What changed in this filing

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Item 1A. Risk Factors

2025-02-13 compared with 2024-02-15 · 221 added, 186 removed, 513 unchanged (44% of the section changed)

Economic Recovery Act of 2008.

In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal regulator, pursuant to its powers under The Federal Housing Finance Regulatory Reform Act of 2008, a part of the Housing and Economic Recovery Act of 2008.

In addition to FHFA becoming the conservator of Fannie Mae and Freddie Mac, the U.S.

Department of the Treasury entered into Preferred Stock Purchase Agreements with the FHFA and have taken various actions intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability.

In September 2019, FHFA and the U.S.

Treasury Department agreed to modifications to the Preferred Stock Purchase Agreements that will permit Fannie Mae and Freddie Mac to maintain capital reserves of $25 billion and $20 billion, respectively.

Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the U.S.

Treasury suggested that the guarantee payment structure of Fannie Mae and Freddie Mac in the U.S.

housing finance market should be re-examined.

For example, in September 2019, FHFA and the U.S.

Department of the Treasury agreed to modifications to the Preferred Stock Purchase Agreements that will permit Fannie Mae and Freddie Mac to maintain capital reserves of $25 billion and $20 billion, respectively.

In January 2025, the FHFA and the U.S.

Department of the Treasury under the Biden Administration announced an agreement with each of Fannie Mae and Freddie Mac to modify the Preferred Stock Purchase Agreements to help ensure that the eventual release of Fannie Mae and Freddie Mac from conservatorship will be orderly and reflect certain existing practices.

In addition, under a separate side letter from FHFA to the U.S.

Department of the Treasury, FHFA will solicit public input, before releasing either Fannie Mae or Freddie Mac from conservatorship, regarding the potential impacts on the housing market and Fannie Mae and Freddie Mac.

Since Fannie Mae and Freddie Mac were placed in federal conservatorship, the guarantee payment structure of Fannie Mae and Freddie Mac in the U.S.

housing finance market has been discussed and re-examined by regulators and administrations.

Members of the Trump Administration have recently discussed changes to Fannie Mae and Freddie Mac, although any final changes or approach remains uncertain.

The future roles of Fannie Mae and Freddie Mac could be significantly reduced and the nature of their guarantees could be eliminated or considerably limited relative to historical measurements.

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Any changes to the nature of the guarantees provided by Fannie Mae and Freddie Mac could redefine what constitutes an Agency mortgage-backed security and could have broad adverse market implications.

While the likelihood that major mortgage finance system reform will be enacted in the short term remains uncertain, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations.

While the likelihood that major mortgage finance system reform will be enacted in the short term remains uncertain due to political and practical complexities of the topic, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations.

A reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may adversely affect the mortgage markets generally and adversely affect the ability of mortgagors to refinance their mortgage loans.

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If Fannie Mae or Freddie Mac was eliminated, or their structures were to change in a material manner that is not compatible with our business model, we would not be able to acquire Agency mortgage-backed securities from these entities, which could adversely affect our business operations.

We may be subject to liability for potential violations of truth-in-lending or other similar consumer protection laws and regulations.

The Truth in Lending Act or other similar consumer protection laws and regulations expose an owner of whole mortgage loans and mortgage servicing rights to potential civil and administrative liability.

Residential mortgage loan originators and servicers are required to comply with various federal, state and local laws and regulations, including anti-predatory lending laws and laws and regulations imposing certain restrictions on requirements on high-cost loans.

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As a result, we are unable to fully predict how laws or regulations that may be adopted in the future, will affect our business, results of operations and financial condition, or the environment for repurchase financing and other forms of borrowing, the investing environment for Agency MBS, non-Agency mortgage-backed securities and/or residential mortgage, and MSR.

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Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those in place under federal laws and regulations.

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As a result, a court may determine that a residential mortgage loan did not meet the applicable standard or test even if the originator reasonably believed such standard or test had been satisfied.

Failure of residential mortgage loan originators or servicers to comply with federal consumer protection laws and regulations could subject us, as an assignee or purchaser of these loans (or as an investor in securities backed by these loans), to monetary penalties and defenses to foreclosure, including by recoupment or setoff of damages and costs, which for some violations included the sum of all finance charges and fees paid by the consumer,

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and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and financial results.

The CFPB and other regulators (including the Federal Trade Commission) have provided multiple forms of guidance on the general subject of “junk fees.” As there has been no formal definition of “junk fees” proposed with respect to mortgage lending or servicing, it is possible that industry standard charges could be impacted through future regulatory action.

The CFPB and other regulators (including the Federal Trade Commission) have provided multiple forms of guidance and promulgated multiple rules on the general subject of what the CFPB refers to as “junk fees.” For example, in April 2024, the CFPB took certain actions intended to stop illegal “junk fees” in the mortgage servicing industry, and in May 2024, the CFPB launched a public inquiry into “junk fees” associated with mortgage closing costs.

It is possible that industry standard charges could be impacted through future regulatory action.

The cost of whole loans and the servicing income derived from owning MSR could be affected by the CFPB categorizing any currently permissible fee or charge as “junk.”

We may not be able to maintain compliance with laws and regulations applicable to our Residential Credit or MSR businesses, including through the manner in which we oversee the compliance obligations of our third party service providers.

While we are not required to obtain licenses to purchase mortgage-backed securities, the purchase of residential mortgage loans and certain business purpose mortgage loans in the secondary market may, in some circumstances, require us to maintain various state licenses.

Acquiring the right to service residential mortgage loans and certain business purpose mortgage loans may also, in some circumstances, require us to maintain various state licenses even though we currently do not expect to directly engage in loan servicing ourselves.

As a result, we could be delayed in conducting certain business if we were first required to obtain a state license.

We cannot assure you that we will be able to obtain all of the licenses we need or that we would not experience significant delays in obtaining these licenses.

Furthermore, once licenses are issued we are required to comply with various information reporting and other regulatory requirements to maintain those licenses, and there is no assurance that we will be able to satisfy those requirements or other regulatory requirements applicable to our business of acquiring mortgage loans on an ongoing basis.

Our failure to obtain or maintain required licenses or our failure to comply with regulatory requirements that are applicable to our business of acquiring mortgage loans may restrict our residential credit business and investment options and could harm our business and expose us to penalties or other claims.

Although we utilize unaffiliated servicing companies to carry out the actual servicing of MSR and the loans we purchase together with the related MSR (including all direct interface with the borrowers), we are ultimately responsible, vis-à-vis the borrowers and state and federal regulators, for ensuring that the loans and MSR are serviced in accordance with the terms of the related notes and mortgages and applicable law and regulation.

To manage this risk, we have a robust oversight process that monitors the activities of the third party servicers.

This oversight process is also subject to regulatory requirements and expectations that we are expected to meet.

Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business.

Our Residential Credit and MSR businesses are subject to complex and evolving legal and regulatory requirements, including how we oversee and are responsible for the actions of our third-party service providers, which exposes us to increased compliance, legal, and regulatory risk.

Acquiring the right to service residential mortgage loans and certain business purpose mortgage loans also requires us to maintain various state licenses, even though we currently do not expect to directly engage in loan servicing ourselves.

Furthermore, we are required to comply with various information reporting and other regulatory requirements to maintain our licenses, and there is no assurance that we will be able to satisfy those requirements or other regulatory requirements applicable to our businesses of acquiring and servicing mortgage loans on an ongoing basis.

Our failure to obtain or maintain required licenses or our failure to comply with regulatory requirements that are applicable to our businesses of acquiring and servicing mortgage loans may restrict our Residential Credit and MSR businesses and investment options and could harm our businesses and expose us to penalties or other claims.

Although we utilize unaffiliated servicing companies to carry out the actual servicing of MSR and the loans we purchase together with the related MSR (including all direct interface with the borrowers), we are ultimately responsible, vis-à-vis the borrowers and state and federal regulators, for ensuring that the loans and MSR are serviced in accordance with the terms of the related loans and mortgages and applicable law and regulation.

To manage this risk, we have a robust process that monitors the activities of the third party servicers.

This oversight process is also subject t o regulatory requirements and expectations that we are expected to meet.

Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations affects our business.

We are subject to regulation by laws at the local, state and federal level, including securities and tax laws and financial accounting and reporting standards.

These laws and regulations, as well as their interpretation, may be changed from time to time and result in enhanced disclosure obligations, including with respect to climate change or other environmental, social, or governance (“ESG”) topics, increasing our regulatory burden.

These laws and regulations, as well as their interpretation, may be changed from time to time and result in enhanced disclosure obligations.

These regulations are complex, and there is no assurance that a court or regulator will not determine that we have materially failed to comply.

Accordingly, any change in these laws or regulations or the failure to comply with these laws or regulations could have a material adverse impact on our business.

Certain of these laws and regulations pertain specifically to REITs.

The increased focus on ESG and climate change issues by investors, governmental bodies and other stakeholders, as well as existing and proposed laws and regulations related to these topics, may adversely affect our business and financial results and damage our reputation.

Our business faces increasing public scrutiny related to ESG activities, which are increasingly considered to contribute to reducing a company’s operational risk, market risk and reputational risk, which may in turn impact the long-term sustainability of a company’s performance.

A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized.

Major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions.

ESG and climate change issues are also increasingly important to the general public and the media, and actual or perceived underperformance with respect to these topics could result in negative press or sentiment with respect to our business.

In addition, actual or perceived effects of climate change could negatively impact house prices, housing-related costs, and borrower behavior.

There is also growing governmental and regulatory interest across jurisdictions in improving the definition, measurement and disclosure of ESG factors in order to allow investors to validate and better understand ESG-related claims.

To the extent we communicate ESG or climate-related statements, initiatives, commitments or goals in our SEC filings or in other disclosures,

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we face the risk of being accused of “greenwashing” to the extent our practices and policies do not match such claims.

In addition, the SEC has established a climate and ESG task force to develop initiatives to identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.

As a result, the SEC has started to bring enforcement actions based on ESG disclosures not matching actual investment processes.

In addition, the SEC is working on proposals for mandatory disclosure of certain ESG-related matters, including with respect to greenhouse gas emissions and climate change-related risks, and similar laws and regulations related to the disclosure and/or diligence of ESG and climate change-related risks have been enacted or proposed in U.S.

The focus on environmental, social, and governance and climate change issues by some investors, governmental bodies and other stakeholders, as well as existing and proposed laws and regulations related to these topics, and any divergence in the approach to these subjects by different investors, governmental bodies and other stakeholders, affects our business, financial results and reputation.

Our business faces increasing public scrutiny related to environmental, social, and governance activities.

A variety of organizations measure the performance of companies on such topics, and the results of these assessments are widely publicized.

Major institutional investors have publicly emphasized the importance of such measures to their investment decisions.

These issues are also increasingly important to the general public and the media, and actual or perceived underperformance with respect to these topics could result in negative press or sentiment with respect to our business.

In addition, actual or perceived effects of climate change could negatively impact house prices, housing-related costs, and borrower behavior.

There is also governmental and regulatory interest across jurisdictions in improving the definition, measurement and disclosure of environmental, social, and governance factors in order to allow investors to validate and better understand related claims.

To the extent we communicate environmental, social, and governance or climate-related statements, initiatives, commitments or goals in our SEC filings or in other disclosures, we face the risk of being accused of “greenwashing” to the extent our practices and policies do not match such claims.

In addition, the SEC has established a climate and environmental, social, and governance task force to develop initiatives to identify related misconduct consistent with increased investor reliance on climate and environmental, social, and governance related disclosure and investment.

As a result, the SEC has brought enforcement actions based on such disclosures not matching actual investment processes.

In addition, the SEC under the Biden Administration finalized a rule requiring the disclosure of certain greenhouse gas emissions and climate-related risks;

however, its enforcement has been stayed pending litigation challenging the rule.

It remains to be seen what impact the Trump Administration will have on the SEC’s climate rule and the SEC’s climate and environmental, social, and governance task force and enforcement actions more generally;

however, President Trump's campaign indicated that his administration will likely take a different approach to environmental, social and governance matters.

In addition, in recent years “anti-environmental, social and governance” sentiment has increased in parts of the U.S., with several states and Congress having proposed or enacted “anti-environmental, social and governance” policies, legislation, or initiatives or issued related legal opinions.

As such, we face increased scrutiny from stakeholders and governmental bodies who have diverging views related to business practices and company activities related to environmental, social and governance topics and climate change, which could result in reputational harm, litigation and other adverse consequences.

Similar laws and regulations related to the disclosure and/or diligence of environmental, social, and governance and climate change-related risks have been enacted or proposed in U.S.

states such as California, as well as the European Union and other jurisdictions.

Compliance with any such new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we conduct our business and adversely affect our profitability and returns to our investors.

We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data privacy and security, which could increase the cost of doing business, compliance risks and potential liability.

In addition, going forward, different jurisdictions at the state, federal and international level may pursue diverging approaches to environmental, social and governance and climate change-related matters.

Compliance with any such new laws or regulations, and any diverging approaches to such laws and regulations in different jurisdictions, increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we conduct our business and adversely affect our profitability and returns to our investors.

We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data privacy and security, which increases the cost of doing business, compliance risks and potential liability.

We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations relating to data privacy and the security of personal information, and any failure to comply with these laws, regulations, rules, standards and contractual obligations could expose us to liability and/or reputational damage.

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Moreover, laws in all 50 U.S.

states require businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach.

states require

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businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach.

Further, when required by applicable laws, regulations, rules and industry standards, we strive to provide or cause our service providers to provide privacy policies which are accurate and comprehensive.

We cannot, however, ensure that the disclosure of these privacy policies and other statements regarding our practices will be sufficient to protect us from claims, proceedings, liability or adverse publicity relating to data privacy and security or with respect to the legally permissible sharing of data.

Although we endeavor to comply with our privacy policies and to ensure our service providers do the same, occurrence of noncompliance or allegations of noncompliance are possible and could subject us to potential government or legal action, including action based on argument that the publication of these policies were deceptive, unfair, or misrepresentative of our actual practices.

Although we endeavor to comply with our privacy policies and to ensure our service providers do the same, occurrence or allegations of noncompliance are possible and could subject us to potential government or legal action, including action based on arguments that the publication of these policies were deceptive, unfair, or misrepresentative of our actual practices.

Any concerns about our data privacy and security practices, even if unfounded, could damage our reputation and adversely affect our business.

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Any of the foregoing could harm our reputation, distract our management and technical personnel, increase our costs of doing business, adversely affect the demand for our products and services, and ultimately result in the imposition of liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

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We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other investment accounts, including potential regulatory risks.

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We may also become subject to various international regulations on the asset management industry.

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Loss of our Investment Company Act exemption from registration would adversely affect us.

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We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act.

Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires us to invest at least 55% of our assets in “mortgages and other liens on and interest in real estate” (“Qualifying Real Estate Assets”) and at least 80% of our assets in Qualifying Real Estate Assets plus our interests in MSR and other real estate related assets.

The assets that we acquire, therefore, are limited by this provision of the Investment Company Act and the rules and regulations promulgated under the Investment Company Act.

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If the SEC changes its views regarding which securities are Qualifying Real Estate Assets or real estate related assets, adopts a contrary interpretation with respect to Agency Whole Pool Certificates or otherwise believes we do not satisfy the exemption under Section 3(c)(5)(C), we could be required to restructure our activities or sell certain of our assets.

The net effect of these

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factors will be to lower our net interest income, which could negatively affect the market price of shares of our capital stock and our ability to distribute dividends.

The net effect of these factors will be to lower our net interest income, which could negatively affect the market price of shares of our capital stock and our ability to distribute dividends.

If we fail to qualify for exemption from registration as an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described.

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We cannot assure you that such “protective” TRS elections would be effective to avoid adverse consequences to us.

Moreover, even if the “protective” elections were to be effective, the Subsidiary REITs would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.

Moreover, even if the “protective” TRS elections were to be effective, the Subsidiary REITs would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.

If we fail to maintain our qualification as a REIT, we would be subject to U.S.

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Also, unless the IRS were to grant us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first fail to qualify.

If we fail to maintain our qualification as a REIT, we would have to pay significant income taxes and would therefore have less money available for investments or for distributions to our stockholders.

If we fail to maintain our qualification as a REIT, we would have to

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pay significant income taxes and would therefore have less money available for investments or for distributions to our stockholders.

This would likely have a significant adverse effect on the value of our equity.

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A REIT would be required to pay a penalty of $50,000, however, in the case of each failure.

Our distribution requirements could adversely affect our ability to execute our business plan.

Our distribution requirements limit our flexibility and could affect our ability to execute our business plan.

As a REIT, we must distribute at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and by excluding any net capital gain).

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federal corporate income tax on our undistributed taxable income.

In addition, we will be subject to a non-deductible 4% excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum

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amount specified under U.S.

In addition, we will be subject to a non-deductible 4% excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S.

federal tax laws.

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In particular:

• part of the income and gain recognized by certain qualified employee pension trusts with respect to our stock may be treated as unrelated business taxable income if shares of our stock are predominantly held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;

trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;

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• part of the income and gain recognized by a tax-exempt investor with respect to our stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the stock;

• part or all of the income or gain recognized with respect to our stock by social clubs, voluntary employee benefit associations, supplemental

unemployment benefit trusts and qualified group legal services plans which are exempt from U.S.

• part or all of the income or gain recognized with respect to our stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from U.S.

federal income taxation under the Code may be treated as unrelated business taxable income;

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• a portion of the distributions paid to a tax-exempt stockholder that is allocable to excess inclusion income may be treated as unrelated business taxable income.

We may choose to pay dividends in our own stock.

We may in the future distribute taxable dividends that are payable in cash or shares of our stock at the election of each stockholder.

Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S.

We have flexibility to pay dividends in our own stock.

We have in the past and may in the future distribute taxable dividends that are payable in cash or shares of our stock at the election of each stockholder.

Taxable stockholders receiving such dividends will be required to include the full amount of such dividends as ordinary income to the extent of our current and accumulated earnings and profits for U.S.

federal income tax purposes.

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stockholders, we may be required to withhold U.S.

tax with respect to

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such dividends, including in respect to all or a portion of such dividend that is payable in stock.

tax with respect to such dividends, including in respect to all or a portion of such dividend that is payable in stock.

In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.

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Certain asset transfers may, therefore, have to be structured as purchase and sale transactions upon which our TRSs recognize a taxable gain.

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If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a penalty tax.

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A tax at a rate of 100% is also imposed on any transaction between a TRS and its parent REIT to the extent the transaction gives rise to deductions to the TRS that are in excess of the deductions that would have been allowable had the transaction been entered into on arm’s-length terms.

While we will scrutinize all of our transactions with our TRSs in an effort to ensure that we do not become subject to these taxes, there is no assurance that we will be successful.

While we scrutinize all of our transactions with our TRSs in an effort to ensure that we do not become subject to these taxes, there is no assurance that we will be successful.

We may not be able to avoid application of these taxes.

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In addition, in order to meet the REIT qualification requirements, prevent the recognition of certain types of non-cash income, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through our TRSs or other subsidiary corporations that will be subject to corporate level income tax at regular rates.

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Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate otherwise attractive investments.

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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.

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The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT.

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In addition, losses in our TRSs generally will not provide any tax benefit, except for being carried forward potentially to offset taxable income in the TRSs for future periods.

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Qualifying as a REIT involves highly technical and complex provisions of the Code.

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Our continued qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.

In addition, our ability to satisfy the REIT qualification requirements depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S.

In addition, our ability to satisfy the REIT qualification requirements depends in part on the actions of third parties over which we have no control or limited influence, if any, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S.

federal income tax purposes.

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We intend to structure our activities to avoid the prohibited transaction tax.

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Certain financing activities may subject us to U.S.

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If we enter into such a transaction in the future, we could be taxable at the highest corporate income tax rate on a portion of the income arising from a taxable mortgage pool, referred to as “excess inclusion income,” that is allocable to the percentage of our shares held in record name by disqualified organizations (generally tax-exempt entities that are exempt from the tax on unrelated business taxable income, such as state pension plans and charitable remainder trusts and government entities).

In that case, we could reduce distributions to such stockholders by the amount of tax paid by us that is attributable to such stockholder's ownership.

In that case, we could reduce distributions to such stockholders by the amount of tax paid by us that is attributable to such stockholders’ ownership.

If we were to realize excess inclusion income, IRS guidance indicates that the excess inclusion income would be allocated among our stockholders in proportion to the dividends paid.

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While there is no direct authority with respect to the qualification of TBAs as real estate assets or U.S.

Government securities for purposes of the 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property (including interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross income test, we treat our TBAs as qualifying assets for purposes of the REIT asset tests, and we treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, based on an opinion of counsel substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of real estate assets,

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and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of our TBAs should be treated as gain from the sale or disposition of an interest in mortgages on real property.

Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in such opinions.

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federal income tax treatment of an investment in us.

federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS and the U.S.

Treasury, which results in statutory changes as well as frequent revisions to regulations and interpretations.

federal income tax rules dealing with REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S.

Treasury, which results in statutory changes as well as frequent revisions to regulations and

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interpretations.

Future revisions in federal tax laws and interpretations thereof could affect or cause us to change our investments and commitments and affect the tax considerations of an investment in us.

Counterparty Risks

The soundness of our counterparties and other financial institutions could adversely affect us.

The soundness of our counterparties and other financial institutions affects us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, borrower, or other relationships.

We have exposure to many different counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, mortgage companies, and other financial institutions.

Many of these transactions expose us to credit or counterparty risk in the event of default of our counterparty or, in certain instances, our counterparty’s customers.

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Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders.

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In the event of our insolvency or bankruptcy, certain repurchase and derivative agreements may qualify for special treatment under the U.S.

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We may experience declines in the market value of our assets.

We may experience declines in the market value of our assets due to interest rate changes, deterioration of the credit of the borrower or counterparty, or other reasons described in other risk factors.

These declines can result in fair value adjustments, impairments, decreases in reported asset and earnings, margin calls, liquidity risks, and other adverse impacts.

Investments in MSR may expose us to additional risks.

We have in the past and may in the future experience declines in the market value of our assets due to interest rate changes, deterioration of the credit of the borrower or counterparty, or other reasons described in other risk factors.

These declines may result in fair value adjustments, impairments, decreases in reported asset and earnings, margin calls, liquidity risks, and other adverse impacts.

Investments in MSR expose us to additional risks.

We invest in MSR and financial instruments whose cash flows are considered to be largely dependent on underlying MSR that either directly or indirectly act as collateral for the investment.

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Generally, we have the right to receive certain cash flows from the MSR that are generated from the servicing fees and/or excess servicing spread associated with the MSR.

Our investments in MSR-related assets expose us to risks associated with MSR, including the following:

Our investments in MSR-related assets have in the past and may in the future expose us to risks associated with MSR, including the following:

• Investments in MSR are highly illiquid and subject to numerous restrictions on transfer and, as a result, there is risk that we would be unable to locate a willing buyer or get required approval to sell MSR in the future should we desire to do so.

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• Our rights to the excess servicing spread are subordinate to the interests of Fannie Mae, Freddie Mac and Ginnie Mae, and are subject to extinguishment.

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A prolonged economic slowdown or declining real estate values could impair the assets we may own.

Our non-Agency mortgage-backed securities, mortgage loans, and MSR may be susceptible to economic slowdowns or recessions, which could lead to financial losses in our assets and a decrease in revenues, net income and asset values.

Our non-Agency mortgage-backed securities, mortgage loans, and MSR are affected by economic slowdowns or recessions, which could lead to financial losses in our assets and a decrease in revenues, net income and asset values.

Owners of Agency mortgage-backed securities are protected from the risk of default on the underlying mortgages by guarantees from Fannie Mae, Freddie Mac or, in the case of the Ginnie Mae, the U.S.

A default on those underlying mortgages exposes us to prepayment risk described above, but not a credit loss.

However, we also acquire CRTs, non-Agency mortgage-backed securities and residential loans, which are backed by residential real property but, in contrast to Agency

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mortgage-backed securities, the principal and interest payments are not guaranteed by GSEs or the U.S.

A default on those underlying mortgages exposes us to prepayment risk described below, but not a credit loss.

However, we also acquire CRTs, non-Agency mortgage-backed securities and residential loans, which are backed by residential real property but, in contrast to Agency mortgage-backed securities, the principal and interest payments are not guaranteed by GSEs or the U.S.

Our CRT, non-Agency mortgage-backed securities and residential loan investments are therefore particularly sensitive to recessions and declining real estate values.

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Delinquencies and defaults on mortgage loans for which we own the servicing rights will adversely affect the amount of servicing fee income we receive and may result in increased servicing costs and operational risks due to the increased complexity of servicing delinquent and defaulted mortgage loans.

An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our book value.

Increases in interest rates may negatively affect the market value of our interest earning assets because in a period of rising interest rates, the value of certain interest earning assets may fall and reduce our book value.

An increase in interest rates adversely affects the market value of our interest earning assets and, therefore, also our book value.

Increases in interest rates have in the past and may in the future negatively affect the market value of our interest earning assets because in a period of rising interest rates, the value of certain interest earning assets may fall and reduce our book value.

For example, our fixed-rate interest earning assets are generally negatively affected by increases in interest rates because in a period of rising rates, the coupon we earn on our fixed-rate interest earning assets would not change.

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Certain actions taken by the U.S.

government, including the Fed, may have a negative a impact on our results.

For example, rising short-term interest rates as the Fed lifts its monetary policy rate to slow the currently elevated rate of inflation may have a negative impact on our results.

government, including the Fed, may impact our results.

For example, rising short-term interest rates if the Fed lifts its monetary policy rate to slow an elevated rate of inflation may have a negative impact on our results.

Meanwhile, any potential future reduction of the Fed’s balance sheet might lead to higher interest rate volatility and wider mortgage-backed security spreads that could negatively impact Annaly’s portfolio.

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We invest in securities that are subject to mortgage credit risk.

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The holder of the securities in the CRT sector has the risk that the borrowers may default on their obligations to make full and timely payments of principal and interest.

Investments in securities in the CRT sector could cause us to incur losses of income from, and/or losses in market value relating to, these assets if there are defaults of principal and/or interest on the pool of mortgages referenced in the transaction.

Investments in securities in the CRT sector have in the past and may in the future cause us to incur losses of income from, and/or losses in market value relating to, these assets if there are defaults of principal and/or interest on the pool of mortgages referenced in the transaction.

The holder of the CRT may also bear the risk of the default of the issuer of the security.

Changes in credit spreads may affect the market price of credit-sensitive investments.

Our investments in real estate and other securities are subject to changes in credit spreads as well as available market liquidity, which affect our ability to realize gains on the sale of such investments.

A significant component of the fair value of CRT and non-Agency securities and other credit risk-oriented investments is attributable to the credit spread, or the difference between the value of the credit instrument and the value of a financial instrument with similar interest rate exposure, but with no credit risk, such as a U.S.

Treasury note.

Credit spreads can be highly volatile and may fluctuate due to changes in economic conditions, liquidity, investor demand and other factors.

Credit spreads can be highly volatile and have in the past and may in the future fluctuate due to changes in economic conditions, liquidity, investor demand and other factors.

Credit spreads typically widen in times of increased market uncertainty or when economic conditions have or are expected to deteriorate.

Credit spreads may also widen due to actual or anticipated rating downgrades on the securities or similar securities.

Hedging fair value changes associated with credit spreads can be inefficient and our hedging strategies are not primarily designed to mitigate credit spread risk.

Widening credit spreads could net unrealized gains to decrease or result in net losses.

Hedging fair value changes associated with credit spreads may be inefficient and our hedging strategies are not primarily designed to mitigate credit spread risk.

Widening credit spreads could cause net unrealized gains to decrease or result in net losses.

Geographic concentration exposes investors to greater risk of default and loss.

Repayments by borrowers and the market value of the related assets could be affected by economic conditions generally or specific to geographic areas or regions of the United States, and concentrations of mortgaged residential properties in particular geographic areas may increase the risk that adverse economic or other developments or natural or man-made disasters affecting a particular region of the country could increase the frequency and severity of losses on mortgage loans or other real estate debt secured by those properties.

From time to time, regions of the United States experience significant real estate downturns when

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others do not.

From time to time, regions of the United States experience significant real estate downturns when others do not.

Regional economic declines or conditions in regional real estate markets could adversely affect the income from, and market value of, the mortgaged properties.

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A decline in the general economic condition in the region in which mortgaged properties securing the related mortgage loans are located would result in a decrease in consumer demand in the region, and the income from and market value of the mortgaged properties may be adversely affected.

Other regional factors – e.g., rising sea levels, earthquakes, floods, forest fires, hurricanes or changes in governmental rules or fiscal policies – also may adversely affect the mortgaged properties.

Assets in certain regional areas may be more susceptible to certain hazards (such as earthquakes, widespread fires, floods or hurricanes) than properties in other parts of the country and collateral properties located in coastal states may be more susceptible to hurricanes than properties in other parts of the country.

Other regional factors – e.g., rising sea levels, earthquakes, floods, forest fires, hurricanes or changes in governmental rules or fiscal policies – have in the past and may in the future adversely affect the mortgaged properties.

Assets in certain regional areas are more susceptible to certain hazards (such as earthquakes, widespread fires, floods or hurricanes) than properties in other parts of the country and collateral properties located in coastal states may be more susceptible to hurricanes than properties in other parts of the country.

Furthermore, increasing financial losses related to climate change have caused, and may continue to cause, insurers to reassess their presence in certain impacted areas.

As a result, areas affected by such events often experience disruptions in travel, transportation and tourism, loss of jobs and an overall decrease in consumer activity, and often a decline in real estate-related investments.

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There can be no assurance that the economies in such impacted areas will recover sufficiently to support income producing real estate at pre-event levels or that the costs of the related clean-up will not have a material adverse effect on the local or national economy.

Inadequate property insurance coverage could have an adverse impact on our operating results.

Inadequate property insurance coverage impacts on our operating results.

Residential real estate assets may suffer casualty losses due to risks (including acts of terrorism) that are not covered by insurance or for which insurance coverage requirements have been contractually limited by the related loan documents.

Moreover, if reconstruction or major repairs are required following a casualty, changes in laws that have occurred since the time of original construction may materially impair the borrower’s ability to effect such reconstruction or major repairs or may materially increase the cost thereof.

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There is no assurance that borrowers have maintained or will maintain the insurance required under the applicable loan documents or that such insurance will be adequate.

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 certain areas.In addition, since the residential mortgage loans generally do not require maintenance of terrorism insurance, we cannot assure you that any property will be covered by terrorism insurance.

In addition, since the residential mortgage loans generally do not require maintenance of terrorism insurance, we cannot assure you that any property will be covered by terrorism insurance.

Therefore, damage to a collateral property that is not adequately insured or damage to a collateral property caused by acts of terror may not be covered by insurance and may result in substantial losses to us.

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Our assets may in the near or the long term become non-performing or sub-performing assets, which are subject to increased risks relative to performing assets.

Residential mortgage loans may become non-performing or sub-performing for a variety of reasons that result in the borrower being unable to meet its debt service and/or repayment obligations, such as the underlying property being too highly leveraged or the financial distress of the borrower.

Residential mortgage loans have in the past and may in the future become non-performing or sub-performing for a variety of reasons that result in the borrower being unable to meet its debt service and/or repayment obligations, such as the underlying property being too highly leveraged or the financial distress of the borrower.

Such non-performing or sub-performing assets may require a substantial amount of workout negotiations and/or restructuring, which may involve substantial cost and divert the attention of our management from other activities and may entail, among other things, a substantial reduction in interest rate, the capitalization of interest payments and/or a substantial write-down of the principal of the loan.

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Foreclosure may create a negative public perception of the related property, resulting in a diminution of its value.

Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.

Depending on the results of the foreclosure process, we may assume direct ownership of the underlying real estate.

Even if we are successful in foreclosing on a loan, and irrespective of whether we assume ownership of the property, the liquidation proceeds upon sale of the underlying real estate are not always sufficient to recover our cost basis in the loan, resulting in a loss to us.

Furthermore, any costs or delays involved in the foreclosure of a loan or a liquidation of the underlying property will further reduce the proceeds and thus increase our loss.

Any such reductions could materially and adversely affect the value of the residential mortgage loans in which we invest.

Whether or not we have participated in the negotiation of the terms of a loan, there can be no assurance as to the adequacy of the protection of the terms of the loan, including the validity or enforceability of the loan and the maintenance of the anticipated

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priority and perfection of the applicable security interests.

Furthermore, claims may be asserted that might interfere with enforcement of our rights.

In the event of a foreclosure, we may assume direct ownership of the underlying real estate.

The liquidation proceeds upon sale of that real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.

Any costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and increase our loss.

Furthermore, claims have in the past and may in the future be asserted that might interfere with enforcement of our rights.

Whole loan mortgages are also subject to “special hazard” risk (property damage caused by hazards, such as earthquakes or environmental hazards, not covered by standard property insurance policies), and to bankruptcy risk (reduction in a borrower’s mortgage debt by a bankruptcy court).

In addition, claims may be assessed against us on account of our position as mortgage holder or property owner, as applicable, including responsibility for tax payments, environmental hazards and other liabilities, which could have a material adverse effect on our results of operations, financial condition and our ability to make distributions to our stockholders.

In addition, claims have in the past and may in the future be assessed against us on account of our position as mortgage holder or property owner, as applicable, including responsibility for tax payments, environmental hazards and other liabilities, which could have a material adverse effect on our results of operations, financial condition and our ability to make distributions to our stockholders.

We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and warranties.

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Our mortgage loan sale agreements will require us to repurchase or substitute loans in the event we breach a representation or warranty given to the loan purchaser.

In addition, we may be required to repurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan.

Likewise, we may be required to repurchase or substitute loans if we breach a representation or warranty in connection with our securitizations.

In addition, we have in the past and may in the future be required to repurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan.

Likewise, we are not always required to repurchase or substitute loans if we breach a representation or warranty in connection with our securitizations.

The remedies available to a purchaser of mortgage loans are generally broader than those available to us against the originating broker or correspondent.

Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the sellers.

Further, if a purchaser enforces its remedies against us, we have in the past and may in the future not be able to enforce the remedies we have against the sellers.

The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all.

They are also typically sold at a significant discount to the unpaid principal balance.

They are also typically sold at a significant discount to the unpaid principal

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Significant repurchase activity could adversely affect our cash flow, results of operations, financial condition and business prospects.

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When we foreclose on an asset, we may come to own the property securing the loan.

When we foreclose on a residential real estate asset, we may take title to the property securing that asset, and if we do not or cannot sell the property, we would then come to own and operate it as “real estate owned.” Owning and operating real property involves risks that are different (and in many ways more significant) than the risks faced in owning a debt instrument secured by that property.

In addition, we may end up owning a property that we would not otherwise have decided to acquire directly at the price of our original investment or at all.

When we foreclose on a residential real estate asset, we have in the past and may in the future take title to the property securing that asset, and if we do not or cannot sell the property, we would then come to own and operate it as “real estate owned.” Owning and operating real property involves risks that are different (and in many ways more significant) than the risks faced in owning a debt instrument secured by that property.

In addition, we have in the past and may in the future end up owning a property that we would not otherwise have decided to acquire directly at the price of our original investment or at all.

If we foreclose on and come to own property, our financial performance and returns to investors could suffer.

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There is also no certainty as to whether any such action without the consent of investors would face legal challenge, and, if so, the outcome of any such challenge.

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Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior securities.

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Our hedging strategies may be costly, and may not hedge our risks as intended.

Our policies permit us to enter into interest rate swaps, caps and floors, interest rate swaptions, interest rate futures, and other derivative transactions to help us mitigate our interest rate and prepayment risks described above subject to maintaining our qualification as a REIT and our Investment Company Act exemption.

Our policies permit us to enter into interest rate swaps, caps and floors, interest rate swaptions, interest rate futures, and other derivative transactions to help us mitigate our interest rate and prepayment risks described in other risk factors subject to maintaining our qualification as a REIT and our Investment Company Act exemption.

We have used interest rate swaps and options to enter into interest rate swaps (commonly referred to as interest rate swaptions) to provide a level of protection against interest rate risks.

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and the duration of the hedge may not match the duration of the related asset or liability.

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We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of climate change.

Assets in which we hold a direct or indirect interest could experience severe weather, including hurricanes, severe winter storms, and flooding (including as a result of sea level rise), all of which may become more severe as a result of climate change, which among other effects could impact house prices and housing-related costs and/or disrupt borrowers’ ability to pay their mortgage and or loan.

Assets in which we hold a direct or indirect interest have in the past and may in the future experience severe weather, including hurricanes, severe winter storms, wildfires and flooding (including as a result of sea level rise), all of which may become more severe as a result of climate change, which among other effects could impact house prices and housing-related costs and/or disrupt borrowers’ ability to pay their mortgage and or loan.

In addition, such events, particularly if they are not adequately covered by insurance or have a broader negative impact on the local economy, may decrease the value of land and property secured by mortgages.

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There can be no assurance that climate change and severe weather will not have a material adverse effect on our financial performance.

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Operational and Cybersecurity Risks

Inaccurate models or the data used by models may expose us to risk.

Reliance on inaccurate models or the data used by models exposes us to risk.

Given our strategies and the complexity of the valuation of our assets, we must rely heavily on analytical models (both proprietary models developed by us and those supplied by third parties) and information and data supplied by our third party vendors and servicers.

Models and data are used to value assets or potential asset purchases and also in connection with hedging our assets.

Some of these models may use artificial intelligence.

When models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.

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The use of predictive models has inherent risks.

For example, such models may incorrectly forecast future behavior, leading to potential losses on a cash flow and/or a mark-to-market basis.

In addition, the predictive models used by us may differ substantially from those models used by other market participants, with the result that valuations based on these

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predictive models may be substantially higher or lower for certain assets than actual market prices.

For example, such models have in the past and may in the future incorrectly forecast future behavior, leading to potential losses on a cash flow and/or a mark-to-market basis.

In addition, the predictive models used by us 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 assets than actual market prices.

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.

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However, even if market data is inputted correctly, “model prices” will often differ substantially from market prices, especially for securities with complex characteristics, such as derivative instruments or structured notes.

We are highly dependent on information systems and networks, many of which are operated by third parties, and any failure of these systems or networks could materially and adversely affect our business.

We are highly dependent on information systems and networks, many of which are operated by third parties.

Our business is highly dependent on communications and information systems and networks.

Any failure or interruption of our systems or networks or cyberattacks or other information security breaches of our networks or systems could cause delays or other problems in our securities trading activities, including mortgage-backed securities trading activities.

Any failure or interruption of our or our counterparties’ systems or networks or cyberattacks or other information security breaches of our networks or systems may cause delays or other problems in our securities trading activities, including mortgage-backed securities trading activities.

In addition, we also face the risk of operational failure, termination or capacity constraints of any of the third parties with which we do business or that facilitate our business activities, including clearing agents or other financial intermediaries we use to facilitate our securities transactions, if their respective systems experience failure, interruption, cyberattacks, or other information security breaches, including those caused by software bugs or errors, network failures, computer and telecommunication failures, usage errors, power, communications or other service outages or failures, fires, earthquakes, severe weather conditions or other catastrophic events.

Certain third parties provide information needed for our financial statements that we cannot obtain or verify from other sources.

If one of those third parties experiences a system or network failure or cybersecurity incident, we may not have access to that information or may not have confidence in its accuracy.

Any of the controls and procedures, business continuity systems and information security systems we or third parties upon whom we rely have in place could prove to be inadequate.

Any failure to maintain performance, reliability and security of our technical infrastructure, systems or networks, or any such failure by third parties upon whom we rely, could materially and adversely affect our business.

Cyberattacks or other information security breaches could adversely affect our business, reputation and financial condition.

Cybersecurity risks for financial services businesses have significantly increased in recent years in part because of the proliferation of new technologies, including generative artificial intelligence, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, state-sponsored actors and other external parties.

Computer malware, ransomware, viruses, computer hacking, denial-of-service attacks, and social engineering attacks (including phishing attacks) have become more prevalent in our industry and we are subject to such attempted attacks.

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Cyberattacks or other information security breaches of our Company's, service providers' or counterparties' systems or networks affect our business, reputation and financial condition.

Cybersecurity risks for financial services businesses are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect, in part because of the proliferation of new technologies, including generative artificial intelligence, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, state-sponsored actors and other external parties.

Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, ransomware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability.

Cybersecurity risks also may derive from fraud or malice on the part of our employees or third parties, or may result from human error, software bugs, server malfunctions, software or hardware failure or other technological failure.

Such threats may be difficult to detect for long periods of time and also may be further enhanced in frequency or effectiveness through threat actors’ use of artificial intelligence.

Further, cybersecurity risks may be heightened as a result of ongoing global conflicts.

We rely heavily on our financial, accounting and other data processing systems.

A cyberattack or other information security breach of such systems could lead to unauthorized access to and release, misuse, loss or destruction of our confidential information or personal or confidential information of our clients, employees or third parties, which could lead to regulatory fines, costs of remediating the breach, reputational harm, financial losses, litigation and increased difficulty doing business with third parties that rely on us to meet their own data protection requirements.

A cyberattack or other information security breach of such systems could lead to unauthorized access to and release, misuse, alteration, exfiltration, theft, loss, damage or destruction of our confidential information or personal or confidential information of our clients, employees or third parties, which could lead to regulatory fines, costs of remediating the breach, reputational harm, financial losses, litigation and increased difficulty doing business with third parties that rely on us to meet their own data protection requirements.

While we generally perform cybersecurity diligence on our key service providers, we do not control our service providers and our ability to monitor their cybersecurity is limited.

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It is possible that we have experienced an undetected breach.

There is no assurance that we, or the third parties that facilitate our business activities, have not or will not experience a breach.

There is no assurance that we have not or will not experience a breach.

In addition, certain third parties that facilitate our business activities have reported breaches in the past and may experience breaches in the future, and there is no assurance that the third parties that have not reported breaches or will not experience a breach in the future.

We may be held responsible if certain third parties that facilitate our business activities experience a breach.

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These costs and losses associated with these risks are difficult to predict and quantify, but could have a significant adverse effect on our operating results.

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It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyberattacks or other information security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities), but any cyberattack or other information security breach may negatively affect our operations.

Further, we could be exposed to litigation, regulatory enforcement, investigations or other legal action as a result of an incident, carrying the potential for damages, fines, sanctions or other penalties, injunctive relief requiring costly compliance measures, and reputational damage.

We may utilize artificial intelligence, which exposes us to liability and affects our business.

We use, or may in the future use, artificial intelligence, generative artificial intelligence, machine learning and similar tools and technologies (collectively, “AI”) in connection with our business.

The use of generative artificial intelligence, a relatively new and emerging technology in the early stages of commercial use, exposes us to additional risks, such as damage to our reputation, competitive position, and business, legal and regulatory risks and additional costs.

For example, generative artificial intelligence has been known to produce false or “hallucinatory” inferences or output, and certain generative artificial intelligence uses machine learning and predictive analytics, which can create inaccurate, incomplete, or misleading content, unintended biases and other discriminatory or unexpected results, errors or inadequacies, any of which may not be easily detectable by us or any of our related service providers.

Accordingly, while AI systems may help provide more tailored or personalized user experiences, if the content, analyses, or recommendations that AI systems assist in producing in our products and solutions are, or are perceived to be, deficient, inaccurate, biased, unethical or otherwise flawed, our reputation, competitive position and business may be materially and adversely affected.

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Additionally, if any of our employees, contractors, consultants, vendors or service providers use any third-party AI-powered software in connection with our business or the services they provide to us, it may lead to the inadvertent disclosure or incorporation of our confidential information into publicly available training sets, which may impact our ability to realize the benefit of, or adequately maintain, protect and enforce our intellectual property or confidential information, harming our competitive position and business.

Any output created by us using AI tools may not be subject to copyright protection, which may adversely affect our intellectual property rights in, or ability to commercialize or use, any such content.

In the United States, a number of civil lawsuits have been initiated related to the foregoing and other concerns, any one of which may, among other things, require us to limit the ways in which our AI systems are trained and may affect our ability to develop our AI-powered products and solutions.

To the extent that we do not have sufficient rights to use the data or other material or content used in or produced by the AI tools used in our business, or if we experience cybersecurity incidents in connection with our use of AI, it could adversely affect our reputation and expose us to legal liability or regulatory risk, including with respect to third-party intellectual property, privacy, data protection and cybersecurity, publicity, contractual or other rights.

Further, our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively.

In addition, the regulatory framework for AI and similar technologies, and automated decision making, is changing rapidly.

It is possible that new laws and regulations will be adopted in the United States and in non-U.S.

jurisdictions, or that existing laws and regulations may be interpreted, in ways that would affect the operation of our products and solutions and the way in which we use AI and similar technologies.

For example, in Europe, on August 1, 2024, the European Union’s Artificial Intelligence Act (the “AI Act”) was entered into force.

The AI Act establishes, among other things, a risk-based governance framework for regulating AI systems operating in the European Union.

This framework would categorize AI systems, based on the risks associated with such AI systems’ intended purposes, as creating unacceptable or high risks, with all other AI systems being considered low risk.

We may not be able to adequately anticipate or respond to these evolving laws and regulations, and we may need to expend additional resources to adjust our offerings in certain jurisdictions if applicable legal frameworks are inconsistent across jurisdictions.

Moreover, because these technologies are themselves highly complex and rapidly developing, it is not possible to predict all of the legal or regulatory risks that may arise relating to our use of such technologies.

Further, the cost to comply with such laws or regulations could be significant and would increase our operating expenses, which could adversely affect our business, financial condition and results of operations.

As the utilization of AI becomes more prevalent, we anticipate that it will continue to present new or unanticipated ethical, reputational, technical, operational, legal, competitive and regulatory issues, among others.

We expect that our incorporation of AI in our business will require additional resources, including the incurrence of additional costs, to develop and maintain our products and solutions and features to minimize potentially harmful or unintended consequences, to comply with applicable and emerging laws and regulations, to maintain or extend our competitive position, and to address any ethical, reputational, technical, operational, legal, competitive or regulatory issues which may arise as a result of any of the foregoing.

As a result, the challenges presented with our use of AI could adversely affect our business, financial condition and results of operations.

We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services related to our business.

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For example, we rely on the mortgage servicers who service the mortgage loans underlying our MSR to, among other things, collect principal and interest payments on such mortgage loans and perform loss mitigation services in accordance with applicable laws and regulations.

Mortgage servicers and other service providers, such as trustees, bond insurance providers, due diligence vendors and document custodians, may fail to perform or otherwise not perform in a manner that promotes our interests.

Mortgage servicers and other service providers, such as trustees, bond insurance providers, due diligence vendors and document custodians, have in the past and may in the future fail to perform or otherwise not perform in a manner that promotes our interests.

For example, any legislation or regulation intended to reduce or prevent foreclosures through, among other things, loan modifications may reduce the value of mortgage loans, including those underlying our MSR.

Mortgage servicers may be required or otherwise incentivized by the Federal or state governments to pursue actions designed to assist mortgagors, such as loan modifications, forbearance plans and other actions intended to prevent foreclosure even if such loan modifications and other actions are not in the best interests of the beneficial owners of the mortgage loans.

Mortgage servicers have in the past and may in the future be required or otherwise incentivized by the Federal or state governments to pursue actions designed to assist mortgagors, such as loan modifications, forbearance plans and other actions intended to prevent foreclosure even if such loan modifications and other actions are not in the best interests of the beneficial owners of the mortgage loans.

Similarly, legislation delaying the initiation or completion of foreclosure proceedings on specified types of residential mortgage loans or otherwise limiting the ability of mortgage servicers to take actions that may be essential to preserve the value of the mortgage loans may also reduce the value of mortgage loans underlying our MSR.

Any such limitations are likely to cause delayed or reduced collections from mortgagors and generally increase servicing costs.

As a consequence of the foregoing matters, our business, financial condition and results of operations may be adversely affected.

As a consequence of the foregoing matters, our business, financial condition and results of operations could be adversely affected.

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Our investments in residential whole loans subject us to servicing-related risks.

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If a servicer takes longer to liquidate non-performing mortgages, our losses related to those loans may be higher than originally anticipated.

Any failure by servicers to service these mortgages and related real estate owned (“REO”) properties could negatively impact the value of these investments and our financial performance.

Any failure by servicers to service these mortgages and related real estate owned (“REO”) properties impacts the value of these investments and our financial performance.

In addition, while we have contracted, and will continue to contract, with unaffiliated servicing companies to carry out the actual servicing of the loans we purchase together with the related MSR (including all direct interface with the borrowers), we are nevertheless ultimately responsible, vis-à-vis the borrowers and state and federal regulators, for ensuring that the loans are serviced in accordance with the terms of the related notes and mortgages and applicable law and regulation.

In light of the current regulatory environment, such exposure could be significant even though we might have contractual claims against our servicers for any failure to service the loans to the required standard.

A default by the mortgage servicer in its capacity as servicer and/or failure of the mortgage servicer to perform its obligations related to any MSR could result in a loss of value of servicing fees and/or excess servicing spread.

A default by the mortgage servicer in its capacity as servicer and/or failure of the mortgage servicer to perform its obligations related to any MSR have in the past and may in the future result in a loss of value of servicing fees and/or excess servicing spread.

Mortgage servicers are subject to extensive federal, state and local laws, regulations and administrative decisions and failure to comply with such regulations can expose the servicer to fines, damages and losses.

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Finally, at such time as title is taken to a foreclosed property, it may require more extensive rehabilitation than we estimated at acquisition or a previously unknown environmental liability may be discovered that would require expensive and time-consuming remediation.

Additionally, given the magnitude of the 2008-2009 housing crisis, and in response to the well-publicized failures of many servicers to follow proper foreclosure procedures, mortgage servicers are being held to much higher foreclosure-related

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documentation standards than they previously were.

However, because many mortgages have been transferred and assigned multiple times (and by means of varying assignment procedures) throughout the origination, warehouse, and securitization processes, mortgage servicers have generally had much more difficulty furnishing the requisite documentation to initiate or complete foreclosures.

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The concerns about deficiencies in foreclosure practices of servicers and related delays in the foreclosure process may impact our loss assumptions and has affected and may continue to affect the values of, and our returns on, our investments in residential whole loans.

The performance of loans underlying our MSR related assets may be adversely affected by the performance of the related mortgage servicer.

The performance of loans underlying our MSR related assets is affected by the performance of the related mortgage servicer.

The performance of the loans underlying our MSR related assets is subject to risks associated with inadequate or untimely servicing.

If our mortgage servicers commit a material breach of their obligations as a servicer, we may be subject to damages if the breach is not cured within a specified period of time following notice.

In addition, poor performance by a mortgage servicer may result in greater than expected delinquencies and foreclosures and losses on the mortgage loans underlying our MSR related assets.

In addition, poor performance by a mortgage servicer have in the past and may in the future result in greater than expected delinquencies and foreclosures and losses on the mortgage loans underlying our MSR related assets.

A substantial increase in our delinquency or foreclosure rate or the inability to process claims could adversely affect our ability to access the capital and secondary markets for our financing needs.

Similarly to the way in which we service residential whole loans, we have also contracted, and will continue to contract, with unaffiliated servicing companies to carry out the actual servicing activities (including all direct interface with the borrowers).

However, we are nevertheless ultimately responsible, vis-à-vis the borrowers and state and federal regulators, for ensuring that these activities are performed in accordance with the terms of the related notes and mortgages and applicable laws and regulations.

Similar to the way in which we service residential whole loans, we have also contracted, and will continue to contract, with unaffiliated servicing companies to carry out the actual servicing activities (including all direct interface with the borrowers).

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In the capacity of servicer, mortgage servicers operate in a highly litigious industry that subject them to potential lawsuits related to billing and collections practices, modification protocols or foreclosure practices.

An increase or decrease in prepayment rates may adversely affect our profitability.

We are subject to prepayment rate risk.

The mortgage-backed securities we acquire are backed by pools of mortgage loans.

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In accordance with U.S.

generally accepted accounting principles (“GAAP”), we amortize the premiums on our mortgage-backed securities over the expected life of the related mortgage-backed securities.

GAAP, we amortize the premiums on our mortgage-backed securities over the expected life of the related mortgage-backed securities.

If the mortgage loans securing these mortgage-backed securities prepay at a more rapid rate than anticipated, we will have to amortize our premiums on an accelerated basis that may adversely affect our profitability.

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Prepayment rates generally increase when interest rates fall and decrease when interest rates rise, but changes in prepayment rates are difficult to predict.

Prepayment rates also may be affected by conditions in the housing and financial markets, general economic conditions and the relative interest rates on fixed-rate and adjustable-rate mortgage loans.

We may seek to minimize prepayment risk to the extent practical, and in selecting investments we must balance prepayment risk against other risks and the potential returns of each investment.

Prepayment rates also have in the past and may in the future be affected by conditions in the housing and financial markets, general economic conditions and the relative interest rates on fixed-rate and adjustable-rate mortgage loans.

We seek to minimize prepayment risk to the extent practical, and in selecting investments we must balance prepayment risk against other risks and the potential returns of each investment.

No strategy can completely insulate us from prepayment risk.

We may choose to bear increased prepayment risk if we believe that the potential returns justify the risk.

We have in the past and may in the future choose to bear increased prepayment risk if we believe that the potential returns justify the risk.

Conversely, a decline in prepayment rates on our investments will reduce the amount of principal we receive and therefore reduce the amount of cash we otherwise could have reinvested in higher yielding assets at that time, which could negatively impact our future operating results.

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We are subject to reinvestment risk.

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Declines in interest rates are generally accompanied by increased prepayments of mortgage loans, which in turn results in a prepayment of the related mortgage-backed securities.

An increase in prepayments could result in the reinvestment of the proceeds we receive from such prepayments into lower yielding assets.

Conversely, increases in interest rates are generally accompanied by decreased prepayments of mortgage loans, which could reduce our capital available to reinvest into higher-yielding assets.

An increase in prepayments has in the past and may in the future result in the reinvestment of the proceeds we receive from such prepayments into lower yielding assets.

Conversely, increases in interest rates are generally accompanied by decreased prepayments of mortgage loans, which have in the past and may in the future reduce our capital available to reinvest into higher-yielding assets.

Competition may affect ability and pricing of our target assets.

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Many of our competitors are substantially larger and have considerably greater financial, technical, technological, marketing and other resources than we do.

Other REITs with investment objectives that overlap with ours may elect to raise significant amounts of capital, which may create additional competition for investment opportunities.

Other REITs with investment objectives that overlap with ours may elect to raise significant amounts of capital, which have in the past and may in the future create additional competition for investment opportunities.

Some competitors may have a lower cost of funds and access to funding sources that may not be available to us.

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We cannot provide assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.

Also, as a result of this competition, desirable investments in our target assets may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

Also, as a result of this competition, desirable investments in our target assets

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may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

We may enter into new lines of business, acquire other companies or engage in other strategic initiatives, each of which may result in additional risks and uncertainties in our businesses.

We may pursue growth through acquisitions of other companies or other strategic initiatives.

We have in the past and may in the future pursue growth through acquisitions of other companies or other strategic initiatives.

To the extent we pursue strategic investments or acquisitions, undertake other strategic initiatives or consider new lines of business, we will face numerous risks and uncertainties, including risks associated with:

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• post-acquisition deterioration in an acquired business that could result in lower or negative earnings contribution and/or goodwill impairment charges.

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Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk.

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In addition, if a new or acquired business generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected.

Our strategic initiatives may include joint ventures, in which case we will be subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability for, losses or reputational damage relating to systems, controls and personnel that are not under our control.

Our strategic initiatives have in the past and may in the future include joint ventures, in which case we will be subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability for, losses or reputational damage relating to systems, controls and personnel that are not under our control.

Some of our investments, including those related to non-prime loans, involve credit risk.

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Higher-than-expected rates of default and/or higher-than-expected loss severities on the mortgages underlying our non-Agency mortgage-backed securities, MSR or on our residential whole loan investments may adversely affect the value of those assets.

Accordingly, defaults in the payment of principal and/or interest on our non-Agency mortgage-backed securities, residential whole loan investments, MSR and other investment assets of lower credit quality would likely result in our incurring losses of income from, and/or losses in market value relating to, these assets.

Accordingly, defaults in the payment of principal and/or interest on our non-Agency mortgage-backed securities, residential whole loan investments, MSR and other investment assets of lower credit quality have in the past and may in the future result in our incurring losses of income from, and/or losses in market value relating to, these assets.

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We have certain investments in non-Agency mortgage-backed securities backed by collateral pools containing mortgage loans that were originated under underwriting standards that were less strict than those used in underwriting “prime mortgage loans.” These lower standards permitted mortgage loans, often with LTV ratios in excess of 80%, to be made to borrowers having impaired credit histories, lower credit scores, higher debt-to-income ratios and/or unverified income.

Difficult economic conditions, including increased interest rates and lower home prices, can result in non-prime and subprime mortgage loans having increased rates of delinquency, foreclosure, bankruptcy and loss (including such as during the credit crisis of 2007-2008 and the housing crisis that followed), and are likely to otherwise experience delinquency, foreclosure, bankruptcy and loss rates that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner.

Difficult economic conditions, including increased interest rates and lower home prices, have in the past and may in the future result in non-prime and subprime mortgage loans having increased rates of delinquency, foreclosure, bankruptcy and loss (including such as during the credit crisis of 2007-2008 and the housing crisis that followed), and are likely to otherwise experience delinquency, foreclosure, bankruptcy and loss rates that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner.

Thus, because of higher delinquency rates and losses associated with non-prime and subprime mortgage loans, the performance of our non-Agency mortgage-backed securities that are backed by these types of loans could be correspondingly adversely affected, which could materially adversely impact our results of operations, financial condition and business.

If we are unable to attract, motivate and retain qualified talent, including our key personnel, it could materially and adversely affect us.

Any inability to attract, motivate and retain qualified talent, including our key personnel, affects us.

Our success and our ability to manage anticipated future growth depend, in large part, upon the efforts of our highly skilled employees, and particularly on our key personnel, including our executive officers.

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If we issue a significant number of shares of common stock or securities convertible into common stock in a short period of time, there could be a dilution of the existing common stock and a decrease in the market price of the common stock.

The market price of our shares of common stock may be highly volatile and could be subject to wide fluctuations.

The market price of our shares of common stock has in the past and may in the future be highly volatile and could be subject to wide fluctuations.

In addition, the trading volume in our shares of common stock may fluctuate and cause significant price variations to occur.

We cannot assure you that the market price of our shares of common stock will not fluctuate or decline significantly in the future.

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the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our shares of common stock include those set forth under “Special Note Regarding Forward-Looking Statements” as well as:

Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our shares of common stock include those set forth under “Special Note Regarding Forward-Looking Statements” as well as:

• actual or anticipated variations in our quarterly operating results or business prospects;

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Holders of our shares of common stock will be subject to the risk of volatile market prices and wide fluctuations in the market price of our shares of common stock.

These factors may cause the market price of our shares of common stock to decline, regardless of our financial condition, results of operations, business or prospects.

These factors have in the past and may in the future cause the market price of our shares

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of common stock to decline, regardless of our financial condition, results of operations, business or prospects.

It is impossible to assure you that the market prices of our shares of common stock will not fall in the future.

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Our Board and management determine all of our significant policies, including our investment, financing, capital and asset allocation and distribution policies.

They may amend or revise these policies at any time without a vote of our stockholders, or otherwise initiate a change in asset allocation.

They have in the past and may in the future amend or revise these policies at any time without a vote of our stockholders, or otherwise initiate a change in asset allocation.

Policy changes could adversely affect our financial condition, results of operations, the market price of our common stock or our ability to pay dividends or distributions.

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UNRESOLVED STAFF COMMENTS

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Our executive and administrative office is located at 1211 Avenue of the Americas New York, New York 10036, telephone 212-696-0100.

This office is leased under a non-cancelable lease expiring September 30, 2025.

This office is leased under a non-cancelable lease expiring May 31, 2042.

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What changed 10-K

Item 1A. Risk Factors