What changed in this filing

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2021-04-30 compared with 2020-10-30 · 30 added, 24 removed, 170 unchanged (24% of the section changed)

4 unchanged sentences

prepayment risk, spread risk, liquidity risk, extension risk and counterparty credit risk.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and

18 unchanged sentences

limited by the rules relating to REIT qualification.

In order to preserve our REIT status, we may be forced to terminate a

In order to preserve our REIT status,

we may be forced to terminate a

hedging transaction at a time when the transaction is most needed.

14 unchanged sentences

Prepayments occur for various reasons, including refinancing of underlying

mortgages and loan payoffs in connection with home sales, and borrowers paying more than their scheduled loan

mortgages and loan payoffs in connection with home sales,

and borrowers paying more than their scheduled loan

payments, which accelerates the amortization of the loans.

25 unchanged sentences

The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments

and hedge positions as of September 30, 2020 and December 31, 2019, assuming rates instantaneously fall 200 bps, fall

and hedge positions as of March 31, 2021 and December 31, 2020, assuming rates instantaneously fall 200 bps, fall 100

bps, fall 50 bps, rise 50 bps, rise 100 bps and rise 200 bps, adjusted to reflect the impact of convexity, which is the

measure of the sensitivity of our hedge positions and Agency RMBS’ effective duration to movements in interest rates.

of the sensitivity of our hedge positions and Agency RMBS’ effective duration to movements in interest rates.

All changes in value in the table below are measured as percentage changes from the investment portfolio value and

1 unchanged sentence

The base interest rate scenario assumes interest rates and prepayment

projections as of September 30, 2020 and December 31, 2019.

projections as of March 31, 2021 and December 31, 2020.

Actual results could differ materially from estimates, especially in the current market environment.

8 unchanged sentences

Change in Interest Rate

As of September 30, 2020

As of March 31, 2021

-200 Basis Points

58 unchanged sentences

Our assets that are pledged to secure repurchase agreements are Agency RMBS and cash.

As of September

As of March 31,

2021, we had unrestricted cash and cash equivalents of $211.4 million and unpledged securities of approximately $218.0

$124.2 million (not including securities pledged to us) available to meet margin calls on our repurchase agreements and

derivative contracts, and for other corporate purposes.

However, should the value of our Agency RMBS pledged as

collateral or the value of our derivative instruments suddenly decrease, margin calls relating to our repurchase and

derivative agreements could increase, causing an adverse change in our liquidity position.

Further, there is no assurance

that we will always be able to renew (or roll) our repurchase agreements.

In addition, our counterparties have the option to

increase our haircuts (margin requirements) on the assets we pledge against repurchase agreements, thereby reducing the

amount that can be borrowed against an asset even if they agree to renew or roll the repurchase agreement.

Significantly

higher haircuts can reduce our ability to leverage our portfolio or even force us to sell assets, especially if correlated with

asset price declines or faster prepayment rates on our assets.

million (not including securities pledged to us) available to meet margin calls on our repurchase agreements and derivative

contracts, and for other corporate purposes.

However, should the value of our Agency RMBS pledged as collateral or the

value of our derivative instruments suddenly decrease, margin calls relating to our repurchase and derivative agreements

could increase, causing an adverse change in our liquidity position.

Further, there is no assurance that we will always be

able to renew (or roll) our repurchase agreements.

In addition, our counterparties have the option to increase our haircuts

(margin requirements) on the assets we pledge against repurchase agreements, thereby reducing the amount that can be

borrowed against an asset even if they agree to renew or roll the repurchase agreement.

Significantly higher haircuts can

reduce our ability to leverage our portfolio or even force us to sell assets, especially if correlated with asset price declines or

faster prepayment rates on our assets.

Extension Risk

22 unchanged sentences

In the event of a

default by a counterparty, we may not receive payments provided for under the terms of our agreements

default by a counterparty, we may not receive payments provided for

under the terms of our agreements and may have

difficulty obtaining our assets pledged as collateral under such agreements.

1 unchanged sentence

transactions is largely mitigated through daily adjustments to collateral pledged based on changes in market value and we

limit our counterparties to major financial institutions with acceptable credit ratings.

However, there is no guarantee our

efforts to manage counterparty credit risk will be successful and we could suffer significant losses if unsuccessful.

limit our counterparties to registered central clearing exchanges and major financial institutions with acceptable credit

ratings, monitoring positions with individual counterparties and adjusting collateral posted as required.

However, there is no

guarantee our efforts to manage counterparty credit risk will be successful and we could suffer significant losses if

unsuccessful.

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-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk