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What changed in ADAMAS TRUST, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ADAMAS TRUST, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+602 added−628 removedSource: 10-K (2025-02-21) vs 10-K (2024-02-23)

Top changes in ADAMAS TRUST, INC.'s 2024 10-K

602 paragraphs added · 628 removed · 476 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

62 edited+10 added−13 removed69 unchanged
Biggest changeOur portfolio of residential loans consists of (i) seasoned re-performing, non-performing and other delinquent mortgage loans secured by first liens on one- to four-family properties, which were purchased at a discount to the aggregate principal amount outstanding, which we believe provides us with downside protection while we work to rehabilitate these loans to performing status, (ii) performing residential mortgage loans that consist of GSE-eligible mortgage loans, non-QM loans that predominantly meet our underwriting guidelines, loans originally underwritten to GSE or another program's guidelines but are either undeliverable to the GSE or ineligible for a program due to certain underwriting or compliance errors, and investor loans generally underwritten to our program guidelines, (iii) short-term business purpose loans with terms generally of 12 to 24 months that are collateralized by residential properties and made to investors who intend to rehabilitate and sell the property for a profit, or "business purpose bridge loans," (iv) business purpose loans that finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants, or "business purpose rental loans," and (v) second mortgages that had combined loan-to-value ratios of 95% at origination and predominantly met our underwriting guidelines.
Biggest changeOur portfolio of residential loans consists of (i) short-term business purpose loans with terms generally of 12 to 24 months that are collateralized by residential properties and made to investors who intend to rehabilitate and sell the property for a profit, or "business purpose bridge loans," (ii) business purpose loans that finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants, or "business purpose rental loans," (iii) performing residential mortgage loans that consist of GSE-eligible mortgage loans, non-QM loans that predominantly meet our underwriting guidelines, loans originally underwritten to GSE or another program's guidelines but are either undeliverable to the GSE or ineligible for a program due to certain underwriting or compliance errors, and investor loans generally underwritten to our program guidelines, (iv) seasoned re-performing, non-performing and other delinquent mortgage loans secured by first liens on one- to four-family properties, which were purchased at a discount to the aggregate principal amount outstanding, which we believe provides us with downside protection while we work to rehabilitate these loans to performing status and (v) second mortgages that had combined loan-to-value ratios of 95% at origination and predominantly met our underwriting guidelines.
Our subsidiaries that invest in residential mortgage loans (whether through a consolidated trust or otherwise) rely upon the exemption from registration as an investment company under the Investment Company Act pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exemption generally requires that at least 55% of each of these subsidiaries’ assets be comprised of qualifying real estate assets and at least 80% of each of their portfolios be comprised of qualifying real estate assets and real estate-related assets under the Investment Company Act.
We and our subsidiaries that invest in residential mortgage loans (whether through a consolidated trust or otherwise) rely upon the exemption from registration as an investment company under the Investment Company Act pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exemption generally requires that at least 55% of our and each of these subsidiaries’ assets be comprised of qualifying real estate assets and at least 80% of our and each of their portfolios be comprised of qualifying real estate assets and real estate-related assets under the Investment Company Act.
BUSINESS Certain Defined Terms In this Annual Report on Form 10-K we refer to New York Mortgage Trust, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise, and we refer to our wholly-owned taxable real estate investment trust (“REIT”) subsidiaries as “TRSs” and our wholly-owned qualified REIT subsidiaries as “QRSs.” In addition, the following defines certain of the commonly used terms in this report: • “ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans; • “Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS; • “Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS; • “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association ("Ginnie Mae"); • “ARMs” refers to adjustable-rate residential loans; • “business purpose loans” refers to (i) short-term loans that are collateralized by residential properties and are made to investors who intend to rehabilitate and sell the residential property for a profit or (ii) loans that finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants; • “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, the Company's residential loans held in securitization trusts and a non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP; • “CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a government sponsored enterprise (“GSE”), as well as PO, IO, or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans; • “Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own the first loss subordinated securities and certain IOs that we consolidate in our financial statements in accordance with GAAP; • “Consolidated Real Estate VIEs” refers to Consolidated VIEs that own multi-family properties; • “Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE and that we consolidate in our financial statements in accordance with GAAP; • “excess mortgage servicing spread” or “excess MSR” refers to the difference between the contractual servicing fee with Fannie Mae, Freddie Mac or Ginnie Mae and the base servicing fee that is retained as compensation for servicing or subservicing the related mortgage loans pursuant to the applicable servicing contract; • “GAAP” refers to generally accepted accounting principles within the United States; • “IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans; • “MBS” refers to mortgage-backed securities; 4 Table of Contents • “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments; • “multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties; • “non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S.
BUSINESS Certain Defined Terms In this Annual Report on Form 10-K we refer to New York Mortgage Trust, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise, and we refer to our wholly-owned taxable real estate investment trust (“REIT”) subsidiaries as “TRSs” and our wholly-owned qualified REIT subsidiaries as “QRSs.” In addition, the following defines certain of the commonly used terms in this report: • “ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans; • “Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS; • “Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS; • “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association ("Ginnie Mae"); • “ARMs” refers to adjustable-rate residential loans; • “business purpose loans” refers to (i) short-term loans that are collateralized by residential properties and are made to investors who intend to rehabilitate and sell the residential property for a profit or (ii) loans that finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants; • “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, the Company's residential loans held in securitization trusts and a non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP; • “CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, as well as PO, IO, or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans; • “Consolidated Real Estate VIEs” refers to Consolidated VIEs that own multi-family properties; • “Consolidated SLST” refers to Freddie Mac-sponsored residential loan securitizations, comprised of seasoned re-performing and non-performing residential loans, of which we own the first loss subordinated securities and certain IOs, that we consolidate in our financial statements in accordance with GAAP; • “Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE and that we consolidate in our financial statements in accordance with GAAP; • “excess mortgage servicing spread” or “excess MSR” refers to the difference between the contractual servicing fee with Fannie Mae, Freddie Mac or Ginnie Mae and the base servicing fee that is retained as compensation for servicing or subservicing the related mortgage loans pursuant to the applicable servicing contract; • “GAAP” refers to generally accepted accounting principles within the United States; • “IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans; • “MBS” refers to mortgage-backed securities; 4 Table of Contents • “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments in multi-family properties; • “MSRs” refers to mortgage servicing rights that represent the contractual right to service residential loans; • “multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties; • “non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S.
Although we do not directly originate or service residential loans, we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential loans, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.
Although we do not directly originate or service residential loans, we must comply with various federal and state laws, rules and regulations as a result of owning MBS, residential loans and MSRs, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.
Our leveraged Agency RMBS portfolio is comprised of Agency fixed-rate RMBS and Agency ARMs, the principal and interest of which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The Agency fixed-rate RMBS have been primarily backed by 15-year and 30-year residential fixed-rate mortgage loans, while the Agency ARMs have primarily included interest reset periods up to 120 months.
Our leveraged Agency RMBS portfolio is primarily comprised of Agency fixed-rate RMBS and Agency ARMs, the principal and interest of which are guaranteed by Fannie Mae or Freddie Mac. The Agency fixed-rate RMBS have been primarily backed by 15-year and 30-year residential fixed-rate mortgage loans, while the Agency ARMs have primarily included interest reset periods up to 120 months.
In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of our joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of certain joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements. We may use TBAs, swaptions, futures and options on futures to hedge market value risk for certain of our strategies.
The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of our financing arrangements. We may use TBAs, swaptions, futures and options on futures to hedge market value risk for certain of our strategies.
Other Investments Although it represents a significantly smaller portion of our overall investment portfolio, we also own and have invested in ABS, an equity investment in an entity that originates residential loans and an equity investment in an entity that owns and manages single-family rental properties.
Other Investments Although it represents a significantly smaller portion of our overall investment portfolio, we also own and/or have invested in ABS, an equity investment in an entity that originates residential loans and an equity investment in an entity that owns and manages single-family rental properties.
Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption. All or substantially all of our residential mortgage loans are fully and exclusively secured by real property with a loan-to-value ratio of less than 100%.
Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption. Substantially all of our residential mortgage loans are fully and exclusively secured by real property with a loan-to-value ratio of less than 100%.
Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, (the “40% test”).
Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Our targeted investments include (i) residential loans, including business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) Agency RMBS, (iv) non-Agency RMBS, (v) CMBS, and (vi) certain other mortgage-, residential housing- and credit-related assets and s trategic investments in companies from which we purchase, or may in the future purchase, our targeted assets .
Our targeted investments include (i) residential loans, including business purpose loans, (ii) Agency RMBS, (iii) non-Agency RMBS, (iv) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties and (v) certain other mortgage-, residential housing- and credit-related assets and s trategic investments in companies from which we purchase, or may in the future purchase, our targeted assets .
Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses.
Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, CMBS, collateralized mortgage obligations, MSRs, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses.
These derivative instruments may include interest rate swaps, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. The Company may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S.
These derivative instruments may include interest rate swaps, interest rate caps, credit default swaps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. We may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S.
We currently own, and expect to originate in the future, preferred equity investments in entities that directly or indirectly own multi-family properties. Preferred equity is not secured, but holders have priority relative to the common equity on cash flow distributions and proceeds from capital events.
We currently own, and may originate in the future, preferred equity investments in entities that directly or indirectly own multi-family properties. Preferred equity is not secured, but holders have priority relative to the common equity on cash flow distributions and proceeds from capital events.
We have made, and may in the future make, investments in the debt and/or equity of other entities engaged in single-family loan-related businesses, such as loan originators. As of December 31, 2023, we owned a 50% equity interest in an entity that originates residential loans.
We have made, and may in the future make, investments in the debt and/or equity of other entities engaged in single-family loan-related businesses, such as loan originators. As of December 31, 2024, we owned a 50% equity interest in an entity that originates residential loans.
We generally seek to acquire pools of single-family residential loans through proprietary sourcing channels from select mortgage loan originators and secondary market institutions, including through bulk purchases and/or flow arrangements, including through originators in which we hold an equity investment.
We generally seek to acquire pools of single-family residential loans through proprietary sourcing channels from select mortgage loan originators and secondary market institutions, including through bulk purchases and/or flow arrangements, which may occur through originators in which we hold an equity investment.
As of December 31, 2023, we did not own mezzanine loans. Joint Venture Equity. As of December 31, 2023, we owned joint venture equity investments in entities that own multi-family properties. Joint venture equity is a direct common equity ownership interest in an entity that owns a property.
As of December 31, 2024, we did not own mezzanine loans. Joint Venture Equity. As of December 31, 2024, we owned joint venture equity investments in entities that own multi-family properties. Joint venture equity is a direct common equity ownership interest in an entity that owns a property.
In light of current market and financing conditions, we are presently focused on acquiring assets with less price sensitivity to credit deterioration, such as Agency RMBS and shorter duration assets that generate higher portfolio turnover that will better enable us to reposition our portfolio in a volatile and changing interest rate environment.
In light of current market and financing conditions, we are presently focused on acquiring assets with less price sensitivity to credit deterioration, such as Agency RMBS, and shorter duration assets that generate higher portfolio turnover, such as business purpose loans, that will better enable us to reposition our portfolio in a volatile and changing interest rate environment.
Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount.
Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for us making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount.
Actual results and outcomes could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation: • changes in our business and investment strategy; • inflation and changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets; • changes in credit spreads; • changes in the long-term credit ratings of the U.S., Fannie Mae, Freddie Mac, and Ginnie Mae; • general volatility of the markets in which we invest; • changes in prepayment rates on the loans we own or that underlie our investment securities; • increased rates of default, delinquency or vacancy and/or decreased recovery rates on or at our assets; • our ability to identify and acquire our targeted assets, including assets in our investment pipeline; • our ability to dispose of assets from time to time on terms favorable to us, including the disposition over time of our joint venture equity investments; • changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof; • changes in our relationships with and/or the performance of our operating partners; • our ability to predict and control costs; • changes in laws, regulations or policies affecting our business; • our ability to make distributions to our stockholders in the future; • our ability to maintain our qualification as a REIT for federal tax purposes; • our ability to maintain our exemption from registration under the Investment Company Act; • impairments in the value of the collateral underlying our investments; • our ability to manage or hedge credit risk, interest rate risk, and other financial and operational risks; • our exposure to liquidity risk, risks associated with the use of leverage, and market risks; and 15 Table of Contents • risks associated with investing in real estate assets, including changes in business conditions and the general economy, the availability of investment opportunities and the conditions in the market for Agency RMBS, non-Agency RMBS, ABS and CMBS securities, residential loans, structured multi-family investments and other mortgage-, residential housing- and credit-related assets.
Actual results and outcomes could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation: • changes in our business and investment strategy; • inflation and changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets; • changes in credit spreads; • changes in the long-term credit ratings of the U.S., Fannie Mae, Freddie Mac, and Ginnie Mae; • general volatility of the markets in which we invest; • changes in prepayment rates on the loans we own or that underlie our investment securities; • increased rates of default, delinquency or vacancy and/or decreased recovery rates on or at our assets; • our ability to identify and acquire our targeted assets, including assets in our investment pipeline; • our ability to dispose of assets from time to time on terms favorable to us; • changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof; • changes in our relationships with and/or the performance of our operating partners; • our ability to predict and control costs; • changes in laws, regulations or policies affecting our business; • our ability to make distributions to our stockholders in the future; • our ability to maintain our qualification as a REIT for federal tax purposes; • our ability to maintain our exemption from registration under the Investment Company Act; • impairments in the value of the collateral underlying our investments; • our ability to manage or hedge credit risk, interest rate risk, and other financial and operational risks; • our exposure to liquidity risk, risks associated with the use of leverage, and market risks; and 15 Table of Contents • risks associated with investing in real estate assets, including changes in business conditions and the general economy, the availability of investment opportunities and the conditions in markets for residential loans, mortgage-backed securities, structured multi-family investments and other assets in which we invest.
Notwithstanding the foregoing, in order to manage its position with regard to its liabilities, the Company may enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount.
Notwithstanding the foregoing, in order to manage our position with regard to our liabilities, we may also enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount.
Our corporate headquarters are located at 90 Park Avenue, New York, New York, 10016 and our telephone number is (212) 792-0107. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California. Access to Our Periodic SEC Reports and Other Corporate Information Our internet website address is www.nymtrust.com.
Corporate Offices We were formed as a Maryland corporation in 2003. Our corporate headquarters are located at 90 Park Avenue, New York, New York, 10016 and our telephone number is (212) 792-0107. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California. Access to Our Periodic SEC Reports and Other Corporate Information Our internet website address is www.nymtrust.com.
These securities have varying levels of credit enhancement which provide some structural protection from losses within the securitization from which the securities are issued. We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios.
These securities have varying levels of credit enhancement which provide some structural protection from losses within the securitization from which the securities are issued. We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios. Single-Family Rental. We also participate in the U.S.
As of December 31, 2023, women comprised 30% of our total workforce, while 32% of our employees self-identify as being ethnically diverse. In addition, 100% of our named executive officers are diverse based on gender or ethnicity and 71% of our Board of Directors is diverse based on gender, race or ethnicity.
As of December 31, 2024, women comprised 29% of our total workforce, while 33% of our employees self-identify as being ethnically diverse. In addition, 100% of our named executive officers are diverse based on gender or ethnicity and 71% of our Board of Directors is diverse based on gender, race or ethnicity.
As of December 31, 2023, our Company recourse leverage ratio, which represents our total recourse debt divided by our total stockholders' equity, was approximately 1.6 to 1. Our Company recourse leverage ratio does not include debt associated with the CDOs or other non-recourse debt, such as mortgages payable on real estate and non-recourse repurchase agreement financing.
Our Company recourse leverage ratio does not include debt associated with the CDOs or other non-recourse debt, such as mortgages payable on real estate and non-recourse repurchase agreement financing. Our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreements divided by our total stockholders' equity, was approximately 2.9 to 1 as of December 31, 2024.
As of December 31, 2023, we owned 524 single-family rental properties, the majority of which are located in Illinois and Maryland. 7 Table of Contents Multi-Family Investments We first began investing in multi-family credit assets in 2011. We seek to position our multi-family credit investment platform in the marketplace as a real estate investor focused on debt and equity transactions.
As of December 31, 2024, we owned 526 single-family rental properties, the majority of which are located in Illinois and Maryland. 7 Table of Contents Multi-Family Investments We seek to position our multi-family credit investment platform in the marketplace as a real estate investor focused on debt and equity transactions.
Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and our ability to pay distributions, if any, to our stockholders. Investment Company Act Exclusion We conduct our operations so that neither we nor any of our subsidiaries are considered an investment company under Section 3(a)(1)(C) of the Investment Company Act.
Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and our ability to pay distributions, if any, to our stockholders. Investment Company Act Exclusion We conduct our operations so that neither we nor any of our subsidiaries are required to register as an “investment company” under the Investment Company Act.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. 6 Table of Contents Investment Portfolio Our portfolio is substantially comprised of investments in two asset categories: single-family and multi-family residential investments. Single-Family Investments We have deep experience managing different whole loan strategies across the credit spectrum.
Investment Portfolio Our portfolio is substantially comprised of investments in two asset categories: single-family and multi-family residential investments. 6 Table of Contents Single-Family Investments We have deep experience managing different whole loan strategies across the credit spectrum.
The Company may also purchase equity index put options that gives the Company the right to sell or buy the underlying index at a specified strike price, as well as credit default swap index options that allow the Company to enter into a fixed rate payor position in the underlying credit default swap index at the agreed strike level.
We may purchase equity index put options that give us the right to sell or buy the underlying index at a specified strike price. We may also purchase credit default swap index options that allow us to enter into a fixed rate payor position in the underlying credit default swap index at the agreed-upon strike level.
The Company typically does not take delivery of TBAs, but rather settles with its trading counterparties on a net basis prior to the forward settlement date. Although TBAs are liquid and have quoted market prices and represent the most actively traded class of RMBS, the use of TBAs exposes us to increased market value risk.
We typically do not take delivery of TBAs, but rather settle with our trading counterparties on a net basis prior to the forward settlement date. Although TBAs are liquid and have quoted market prices and represent the most actively traded class of RMBS, the use of TBAs exposes us to increased market value risk. We currently do not hold TBAs.
As a result, the real estate assets held by these entities, and the corresponding mortgages payable that finance the real estate assets, are included in our consolidated balance sheets. In December 2021, we entered into a joint venture that presently owns 13 multi-family properties in seven states, including Texas, Tennessee and Florida.
As a result, the real estate assets held by these entities, and the corresponding mortgages payable that finance the real estate assets, are included in our consolidated balance sheets. 8 Table of Contents In December 2021, we entered into a joint venture that presently owns 10 multi-family properties in six states, including Texas, Florida and Kentucky.
We also may invest, from time to time, based on market conditions, in other multi-family investments, structured investments in other property categories, equity and debt securities issued by entities that invest in residential and commercial real estate or in other mortgage-, real estate- and credit-related assets, and certain alternative investments not described here, subject to maintaining our qualification as a REIT and the maintenance of our exclusion from regulation as an investment company under the Investment Company Act or otherwise. 9 Table of Contents Our Financing Strategy We employ leverage as part of our financing strategy and strive to maintain and achieve a balanced and diverse funding mix to finance our assets and operations.
We also may invest, from time to time, based on market conditions, in other multi-family investments, structured investments in other property categories, equity and debt securities issued by entities that invest in residential and commercial real estate or in other mortgage-, real estate- and credit-related assets, and certain alternative investments not described here, subject to maintaining our qualification as a REIT and the maintenance of our exclusion from regulation as an investment company under the Investment Company Act or otherwise.
We are a co-manager of the joint venture and, as of December 31, 2023, owned an approximate 24% common equity interest in the joint venture. We also held approximately $146.1 million of preferred equity interests in this joint venture as of December 31, 2023.
We are a co-manager of the joint venture and, as of December 31, 2024, owned an approximate 27% common equity interest in the joint venture. We also held approximately $139.4 million of preferred equity interests in this joint venture as of December 31, 2024.
We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Internal Revenue Code. Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio.
We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Internal Revenue Code.
If the value of securities issued by our subsidiaries that are excluded from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities we own, exceeds the 40% test under Section 3(a)(1)(C) of the Investment Company Act, or if one or more of such subsidiaries fail to maintain an exclusion or exception from the Investment Company Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) to effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) to register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions.
If we or one or more of our subsidiaries fail to maintain an exclusion or exception from the Investment Company Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) to effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) to register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. The Company uses interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
For more information regarding our outstanding financing instruments at December 31, 2023, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. 10 Table of Contents Our Hedging Strategy The Company enters into derivative instruments in connection with its risk management activities.
For more information regarding our outstanding financing instruments at December 31, 2024, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. Our Hedging Strategy We enter into derivative financial instruments in connection with our risk management activities.
We make available free of charge, through our internet website, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments thereto that we file or furnish pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We make available free of charge, through our internet website, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments thereto that we file or furnish pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 13 Table of Contents We have adopted a Code of Business Conduct and Ethics that applies to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer and to our other employees.
As a result, we cannot predict the percentage of our capital that will be invested in any particular investment at any given time. For more information regarding our portfolio as of December 31, 2023, see Item 7.
As a result, we cannot predict the percentage of our capital that will be invested in any particular investment at any given time. For more information regarding our portfolio as of December 31, 2024, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
We expect our preferred equity investments will have mandatory redemption dates that will generally be coterminous with the maturity date for the first-mortgage loan on the property, and we intend to hold these investments until the mandatory redemption date. 8 Table of Contents Mezzanine Loans .
Preferred equity typically has loan-to-value ratios of 70% to 90% when combined with the first-mortgage loan amount. We expect our preferred equity investments will have mandatory redemption dates that will generally be coterminous with the maturity date for the first-mortgage loan on the property, and we intend to hold these investments until the mandatory redemption date. Mezzanine Loans .
While we expect that additional new legislative and regulatory reforms in these areas will be adopted and existing legislation and regulations may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects. 12 Table of Contents Operating and Regulatory Structure REIT Qualification We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code.
While we expect that additional new legislative and regulatory reforms in these areas will be adopted and existing legislation and regulations may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects.
As a result, we believe our residential mortgage loans that are fully and exclusively secured by real property meet the definition of qualifying real estate assets. 13 Table of Contents Corporate Offices We were formed as a Maryland corporation in 2003.
As a result, we believe our residential mortgage loans that are fully and exclusively secured by real property meet the definition of qualifying real estate assets.
We rely on repurchase agreements to fund the purchase of investment securities, residential loans and single-family rental properties. These repurchase agreements typically have terms ranging from 30 days to 24 months and bear interest rates that are linked to the Secured Overnight Funding Rate (“SOFR”), a short-term market interest rate used to determine short term loan rates.
The repurchase agreements have terms ranging from 30 days to 24 months and bear interest rates that are linked to the Secured Overnight Funding Rate (“SOFR”), a short-term market interest rate used to determine short term loan rates.
Currently, we target maximum leverage ratios for each eligible investment, 10:1 in the case of more liquid Agency securities and between 4:1 and 6:1 in the case of our more illiquid assets, such as our non-Agency RMBS and mezzanine CMBS and 8:1 in the case of our residential loans.
Currently, our maximum leverage ratios for each eligible investment are (i) 15:1 in the case of more liquid Agency securities, (ii) between 4:1 and 6:1 in the case of our more illiquid assets, such as our non-Agency RMBS and (iii) 8:1 in the case of our residential loans. Our target total debt leverage ratio should not be greater than 4:1.
As of December 31, 2023, we owned $181.6 million of non-Agency RMBS. Single-Family Rental. We also participate in the U.S. Department of Housing and Urban Development Housing Choice Vouchers program administered by local public housing agencies (“PHAs”) in which we acquire and then rent single-family rental homes to families that are eligible.
Department of Housing and Urban Development Housing Choice Vouchers program administered by local public housing agencies (“PHAs”) in which we acquire and then rent single-family rental homes to families that are eligible.
In general terms, pending the disposition over time of our portfolio of joint venture equity investments, we expect that our multi-family credit investments going forward will principally be in the form of preferred equity investments in, and mezzanine loans to, owners of multi-family properties, and multi-family CMBS.
In general terms, we expect that the multi-family credit investments we fund going forward will principally be in the form of preferred equity investments in, and mezzanine loans to, owners of multi-family properties. We anticipate allocating less capital to multi-family investments going forward.
For variable-rate mortgages payable on real estate, the joint venture entities are required by the lender to enter into interest rate cap contracts. In addition, with respect to one of the Company's financings under repurchase agreements, the Company is required by the lender to enter into an interest rate cap contract.
As it relates to the variable-rate mortgages payable in our Consolidated Real Estate VIEs, the joint venture entities may be required by the lender to enter into interest rate cap contracts. In addition, with respect to one of our financings under repurchase agreements, the lender has, in the past, required us to enter into an interest rate cap contract.
In particular, we seek investment opportunities in markets where we believe we have a competitive advantage due to operational barriers to entry. We define credit assets as (i) residential loans, including business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family property investments and (iv) other mortgage-, residential housing- and credit-related assets that contain credit risk.
We define credit assets as (i) residential loans, including business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family property investments and (iv) other mortgage-, residential housing- and credit-related assets that contain credit risk.
We are committed to maintaining workplaces that are inclusive and free from discrimination or harassment based on age, disability, race, ethnicity, gender identification or expression, national origin, sexual orientation, religion, pregnancy, marital and familial status and other statuses protected by law.
Moreover, our employees are offered regular opportunities to participate in professional development programs and opportunities that may improve employee engagement, effectiveness and well-being. 11 Table of Contents We are committed to maintaining workplaces that are inclusive and free from discrimination or harassment based on age, disability, race, ethnicity, gender identification or expression, national origin, sexual orientation, religion, pregnancy, marital and familial status and other statuses protected by law.
To achieve this, we rely primarily on a combination of short-term and longer-termed repurchase agreements and structured financings, including CDOs issued by securitizations, longer termed senior and subordinated debt, and convertible notes.
Our Financing Strategy We employ leverage as part of our financing strategy and strive to maintain and achieve a balanced and diverse funding mix to finance our assets and operations. To achieve this, we rely primarily on a combination of short-term and longer-termed repurchase agreements and structured financings, including CDOs issued by securitizations and longer-termed senior and subordinated debt.
We have adopted a Code of Business Conduct and Ethics that applies to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer and to our other employees. We have also adopted a Code of Ethics for senior financial officers, including the principal financial officer.
We have also adopted a Code of Ethics for senior financial officers, including the principal financial officer.
As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio. 12 Table of Contents As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
Currently, our target total debt leverage ratio should not be greater than 4:1. This target may be adjusted from time to time by our Board of Directors depending on the composition of our overall portfolio, market conditions and such other factors deemed relevant by our Board of Directors.
This target may be adjusted from time to time by our Board of Directors depending on the composition of our overall portfolio, market conditions and such other factors deemed relevant by our Board of Directors. 9 Table of Contents As of December 31, 2024, our Company recourse leverage ratio, which represents our total recourse debt divided by our total stockholders' equity, was approximately 3.0 to 1.
We have sought in past years, and intend to continue, subject to market conditions, to focus on constructing our portfolio of “single-family and multi-family credit” assets, many of which we have originated or sourced through proprietary channels, which we believe will deliver more attractive risk-adjusted returns over time.
We intend to continue, subject to market conditions, to focus on assets, many of which we have originated or sourced through proprietary channels, that we believe will deliver more attractive risk-adjusted returns over time. In particular, we seek investment opportunities in markets where we believe we have a competitive advantage due to operational barriers to entry.
In this type of investment, the return of capital to us is variable and is made on a pro rata basis between us and our operating partners. We have typically provided between 70% and 95% of the total common equity capital to our joint ventures, with our operating partner providing the balance of the common equity capital.
In this type of investment, the return of capital to us is variable and is made on a pro rata basis between us and our operating partners. Due to certain control provisions, we consolidate certain joint ventures into our consolidated financial statements in accordance with GAAP.
The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets. 11 Table of Contents Human Capital As of December 31, 2023, we had 79 full-time employees located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California.
The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets.
We issue CDOs through securitizations for the primary purpose of obtaining longer-term non-recourse financing on these assets. These types of financings provide less or no exposure to collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
Securitizations provide less or no exposure to collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
We believe that our employees are our greatest asset and recognize that our achievements and growth as a business are made possible by the recruitment, hiring, training, development and retention of our dedicated employees. As part of our ongoing business, we evaluate and modify our internal processes to improve employee engagement, productivity and efficiency, which benefits our operations.
As part of our ongoing business, we evaluate and modify our internal processes to improve employee engagement, productivity and efficiency, which benefits our operations.
Selecting assets with lower credit exposure, either through agency guarantees, structure or collateral quality, can also reduce the overall risk profile of the portfolio. Since our inception in 2003, we have benefited from being able to flexibly move in and out of new niche investment opportunities as market conditions permit.
Selecting assets with lower credit exposure, either through agency guarantees, structure or collateral quality, can also reduce the overall risk profile of the portfolio and raise our interest income levels.
Our financings may include longer-term structured debt financing, such as longer-term repurchase agreement financing with terms of up to 24 months, non-mark-to-market repurchase agreement financing and CDOs where the assets we intend to finance are contributed to an SPE and serve as collateral for the financing.
Our financings for residential loans and investment securities may also include longer-term structured debt financing, such as CDOs where the assets we intend to finance are contributed to a special purpose entity (“SPE”) and serve as collateral for the financing. We issue CDOs through securitizations for the primary purpose of obtaining longer-term non-recourse financing on these assets.
We do not currently employ any temporary or seasonal employees and we do not expect such hiring to become a significant part of our workforce in the future. Our employees include investment portfolio and finance professionals, asset management and servicing professionals, accountants, analysts, administrative staff and our corporate management team.
Human Capital As of December 31, 2024, we had 70 full-time employees located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California. We do not currently employ any temporary or seasonal employees and we do not expect such hiring to become a significant part of our workforce in the future.
Our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreements divided by our total stockholders' equity, was approximately 1.5 to 1 as of December 31, 2023. We monitor all at-risk or short-term borrowings to ensure that we have adequate liquidity to satisfy margin calls and liquidity covenant requirements.
We monitor all at-risk or short-term borrowings to ensure that we have adequate liquidity to satisfy margin calls and liquidity covenant requirements. We rely on repurchase agreements to fund the purchase of investment securities, a portion of our residential loans and single-family rental properties.
Removed
Due to current market conditions, we also intend to acquire and manage a portfolio of Agency RMBS.
Added
We expect to allocate more capital to investments in single-family credit assets relative to multi-family credit assets in 2025 and subsequent years, with multi-family assets becoming a smaller part of our balance sheet. Since our inception in 2003, we have benefited from being able to flexibly move in and out of new niche investment opportunities as market conditions permit.
Removed
We also currently own and manage a portfolio of joint venture equity investments in multi-family properties having an aggregate net equity carrying value of approximately $242.0 million.
Added
We also own Agency IOs that represent the right to receive the interest portion of the cash flow from a pool of mortgage loans issued or guaranteed by Freddie Mac or Ginnie Mae.
Removed
In 2023, joint venture entities in which we held a common equity interest sold five multi-family properties. In December 2023, we suspended the marketing of nine joint venture equity investments that were held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market.
Added
Since then, we have disposed of our joint venture equity investments in 15 multi-family properties, generating net gains attributable to us of approximately $16.0 million. As of December 31, 2024, we have reduced exposure in this disposal group of multi-family investments to $19.5 million over two multi-family properties.
Removed
As of December 31, 2023, we continue to market for sale our joint venture equity investments in five multi-family properties. We can provide no assurance of the timing or success of our ultimate exit from our joint venture equity investments in multi-family properties or that the value of our interests in joint ventures will not decline further.
Added
Treasury futures or invest in other types of mortgage derivative securities. 10 Table of Contents We use interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings.
Removed
Our multi-family property investments are not limited to any particular geographic area in the United States, although our preferred and joint venture equity and mezzanine loan investments tend to be concentrated primarily in the southern and southeastern United States, as these regions currently tend to benefit from growing demand and a shortage in housing.
Added
We have U.S. Treasury future contracts that obligate us to sell or buy U.S. Treasury securities for future delivery.
Removed
Generally, we target investments in multi-family properties that are or have been: • located in a particularly dynamic submarket with strong prospects for rental growth; • located in smaller markets that are underserved and more attractively priced; • poorly managed by the previous owner, creating an opportunity for overall net income growth through better management practices; • undercapitalized and may benefit from an investment in physical improvements; or • highly stable and are suitably positioned to support high-yield preferred equity or mezzanine debt within their capital structure.
Added
We have purchased credit default swap index contracts under which a counterparty, in exchange for a premium, agrees to compensate us for the financial loss associated with the occurrence of a credit event in relation to a notional value of an index.
Removed
Preferred equity typically has loan-to-value ratios of 60% to 97% when combined with the first-mortgage loan amount.
Added
Our employees include investment portfolio and finance professionals, asset management and servicing professionals, accountants, analysts, administrative staff and our corporate management team. We believe that our employees are our greatest asset and recognize that our achievements and growth as a business are made possible by the recruitment, hiring, training, development and retention of our dedicated employees.
Removed
In some cases, we also participate in these property investments as a general partner or manager or co-general partner or manager, which may provide us with the ability to earn a promote upon disposition of the asset. Due to certain control provisions, we consolidate certain joint ventures into our consolidated financial statements in accordance with GAAP.
Added
Operating and Regulatory Structure REIT Qualification We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code.
Removed
Multi-Family CMBS. We have invested in, and may in the future invest in, multi-Family CMBS comprised of (i) first loss PO securities issued by multi-family loan securitizations and (ii) certain IOs and/or mezzanine securities issued by these securitizations.
Added
We and certain of our subsidiaries rely upon the exemption from registration as an investment company under the Investment Company Act pursuant to Section 3(c)(5)(C) of the Investment Company Act. We have in the past and may in the future conduct our operations so that we are not considered an investment company under Section 3(a)(1)(C) of the Investment Company Act.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

135 edited+17 added−52 removed333 unchanged
Biggest changeRisks Related to Our Business • Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability. • We may experience losses if we inaccurately estimate the loss-adjusted yields of our investments in credit sensitive assets. • Interest rate increases may decrease the availability of certain of our targeted assets. • Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates. • Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases our exposure to economic downturns and risks associated with the real estate and lending industries in general. • Our portfolio of business purpose loans exposes us to new and different risks from our traditional investments in residential mortgage loans. • Our investments may include subordinated tranches of CMBS, RMBS and ABS, which are subordinate in right of payment to more senior securities and residential loans that have greater risk of loss than other investments. • Prepayment rates can change, adversely affecting the performance of our assets. • We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for majority of our investments. • The failure of third-party service providers to perform a variety of services on which we rely may adversely impact our business and financial results. • Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties. • Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure. • Declining real estate valuations and impairment charges to real estate assets, such as those held by our joint venture equity investments in multi-family properties, have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future. • Our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders. • We may not be able to complete the sale of our joint venture equity interests in multi-family properties on terms acceptable to us, or at all. • Our real estate and real estate-related assets are subject to risks particular to real property. • Due diligence as a part of our acquisition or underwriting process may be limited, may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to material losses. • The lack of liquidity in certain of our assets may adversely affect our business. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • Competition may prevent us from acquiring assets on favorable terms or at all. • Maintaining cybersecurity and data security is important to our business, and a breach could result in serious harm. • System failures and other operational disruptions in our information and communications systems and those of our third party service providers could significantly disrupt our business. • We have made and may in the future make investments in companies that we do not control.
Biggest changeRisks Related to Our Business • Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability. • We may experience losses if we inaccurately estimate the loss-adjusted yields of our investments in credit sensitive assets. • Interest rate increases may decrease the availability of certain of our targeted assets. • Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates. • Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases our exposure to economic downturns and risks associated with the real estate and lending industries in general. • Our portfolio of business purpose loans exposes us to risks that are different from the risks involved with our traditional investments in residential mortgage loans. • Our investments may include subordinated tranches of RMBS, CMBS and ABS, which are subordinate in right of payment to more senior securities that have greater risk of loss than other investments. • Prepayment rates can change, adversely affecting the performance of our assets. • We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for the majority of our investments. • The failure of third-party service providers to perform a variety of services on which we rely may adversely impact our business and financial results. • Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties. • Declining real estate valuations and impairment charges to real estate assets have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future. • Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure. • Our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders. • Our real estate and real estate-related assets are subject to risks particular to real property. • Due diligence as a part of our acquisition or underwriting process may be limited, may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to material losses. • The lack of liquidity in certain of our assets may adversely affect our business. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • Competition may prevent us from acquiring assets on favorable terms or at all. • System failures and other operational disruptions in our information and communications systems and those of our third-party service providers could significantly disrupt our business.
Risks Related to Debt Financing and Our Use of Hedging Strategies • Our access to financing sources may not be available on favorable terms or at all. • The repurchase agreements that we use to finance our investments may require us to provide additional collateral, which could reduce our liquidity and harm our financial condition. • We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders. 17 Table of Contents • If we are unable to leverage our equity to the extent we currently anticipate, the returns on certain of our assets could be diminished, which may limit or eliminate our ability to make distributions to our stockholders. • We directly or indirectly utilize non-recourse securitizations and recourse structured financings and such structures expose us to risks that could result in losses to us. • If a counterparty to our repurchase transactions defaults on its obligation to resell the pledged assets back to us at the end of the transaction term or if we default on our obligations under the repurchase agreement, we may incur losses. • Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy. • Negative impacts on our business may cause us to default on certain financial covenants contained in our financing arrangements. • Hedging against interest rate and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Risks Related to Debt Financing and Our Use of Hedging Strategies • Our access to financing sources may not be available on favorable terms or at all. • The repurchase agreements that we use to finance our investments may require us to provide additional collateral, which could reduce our liquidity and harm our financial condition. • We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders. • If we are unable to leverage our equity to the extent we currently anticipate, the returns on certain of our assets could be diminished, which may limit or eliminate our ability to make distributions to our stockholders. • We directly or indirectly utilize non-recourse securitizations and recourse structured financings and such structures expose us to risks that could result in losses to us. 17 Table of Contents • If a counterparty to our repurchase transactions defaults on its obligation to resell the pledged assets back to us at the end of the transaction term or if we default on our obligations under the repurchase agreement, we may incur losses. • Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy. • Negative impacts on our business may cause us to default on certain financial covenants contained in our financing arrangements. • Hedging against interest rate and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
As a result, our investment portfolio may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
As a result, our investment portfolio may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those asset types, sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
To the extent we suffer such losses with respect to these loans, our business, results of operations and financial condition may be materially adversely affected. Our investments may include subordinated tranches of CMBS, RMBS and ABS, which are subordinate in right of payment to more senior securities and have greater risk of loss than other investments.
To the extent we suffer such losses with respect to these loans, our business, results of operations and financial condition may be materially adversely affected. Our investments may include subordinated tranches of RMBS, CMBS and ABS, which are subordinate in right of payment to more senior securities and have greater risk of loss than other investments.
Our investments include or may include subordinated tranches of CMBS, RMBS and ABS, which are subordinated classes of securities in a structure of securities collateralized by a pool of assets consisting primarily of multi-family or other commercial mortgage loans, residential mortgage loans and auto loans, respectively.
Our investments include or may include subordinated tranches of RMBS, CMBS and ABS, which are subordinated classes of securities in a structure of securities collateralized by a pool of assets consisting primarily of residential mortgage loans, multi-family or other commercial mortgage loans and auto loans, respectively.
Furthermore, any costs or delays involved in the completion of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.
Furthermore, any costs or delays involved in the completion of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.
See “- Our investments may include subordinated tranches of CMBS, RMBS and ABS, which are subordinate in right of payment to more senior securities and have greater risk of loss than other investments.” In the event of the bankruptcy of a commercial mortgage loan borrower, the commercial mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the commercial mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
See “- Our investments may include subordinated tranches of RMBS, CMBS and ABS, which are subordinate in right of payment to more senior securities and have greater risk of loss than other investments.” In the event of the bankruptcy of a commercial mortgage loan borrower, the commercial mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the commercial mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase the interest of our operating partner that is subject to the buy/sell right, in which case we may be forced to sell our interest as the result of the exercise of such right when we would otherwise prefer to keep our interest.
If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase the interest of our operating partner that is subject to the buy/sell right, in which case we may be forced to sell our interest as a result of the exercise of such right when we would otherwise prefer to keep our interest.
As part of our acquisition or underwriting process for certain assets, including, without limitation, residential loans, direct and indirect multi-family property investments, CMBS, non-Agency RMBS, ABS or other mortgage-, residential housing- or other credit-related assets, we may conduct (either directly or using third parties) certain due diligence.
As part of our acquisition or underwriting process for certain assets, including, without limitation, residential loans, direct and indirect multi-family property investments, non-Agency RMBS, CMBS, ABS or other mortgage-, residential housing- or other credit-related assets, we may conduct (either directly or using third parties) certain due diligence.
Consequently, depending on market conditions at the relevant time, we may have to rely on additional equity issuances to meet our capital and financing needs, which may be dilutive to our stockholders, or we may have to rely on less efficient forms of debt financing that restrict our operations or consume a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash distributions to our stockholders and other purposes.
Consequently, depending on market conditions at the relevant time, we may have to rely on additional equity issuances to meet our capital and financing needs, which may be dilutive to our stockholders, or we may have to rely on less efficient forms of debt financing that restrict our operations or financing or consume a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash distributions to our stockholders and other purposes.
Congress and various state and local legislatures have considered in the past, and in the future may adopt, legislation, which, among other provisions, would permit limited assignee liability for certain violations in the mortgage loan origination process, and would allow judicial modification of loan principal in certain instances. We cannot predict whether or in what form the U.S.
The U.S. Congress and various state and local legislatures have considered in the past, and in the future may adopt, legislation, which, among other provisions, would permit limited assignee liability for certain violations in the mortgage loan origination process, and would allow judicial modification of loan principal in certain instances. We cannot predict whether or in what form the U.S.
We own certain non-managing member interests in partnerships and limited liability companies that are joint ventures, as well as preferred equity investments treated as partnership interests for U.S. federal income tax purposes, and we intend to continue to invest in preferred equity investments in the future.
We own preferred equity investments treated as partnership interests for U.S. federal income tax purposes, as well as certain non-managing member interests in partnerships and limited liability companies that are joint ventures, and we intend to continue to invest in preferred equity investments in the future.
Real estate and real estate-related assets are subject to various risks, including: • acts of God, including earthquakes, wildfires, hurricanes, tornadoes, floods and other natural disasters, which may result in uninsured losses; • acts of domestic or international war or terrorism, social unrest and civil disturbances, including the consequences thereof, such as materially negative impacts on U.S. economic and market conditions; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics and health crises, ; • changes in federal, state or local governmental laws and regulations, fiscal or tax policies, zoning ordinances and environmental legislation and the related costs of compliance with federal, state or local laws and regulations, fiscal policies and ordinances; and • adverse developments or conditions resulting from or associated with climate change.
Real estate and real estate-related assets are subject to various risks, including: • acts of God, including earthquakes, wildfires, hurricanes, tornadoes, floods and other natural disasters, which may result in uninsured losses; • acts of domestic or international war or terrorism, social unrest and civil disturbances, including the consequences thereof, such as materially negative impacts on U.S. economic and market conditions; • adverse changes in global, national, regional and local economic, market or political conditions, including those relating to pandemics and health crises; • changes in federal, state or local governmental laws and regulations, fiscal or tax policies, zoning ordinances and environmental legislation and the related costs of compliance with federal, state or local laws and regulations, fiscal policies and ordinances; and • adverse developments or conditions resulting from or associated with climate change.
Net operating income of an income-producing property can be adversely affected by, among other things: • tenant mix; • the performance, actions and decisions of operating partners and the property managers we or they engage in the day-to-day management and maintenance of the property; • property location, condition, and design; • competition, including new construction or rehabilitation of competitive properties; • a surge in homeownership rates; • changes in laws that increase operating expenses or limit rents that may be charged; 26 Table of Contents • changes in specific industry segments, including the labor, credit and securitization markets; • declines in regional or local real estate values or economic conditions; • declines in individual property or regional or local rental or occupancy rates; • increases in interest rates, overall financing costs, real estate tax rates, construction costs, energy costs and other operating expenses; • costs of remediation and liabilities associated with environmental conditions; • the potential for uninsured or underinsured property losses; and • the risks particular to real property, including those described in “-Our business is subject to risks particular to real property and real estate-related assets.” In the event of any default under a loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the outstanding principal and accrued interest of the mortgage loan, and any such losses could have a material adverse effect on our cash flow from operations and our ability to make distributions to our stockholders.
Net operating income of an income-producing property can be adversely affected by, among other things: • tenant mix; • the performance, actions and decisions of operating partners and the property managers we or they engage in the day-to-day management and maintenance of the property; • property location, condition, and design; • competition, including new construction or rehabilitation of competitive properties; • a surge in homeownership rates; 27 Table of Contents • changes in laws that increase operating expenses or limit rents that may be charged; • changes in specific industry segments, including the labor, credit and securitization markets; • declines in regional or local real estate values or economic conditions; • declines in individual property or regional or local rental or occupancy rates; • increases in interest rates, overall financing costs, real estate tax rates, construction costs, energy costs and other operating expenses; • costs of remediation and liabilities associated with environmental conditions; • the potential for uninsured or underinsured property losses; and • the risks particular to real property, including those described in “-Our business is subject to risks particular to real property and real estate-related assets.” In the event of any default under a loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the outstanding principal and accrued interest of the mortgage loan, and any such losses could have a material adverse effect on our cash flow from operations and our ability to make distributions to our stockholders.
There can be no assurance as to how, in the long term, these and other actions by the U.S. Government or the Federal Reserve will affect the efficiency, liquidity and stability of the financial and mortgage markets or whether they will be successful in reducing inflation to acceptable levels without creating an economic recession.
There can be no assurance as to how, in the long term, these and other actions by the U.S. Government or the Federal Reserve will affect the efficiency, liquidity and stability of the financial and mortgage markets or whether they will be successful in reducing inflation to acceptable and sustainable levels without creating an economic recession.
In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our assets, as was the case in March 2020 when the COVID-19 pandemic caused significant turmoil in our markets.
If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our assets, as was the case in March 2020 when the COVID-19 pandemic caused significant turmoil in our markets.
The risks discussed herein can materially adversely affect our business, liquidity, operating results, prospects, financial condition and ability to make distributions to our stockholders, and may cause the market price of our securities to decline. The risk factors described below are not the only risks that may affect us.
The risks discussed herein can materially adversely affect our business, liquidity, operating results, prospects, financial condition and/or ability to make distributions to our stockholders, and may cause the market price of our securities to decline. The risk factors described below are not the only risks that may affect us.
When we engage in repurchase transactions, we generally sell RMBS, CMBS, residential loans or certain other assets to lenders (i.e., repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same asset back to us at the end of the term of the transaction.
When we engage in repurchase transactions, we generally sell RMBS, residential loans or certain other assets to lenders (i.e., repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same asset back to us at the end of the term of the transaction.
Income from hedging transactions that do not meet these requirements is likely to constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests. Our aggregate gross income from non-qualifying hedges, fees, and certain other non-qualifying sources cannot exceed 5% of our annual gross income.
Income from hedging transactions that do not meet these requirements is likely to constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. Our aggregate gross income from non-qualifying hedges, fees, and certain other non-qualifying sources cannot exceed 5% of our annual gross income.
Similarly, the CMBS, mezzanine loan and preferred and joint venture equity investments we own may be adversely affected by a default on any of the loans or other instruments that underlie those securities or that are secured by the related property.
Similarly, the mezzanine loan and preferred and joint venture equity investments we own may be adversely affected by a default on any of the loans or other instruments that underlie those securities or that are secured by the related property.
For example, we rely on the mortgage servicers who service the mortgage loans we purchase as well as the loans underlying our CMBS, non-Agency RMBS and ABS to, among other things, collect principal and interest payments on such loans and perform loss mitigation services, such as workouts, modifications, refinancings, foreclosures, short sales and sales of foreclosed property.
For example, we rely on the mortgage servicers who service the mortgage loans we purchase as well as the loans underlying our non-Agency RMBS to, among other things, collect principal and interest payments on such loans and perform loss mitigation services, such as workouts, modifications, refinancings, foreclosures, short sales and sales of foreclosed property.
In connection with our business of acquiring and holding loans, engaging in securitization transactions, and investing in CMBS, non-Agency RMBS and ABS, we rely on third-party service providers, principally loan servicers, to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms.
In connection with our business of acquiring and holding loans, engaging in securitization transactions, and investing in non-Agency RMBS, we rely on third-party service providers, principally loan servicers, to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms.
As part of our risk management process, models may be used to evaluate, depending on the asset class, house price appreciation and depreciation by county or region, prepayment speeds and frequency, cost and timing of foreclosures, as well as other factors. Certain assumptions used as inputs to the models may be based on historical trends.
As part of our risk management process, models may be used to evaluate, depending on the asset class, home price appreciation and depreciation by county or region, prepayment speeds and frequency, cost and timing of foreclosures, as well as other factors. Certain assumptions used as inputs to the models may be based on historical trends.
We have further developed and enhanced our cybersecurity systems and processes that are intended to protect this type of data and information; however, they may not be effective in preventing unauthorized access in the future and such unauthorized access could have a material adverse effect on our business and financial results.
We have further developed and enhanced our cybersecurity systems and processes that are intended to protect this type of data and information but they may not be effective in preventing unauthorized access in the future and such unauthorized access could have a material adverse effect on our business and financial results.
If loans in our portfolio or those originated by entities in which we have or have previously made an investments are found to have been originated in violation of predatory or abusive lending laws, we could incur losses that would materially adversely affect our business. Our business is subject to extensive regulation.
If loans in our portfolio or those originated by entities in which we have or have previously made an investment are found to have been originated in violation of predatory or abusive lending laws, we could incur losses that would materially adversely affect our business. Our business is subject to extensive regulation.
First, certain investments, such as IOs, may experience outright losses in an environment of faster actual or anticipated prepayments. Second, particular investments may under-perform relative to any hedges that we may have constructed for these assets, resulting in a loss to us.
First, certain investments, such as IOs and MSRs, may experience outright losses in an environment of faster actual or anticipated prepayments. Second, particular investments may under-perform relative to any hedges that we may have constructed for these assets, resulting in a loss to us.
Disruptive events, including events similar to these, could have a material adverse impact on our liquidity and could lead to significant losses, a rapid deterioration of our financial condition and possibly require us to file for protection under the U.S.
Disruptive events, including events similar to these, could have a material adverse impact on our liquidity and could lead to significant losses, a rapid deterioration of our financial condition and possibly require us to file for protection under the U.S. Bankruptcy Code.
If an SPE defaults on its obligations and we have guaranteed the satisfaction of that obligation, we may be materially adversely affected. 34 Table of Contents In connection with our securitizations, we generally are required to prepare disclosure documentation for investors, including term sheets and offering memoranda, which contain information regarding the securitization generally, the securities being issued, and the assets being securitized.
If an SPE defaults on its obligations and we have guaranteed the satisfaction of that obligation, we may be materially adversely affected. In connection with our securitizations, we generally are required to prepare disclosure documentation for investors, including term sheets and offering memoranda, which contain information regarding the securitization generally, the securities being issued, and the assets being securitized.
However, we believe that we have structured our securitizations such that the above taxes will not apply to us or our stockholders. 45 Table of Contents However, because our subsidiary REIT is, in part, owned by a TRS of ours, that TRS will be subject to tax on any dividend income from our subsidiary REIT, including any excess inclusion income allocated to it.
However, we believe that we have structured our securitizations such that the above taxes will not apply to us or our stockholders. However, because our subsidiary REIT is, in part, owned by a TRS of ours, that TRS will be subject to tax on any dividend income from our subsidiary REIT, including any excess inclusion income allocated to it.
In the event any of these factors cause the securitization entities in which we own subordinated securities to experience losses, the market value of our assets, our business, financial condition and results of operations and ability to make distributions to our stockholders may be materially adversely affected. Prepayment rates can change, adversely affecting the performance of our assets.
In the event any of these factors cause the securitization entities in which we own subordinated securities to experience losses, the market value of our assets, our business, financial condition and results of operations and ability to make distributions to our stockholders may be materially adversely affected. 23 Table of Contents Prepayment rates can change, adversely affecting the performance of our assets.
We have invested, and will continue to invest, in mezzanine loans in a manner that will enable us to continue to satisfy the REIT gross income and asset tests. 44 Table of Contents We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us.
We have invested, and will continue to invest, in mezzanine loans in a manner that will enable us to continue to satisfy the REIT gross income and asset tests. We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us.
Our results of operations, financial condition and business could be materially adversely affected if our fair value determinations of these assets are materially higher than could actually be realized in the market. Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt.
Our results of operations, financial condition and business could be materially adversely affected if our fair value determinations of these assets are materially higher than could actually be realized in the market. 30 Table of Contents Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt.
We also expect that higher interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience, as certain of them did in 2023, a decline in their fair value or provide yields that are below prevailing market interest rates.
We also expect that higher interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience, as certain of them did in 2024, a decline in their fair value and/or provide yields that are below prevailing market interest rates.
Although we estimate prepayment rates to determine the effective yield of our assets and valuations, these estimates are not precise and prepayment rates do not necessarily change in a predictable manner as a function of interest rate changes. 23 Table of Contents The adverse effects of prepayments may impact us in various ways.
Although we estimate prepayment rates to determine the effective yield of our assets and valuations, these estimates are not precise and prepayment rates do not necessarily change in a predictable manner as a function of interest rate changes. The adverse effects of prepayments may impact us in various ways.
We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for the majority of our investments. We have elected the fair value option accounting model for the majority of our investments.
We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for the majority of our investments. We have elected the fair value option accounting model for the majority of our investments and certain of our liabilities.
The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations. Our securitizations have, and could in the future, result in the creation of taxable mortgage pools (“TMPs”), for U.S. federal income tax purposes.
The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations. 45 Table of Contents Our securitizations have, and could in the future, result in the creation of taxable mortgage pools (“TMPs”), for U.S. federal income tax purposes.
The inability of the borrower to do so could materially and adversely affect our liquidity and results of operations. The difficulty in valuation is particularly significant with respect to our less liquid investments such as our re-performing loans (or RPLs) and non-performing loans (or NPLs). RPLs are loans on which a borrower was previously delinquent but has resumed repaying.
The inability of the borrower to do so could materially and adversely affect our liquidity and results of operations. The difficulty in valuation is particularly significant with respect to our less liquid investments such as our re-performing loans (“RPL”s) and non-performing loans (“NPL”s). RPLs are loans on which a borrower was previously delinquent but has resumed repaying.
When we acquire residential loans or make investments in multi-family or single-family rental properties, we may come into possession of borrower non-public personal information that an identity thief could utilize in engaging in fraudulent activity or theft.
When we acquire residential loans or make investments in multi-family or single-family rental properties, we often times come into possession of borrower non-public personal information that an identity thief could utilize in engaging in fraudulent activity or theft.
Because our repurchase agreements typically have terms of one year or less, our repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis our maturing short-term financings and have and may continue to impose more onerous conditions when rolling such financings.
Because our repurchase agreements typically have terms of one year or less, our repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis our maturing short-term financings and such counterparties have imposed and may in the future impose more onerous conditions when rolling such financings.
In recent years, concerns about the health of the global economy generally and the residential and commercial mortgage markets specifically, as well as inflation, energy costs, changes in monetary policy, perceived or actual changes in interest rates, European sovereign debt, U.S. budget debates, geopolitical issues, global pandemics such as the COVID-19 pandemic and the availability and cost of credit have contributed to increased volatility and uncertainty for the economy and mortgage, real estate and financial markets.
In recent years, concerns about the health of the global economy generally and the residential and commercial mortgage markets specifically, as well as inflation, energy costs, changes in monetary policy, perceived or actual changes in interest rates, the health of the banking system, U.S. budget debates, geopolitical issues, global pandemics such as the COVID-19 pandemic and the availability and cost of credit have contributed to increased volatility and uncertainty for the economy and mortgage, real estate and financial markets.
Unless our failure to qualify as a REIT were excused under the U.S. federal income tax laws, we generally would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our REIT status. 42 Table of Contents REIT distribution requirements could adversely affect our liquidity.
Unless our failure to qualify as a REIT were excused under the U.S. federal income tax laws, we generally would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our REIT status. REIT distribution requirements could adversely affect our liquidity.
Finally, in the case of the CMBS, non-Agency RMBS and ABS in which we invest, we may have no or limited rights to prevent the servicer of the underlying loans from taking actions that are adverse to our interests.
Finally, in the case of the non-Agency RMBS in which we invest, we may have no or limited rights to prevent the servicer of the underlying loans from taking actions that are adverse to our interests.
Ginnie Mae, which guarantees mortgage-backed securities (“MBS”) backed by federally insured or guaranteed loans primarily consisting of loans insured by the Federal Housing Administration (the “FHA”) or guaranteed by the Department of Veterans Affairs (“VA”), is part of a U.S. Government agency and its guarantees are backed by the full faith and credit of the United States.
Ginnie Mae, which guarantees MBS backed by federally insured or guaranteed loans primarily consisting of loans insured by the Federal Housing Administration (the “FHA”) or guaranteed by the Department of Veterans Affairs (“VA”), is part of a U.S. Government agency and its guarantees are backed by the full faith and credit of the United States.
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 capital stock to decline.
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 securities to decline.
Some of the multi-family real estate investments and loans we may originate or that underlie our CMBS may allow the borrower to make prepayments without incurring a prepayment penalty and some may include provisions allowing the borrower or operating partner to extend the term of the loan or instrument beyond the originally scheduled maturity.
Some of the multi-family real estate investments and loans we may originate may allow the borrower to make prepayments without incurring a prepayment penalty and some may include provisions allowing the borrower or operating partner to extend the term of the loan or instrument beyond the originally scheduled maturity.
Although we have no current intention of paying dividends in our own stock, if in the future we choose to pay dividends in our own stock, our stockholder may be required to pay tax in excess of the cash that they receive. Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations.
Although we have no current intention of paying dividends in our own stock, if in the future we choose to pay dividends in our own stock, our stockholders may be required to pay tax in excess of the cash that they receive. 43 Table of Contents Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations.
Under the terms of these financings, some of which have terms of up to forty years, we have in the past and may in the future agree to receive no cash flows from the assets transferred to the SPE until the debt issued by the SPE has matured or been repaid, which could reduce our liquidity and our cash available for distribution to our stockholders.
Under the terms of these financings, some of which have terms of up to forty-five years, we agree to receive no cash flows from the assets transferred to the SPE until the debt issued by the SPE has matured or been repaid, which could reduce our liquidity and our cash available for distribution to our stockholders.
Tax Risks • Failure to remain qualified as a REIT would adversely affect our operations and ability to make distributions. • REIT distribution requirements could adversely affect our liquidity. • Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. • Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments. • The failure of certain investments subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT. • We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans. • We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us. • Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity. • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. 18 Table of Contents Set forth below are the risks that we believe are material to stockholders and prospective investors.
Tax Risks • Failure to remain qualified as a REIT would adversely affect our operations and ability to make distributions. • REIT distribution requirements could adversely affect our liquidity. • Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. • Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments. • The failure of certain investments subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT. • We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans. • We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us. • Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity. • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the loan, and any costs or delays involved in the foreclosure or liquidation process may increase losses. Many of the loans we own or seek to acquire have been purchased by us at a discount to par value.
The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the loan, and any costs or delays involved in the foreclosure or liquidation process may increase losses. 21 Table of Contents A certain portion of the loans we own or seek to acquire have been purchased by us at a discount to par value.
Some securitizations are treated as financing transactions for GAAP, while others are treated as sales. In a typical securitization, we convey assets to a special purpose vehicle (“SPE”), the issuer, which then issues one or more classes of notes secured by the assets pursuant to the terms of an indenture.
Some securitizations are treated as financing transactions for GAAP, while others are treated as sales. In a typical securitization, we convey assets to an SPE, the issuer, which then issues one or more classes of notes secured by the assets pursuant to the terms of an indenture.
As of December 31, 2023, 61% of our total investment portfolio was comprised of what we refer to as "credit assets." Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control.
As of December 31, 2024, 49% of our total investment portfolio was comprised of what we refer to as "credit assets." Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control.
These climate-related financial risks could, in turn, lead to reductions in our revenues and increased rates of default or delinquency and/or decreased recovery rates on our assets, any of which could cause a decline in the market value of our common stock and negatively impact our ability to pay dividends to our stockholders.
These climate-related financial risks could, in turn, lead to reductions in our revenues and increased rates of default or delinquency and/or decreased recovery rates on our assets, any of which could cause a decline in the market value of our common stock and negatively impact our ability to pay dividends to our stockholders. We are dependent on certain key personnel.
We currently own, and in the future may originate or acquire, mezzanine loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of the real property.
We have made in the past and may in the future originate or acquire, mezzanine loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of the real property.
As a REIT, we generally cannot provide services to tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services, including with respect to tenants at properties held by a joint venture of ours or a partnership or limited liability company in which we hold a preferred equity interest.
As a REIT, we generally cannot provide services to tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services, including with respect to tenants at properties held by a partnership or limited liability company in which we hold an interest.
Risks Associated With Adverse Developments in the Mortgage, Real Estate, Credit and Financial Markets Generally • Difficult conditions in the mortgage, real estate, and financial markets and the economy generally may cause us to experience losses in the future. • We cannot predict the effect that government policies, laws and interventions adopted in response to the COVID-19 pandemic or the current inflationary environment or the impact that future changes in the U.S. political environment, governmental policy or regulation will have on our business and the markets in which we operate. • The downgrade, or perceived potential downgrade, of the credit ratings of the U.S. and the failure to resolve issues related to U.S. fiscal and debt policies may materially adversely affect our business, liquidity, financial condition and results of operations. • Changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac and Ginnie Mae and the U.S.
Risks Associated With Adverse Developments in the Mortgage, Real Estate, Credit and Financial Markets Generally • Difficult conditions in the mortgage, real estate, and financial markets and the economy generally may cause us to experience losses in the future. • We cannot predict the effect that changes in government policies, laws or regulations or the U.S. political environment will have on our business and the markets in which we operate. • The downgrade, or perceived potential downgrade, of the credit ratings of the U.S. and the failure to resolve issues related to U.S. fiscal and debt policies may materially adversely affect our business, liquidity, financial condition and results of operations. • Changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac and Ginnie Mae and the U.S.
We make mezzanine loans to and preferred equity investments in owners of multi-family properties as part of our investment strategy and presently own joint venture equity investments in owners of multi-family properties.
We make preferred equity investments in, and may in the future originate mezzanine loans to, owners of multi-family properties as part of our investment strategy and presently own joint venture equity investments in owners of multi-family properties.
Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example: • operating partners may share or control certain approval rights over major decisions; • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale or refinancing of properties held in the joint venture or the timing of termination or liquidation of the joint venture; • we may be limited in our ability to dispose of or refinance properties on a timely basis without financial penalty or at all; • our operating partner in a property might become insolvent, bankrupt or otherwise refuse or be unable to meet its obligations to us or the venture (including its obligation to make capital contributions or property distributions when due); • we may incur liabilities as a result of an action taken by one of our operating partners; • one of our operating partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT; 27 Table of Contents • disputes between us and our operating partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business, which may subject the properties owned by the applicable joint venture to additional risk; • our operating partners obtain blanket property casualty and business interruption insurance insuring properties we own jointly and other properties in which we have no ownership interest and as a result, claims or losses with respect to properties owned by our operating partners but in which we have no interest could significantly reduce or eliminate the insurance available to properties in which we have an interest; • our operating partners may not perform their property oversight responsibilities; • under certain of our arrangements, neither partner may have control, and an impasse could be reached, which might have a negative influence on our investment; and • we rely on our operating partners to provide us with accurate financial information regarding the performance of the properties underlying our preferred equity, mezzanine loan and joint venture investments on a timely basis to enable us to satisfy our annual, quarterly and periodic reporting obligations under the Exchange Act and our operating partners and the entities in which we invest may have inadequate internal controls or procedures that could cause us to fail to meet our reporting obligations and other requirements under the federal securities laws.
Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example: • operating partners may share or control certain approval rights over major decisions; • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals; • we may be limited in our ability to dispose of or refinance properties on a timely basis without financial penalty or at all; • our operating partner in a property might become insolvent, bankrupt or otherwise refuse or be unable to meet its obligations to us or the venture, which we have experienced in recent years; • we may incur liabilities as a result of an action taken by one of our operating partners; • one of our operating partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT; 28 Table of Contents • disputes between us and our operating partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business; • our operating partners obtain blanket property casualty and business interruption insurance insuring properties we own jointly and other properties in which we have no ownership interest and as a result, claims or losses with respect to properties owned by our operating partners but in which we have no interest could significantly reduce or eliminate the insurance available to properties in which we have an interest; • our operating partners may not perform their property oversight responsibilities; and • we rely on our operating partners to provide us with accurate financial information regarding the performance of the properties underlying our preferred equity, mezzanine loan and joint venture investments on a timely basis to enable us to satisfy our annual, quarterly and periodic reporting obligations under the Exchange Act and our operating partners and the entities in which we invest may have inadequate internal controls or procedures that could cause us to fail to meet our reporting obligations and other requirements under the federal securities laws.
There is a risk that property held by our joint ventures or partnerships or limited liability companies in which we have a preferred equity or joint venture interest, property received upon foreclosure of a mortgage by us and/or certain MBS could be treated as held by us primarily for sale to customers in the ordinary course of business.
There is a risk that property held by partnerships or limited liability companies in which we have an interest, property received upon foreclosure of a mortgage by us and/or certain MBS could be treated as held by us primarily for sale to customers in the ordinary course of business.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses. 32 Table of Contents Issues related to financing are exacerbated in times of significant dislocation in the financial markets.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses.
A prolonged decline in securitization activity may limit borrowings under warehouse facilities and other credit facilities that are intended to be refinanced by such securitizations. Moreover, other forms of longer-term financing have historically been difficult for mortgage REITs to access or contain less favorable terms.
Finally, securitization financing has been limited from time to time in the recent past. A prolonged decline in securitization activity may limit borrowings under warehouse facilities and other credit facilities that are intended to be refinanced by such securitizations. Moreover, other forms of longer-term financing have historically been difficult for mortgage REITs to access or contain less favorable terms.
A higher interest rate environment, which we have experienced since 2022, generally reduces economic activity, which, in turn, generally reduces the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
A higher interest rate environment, which we have experienced since 2022, generally results in a reduction in the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
Our joint ventures and the partnerships and limited liability companies in which we hold a preferred equity interest may be limited in their ability to provide services to tenants by the REIT rules or such services may have to be provided through a TRS.
The partnerships and limited liability companies in which we hold an interest may be limited in their ability to provide services to tenants by the REIT rules or such services may have to be provided through a TRS.
The market value of our investment portfolio may move inversely with changes in interest rates. We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio, as occurred during much of 2022 and in 2023.
The market value of our investment portfolio may move inversely with changes in interest rates. We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio.
Notwithstanding the IRS’s determination in the private letter rulings described above, it is possible that the IRS could successfully assert that any excess MSRs that we acquire do not qualify for purposes of the 75% REIT asset test and income from such MSRs does not qualify for purposes of the 75% and/or 95% gross income tests, which could cause us to be subject to a penalty tax and could adversely impact our ability to qualify as a REIT.
Notwithstanding the IRS’s determination in the private letter rulings described above, it is possible that the IRS could successfully assert that any excess MSRs that we acquire do not qualify for purposes of the 75% REIT asset test and income from such MSRs does not qualify for purposes of the 75% and/or 95% gross income tests, which could cause us to be subject to a penalty tax and could adversely impact our ability to qualify as a REIT. 46 Table of Contents We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
It is possible that our financing counterparties will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed or markets are illiquid, which could cause significant losses.
Issues related to financing are exacerbated in times of significant dislocation in the financial markets. It is possible that our financing counterparties will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed or markets are illiquid, which could cause significant losses.
There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy. With a U.S. presidential election year upon us in 2024, the potential for changes in policy and regulation is heightened by a potential change in the U.S. administration.
There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy. The potential for changes in policy and regulation is heightened by the change in the U.S. presidential administration at the start of 2025.
Bankruptcy Code. 33 Table of Contents We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders.
We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders.
It is possible, however, that the IRS could successfully assert that we do not own the investments during the term of the repurchase agreement, in which case our ability to continue to qualify as a REIT could be adversely affected.
It is possible, however, that the IRS could successfully assert that we do not own the investments during the term of the repurchase agreement, in which case our ability to continue to qualify as a REIT could be adversely affected. 44 Table of Contents We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans.
Impairment charges, such as those incurred in 2023 and 2022, adversely affect our financial condition, results of operations, cash available for distribution, including cash available for us to pay distributions to our stockholders, and per share trading price of our common stock.
Impairment charges, such as those incurred in 2024 and 2023, adversely affected our financial condition, results of operations, book value, cash available for distribution, including cash available for us to pay distributions to our stockholders, and per share trading price of our common stock. Such impairment charges could adversely affect our earnings and financial condition in the future.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. 43 Table of Contents Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
We cannot assure you that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our investment activities and/or dispose of assets, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
We cannot assure you that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our investment activities and/or dispose of assets, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. 33 Table of Contents The repurchase agreements that we use to finance our investments may require us to provide additional collateral, which could reduce our liquidity and harm our financial condition.
Government and the Federal Reserve took significant actions to support the economy and the continued functioning of the financial markets in response to the COVID-19 pandemic through multiple relief bills. More recently, the U.S.
Government and the Federal Reserve took significant actions to support the economy and the continued functioning of the financial markets in response to the COVID-19 pandemic through multiple relief bills. From the first quarter of 2022 into the third quarter of 2024, the U.S.
As a result, we may not recover some or all of our investment, which could result in significant losses. 25 Table of Contents Declining real estate valuations and impairment charges to real estate assets, such as certain multi-family properties owned by entities in which we have joint venture equity investments, have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future.
As a result, we may not recover some or all of our investment, which could result in significant losses. 26 Table of Contents Declining real estate valuations and impairment charges to real estate assets have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future.
Changes in the fair value of assets, and a portion of the changes in the fair value of liabilities, accounted for using the fair value option are recorded in our consolidated statements of operations each period, which may result in volatility in our financial results.
Changes in the fair value of assets and liabilities accounted for using the fair value option are recorded in our consolidated statements of operations each period, which have resulted in volatility in our financial results from period to period in the past.
Further, there is no assurance that the characteristics of any successor rate will be similar to LIBOR, or that any successor rate will produce the economic equivalent of LIBOR. 39 Table of Contents Risks Related To Our Organization, Our Structure and Other Risks We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent, which may result in the purchase of riskier assets, the use of greater leverage or commercially unsound actions, any of which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Risks Related To Our Organization, Our Structure and Other Risks We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent, which may result in the purchase of riskier assets, the use of greater leverage or commercially unsound actions, any of which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
For the years ended December 31, 2023 and 2022, we recognized net impairment losses of approximately $89.5 million and $2.4 million, respectively. Also in the year ended December 31, 2023, we recognized a loss on reclassification of disposal group of approximately $16.2 million.
For the years ended December 31, 2024 and 2023, we recognized net impairment losses of approximately $48.9 million and $89.5 million, respectively. Also in the years ended December 31, 2024 and 2023, we recognized losses on reclassification of disposal group of approximately $14.6 million and $16.2 million, respectively.
The capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years, including as a result of the COVID-19 pandemic and the current inflationary environment that has generally negatively impacted the availability and/or terms of financing from time-to-time.
The capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years that has generally negatively impacted the availability and/or terms of financing from time-to-time.
It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), as they do currently, in which event our borrowing costs may exceed our interest income and we could incur significant operating losses.
It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), as they did from the middle of 2022 into the third quarter of 2024, in which event our borrowing costs may exceed our interest income and we could incur significant operating losses.
As a result, a default on any of our financing agreements could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders. 35 Table of Contents Hedging against interest rate, credit and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Hedging against interest rate, credit and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
As of December 31, 2023, our portfolio included approximately $143.5 million of subordinated, first loss non-Agency RMBS.
As of December 31, 2024, our portfolio included approximately $142.8 million of subordinated, first loss non-Agency RMBS.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe have implemented initiatives relating to mobile device management, cloud storage services, endpoint protection, and identity and access management. For example, we have implemented a service that focuses on mobile device management and mobile application management, as well as data classification and file server data loss protection measures.
Biggest changeFor example, we have implemented a service that focuses on mobile device management and mobile application management, as well as data classification and file server data loss protection measures. We have further implemented endpoint protection and endpoint detection and response which provides visibility that is designed to identify unauthorized systems and applications. • Ongoing Monitoring .
As of the date of this Report, though the Company and our service providers have experienced certain cybersecurity incidents, we are not aware of any previous cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company. However, we acknowledge that cybersecurity threats are continually evolving and the possibility of future cybersecurity incidents remains.
As of the date of this Report, though the Company and our service providers have experienced certain cybersecurity incidents, we are not aware of any previous cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company. However, we acknowledge that cybersecurity threats are continually evolving and the possibility of future cybersecurity incidents remains.
Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cyberattack will not occur. A successful attack on our information technology systems could have significant consequences for our business. While we devote resources to our security measures to protect our systems and information, these measures cannot provide absolute security. No security measure is infallible.
Despite the implementation of our security measures, we cannot guarantee that a significant cyberattack will not occur. A successful attack on our information technology systems could have significant consequences for our business. While we devote resources to our security measures to protect our systems and information, these measures cannot provide absolute security. No security measure is infallible.
This consultant conducts periodic tests and analyses of our defensive and detective information security controls, including annual penetration tests and risk assessments as well as regular vulnerability scans and assessments. The consultant also provides live, interactive annual information security training to our employees and monitors the effectiveness of such training through quarterly phishing campaigns.
This consultant conducts periodic tests and analyses of our defensive and detective information security controls, including annual penetration tests and risk assessments as well as regular vulnerability scans and assessments. The consultant also provides live, interactive annual information security training to our employees and executive officers and monitors the effectiveness of such training through quarterly phishing campaigns.
The Company has implemented a suite of software programs to detect information security events, plans to respond to information security events in accordance with the IRP and BCP, and aims to take proactive steps to recover from information security events through its Disaster Recovery Plan. • Insurance .
The Company has implemented a suite of software programs to detect information security events, plans to respond to information security events in accordance with the IRP and BCP, and aims to take proactive steps to recover from information security events through its Disaster Recovery Plan (“DRP”).
He holds a Bachelor of Science degree in Information Systems and oversees all of our information security initiatives, assesses cybersecurity risks, provides cybersecurity solution plans, identifies opportunities for the implementation of additional cybersecurity procedures and provides cybersecurity training to our employees and executives. • Third-Party Consultant. We engage a third-party information security consultant to assist in managing our risk posture.
He holds a Bachelor of Science degree in Information Systems and oversees all of our information security initiatives, assesses cybersecurity risks, provides cybersecurity plans, identifies opportunities for the implementation of additional cybersecurity measures and provides cybersecurity training to our employees and executives. • Third-Party Consultant. We engage a third-party information security consultant to assist in managing our risk posture.
The consultant also assists us in managing cybersecurity risks associated with third-party service providers by administering a due diligence questionnaire for the Company's third-party service providers that is inclusive of a cybersecurity risk assessment and provides guidance for remediation of security gaps. • Current Plans and Procedures .
The consultant also assists us in managing cybersecurity risks associated with third-party service providers by administering a due diligence questionnaire for the Company's third-party service providers that includes a cybersecurity risk assessment and provides guidance for remediation of security gaps. • Current Plans and Procedures .
Item 1C. CYBERSECURITY We, together with our third-party vendors, employ information technology including networks, systems, and applications to support our business processes and decision-making across the Company. Our information technology is connected to support the flow of information across our business processes. As such, our information technology infrastructure is susceptible to cybersecurity threats.
Item 1C. CYBERSECURITY We, together with our third-party vendors, employ information technology including networks, systems, and applications to support our business and decision-making across the Company, including supporting the flow of information across our business processes. Our information technology infrastructure is susceptible to cybersecurity threats.
We monitor our information security procedures and risk management systems and implement initiatives aimed at improving our cybersecurity measures. Our process for assessing, identifying, and managing information security risks include: • Internalization of Information Security Management .
We monitor our information technology systems, including through the use of information security procedures and risk management systems, and implement initiatives aimed at improving our cybersecurity measures. Our process for assessing, identifying, managing and addressing information security risks include: • Internalization of Information Security Management .
The Company has implemented an incident response plan (“IRP”) and a Business Continuity Plan ("BCP").
The Company has implemented and maintains an incident response plan (“IRP”) and a Business Continuity Plan (“BCP”).
The Head of Information Technology regularly provides information security updates to named executive officers and briefs our Board of Directors or Audit Committee on relevant information security issues at least twice a year. We also provide periodic cybersecurity training for members of our Board of Directors.
The Head of Information Technology provides information security updates to named executive officers and briefs our Board of Directors and Audit Committee on relevant information security issues on a quarterly basis. We also make available periodic cybersecurity training for members of our Board of Directors.
The Company aims to identify and mitigate information security risks using the National Institute of Standards and Technology Cybersecurity Framework (the “NIST Framework”). This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST Framework as a guide to help us identify and mitigate information security risks relevant to our business.
The Company aims to identify and mitigate information security risks by using the National Institute of Standards and Technology Cybersecurity Framework (the “NIST Framework”) as a guide to help us identify and mitigate information security risks relevant to our business.
We maintain an information security risk insurance policy. 50 Table of Contents • Enterprise Risk Assessment . The Company completes an annual enterprise risk assessment that includes cybersecurity risks and mitigants. The results of the enterprise risk assessment are shared with the Board of Directors on an annual basis. • Implemented Programs for a Hybrid Work Environment.
The Company completes an annual enterprise risk assessment that includes cybersecurity risks and mitigants. The results of the enterprise risk assessment are shared with the Board of Directors on an annual basis. • Implemented Programs for a Hybrid Work Environment. We have implemented initiatives relating to mobile device management, cloud storage services, endpoint protection, and identity and access management.
We have further implemented endpoint protection and endpoint detection and response which provides visibility that is designed to identify unauthorized systems and applications. • Ongoing Monitoring . Our information security procedures are designed to evolve as information security risks and considerations change over time. Our Board of Directors exercises oversight of information security risk primarily through the Audit Committee.
Our information security procedures are designed to evolve as information security risks and considerations change over time. Our Board of Directors exercises oversight of information security risk primarily through the Audit Committee.
Added
The DRP prioritizes the swift recovery of information technology systems, data, and infrastructure and the efficient restoration of servers and applications to their normal operational state in the event of a significant disaster. • Insurance . We maintain a breach response insurance policy. 50 Table of Contents • Enterprise Risk Assessment .

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2023, our principal executive and administrative offices are located in leased space at 90 Park Avenue, New York, New York 10016. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California.
Biggest changeAs of December 31, 2024, our principal executive and administrative offices are located in leased space at 90 Park Avenue, New York, New York 10016. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePreferred Stock In March 2023, the Board of Directors approved a $100.0 million preferred stock repurchase program originally scheduled to expire on March 31, 2024. On February 21, 2024, the Company announced that its Board of Directors extended the expiration date for the preferred stock repurchase program to March 31, 2025.
Biggest changePreferred Stock In March 2023, the Board of Directors approved a $100.0 million preferred stock repurchase program.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information as of December 31, 2023 with respect to compensation plans under which equity securities of the Company are authorized for issuance. The Company has no such plans that were not approved by security holders.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information as of December 31, 2024 with respect to compensation plans under which equity securities of the Company are authorized for issuance. The Company has no such plans that were not approved by security holders.
As of December 31, 2023, $97.6 million of the approved amount remained available for the repurchase of shares of preferred stock under the preferred stock repurchase program. 54 Table of Contents Item 6. [RESERVED] 55 Table of Contents
As of December 31, 2024, $97.6 million of the approved amount remained available for the repurchase of shares of preferred stock under the preferred stock repurchase program. 54 Table of Contents Item 6. [RESERVED] 55 Table of Contents
During the three months ended December 31, 2023, the Company did not repurchase any shares of its preferred stock pursuant to the preferred stock repurchase program.
During the three months ended December 31, 2024, the Company did not repurchase any shares of its preferred stock pursuant to the preferred stock repurchase program.
Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plan Equity compensation plans approved by security holders 2,154,320 $ — 6,249,922 Performance Graph The following line graph sets forth, for the period from December 31, 2018 through December 31, 2023, a comparison of the percentage change in the cumulative total stockholder return on the Company’s common stock compared to the cumulative total return of the Russell 2000 Index and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT (“FTSE NAREIT Mortgage REITs”) Index.
Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plan Equity compensation plans approved by security holders 2,440,418 $ — 5,093,685 Performance Graph The following line graph sets forth, for the period from December 31, 2019 through December 31, 2024, a comparison of the percentage change in the cumulative total stockholder return on the Company’s common stock compared to the cumulative total return of the Russell 2000 Index and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT (“FTSE Nareit Mortgage REITs”) Index.
As of December 31, 2023, we had 90,675,403 shares of common stock outstanding and there were approximately 100 registered holders of record of our common stock, which does not reflect the beneficial ownership of shares held in nominee name, which we are unable to estimate. We intend to pay regular quarterly dividends to holders of shares of our common stock.
As of December 31, 2024, we had 90,574,996 shares of common stock outstanding and there were approximately 140 registered holders of record of our common stock, which does not reflect the beneficial ownership of shares held in nominee name, which we are unable to estimate. We intend to pay regular quarterly dividends to holders of shares of our common stock.
The common stock repurchase program allows the Company to make repurchases of shares of common stock from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
The program, which expires on March 31, 2026, allows the Company to make repurchases of shares of common stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
The preferred stock repurchase program allows the Company to make repurchases of shares of preferred stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
The program, which expires on March 31, 2026, allows the Company to make repurchases of shares of preferred stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
During the three months ended December 31, 2023, the Company did not repurchase any shares of its common stock pursuant to the common stock repurchase program. As of December 31, 2023, $193.2 million of the approved amount remained available for the repurchase of shares of the Company's common stock under the common stock repurchase program.
During the three months ended December 31, 2024, the Company did not repurchase any shares of its common stock pursuant to the common stock repurchase program. As of December 31, 2024, $189.7 million of the approved amount remained available for the repurchase of shares of the Company's common stock under the common stock repurchase program.
The graph assumes (i) that the value of the investment in the Company’s common stock and each of the indices was $100 as of December 31, 2018 and (ii) the reinvestment of all dividends. 52 Table of Contents 12/18 12/19 12/20 12/21 12/22 12/23 New York Mortgage Trust, Inc. 100.00 120.31 76.86 85.05 67.38 63.85 Russell 2000 100.00 125.52 150.58 172.90 137.56 160.85 FTSE Nareit Mortgage REITs 100.00 121.33 98.56 113.97 83.64 96.48 The foregoing graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent we specifically incorporate this information by reference, and shall not otherwise by deemed "filed" with the SEC or deemed "soliciting material" under those acts. 53 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers Common Stock In February 2022, the Board of Directors approved a $200.0 million common stock repurchase program.
The graph assumes (i) that the value of the investment in the Company’s common stock and each of the indices was $100 as of December 31, 2019 and (ii) the reinvestment of all dividends. 52 Table of Contents 12/19 12/20 12/21 12/22 12/23 12/24 New York Mortgage Trust, Inc. 100.00 63.89 70.69 56.00 53.07 42.78 Russell 2000 100.00 119.96 137.74 109.59 128.14 142.93 FTSE Nareit Mortgage REITs 100.00 81.23 93.93 68.94 79.52 79.80 The foregoing graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent we specifically incorporate this information by reference, and shall not otherwise by deemed "filed" with the SEC or deemed "soliciting material" under those acts. 53 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers Common Stock In February 2022, the Board of Directors approved a $200.0 million common stock repurchase program.
In March 2023, the Board of Directors approved an upsize of the common stock repurchase program to $246.0 million. On February 21, 2024, the Company announced that its Board of Directors extended the expiration date for the common stock repurchase program from March 31, 2024 to March 31, 2025.
In March 2023, the Board of Directors approved an upsize of the common stock repurchase program to $246.0 million.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [ Reserved ] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 113 Item 8. Financial Statements and Supplementary Data 119 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 120 Item 9A. Controls and Procedures 121
Biggest changeItem 6. [ Reserved ] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 116 Item 8. Financial Statements and Supplementary Data 122 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 123 Item 9A. Controls and Procedures 124

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following tables summarize our investment securities portfolio as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Agency RMBS Fixed rate $ 1,756,343 $ 1,761,138 $ 21,581 $ (1,829) $ 1,780,890 5.74 % 5.64 % $ 1,602,695 Adjustable rate 149,052 147,460 1,741 — 149,201 5.48 % 5.35 % 137,084 Interest-only 1,139,828 52,623 6,813 (203) 59,233 0.76 % 14.81 % 31,657 Total Agency RMBS 3,045,223 1,961,221 30,135 (2,032) 1,989,324 4.34 % 5.79 % 1,771,436 Non-Agency RMBS Senior 35 35 — (4) 31 3.65 % 3.60 % — Subordinated 8,164 7,526 — (4,281) 3,245 4.61 % 7.39 % — IO 375,563 14,571 6,646 — 21,217 1.63 % 27.42 % — Total Non-Agency RMBS 383,762 22,132 6,646 (4,285) 24,493 1.70 % 20.27 % — Total - AFS $ 3,428,985 $ 1,983,353 $ 36,781 $ (6,317) $ 2,013,817 3.64 % 6.20 % $ 1,771,436 Consolidated SLST Non-Agency RMBS Subordinated $ 238,017 $ 189,962 $ — $ (49,684) $ 140,278 4.44 % 4.01 % $ 55,881 IO 139,914 17,937 — (1,061) 16,876 3.50 % 7.43 % — Total Non-Agency RMBS 377,931 207,899 — (50,745) 157,154 4.09 % 4.32 % 55,881 Total - Consolidated SLST $ 377,931 $ 207,899 $ — $ (50,745) $ 157,154 4.09 % 4.32 % $ 55,881 Total Investment Securities $ 3,806,916 $ 2,191,252 $ 36,781 $ (57,062) $ 2,170,971 3.74 % 5.80 % $ 1,827,317 93 Table of Contents December 31, 2022 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Non-Agency RMBS Senior $ 41 $ 41 $ — $ (5) $ 36 2.74 % 2.89 % $ — Mezzanine 30,250 29,325 — (2,153) 27,172 4.77 % 5.58 % — Subordinated 39,104 28,108 — (13,282) 14,826 9.38 % 8.37 % — IO 524,726 17,100 9,436 — 26,536 1.44 % 20.79 % — Total Non-Agency RMBS 594,121 74,574 9,436 (15,440) 68,570 2.09 % 10.38 % — CMBS Mezzanine 26,033 26,033 — (1,662) 24,371 5.43 % 5.42 % — Subordinated 6,000 6,000 — (238) 5,762 9.29 % 9.29 % — Total CMBS 32,033 32,033 — (1,900) 30,133 6.14 % 6.13 % — ABS Residuals 4 797 59 — 856 — 30.19 % — Total ABS 4 797 59 — 856 — 30.19 % — Total - AFS $ 626,158 $ 107,404 $ 9,495 $ (17,340) $ 99,559 2.45 % 9.33 % $ — Consolidated SLST Non-Agency RMBS Subordinated $ 256,155 $ 210,733 $ — $ (40,182) $ 170,551 4.47 % 4.92 % $ 50,077 IO 149,873 21,528 — (546) 20,982 3.50 % 3.01 % — Total Non-Agency RMBS 406,028 232,261 — (40,728) 191,533 4.10 % 4.73 % 50,077 Total - Consolidated SLST $ 406,028 $ 232,261 $ — $ (40,728) $ 191,533 4.10 % 4.73 % $ 50,077 Total Investment Securities $ 1,032,186 $ 339,665 $ 9,495 $ (58,068) $ 291,092 3.09 % 6.19 % $ 50,077 (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.
Biggest changeTreasury securities 652,792 657,659 — (35,614) 622,045 4.16 % 4.13 % 635,064 Total - AFS $ 5,297,827 $ 3,886,897 $ 18,959 $ (77,312) $ 3,828,544 4.04 % 5.98 % $ 3,499,229 Consolidated SLST Non-Agency RMBS Subordinated $ 242,088 $ 181,716 $ 4,945 $ (52,134) $ 134,527 4.60 % 6.02 % $ 17,382 IO 129,478 14,634 — (653) 13,981 3.50 % 8.54 % — Total Non-Agency RMBS 371,566 196,350 4,945 (52,787) 148,508 4.21 % 6.23 % 17,382 Total - Consolidated SLST $ 371,566 $ 196,350 $ 4,945 $ (52,787) $ 148,508 4.21 % 6.23 % $ 17,382 Total Investment Securities $ 5,669,393 $ 4,083,247 $ 23,904 $ (130,099) $ 3,977,052 4.05 % 5.94 % $ 3,516,611 95 Table of Contents December 31, 2023 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements (3) Available for Sale (“AFS”) Agency RMBS Fixed rate $ 1,756,343 $ 1,761,138 $ 21,581 $ (1,829) $ 1,780,890 5.74 % 5.64 % $ 1,602,695 Adjustable rate 149,052 147,460 1,741 — 149,201 5.48 % 5.35 % 137,084 IO 1,139,828 52,623 6,813 (203) 59,233 0.76 % 14.81 % 31,657 Total Agency RMBS 3,045,223 1,961,221 30,135 (2,032) 1,989,324 4.34 % 5.79 % 1,771,436 Non-Agency RMBS Senior 35 35 — (4) 31 3.65 % 3.60 % — Subordinated 8,164 7,526 — (4,281) 3,245 4.61 % 7.39 % — IO 375,563 14,571 6,646 — 21,217 1.63 % 27.42 % — Total Non-Agency RMBS 383,762 22,132 6,646 (4,285) 24,493 1.70 % 20.27 % — Total - AFS $ 3,428,985 $ 1,983,353 $ 36,781 $ (6,317) $ 2,013,817 3.64 % 6.20 % $ 1,771,436 Consolidated SLST Non-Agency RMBS Subordinated $ 238,017 $ 189,962 $ — $ (49,684) $ 140,278 4.44 % 4.01 % $ 55,881 IO 139,914 17,937 — (1,061) 16,876 3.50 % 7.43 % — Total Non-Agency RMBS 377,931 207,899 — (50,745) 157,154 4.09 % 4.32 % 55,881 Total - Consolidated SLST $ 377,931 $ 207,899 $ — $ (50,745) $ 157,154 4.09 % 4.32 % $ 55,881 Total Investment Securities $ 3,806,916 $ 2,191,252 $ 36,781 $ (57,062) $ 2,170,971 3.74 % 5.80 % $ 1,827,317 (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.
Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net on the Company’s consolidated statements of operations.
Subsequent changes in fair value are reported in current period earnings and presented in unrealized (losses) gains, net on the Company’s consolidated statements of operations.
Liquidity – Hedging and Other Factors Certain of our hedging instruments may also impact our liquidity. We may use interest rate swaps, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures.
Liquidity – Hedging and Other Factors Certain of our hedging instruments may also impact our liquidity. We may use interest rate swaps, interest rate caps, credit default swaps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as gains or losses on derivative instruments.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as gains or losses on derivative instruments.
We provide the following non-GAAP financial measures, in total and by investment category, for the respective periods: • adjusted interest income – calculated as our GAAP interest income reduced by the interest expense recognized on Consolidated SLST CDOs, • adjusted interest expense – calculated as our GAAP interest expense reduced by the interest expense recognized on Consolidated SLST CDOs and adjusted to include the net interest component of interest rate swaps, • adjusted net interest income – calculated by subtracting adjusted interest expense from adjusted interest income, • yield on average interest earning assets – calculated as the quotient of our adjusted interest income and our average interest earning assets and excludes all Consolidated SLST assets other than those securities owned by the Company, • average financing cost – calculated as the quotient of our adjusted interest expense and the average outstanding balance of our interest bearing liabilities, excluding Consolidated SLST CDOs and mortgages payable on real estate, and • net interest spread – calculated as the difference between our yield on average interest earning assets and our average financing cost.
We provide the following non-GAAP financial measures, in total and by investment category, for the respective periods: • adjusted interest income – calculated as our GAAP interest income reduced by the interest expense recognized on Consolidated SLST CDOs, • adjusted interest expense – calculated as our GAAP interest expense reduced by the interest expense recognized on Consolidated SLST CDOs and adjusted to include the net interest component of interest rate swaps, • adjusted net interest income (loss) – calculated by subtracting adjusted interest expense from adjusted interest income, • yield on average interest earning assets – calculated as the quotient of our adjusted interest income and our average interest earning assets and excludes all Consolidated SLST assets other than those securities owned by the Company, • average financing cost – calculated as the quotient of our adjusted interest expense and the average outstanding balance of our interest bearing liabilities, excluding Consolidated SLST CDOs and mortgages payable on real estate, and • net interest spread – calculated as the difference between our yield on average interest earning assets and our average financing cost.
However, unlike our use of the fair value option for the assets in our investment portfolio, the CDOs issued by our residential loan securitizations, senior unsecured notes and subordinated debentures that finance our investment portfolio assets are carried at amortized cost in our consolidated financial statements.
However, unlike our use of the fair value option for the assets in our investment portfolio, certain CDOs issued by our residential loan securitizations, certain senior unsecured notes and subordinated debentures that finance our investment portfolio assets are carried at amortized cost in our consolidated financial statements.
By excluding these non-cash adjustments from our operating results, we believe that the presentation of undepreciated (loss) earnings provides a consistent measure of our operating performance and useful information to investors to evaluate the effective net return on our portfolio.
By excluding these non-cash adjustments from our operating results, we believe that the presentation of undepreciated loss provides a consistent measure of our operating performance and useful information to investors to evaluate the effective net return on our portfolio.
(4) The Company's net equity investment as of December 31, 2023 consists of $211.2 million of net equity investments in consolidated multi-family properties (including its preferred equity investment in a Consolidated VIE) and $36.8 million of net equity investments in disposal group held for sale.
The Company's net equity investment as of December 31, 2023 consists of $211.2 million of net equity investments in consolidated multi-family properties (including its preferred equity investment in a Consolidated VIE) and $36.8 million of net equity investments in disposal group held for sale.
Adjusted net interest income and net interest spread (both supplemental non-GAAP financial measures) are impacted by factors such as our cost of financing, including our hedging costs, and the interest rate that our investments bear.
Adjusted net interest income (loss) and net interest spread (both supplemental non-GAAP financial measures) are impacted by factors such as our cost of financing, including our hedging costs, and the interest rate that our investments bear.
The joint venture entities that own the multi-family properties will be required to enter into new interest rate cap contracts upon their expiration and may require the Company to contribute additional capital to the respective joint venture.
The joint venture entities that own the multi-family properties may be required to enter into new interest rate cap contracts upon their expiration and may require the Company to contribute additional capital to the respective joint venture.
Furthermore, the amount of premium or discount paid on purchased investments and the prepayment rates on investments will impact adjusted net interest income as such factors will be amortized over the expected term of such investments.
Furthermore, the amount of premium or discount paid on purchased investments and the prepayment rates on investments will impact adjusted net interest income (loss) as such factors will be amortized over the expected term of such investments.
(3) Adjusted book value per common share is calculated using the adjusted book value and the common shares outstanding for the periods indicated. 82 Table of Contents Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
(3) Adjusted book value per common share is calculated using the adjusted book value and the common shares outstanding for the periods indicated. 83 Table of Contents Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Although our estimates contemplate conditions as of December 31, 2023 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income (loss) at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income (loss) during the periods presented.
Although our estimates contemplate conditions as of December 31, 2024 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive loss at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income (loss) during the periods presented.
Our targeted investments include (i) residential loans, including business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) Agency RMBS, (iv) non-Agency RMBS, (v) CMBS and (vi) certain other mortgage-, residential housing- and credit-related assets and strategic investments in companies from which we purchase, or may in the future purchase, our targeted assets.
Our targeted investments include (i) residential loans, including business purpose loans, (ii) Agency RMBS, (iii) non-Agency RMBS, (iv) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties and (v) certain other mortgage-, residential housing- and credit-related assets and strategic investments in companies from which we purchase, or may in the future purchase, our targeted assets.
Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act, we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses.
Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act, we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, CMBS, collateralized mortgage obligations, MSRs, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses.
Refer to Item 7A., "Quantitative and Qualitative Disclosures about Market Risk—Fair Value Risk" for a quantitative interest rate sensitivity analysis of our investment portfolio. 83 Table of Contents Revenue Recognition Investment Securities Issued by Consolidated SLST Interest income on first loss subordinated securities and certain IOs issued by Consolidated SLST is recognized based on the securities' effective yield.
Refer to Item 7A., "Quantitative and Qualitative Disclosures about Market Risk—Fair Value Risk" for a quantitative interest rate sensitivity analysis of our investment portfolio. 84 Table of Contents Revenue Recognition Investment Securities Issued by Consolidated SLST Interest income on first loss subordinated securities and certain IOs issued by Consolidated SLST is recognized based on the securities' effective yield.
In addition, pursuant to the operating agreement for one of our joint venture equity investments, subject to certain conditions, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election, and we are obligated to purchase such interests for cash. 112 Table of Contents
In addition, pursuant to the operating agreement for one of our joint venture equity investments, subject to certain conditions, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election, and we are obligated to purchase such interests for cash. 115 Table of Contents
The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. As of December 31, 2023 and 2022, we owned 100% of the first loss subordinated securities of Consolidated SLST.
The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. As of December 31, 2024 and 2023, we owned 100% of the first loss subordinated securities of Consolidated SLST.
At December 31, 2023: Single-Family Multi-Family Corporate/Other Total Residential loans $ 3,084,303 $ — $ — $ 3,084,303 Consolidated SLST CDOs (593,737) — — (593,737) Investment securities available for sale 2,013,817 — — 2,013,817 Multi-family loans — 95,792 — 95,792 Equity investments — 109,962 37,154 147,116 Equity investments in consolidated multi-family properties (1) — 211,214 — 211,214 Equity investments in disposal group held for sale (2) — 36,815 — 36,815 Single-family rental properties 151,885 — — 151,885 Total investment portfolio carrying value 4,656,268 453,783 37,154 5,147,205 Liabilities: Repurchase agreements (2,471,113) — — (2,471,113) Residential loan securitization CDOs (1,276,780) — — (1,276,780) Senior unsecured notes — — (98,111) (98,111) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 139,562 — 175,468 315,030 Cumulative adjustment of redeemable non-controlling interest to estimated redemption value — (30,062) — (30,062) Other 74,716 (1,352) (34,921) 38,443 Net Company capital allocated $ 1,122,653 $ 422,369 $ 34,590 $ 1,579,612 Company Recourse Leverage Ratio (4) 1.6x Portfolio Recourse Leverage Ratio (5) 1.5x (1) Represents the Company's equity investments in consolidated multi-family properties that are not in disposal group held for sale.
At December 31, 2023: Single-Family Multi-Family Corporate/Other Total Residential loans $ 3,084,303 $ — $ — $ 3,084,303 Consolidated SLST CDOs (593,737) — — (593,737) Investment securities available for sale 2,013,817 — — 2,013,817 Multi-family loans — 95,792 — 95,792 Equity investments — 109,962 37,154 147,116 Equity investments in consolidated multi-family properties (1) — 211,214 — 211,214 Equity investments in disposal group held for sale (2) — 36,815 — 36,815 Single-family rental properties 151,885 — — 151,885 Total investment portfolio carrying value 4,656,268 453,783 37,154 5,147,205 Liabilities: Repurchase agreements (2,471,113) — — (2,471,113) Residential loan securitization CDOs (1,276,780) — — (1,276,780) Senior unsecured notes — — (98,111) (98,111) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 139,562 — 175,468 315,030 Cumulative adjustment of redeemable non-controlling interest to estimated redemption value — (30,062) — (30,062) Other 74,716 (1,352) (34,921) 38,443 Net Company capital allocated $ 1,122,653 $ 422,369 $ 34,590 $ 1,579,612 Company Recourse Leverage Ratio (4) 1.6 x Portfolio Recourse Leverage Ratio (5) 1.5 x 69 Table of Contents (1) Represents the Company's equity investments in consolidated multi-family properties that are not in disposal group held for sale.
(6) See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets. 61 Table of Contents Current Market Conditions and Commentar y The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including changes in interest rates and the supply and demand for mortgage, housing and credit assets in the marketplace, our ability to identify and acquire assets on favorable terms, our ability to dispose of assets from time to time on favorable terms, the ability of our operating partners, tenants and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets.
(7) See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets. 61 Table of Contents Current Market Conditions and Commentar y The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, which are driven by numerous factors including changes in interest rates and the supply and demand for mortgage, housing and credit assets in the marketplace, our ability to identify and acquire assets on favorable terms, our ability to dispose of assets from time to time on favorable terms, the ability of our operating partners, tenants and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets.
The selected historical operating and balance sheet data for the years ended and as of December 31, 2023, 2022, 2021, 2020 and 2019 have been derived from our historical financial statements. Prior year information has been conformed to current year financial statement presentation.
The selected historical operating and balance sheet data for the years ended and as of December 31, 2024, 2023, 2022, 2021 and 2020 have been derived from our historical financial statements. Prior year information has been conformed to current year financial statement presentation.
See Note 13 in the Notes to Consolidated Financial Statements for further information regarding our CDOs. We also exclude mortgages payable on real estate as they are non-recourse debt for which we have no obligation for repayment. See Note 14 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate.
See Note 14 in the Notes to Consolidated Financial Statements for further information regarding our CDOs. We also exclude mortgages payable on real estate as they are non-recourse debt for which we have no obligation for repayment. See Note 15 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate.
The Senior Unsecured Notes were issued at 100% of the principal amount and bear interest at a rate equal to 5.75% per year (subject to adjustment from time to time based on changes in the ratings of the Senior Unsecured Notes by one or more nationally recognized statistical rating organizations), payable semi-annually in arrears on April 30 and October 30 of each year, and are expected to mature on April 30, 2026, unless earlier redeemed.
The 2026 Senior Notes were issued at 100% of the principal amount and bear interest at a rate equal to 5.75% per year (subject to adjustment from time to time based on changes in the ratings of the 2026 Senior Notes by one or more nationally recognized statistical rating organizations), payable semi-annually in arrears on April 30 and October 30 of each year, and mature on April 30, 2026, unless earlier redeemed.
Our short-term (the 12 months ending December 31, 2024) and long-term (beyond December 31, 2024) liquidity requirements include ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs.
Our short-term (the 12 months ending December 31, 2025) and long-term (beyond December 31, 2025) liquidity requirements include ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs.
As of December 31, 2023, we had assets available to be posted as margin which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered investment securities that could be monetized to pay down or collateralize a liability immediately.
As of December 31, 2024, we had assets available to be posted as margin which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered investment securities that could be monetized to pay down or collateralize a liability immediately.
As of December 31, 2023, the assets and liabilities related to certain joint venture equity investments in multi-family properties are included in assets and liabilities of disposal group held for sale on the accompanying consolidated balance sheets.
Accordingly, the assets and liabilities related to certain joint venture equity investments in multi-family properties are included in assets and liabilities of disposal group held for sale on the accompanying consolidated balance sheets as of December 31, 2024 and 2023.
The Company has the right to redeem the Senior Unsecured Notes, in whole or in part, prior to maturity, subject to a "make-whole" premium or other date-dependent multiples of principal amount redeemed. No sinking fund is provided for the Senior Unsecured Notes.
The Company has the right to redeem the 2026 Senior Notes, in whole or in part, prior to maturity, subject to a "make-whole" premium or other date-dependent multiples of principal amount redeemed. No sinking fund is provided for the 2026 Senior Notes.
(2) See Note 9 in the Notes to Consolidated Financial Statements for further information regarding our assets and liabilities of disposal group held for sale. (3) See Note 14 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate.
(2) See Note 9 in the Notes to Consolidated Financial Statements for further information regarding our assets and liabilities of disposal group held for sale. (3) See Note 15 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate.
Dividends For information regarding the declaration and payment of dividends on our common stock and preferred stock for the periods covered by this report, please see Note 17 to our consolidated financial statements included in this report.
Dividends For information regarding the declaration and payment of dividends on our common stock and preferred stock for the periods covered by this report, please see Note 18 to our consolidated financial statements included in this report.
A number of the tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2023 are greater or less than the results from the year ended December 31, 2022.
A number of the tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2024 are greater or less than the results from the year ended December 31, 2023.
In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans of the securitization and the CDOs issued to permanently finance these residential loans, representing Consolidated SLST.
In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans of the securitizations and the CDOs issued to permanently finance these residential loans, representing Consolidated SLST.
Projected interest payments are based on interest rates in effect and outstanding balances as of December 31, 2023. (2) We exclude our CDOs from the contractual obligations disclosed in the table above as this debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively from the proceeds of the residential loans held in securitization trusts.
Projected interest payments are based on interest rates in effect and outstanding balances as of December 31, 2024. (2) We exclude our CDOs from the contractual obligations disclosed in the table above as this debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively from the proceeds of the residential loans and non-Agency RMBS held in securitization trusts.
In addition, in the event a repurchase agreement counterparty defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” At December 31, 2023, we had longer-term repurchase agreements with terms of up to two years with multiple third-party financial institutions that are secured by certain of our residential loans and single-family rental properties.
In addition, in the event a repurchase agreement counterparty defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” At December 31, 2024, we had longer-term repurchase agreements with initial terms of up to two years with multiple third-party financial institutions that are secured by certain of our residential loans, real estate owned and single-family rental properties.
Unless otherwise specified, references in this section to increases or decreases in 2023 refer to the change in results for the year ended December 31, 2023 when compared to the year ended December 31, 2022.
Unless otherwise specified, references in this section to increases or decreases in 2024 refer to the change in results for the year ended December 31, 2024 when compared to the year ended December 31, 2023.
The Company’s valuation methodologies are described in “Note 16 – Fair Value of Financial Instruments” included in Item 8 of this Annual Report on Form 10-K.
The Company’s valuation methodologies are described in “Note 17 – Fair Value of Financial Instruments” included in Item 8 of this Annual Report on Form 10-K.
For a discussion related to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7.
For a discussion related to our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7.
As of December 31, 2023 , the majority of the Company's investment securities are accounted for using the fair value option. 74 Table of Contents Analysis of Changes in GAAP Book Value The following table analyzes the changes in GAAP book value of our common stock for the year ended December 31, 2023 (amounts in thousands, except per share): Year Ended December 31, 2023 Amount Shares Per Share (1) Beginning Balance $ 1,210,091 91,194 $ 13.27 Common stock issuance, net (2) 8,825 419 Common stock repurchases (8,615) (938) Preferred stock repurchases 109 — Balance after share activity 1,210,410 90,675 13.35 Adjustment of redeemable non-controlling interest to estimated redemption value 14,175 0.16 Dividends and dividend equivalents declared (111,014) (1.23) Net change in accumulated other comprehensive loss: Investment securities available for sale (3) 1,966 0.02 Net loss attributable to Company's common stockholders (90,035) (0.99) Ending Balance $ 1,025,502 90,675 $ 11.31 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2023 are 90,675,403.
The following table analyzes the changes in GAAP book value of our common stock for the year ended December 31, 2023 (amounts in thousands, except per share): Year Ended December 31, 2023 Amount Shares Per Share (1) Beginning Balance $ 1,210,091 91,194 $ 13.27 Common stock issuance, net (2) 8,825 419 Common stock repurchases (8,615) (938) Preferred stock repurchases 109 — Balance after share activity 1,210,410 90,675 13.35 Adjustment of redeemable non-controlling interest to estimated redemption value 14,175 0.16 Dividends and dividend equivalents declared (111,014) (1.23) Net change in accumulated other comprehensive loss: Investment securities available for sale (3) 1,966 0.02 Net loss attributable to Company's common stockholders (90,035) (0.99) Ending Balance $ 1,025,502 90,675 $ 11.31 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2023 are 90,675,403.
(4) Average Interest Bearing Liabilities for the respective periods include repurchase agreements, residential loan securitization CDOs, Convertible Notes, senior unsecured notes and subordinated debentures and exclude Consolidated SLST CDOs and mortgages payable on real estate as the Company does not directly incur interest expense on these liabilities that are consolidated for GAAP purposes.
(4) Average Interest Bearing Liabilities for the respective periods include repurchase agreements, residential loan securitization and non-Agency RMBS re-securitization CDOs, Convertible Notes, senior unsecured notes and subordinated debentures and exclude Consolidated SLST CDOs and mortgages payable on real estate as the Company does not directly incur interest expense on these liabilities that are consolidated for GAAP purposes.
(3) Excludes cash in the amount of $21.3 million held in the Company's equity investments in consolidated multi-family properties and equity investments in consolidated multi-family properties in disposal group held for sale.
(3) Excludes cash in the amount of $6.6 million held in the Company's equity investments in consolidated multi-family properties and equity investments in consolidated multi-family properties in disposal group held for sale.
The repurchase agreements secured by residential loans and single-family rental properties contain various covenants, including among other things, the maintenance of certain amounts of liquidity and stockholders' equity (as defined in the respective agreements).
The repurchase agreements secured by residential loans, real estate owned and single-family rental properties contain various covenants, including among other things, the maintenance of certain amounts of liquidity and stockholders' equity (as defined in the respective agreements).
(5) Represents the Company's outstanding recourse repurchase agreement financing divided by the Company’s total stockholders’ equity. 68 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2023 and 2022, including a comparison of year-over-year results and related commentary.
(5) Represents the Company's outstanding recourse repurchase agreement financing divided by the Company’s total stockholders’ equity. 70 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2024 and 2023, including a comparison of year-over-year results and related commentary.
Included in this amount is approximately $830.8 million of assets held in Consolidated SLST and $1.7 billion of assets related to Consolidated Real Estate VIEs, both of which we consolidate in accordance with GAAP. For a reconciliation of our actual interests in Consolidated SLST, see “Portfolio Update” above.
Included in this amount is approximately $757.8 million of assets held in Consolidated SLST and $1.5 billion of assets related to Consolidated Real Estate VIEs, both of which we consolidate in accordance with GAAP. For a reconciliation of our actual interests in Consolidated SLST, see “Portfolio Update” above.
(2) The actual maturity of the Company's CDOs are primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents.
(3) The actual maturity of the Company's CDOs is primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 24, 2023 and is available on the SEC’s website at www.sec.gov.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 23, 2024 and is available on the SEC’s website at www.sec.gov.
The Company considers the value of acquired in-place leases and utilizes an amortization period that is the average remaining term of the acquired leases. 84 Table of Contents The estimation of fair value for purposes of allocating the purchase price of investments in real estate requires significant judgement based on the available sources.
The Company considers the value of acquired in-place leases and utilizes an amortization period that is the average remaining term of the acquired leases. 85 Table of Contents The estimation of fair value for purposes of allocating the purchase price of investments in real estate requires significant judgment based on the available sources.
Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying consolidated balance sheets and are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different.
Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying consolidated balance sheets and are amortized as an adjustment to interest expense over the term of the agreement using the effective interest method, or straight line-method, if the result is not materially different.
We may be required to satisfy variable margin payments periodically, depending upon whether unrealized gains or losses are incurred.
We may be required to satisfy variation margin payments periodically, depending upon whether unrealized gains or losses are incurred.
(3) Includes residential loans with an aggregate fair value of $658.3 million and single-family rental properties with a net carrying value of $146.7 million as of December 31, 2023. Includes residential loans with an aggregate fair value of $867.0 million as of December 31, 2022.
Includes residential loans with an aggregate fair value of $658.3 million and single-family rental properties with a net carrying value of $146.7 million as of December 31, 2023.
Adjusted Net Interest Income and Net Interest Spread Financial results for the Company during a given period include the net interest income earned on our investment portfolio of residential loans, RMBS, CMBS, ABS and preferred equity investments and mezzanine loans, where the risks and payment characteristics are equivalent to and accounted for as loans (collectively, our “interest earning assets”).
Adjusted Net Interest Income (Loss) and Net Interest Spread Financial results for the Company during a given period include the net interest income earned on our investment portfolio of residential loans, investment securities and preferred equity investments and mezzanine loans, where the risks and payment characteristics are equivalent to and accounted for as loans (collectively, our “interest earning assets”).
Preferred equity investments in the amounts of $104.2 million and $152.2 million are included in equity investments on the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively. (2) The difference between the fair value and investment amount consists of any unrealized gain or loss. (3) Based upon investment amount and contractual preferred return rate.
Preferred equity investments in the amounts of $73.4 million and $104.2 million are included in equity investments on the accompanying consolidated balance sheets as of December 31, 2024 and 2023, respectively. (2) The difference between the fair value and investment amount consists of any unrealized gain or loss. (3) Based upon investment amount and contractual preferred return rate.
The expiration dates of both stock repurchase programs were extended from March 31, 2024 to March 31, 2025. 66 Table of Contents Capital Allocation The following provides an overview of the allocation of our total equity as of December 31, 2023 and 2022, respectively.
The expiration dates of both stock repurchase programs were extended from March 31, 2025 to March 31, 2026. 67 Table of Contents Capital Allocation The following provides an overview of the allocation of our total equity as of December 31, 2024 and 2023, respectively.
As of December 31, 2023, our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreement financing divided by our total stockholders’ equity, was approximately 1.5 to 1. We monitor all at risk or shorter-term financings to enable us to respond to market disruptions as they arise.
As of December 31, 2024, our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreement financing divided by our total stockholders' equity, was approximately 2.9 to 1. We monitor all at risk or shorter-term financings to enable us to respond to market disruptions as they arise.
We will continue to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing, or the size, timing or terms thereof. 107 Table of Contents Cash Flows and Liquidity for the Year Ended December 31, 2023 During the year ended December 31, 2023, net cash, cash equivalents and restricted cash decreased by $50.3 million.
We will continue to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing, or the size, timing or terms thereof. 110 Table of Contents Cash Flows and Liquidity for the Year Ended December 31, 2024 During the year ended December 31, 2024, net cash, cash equivalents and restricted cash decreased by $1.6 million.
In addition, we believe that presenting undepreciated (loss) earnings enables our investors to measure, evaluate, and compare our operating performance to that of our peers. 80 Table of Contents A reconciliation of net (loss) income attributable to Company's common stockholders to undepreciated (loss) earnings for the years ended December 31, 2023, 2022 and 2021, respectively, is presented below (amounts in thousands, except per share data).
In addition, we believe that presenting undepreciated loss enables our investors to measure, evaluate, and compare our operating performance to that of our peers. 81 Table of Contents A reconciliation of net loss attributable to Company's common stockholders to undepreciated loss for the years ended December 31, 2024, 2023 and 2022, respectively, is presented below (amounts in thousands, except per share data).
Tightening credit spreads generally increase the value of many of our credit sensitive assets, while widening credit spreads tend to have a negative impact on the value of many of our credit sensitive assets. Financing Markets.
Tightening credit spreads generally increase the value of many of our credit sensitive assets, while widening credit spreads tend to have a negative impact on the value of many of our credit sensitive assets. 63 Table of Contents Financing Markets.
Subordinated Debentures As of December 31, 2023, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 9.46% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment.
Subordinated Debentures As of December 31, 2024, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 8.54% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment.
The Company's Senior Unsecured Notes contain various covenants including the maintenance of a minimum net asset value, ratio of unencumbered assets to unsecured indebtedness and senior debt service coverage ratio and limit the amount of leverage the Company may utilize and its ability to transfer the Company’s assets substantially as an entirety or merge into or consolidate with another person.
The Company's 2026 Senior Notes, which mature on April 30, 2026, contain various covenants including the maintenance of a minimum net asset value, ratio of unencumbered assets to unsecured indebtedness and senior debt service coverage ratio and limit the amount of leverage the Company may utilize and its ability to transfer the Company’s assets substantially as an entirety or merge into or consolidate with another person.
