms and adversely affect our results of operations and liquidity.
Further, if we are unable to secure ratings from other agencies, limited investor demand for unrated notes could result in further adverse changes to our liquidity and profitability.
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If we fail to meet or satisfy any covenant, supplemental term or representation and warranty, an event of default could be declared under these agreements and our lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral, enforce their respective interests against existing collateral pledged under such agreements and restrict our ability to make additional borrowings.
−Removed: Certain financing agreements may contain cross-default and
−Removed: cross-acceleration provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
+Added: Certain financing agreements may contain cross-default and cross-acceleration provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
A default also could significantly limit our financing alternatives, which could cause us to curtail our investment activities or dispose of assets when we otherwise would not choose to do so.
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Because the cash we receive from lenders when we initially sell or deliver the assets to the lender is less than the value of those assets (this difference is the haircut), if the lender defaults on its obligation to resell or return the same assets back to us (whether due to insolvency of the lender or otherwise) we may incur a loss on the transaction equal to the amount of the haircut (assuming there was no change in the value of the securities).
−Removed: On December 31, 2023, we had greater than 5% stockholders' equity at risk on a GAAP basis and non-GAAP basis with four repurchase agreement counterparties including Barclays Capital Inc., BofA Securities, Inc., Goldman Sachs Bank USA, and JP Morgan Securities, LLC.
+Added: On December 31, 2024, we had greater than 5% stockholders' equity at risk on a GAAP basis and non-GAAP basis with three repurchase agreement counterparties:
+Added: BofA Securities, Inc., Goldman Sachs Bank USA, and Barclays Capital Inc.
Additionally, the Company had greater than 5% stockholders' equity at risk related to financing arrangements obtained on certain retained interests in securitizations held in a trust that issued certificates to various third-party investors.
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For example, to control the rate of inflation, the Federal Reserve launched a reverse process known as quantitative tightening and raised its benchmark federal funds rate from nearly zero in March 2022 to a range between 5.25% and 5.50%, as of December 31, 2023.
−Removed: These conditions have resulted in an inversion of the yield curve, which can be a signal that we are entering into a recessionary period.
−Removed: Although the economy has remained relatively strong and there are expectations that the Federal Reserve will begin reducing the federal funds rate in 2024, these expectations might not materialize.
−Removed: To the extent benchmark interest rates continue to rise or the yield curve flattens further as a result of the Federal Reserve’s policy actions or statements, one of the immediate potential impacts on our business would be a reduction in the overall value of the pool of mortgage loans that we own and the overall value of the pipeline of mortgage loans that we have identified for origination or purchase.
+Added: The Federal Reserve kept the target range at this level until September 2024, stating in 2024 Federal Open Market Committee meetings that the risks to achieving its employment and inflation goals continue to move into better balance.
+Added: In September 2024, the Federal Reserve started reducing its target range, decreasing it by 0.50% to 4.75% to 5.00%, and stating that the risks to achieving its employment and inflation goals were then roughly in balance.
+Added: The Federal Reserve subsequently reduced the target range by 0.25% each in November and December 2024, bringing the target range down to 4.25% from 4.50%.
+Added: To the extent benchmark interest rates remain at high levels or rise or the yield curve flattens as a result of the Federal Reserve’s policy actions or statements, one of the immediate potential impacts on our business would be a reduction in the overall value of the pool of mortgage loans that we own and the overall value of the pipeline of mortgage loans that we have identified for origination or purchase.
Rising benchmark interest rates also generally have a negative impact on the overall cost of short- and long-term borrowings we use to finance our acquisitions and holdings of mortgage loans, including as a result of the requirement to post additional margin (or collateral) to lenders to offset any associated decline in value of the mortgage loans we finance with short-term borrowings subject to market value-based margin calls.
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These and other impacts of developments of the type described above may have a negative impact on our business and results of operations and we cannot accurately predict the full extent of these impacts or for how long they may persist.
−Removed: Further, as of December 31, 2023, we have $93.2 million of 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock"), which will transition to a floating rate on September 15, 2024.
−Removed: A continued increase in interest rates will increase the cost of the Series C Preferred Stock, refinancing of our existing borrowings or the issuance of new variable rate debt.
+Added: Further, as of December 31, 2024, we have $93.2 million of 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock"), which transitioned to a floating rate on September 17, 2024.
+Added: An increase in
+Added: interest rates will increase the cost of the Series C Preferred Stock, refinancing of our existing borrowings or the issuance of new variable rate debt.
Risks Related to our Management and our Relationship with our Manager and its Affiliates
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Furthermore, our Manager has the sole discretion to hire and fire employees, and our Board of Directors and stockholders have no authority over the individual employees of our Manager or TPG Angelo Gordon, although our Board of Directors does have direct authority over our officers who are supplied by our Manager.
−Removed: Accordingly, we are completely reliant upon, and our
−Removed: success depends exclusively on, our Manager’s personnel, services, resources, facilities, relationships and contacts.
+Added: Accordingly, we are completely reliant upon, and our success depends exclusively on, our Manager’s personnel, services, resources, facilities, relationships and contacts.
No assurance can be given that our Manager will act in our best interests with respect to the allocation of personnel, services and resources to our business.
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In addition, as a result of the acquisition, our Manager became an indirect subsidiary of TPG.
−Removed: Uncertainty about the effect of the acquisition of TPG Angelo Gordon with TPG on employees, clients and business of TPG Angelo Gordon, as well as time and attention required by our management team and other personnel of our Manager to integration and other matters related to the acquisition, may have an adverse effect on TPG Angelo Gordon and subsequently on us and the other funds managed by TPG Angelo Gordon.
+Added: Uncertainty about the effect of the acquisition of TPG Angelo Gordon with TPG on employees, clients and business of TPG Angelo Gordon, as well as time and attention required by our management team and other personnel of our Manager to integration and other matters related to the acquisition or TPG, may have an adverse effect on TPG Angelo Gordon and subsequently on us and the other funds managed by TPG Angelo Gordon.
Retention and motivation of certain employees may be challenging due to the uncertainty and difficulty of integration or a desire not to remain with TPG Angelo Gordon.
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There is no assurance that the terms of such transactions would be as favorable to us as transacting in the open market with unaffiliated third-parties.
−Removed: As the investment programs of the various entities and accounts managed by our Manager and its affiliates change over time, additional issues and considerations may affect our Affiliated Transactions Policy and our Manager’s expectations with respect to such transactions, which could adversely affect our operations.
+Added: As the investment programs of the various entities and accounts managed by our Manager and its
+Added: affiliates change over time, additional issues and considerations may affect our Affiliated Transactions Policy and our Manager’s expectations with respect to such transactions, which could adversely affect our operations.
Our Board of Directors has approved very broad investment policies for our Manager, may change such policies without stockholder consent, and does not review or approve each investment or financing decision made by our Manager.
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For example, in 2021, we repositioned our investment strategy to focus primarily on opportunities within the non-agency residential mortgage market.
−Removed: A change in our investment strategies and
−Removed: policies and target asset classes may increase our exposure to interest rate risk, default risk and real estate market fluctuations, which could adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
+Added: A change in our investment strategies and policies and target asset classes may increase our exposure to interest rate risk, default risk and real estate market fluctuations, which could adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
Our Manager is authorized to follow very broad investment policies and, therefore, has great latitude in determining the types of assets that are proper investments for us, the financing related to such assets, the allocations among asset classes and individual investment decisions.
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We engaged the Asset Manager, an affiliate of the Manager and direct subsidiary of TPG Angelo Gordon, as the asset manager for certain of our non-agency loans, agency loans, residential mortgage loans and Re/Non-Performing Loans.
−Removed: We pay separate arm’s length asset management fees as assessed and confirmed by a third-party valuation firm for certain of our Non-Agency Loans, NPL/RPL and other residential loan products to the Asset Manager.
+Added: We pay separate asset management fees as assessed and confirmed by a third-party valuation firm for certain of our Non-Agency Loans, NPL/RPL and other residential loan products to the Asset Manager.
The asset management agreement was negotiated between related parties, and we did not have the benefit of arm’s length negotiations as we normally would with unaffiliated third-parties.
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If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
−Removed: We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue otherwise attractive investments in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT.
+Added: We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue otherwise attractive investments in order to satisfy the source-of-income or asset-diversification requirements for
+Added: qualifying as a REIT.
Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
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We intend to make distributions to our stockholders to comply with the requirements of the Code and to avoid paying corporate income tax.
−Removed: However, differences in timing between the recognition of taxable income and the actual
−Removed: receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code.
+Added: However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code.
We may find it difficult or impossible to meet distribution requirements in certain circumstances.
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We believe that we are treated for REIT asset and income test purposes as the owner of the assets that are the subject of any such sale and repurchase agreement notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement.
−Removed: It is possible, however, that the IRS could assert that we did not own the assets during the term of the sale and repurchase agreement, in which case we could fail to qualify as a REIT.
+Added: It is possible, however, that the
+Added: IRS could assert that we did not own the assets during the term of the sale and repurchase agreement, in which case we could fail to qualify as a REIT.
Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.
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A domestic TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns.
−Removed: In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation, and in certain circumstances, the ability of
−Removed: our TRSs to deduct net business interest expenses generally may be limited.
+Added: In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation, and in certain circumstances, the ability of our TRSs to deduct net business interest expenses generally may be limited.
The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.
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federal income tax at regular corporate rates, if we were to recognize such gain in the five-year period following the Merger;
−Removed: • succeeding to WMC's E&P accumulated during the periods in which WMC failed to qualify as a REIT, which we would be required to distribute to our shareholders in order to satisfy the REIT 90% distribution requirements and avoid the imposition of any excise tax as a result, we would have less cash available for operations and distributions to our shareholders, which could require us to raise capital on unfavorable terms or pay deficiency dividends.
−Removed: There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR.
−Removed: The publication of LIBOR rates was discontinued beginning July 1, 2023.
−Removed: Other than our Series C Preferred Stock, which adjusts later this year, we have modified our LIBOR-based instruments to replace references to LIBOR.
−Removed: Under current law, certain modifications of terms of LIBOR-based instruments may have tax consequences, including deemed taxable exchanges of the pre-modification instrument for the modified instrument.
−Removed: Treasury regulations, effective March 7, 2022 (the "IBOR Regulations") provide guidance on the tax consequences of the discontinuation of LIBOR and certain other interbank offered rates.
−Removed: The IBOR Regulations allow for the treatment of certain modifications to be deemed non-taxable events.
−Removed: We do not believe that we recognized any taxable income as a result of LIBOR migration in excess of our economic income, but there can be no assurance that the IRS would not assert a contrary position.
+Added: • succeeding to WMC's E&P accumulated during the periods in which WMC failed to qualify as a REIT, which we would be required to distribute to our stockholders in order to satisfy the REIT 90% distribution requirements and avoid the imposition of any excise tax as a result, we would have less cash available for operations and distributions to our stockholders, which could require us to raise capital on unfavorable terms or pay deficiency dividends.
+Added: We or our TRS may not be able to fully utilize our respective net operating loss or net capital loss carryforwards.
+Added: We have and our TRS has certain net operating loss ("NOL") and net capital loss ("NCL") carryforwards.
+Added: NOL carryforwards can be used to offset future taxable income, and NCL carryforwards can be used to reduce net capital gain income.
+Added: We and/or our TRS may not generate sufficient income of the appropriate tax character to fully utilize the respective NOL or NCL carryforwards before their expiration.
+Added: In addition, NOL and NCL carryforwards and certain recognized built-in losses may be limited by Sections 382 and 383 of the Internal Revenue Code if we or our TRS, respectively, experiences an "ownership change".
+Added: In general, an "ownership change" occurs if 5% stockholders increase their collective ownership of the aggregate amount of the outstanding shares of our company by more than 50 percentage points looking back over the relevant testing period.
+Added: Our ability to use WMC's historic NOL carryforwards is limited by a Section 382 ownership change that occurred with respect to WMC at the time of the Merger.
+Added: No assurance can be provided as to whether we or our TRS may experience an ownership change that could limit our ability or our TRS's ability to utilize the respective NOL or NCL carryforwards.
Risks Related to our Organization and Structure
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Qualification for exemption from the definition of an investment company under the Investment Company Act limits our ability to make certain investments.
−Removed: For example, these restrictions limit our and our subsidiaries’ ability to invest directly in mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations, certain real estate companies or assets not related to real estate.
−Removed: If we fail to qualify for these exemptions, or the SEC determines that companies that invest in RMBS are no longer able to rely on these exemptions, we could be required to (a) restructure our activities to avoid being required to register as an investment company, (b) effect sales of certain assets in a manner that, or at a time when, we would not otherwise choose to do so or (c) we may be required to register as an investment company under the Investment Company Act.
+Added: For example, these restrictions limit our and our subsidiaries’ ability to invest directly in
+Added: mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations, certain real estate companies or assets not related to real estate.
+Added: If we fail to qualify for these exemptions, or the SEC determines that companies that invest in RMBS are no longer able to rely on these exemptions, we could be required to (a) restructure our activities to avoid being required to register as an investment company, (b) effect sales of certain assets in a manner that, or at a time when, we would not otherwise choose to do so or (c) register as an investment company under the Investment Company Act.
Any of these outcomes could negatively affect the value of shares of our stock and our ability to make distributions to our stockholders.
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Commodity Futures Trading Commission, or the CFTC, was given jurisdiction over the regulation of swaps.
−Removed: Under rules implemented by the CFTC, companies that utilize swaps as part of their business model, including many mortgage REITs, may be deemed to fall within the statutory definition of Commodity Pool Operator, or CPO,
−Removed: and, absent relief from the CFTC’s Division of Swap Dealer and Intermediary Oversight, may be required to register with the CFTC as a CPO.
+Added: Under rules implemented by the CFTC, companies that utilize swaps as part of their business model, including many mortgage REITs, may be deemed to fall within the statutory definition of Commodity Pool Operator, or CPO, and, absent relief from the CFTC’s Division of Swap Dealer and Intermediary Oversight, may be required to register with the CFTC as a CPO.
As a result of numerous requests for no-action relief from CPO registration, in December 2012 the CFTC issued no-action relief entitled "No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts," which permits a CPO to receive relief from registration requirements by filing a claim stating that the CPO meets the criteria specified in the no-action letter.
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In addition, we may issue additional shares of common stock to participants in any direct stock purchase and dividend reinvestment plan we may establish and to our directors, officers, and employees of our Manager under any employee stock purchase plan we may establish, our equity incentive plan, or other similar plans, including upon the exercise of, or in respect of, distributions on equity awards previously granted thereunder.
−Removed: We are not required to offer any such shares to existing shareholders on a preemptive basis.
−Removed: Therefore, it may not be possible for existing shareholders to participate in future share issuances, which may dilute existing shareholders’ interests in us.
+Added: We are not required to offer any such shares to existing stockholders on a preemptive basis.
+Added: Therefore, it may not be possible for existing stockholders to participate in future share issuances, which may dilute existing stockholders’ interests in us.
In addition, if market participants buy shares of common stock, or securities convertible into, or exchangeable for, shares of common stock, in issuances by us in the future, it may reduce or eliminate any purchases of our common stock they might otherwise make in the open market, which in turn could have the effect of reducing the volume of shares of our common stock traded in the marketplace, which could have the effect of reducing the market price and liquidity of our common stock.
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As a result, future sales by these individuals or our Manager could negatively affect the market price of our common stock.
−Removed: Conversion of the Legacy WMC Convertible Notes may dilute the ownership interest of existing stockholders, which could cause our share price to decline.
−Removed: In connection with the WMC acquisition, one of our subsidiaries assumed, and the Company guaranteed the payment of, the $86.25 million in aggregate principal of the Legacy WMC Convertible Notes originally issued by WMC.
−Removed: The Legacy WMC Convertible Notes are convertible into, at the Company's election, cash, shares of our common stock, or a combination of both, subject to the satisfaction of certain conditions and during specified periods.
−Removed: As a result of the WMC acquisition and pursuant to the terms of the Legacy WMC Convertible Notes, the right to convert each $1,000 principal amount of the Legacy WMC Convertible Notes into shares of WMC Common Stock was changed into the right to convert such principal amount into the shares of our common stock and cash that a holder of 33.7952 (the applicable conversion rate immediately prior to the Effective Time) shares of WMC Common Stock would have been entitled to receive upon consummation of the WMC acquisition (subject to any settlement election by the Company under the Legacy WMC Convertible Notes).
−Removed: The conversion rate is subject
−Removed: to further adjustment upon the occurrence of certain specified events and the holders may require the Company to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the Legacy WMC Convertible Notes, plus accrued and unpaid interest, if the Company undergoes a fundamental change as specified in the supplemental indenture for the Legacy WMC Convertible Notes.
−Removed: The Legacy WMC Convertible Notes can be redeemed at the Company's option on or after June 15, 2024, and mature on September 15, 2024, unless earlier converted, redeemed, or repurchased by the holders pursuant to their terms.
−Removed: To the extent we issue shares of our common stock upon conversion of the Legacy WMC Convertible Notes, the conversion of some, or all of our Legacy WMC Convertible Notes, will dilute the ownership interests of existing stockholders and the market price of our common stock may be negatively affected.
We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future.
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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.