What changed in this filing

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2021-10-29 compared with 2021-07-30 · 37 added, 45 removed, 154 unchanged (35% of the section changed)

48 unchanged sentences

cause their durations to become extremely negative when prepayments are high, and less negative when prepayments are

Prepayments affect the durations of IIOs similarly, but the float

ing rate nature of the coupon of IIOs (which is inversely

related to the level of one month LIBOR) causes

their price movements, and model duration, to be affected by changes in

Prepayments affect the durations of IIOs similarly, but the floating rate nature of the coupon of IIOs (which is inversely

related to the level of one month LIBOR) causes their price movements, and model duration, to be affected by changes in

both prepayments and one month LIBOR, both current and anticipated levels.

10 unchanged sentences

our structured RMBS or liabilities, including our hedging instruments.

we assess our interest rate risk by

Accordingly, we assess our interest rate risk by

estimating the duration of our assets and the duration of our liabilities.

4 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 June 30, 2021 and December 31, 2020, assuming rates instantaneously fall 200 bps, fall 100

and hedge positions as of September 30, 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

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

measure 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 June 30, 2021 and December 31, 2020.

projections as of September 30, 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 June 30, 2021

As of September 30, 2021

-200 Basis Points

11 unchanged sentences

+200 Basis Points

Interest rate sensitivity is derived from models that are dependent

on inputs and assumptions provided by third parties as well as by our

Manager, and assumes there are no

changes in mortgage spreads and assumes a static portfolio.

Actual results could

differ materially from

Interest rate sensitivity is derived from models that are dependent on

inputs and assumptions provided by third parties as well as by our

Manager, and assumes there are no changes

in mortgage spreads and assumes a static portfolio.

Actual results could differ

materially from

these estimates.

Includes the effect of derivatives and other securities used for

hedging purposes.

Estimated dollar change in investment portfolio value expressed as a

percent of the total fair value of our investment portfolio as of such

Estimated dollar change in portfolio value expressed as a percent of stockholders'

equity as of such date.

Includes the effect of derivatives and other securities used for hedging

Estimated dollar change in investment portfolio value expressed as a percent

of the total fair value of our investment portfolio as of such date.

Estimated dollar change in portfolio value expressed as a percent of stockholders' equity as

of such date.

In addition to changes in interest rates, other factors impact the fair value of our interest rate-sensitive investments,

such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions.

Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ

Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from

that shown above and such difference might be material and adverse to our stockholders.

2 unchanged sentences

we will experience a return of principal on our investments faster than anticipated.

Various factors affect

the rate at which

Various factors affect the rate at which

mortgage prepayments occur, including changes in the level of and directional trends in housing prices, interest rates,

2 unchanged sentences

could also significantly impact prepayment rates or expectations.

Generally, prepayments on Agency

RMBS increase during

Generally, prepayments on Agency RMBS increase during

periods of falling mortgage interest rates and decrease during periods of rising mortgage interest rates.

11 unchanged sentences

different assets.

Consequently, while we use futures contracts and

interest rate swaps and swaptions to attempt to protect

Consequently, while we use futures contracts and interest rate swaps and swaptions to attempt to protect

against moves in interest rates, such instruments typically will not protect our net book value against spread risk.

2 unchanged sentences

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

As of June 30,

As of September

30, 2021, we had unrestricted cash and cash equivalents of $424.1 million and unpledged securities of approximately $5.4

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 unsettled securities purchases or 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.

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

14 unchanged sentences

any incremental offsetting gains.

In extreme situations, we may be forced to sell assets to maintain adequate liquidity,

In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which

could cause us to incur realized losses.

5 unchanged sentences

In the event of a

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

under the terms of our agreements and may have

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.

7 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-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk