What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-02-21 compared with 2024-02-23 · 22 added, 26 removed, 704 unchanged (6% of the section changed)

56 unchanged sentences

Although rare in a historical context, the U.S.

and many countries in Europe have experienced inverted yield curves.

and many countries in Europe have recently experienced inverted yield curves.

Given the volatile nature of the U.S.

economy and potential future increases in short-term interest rates, there can be no guarantee that the yield curve will not become and/or remain inverted.

economy and potential future increases in short-term interest rates, there can be no guarantee that the yield curve will not become inverted.

If this occurs, it could result in a decline in the value of our Agency RMBS, our business, financial position and results of operations and our ability to pay distributions to our stockholders could be materially adversely affected.

An increase in interest rates may also cause a decrease in the volume of newly issued, or investor demand for, Agency RMBS, which could materially adversely affect our ability to acquire assets that satisfy our investment objectives and our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Rising interest rates generally reduce the demand for consumer credit, including mortgage loans, due to the higher cost of borrowing.

Rising interest rates or high interest rates generally reduce the demand for consumer credit, including mortgage loans, due to the higher cost of borrowing.

A reduction in the volume of mortgage loans may affect the volume of Agency RMBS available to us, which could affect our ability to acquire assets that satisfy our investment objectives.

2 unchanged sentences

Interest rate mismatches between our Agency RMBS and our borrowings may reduce our net interest margin during periods of changing interest rates, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

Our portfolio includes Agency RMBS backed by ARMs, hybrid ARMs and fixed-rate mortgages, and the mix of these securities in the portfolio may be increased or decreased over time.

Our portfolio includes or may include Agency RMBS backed by fixed-rate mortgages, ARMs and hybrid ARMs and the mix of these securities in the portfolio may be increased or decreased over time.

Additionally, the interest rates on ARMs and hybrid ARMs may vary over time based on changes in a short-term interest rate index, of which there are many.

5 unchanged sentences

Although U.S.

lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States.

lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have in recent years lowered or threatened to lower the long-term sovereign credit rating on the United States.

The impact of this or any further downgrades to the U.S.

23 unchanged sentences

After nearly doubling its Agency RMBS holdings from $1.4 trillion in March 2020 to a peak of over $2.7 trillion in April of 2022 as a result of its COVID-19 policy response, the Fed halted purchases of Agency RMBS in September 2022 and began allowing up to $35 billion per month of Agency RMBS to run off its balance sheet.

This, combined with the Fed’s aggressive hikes to the Fed Funds rate in an effort to curb inflation, has resulted in a net supply of Agency RMBS, an increase in interest rates and a current inversion of the yield curve that has negatively impacted the market value of Agency RMBS.

With prepayments slowing in response to rising mortgage rates, Agency RMBS runoffs may not reduce the Fed’s balance sheet quickly enough to meet its stated policy goals, raising the possibility of the Fed selling Agency RMBS outright.

With prepayments slowing in response to rising and/or high mortgage rates, Agency RMBS runoffs may not reduce the Fed’s balance sheet quickly enough to meet its stated policy goals, raising the possibility of the Fed selling Agency RMBS outright.

These actions by the Fed to date, along with interest rate increases, have adversely impacted the prices and returns of Agency RMBS.

While it is very difficult to predict the impact of a continuing Fed portfolio runoff or potential sales of Agency RMBS on the supply, prices and liquidity of Agency RMBS, returns on Agency RMBS may be adversely affected.

Short-term interest rates are currently higher than long-term interest rates.

Short-term interest rates have recently been higher than long-term interest rates.

This phenomenon, typically referred to as an inverted U.S.

Treasury or yield curve, occurred during 2022 and 2023, and may continue well into the future.

Treasury or yield curve, occurred during 2022 through the majority of 2024, and may occur again in the future.

Under such conditions our funding costs may equal or exceed yields available on our assets, adversely impacting our financial condition and results of operations and our ability to pay dividends to our stockholders.

1 unchanged sentence

Treasury yield curve became inverted, whereby yields on short-terms rates exceeded yields on long-term interest rates.

This condition continued into 2023 and 2024, and may continue into the future.

This condition continued into 2023 and through the majority of 2024, and may occur again in the future.

Consistent with this development, funding costs associated with our borrowings have increased relative to yields on our Agency RMBS securities.

1 unchanged sentence

We have employed various hedging strategies to off-set the phenomenon.

However, such hedges may not be adequate to protect our interest income in the future, adversely affecting our financial condition, results of operations and our ability to pay dividends to our stockholders.

However, such hedges may not be adequate to protect our interest income if the yield curve inverts again in the future, adversely affecting our financial condition, results of operations and our ability to pay dividends to our stockholders.

Increased levels of prepayments on the mortgages underlying our Agency RMBS might decrease net interest income or result in a net loss, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.

3 unchanged sentences

To the extent that our pass-through Agency RMBS are carried at a premium to par, faster-than-expected prepayments could also materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders in various ways, including the following:

A portion of our pass-through Agency RMBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.

We could realize the loss of the premium paid on the Agency RMBS.

We may have to reinvest the capital from the prepayments at lower prevailing interest rates.

Pass-through Agency RMBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.

If a pass-through Agency RMBS backed by ARMs or hybrid ARMs is prepaid prior to or soon after the time of adjustment to a fully-indexed rate, we will have held that Agency RMBS while it was less profitable and lost the opportunity to receive interest at the fully-indexed rate over the remainder of its expected life.

105 unchanged sentences

Significant adverse changes in financial market conditions can result in a deleveraging of the global financial system and the forced sale of large quantities of mortgage-related and other financial assets.

Concerns over rising interest rates, growing inflation, economic recession, geopolitical issues including events such as the COVID-19 pandemic or other global pandemics, the wars in Ukraine and Israel, policy priorities of a new U.S.

presidential administration, trade wars, unemployment, the availability and cost of financing, the mortgage market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.

Concerns over rising or high interest rates, inflation, economic recession, geopolitical issues including events such as global pandemics, the wars in Ukraine and Israel, policy priorities of a new U.S.

presidential administration, tariffs or trade wars, unemployment, the availability and cost of financing, the mortgage market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.

Increased volatility and deterioration in the markets for mortgages and mortgage-related assets as well as the broader financial markets may adversely affect the performance and market value of our Agency RMBS.

71 unchanged sentences

Significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and could cause the value of our common stock to decline.

In addition, we experienced an increase in haircuts on financings we have rolled.

In addition, we have in the past experienced an increase in haircuts on financings we have rolled, and may again in the future.

As haircuts are increased, we are required to post additional collateral.

We may also be forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity.

As a result of the COVID-19 pandemic, we experienced margin calls in 2020 well beyond historical norms.

As of December 31, 2024, we had met all margin call requirements, but a sufficiently deep and/or rapid increase in margin calls or haircuts could have an adverse impact on our liquidity.

43 unchanged sentences

At various times since implementation of the conservatorship, Congress has considered structural changes to the Enterprises.

Treasury published the Treasury Housing Reform Plan in 2019 outlining proposed changes to the U.S.

housing finance system, which could lead to the release of the Enterprises from conservatorship.

Furthermore, the FHFA released its Strategic Plan in October 2019, which included in part an outline for the Enterprises exiting conservatorship.

Events related to the COVID-19 pandemic and the associated economic slowdown raised concerns at the FHFA that the Enterprises may need additional capital in order to meet their obligations as guarantors on trillions of dollars of Agency RMBS.

The market value of Agency RMBS today is highly dependent on the continued support of the Enterprises by the U.S.

175 unchanged sentences

Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including business combination provisions, supermajority vote and cause requirements for removal of directors, provisions that vacancies on our Board of Directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred, the power of our Board of Directors to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock, to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval, the restrictions on ownership and transfer of our stock and advance notice requirements for director nominations and stockholder proposals.

To assist us in qualifying as a REIT, among other purposes, ownership of our stock by any person will generally be limited to 9.8% in value or number of shares, whichever is more restrictive, of any class or series of our stock.

Additionally, our charter will prohibit beneficial or constructive ownership of our stock that would otherwise result in our failure to qualify as a REIT.

To assist us in qualifying as a REIT, among other purposes, ownership of our stock by any person is generally limited to 9.8% in value or number of shares, whichever is more restrictive, of any class or series of our stock.

Additionally, our charter prohibits beneficial or constructive ownership of our stock that would otherwise result in our failure to qualify as a REIT.

The ownership rules in our charter are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be owned by one individual or entity.

74 unchanged sentences

As a result of the foregoing, we may generate less cash flow than taxable income in a particular year.

To the extent that we generate such non-cash taxable income in a taxable year, we may incur U.S.

federal corporate income tax and the 4% nondeductible excise tax on that income if we do not distribute such income to stockholders in that year.

In that event, we may be required to use cash reserves, incur debt, sell assets, make taxable distributions of our stock or debt securities or liquidate non-cash assets at rates or at times that we regard as unfavorable to satisfy the distribution requirement and to avoid U.S.

To the extent that we distribute less than 100% of our taxable income in a taxable year to our stockholders, whether due to non-cash taxable income or otherwise, we may incur U.S.

federal corporate income tax and the 4% nondeductible excise tax on that income.

If we have non-cash taxable income in a taxable year, we may be required to use cash reserves, incur debt, sell assets, make taxable distributions of our stock or debt securities or liquidate non-cash assets at rates or at times that we regard as unfavorable to satisfy the distribution requirement and to avoid U.S.

federal corporate income tax and the 4% nondeductible excise tax in that year.

85 unchanged sentences

Our headquarters and our Manager are located very close to the Florida coastline.

To the extent that climate change impacts changes in weather patterns, our headquarters and our Manager could experience severe weather, including hurricanes and coastal flooding due to increases in storm intensity and rising sea levels.

Our headquarters and our Manager have experienced and may in the future experience severe weather, including hurricanes and coastal flooding due to increases in storm intensity and rising sea levels.

Such weather events could disrupt our operations or damage our headquarters.

26 unchanged sentences

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

What changed 10-K

Item 1A. Risk Factors