The Company purchased $80.8 million and $260.6 million of residential loans from the entity during the years ended December 31, 2023 and 2022, respectively. Consolidated SLST The Company owns first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization.
The Company purchased $307.8 million, $80.8 million and $260.6 million of residential loans from the entity during the years ended December 31, 2024, 2023 and 2022, respectively. Consolidated SLST The Company owns first loss subordinated securities and certain IOs issued by Freddie Mac-sponsored residential loan securitizations.
The Company had no securities offerings during the year ended December 31, 2023. Preferred Stock and Common Stock Repurchase Programs In March 2023, the Board of Directors approved a $100.0 million preferred stock repurchase program.
The Company had no securities offerings during the year ended December 31, 2024. 113 Table of Contents Preferred Stock and Common Stock Repurchase Programs In March 2023, the Board of Directors approved a $100.0 million preferred stock repurchase program.
See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements. (2) Represents the Company's equity investments in consolidated multi-family properties that are held for sale in disposal group.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements. (2) Represents the Company's equity investments in consolidated multi-family properties that are held for sale in disposal group.
Additionally, a significant portion of cash flows from the sale of real estate held in Consolidated VIEs were used to repay outstanding mortgages payable on real estate held in Consolidated VIEs. Cash Flows from Financing Activities During the year ended December 31, 2023, our net cash flows provided by financing activities were $1.1 billion.
Additionally, a significant portion of cash flows from the sale of real estate held in Consolidated VIEs, if any, were used to repay outstanding mortgages payable on real estate held in Consolidated VIEs. Cash Flows from Financing Activities During the year ended December 31, 2024, our net cash flows provided by financing activities were $2.2 billion.
The number of unemployed persons increased by 0.6 million year-over-year to 6.3 million as of December 2023. There continues to be a wide disparity between the number of available job openings, 9.0 million as of the end of December 2023, and the number of unemployed persons, resulting in a competitive labor market and rising wages.
The number of unemployed persons increased by 0.6 million year-over-year to 6.9 million as of December 2024. There continues to be a wide disparity between the number of available job openings, 8.1 million as of the end of November 2024, and the number of unemployed persons, resulting in a competitive labor market and rising wages.
Restricted cash of $143.5 million is included in the Company's accompanying consolidated balance sheets in other assets. 67 Table of Contents (4) Represents the Company's total outstanding recourse repurchase agreement financing, subordinated debentures and senior unsecured notes divided by the Company’s total stockholders’ equity.
Restricted cash of $161.6 million is included in the Company's accompanying consolidated balance sheets in other assets. 68 Table of Contents (4) Represents the Company's total outstanding recourse repurchase agreement financing, subordinated debentures and senior unsecured notes divided by the Company’s total stockholders’ equity.
On a net basis, our investment portfolio increased by approximately $1.3 billion during the year, with repayments received from our short-duration business purpose loans, opportunistic sales of residential loans and investment securities and impairments offsetting some of our investment activity. 56 Table of Contents In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of our joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
On a net basis, our investment portfolio increased by approximately $3.6 billion between December 31, 2022 and December 31, 2024, with repayments received from our short-duration business purpose loans, opportunistic sales of residential loans and investment securities, redemptions of our Mezzanine Lending investments, return of capital from our joint venture equity investments and impairments offsetting some of our investment activity. 56 Table of Contents In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of our joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
For business purpose bridge loans, the Company calculates LTV as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan. 87 Table of Contents Characteristics of Our Acquired Residential Loans: Loan to Value at Purchase (1) December 31, 2023 December 31, 2022 50% or less 13.6 % 14.6 % >50% - 60% 10.9 % 12.3 % >60% - 70% 22.4 % 24.4 % >70% - 80% 29.5 % 27.9 % >80% - 90% 11.8 % 10.0 % >90% - 100% 6.0 % 5.5 % > 100% 5.8 % 5.3 % Total 100.0 % 100.0 % (1) For second mortgages, the Company calculates the combined LTV.
For business purpose bridge loans, the Company calculates LTV as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan. 88 Table of Contents Characteristics of Our Acquired Residential Loans: Loan to Value at Purchase (1) December 31, 2024 December 31, 2023 50% or less 9.0 % 13.6 % >50% - 60% 9.7 % 10.9 % >60% - 70% 21.7 % 22.4 % >70% - 80% 38.0 % 29.5 % >80% - 90% 12.7 % 11.8 % >90% - 100% 4.7 % 6.0 % > 100% 4.2 % 5.8 % Total 100.0 % 100.0 % (1) For second mortgages, the Company calculates the combined LTV.
(2) Represents the weighted average LTV of the underlying properties utilizing maximum senior committed mortgage amount and combined origination appraisal and capital expenditure budget. 102 Table of Contents Equity Investments in Entities that Originate Residential Loans As of December 31, 2023, the Company had an investment in an entity that originates residential loans.
(2) Represents the weighted average LTV of the underlying properties utilizing maximum senior committed mortgage amount and combined origination appraisal and capital expenditure budget. Equity Investment in Entity that Originates Residential Loans As of December 31, 2024 and 2023, the Company had an investment in an entity that originates residential loans.
See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements.
A discussion of significant accounting policies is included in “Note 2 — Summary of Significant Accounting Policies” included in Item 8 of this Annual Report on Form 10-K. 85 Table of Contents Balance Sheet Analysis As of December 31, 2023, we had approximately $7.4 billion of total assets.
A discussion of significant accounting policies is included in “Note 2 — Summary of Significant Accounting Policies” included in Item 8 of this Annual Report on Form 10-K. 86 Table of Contents Balance Sheet Analysis As of December 31, 2024, we had approximately $9.2 billion of total assets.
Throughout most of 2023, certain of the multi-family properties held by our joint venture equity investments experienced declines in estimated fair value primarily due to widening cap rates and lower net operating income driven, in large part, by higher interest and operating expenses at the properties.
Throughout most of 2023 and continuing into 2024, certain of the multi-family properties held by our joint venture equity investments experienced declines in estimated fair value primarily due to widening cap rates and lower net operating income driven, in large part, by higher interest and operating expenses at the properties which resulted in significant impairment losses.
Our investment in Consolidated SLST as of December 31, 2023 and 2022 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $157.2 million and $191.5 million, respectively.
Our investment in Consolidated SLST as of December 31, 2024 and 2023 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the respective securitizations with an aggregate net carrying value of $148.5 million and $157.2 million, respectively.
This was partially offset by paydowns on CDOs, payments made on mortgages payable on real estate, dividend payments on both common and preferred stock and repurchases of shares of common and preferred stock. 108 Table of Contents Liquidity – Financing Arrangements As of December 31, 2023, we have outstanding short-term repurchase agreement financing on our investment securities, a form of collateralized short-term financing, with multiple financial institutions.
This was partially offset by paydowns on and extinguishment of CDOs, payments made on Consolidated SLST CDOs, net payments made on mortgages payable on real estate and dividend payments on both common and preferred stock. 111 Table of Contents Liquidity – Financing Arrangements As of December 31, 2024, we have outstanding short-term repurchase agreement financing on our investment securities, a form of collateralized short-term financing, with multiple financial institutions.
(3) The net decrease relates to unrealized losses on our investment securities resulting from a reduction in pricing. 75 Table of Contents Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, this Annual Report on Form 10-K includes certain non-GAAP financial measures, including adjusted interest income, adjusted interest expense, adjusted net interest income, yield on average interest earning assets, average financing cost, net interest spread, undepreciated (loss) earnings and adjusted book value per common share.
(3) The net increase relates to the reclassification of unrealized losses to net loss in relation to the sale of investment securities and unrealized gains on our investment securities resulting from changes in pricing. 77 Table of Contents Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, this Annual Report on Form 10-K includes certain non-GAAP financial measures, including adjusted interest income, adjusted interest expense, adjusted net interest income (loss), yield on average interest earning assets, average financing cost, net interest spread, undepreciated loss and adjusted book value per common share.
In March 2023, the Board of Directors approved an upsize of the common stock repurchase program to $246.0 million.
In February 2022, the Board of Directors approved a $200.0 million common stock repurchase program. In March 2023, the Board of Directors approved an upsize of the common stock repurchase program to $246.0 million.
Property Data for Joint Venture Equity Investments in Multi-Family Properties in Disposal Group Held for Sale The following table provides summary information regarding the multi-family properties in the disposal group held for sale as of December 31, 2023.
Property Data for Joint Venture Equity Investments in Multi-Family Properties not in Disposal Group Held for Sale The following table provides summary information regarding our joint venture equity investments in multi-family properties that are not in disposal group held for sale as of December 31, 2024.
See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets.
For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 89 Table of Contents The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities issued by Consolidated SLST as of December 31, 2023 and 2022, respectively (dollar amounts in thousands, except current average loan size): December 31, 2023 December 31, 2022 Current fair value $ 754,860 $ 827,582 Current unpaid principal balance $ 892,546 $ 955,579 Number of loans 5,813 6,160 Current average loan size $ 153,543 $ 155,126 Weighted average original loan term (in months) at purchase 352 351 Weighted average LTV at purchase 68 % 68 % Weighted average credit score at purchase 701 703 Current Coupon: 3.00% or less 2.5 % 3.0 % 3.01% – 4.00% 38.5 % 38.0 % 4.01% – 5.00% 39.5 % 39.3 % 5.01% – 6.00% 11.8 % 11.9 % 6.01% and over 7.7 % 7.8 % Delinquency Status: Current 72.6 % 69.5 % 31 - 60 12.9 % 11.1 % 61 - 90 5.0 % 4.4 % 90+ 9.5 % 15.0 % Origination Year: 2005 or earlier 31.1 % 31.1 % 2006 15.7 % 15.6 % 2007 21.5 % 21.4 % 2008 or later 31.7 % 31.9 % Geographic state concentration (greater than 5.0%): California 10.7 % 10.6 % Florida 10.3 % 10.3 % New York 10.0 % 9.8 % New Jersey 7.6 % 7.4 % Illinois 7.2 % 7.2 % 90 Table of Contents Residential Loans and Single-Family Rental Property Financing Repurchase Agreements As of December 31, 2023, the Company had repurchase agreements with five third-party financial institutions to fund the purchase of residential loans and single-family rental properties.
For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 90 Table of Contents The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities issued by Consolidated SLST as of December 31, 2024 and 2023, respectively (dollar amounts in thousands, except current average loan size): December 31, 2024 December 31, 2023 Current fair value $ 965,672 $ 754,860 Current unpaid principal balance $ 1,111,633 $ 892,546 Number of loans 7,246 5,813 Current average loan size $ 153,413 $ 153,543 Weighted average original loan term (in months) at purchase 347 352 Weighted average LTV at purchase 62 % 68 % Weighted average credit score at purchase 767 701 Current Coupon: 3.00% or less 5.1 % 2.5 % 3.01% – 4.00% 35.4 % 38.5 % 4.01% – 5.00% 40.6 % 39.5 % 5.01% – 6.00% 11.2 % 11.8 % 6.01% and over 7.7 % 7.7 % Delinquency Status: Current 68.2 % 72.6 % 31 - 60 15.3 % 12.9 % 61 - 90 6.0 % 5.0 % 90+ 10.5 % 9.5 % Origination Year: 2005 or earlier 27.5 % 31.1 % 2006 14.4 % 15.7 % 2007 19.8 % 21.5 % 2008 or later 38.3 % 31.7 % Geographic state concentration (greater than 5.0%): California 11.7 % 10.7 % New York 10.8 % 10.0 % Florida 9.1 % 10.3 % New Jersey 6.8 % 7.6 % Illinois 6.3 % 7.2 % 91 Table of Contents Residential Loans, Real Estate Owned and Single-Family Rental Property Financing Repurchase Agreements As of December 31, 2024, the Company had repurchase agreements with six third-party financial institutions to fund the purchase of residential loans, real estate owned and single-family rental properties.
Includes non-mark-to-market repurchase agreements with an aggregate outstanding balance of $446.8 million, a weighted average rate of 6.77%, and weighted average months to maturity of 24 months as of December 31, 2022. (2) Costs related to the repurchase agreements, which include commitment, underwriting, legal, accounting and other fees, are reflected as deferred charges.
Includes non-mark-to-market repurchase agreements with an aggregate outstanding balance of $179.1 million, a weighted average rate of 8.19%, and weighted average months to maturity of 14 months as of December 31, 2023. (2) Costs related to the repurchase agreements, which include commitment, underwriting, legal, accounting and other fees, are reflected as deferred charges.
For a reconciliation of our investments in Consolidated Real Estate VIEs, see “Equity Investments in Multi-Family Entities” below. 86 Table of Contents Residential Loans The following table presents the Company’s residential loans, which include acquired residential loans held by the Company and residential loans held in Consolidated SLST, as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 December 31, 2022 Acquired residential loans $ 2,329,443 $ 2,697,498 Consolidated SLST 754,860 827,582 Total $ 3,084,303 $ 3,525,080 Acquired Residential Loans The Company’s acquired residential loans, including performing, re-performing, and non-performing residential loans and business purpose loans, are presented at fair value on our consolidated balance sheets.
For a reconciliation of our investments in Consolidated Real Estate VIEs, see “Equity Investments in Multi-Family Entities” below. 87 Table of Contents Residential Loans The following table presents the Company’s residential loans, which include acquired residential loans held by the Company and residential loans held in Consolidated SLST, as of December 31, 2024 and 2023, respectively (dollar amounts in thousands): December 31, 2024 December 31, 2023 Acquired residential loans $ 2,876,066 $ 2,329,443 Consolidated SLST 965,672 754,860 Total $ 3,841,738 $ 3,084,303 Acquired Residential Loans The Company’s acquired residential loans, including performing, re-performing, and non-performing residential loans and business purpose loans, are presented at fair value on our consolidated balance sheets.
The following table summarizes our unconsolidated multi-family joint venture equity investments as of December 31, 2023 (dollar amounts in thousands): State Property Count Ownership Interest Fair Value Texas 2 70% $ 5,720 100 Table of Contents Joint Venture Equity Investments in Consolidated Multi-Family Properties not in Disposal Group Held for Sale As of December 31, 2023, the Company's net joint venture equity investments in consolidated multi-family properties not in disposal group held for sale of $199.5 million consists of nine joint venture equity investments in multi-family properties and a combined preferred equity and common equity investment in one joint venture entity that do not meet the criteria to be classified as held for sale.
The following tables summarize our unconsolidated multi-family joint venture equity investments as of December 31, 2024 and 2023, respectively (dollar amounts in thousands): December 31, 2024 State Property Count Ownership Interest Fair Value Texas 2 70% $ 1,338 December 31, 2023 State Property Count Ownership Interest Fair Value Texas 2 70% $ 5,720 Joint Venture Equity Investments in Consolidated Multi-Family Properties not in Disposal Group Held for Sale As of December 31, 2024, the Company's net joint venture equity investments in consolidated multi-family properties not in disposal group held for sale of $134.2 million consists of a combined preferred equity and common equity investment in one joint venture entity that does not meet the criteria to be classified as disposal group held for sale.
The program, which is currently set to expire on March 31, 2025, allows the Company to make repurchases of shares of preferred stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
The program allows the Company to make repurchases of shares of preferred stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFair Value Changes Changes in Interest Rates Changes in Fair Value (1) Net Duration (1) (basis points) (dollar amounts in thousands) +200 $(153,356) 2.5 +100 $(49,587) 2.6 Base 2.2 -100 $98,457 1.7 -200 $149,344 1.5 (1) Assets analyzed include residential loans, Mezzanine Lending investments, investment securities and derivatives held at fair value. 117 Table of Contents Although the use of a model to perform market value sensitivity analysis is widely accepted as a tool in identifying potential risk in a changing interest rate environment, it should be noted that the model does not take into consideration changes that may occur such as, but not limited to, changes in portfolio composition, financing strategies, market spreads, business volumes or overall market liquidity.
Biggest changeAlthough the use of a model to perform market value sensitivity analysis is widely accepted as a tool in identifying potential risk in a changing interest rate environment, it should be noted that the model does not take into consideration changes that may occur such as, but not limited to, changes in portfolio composition, financing strategies, market spreads, business volumes or overall market liquidity.
We seek to manage interest rate risk in our portfolio by utilizing interest rate caps, interest rate swaps, swaptions, futures, options on futures and U.S. Treasury securities with the goal of optimizing the earnings potential while seeking to maintain long term stable portfolio values.
We seek to manage interest rate risk in our portfolio by utilizing interest rate caps, interest rate swaps, swaptions, futures, options on futures and U.S. Treasury securities with the goal of optimizing earnings potential while seeking to maintain long term stable portfolio values.
Interest rate changes may also impact our GAAP book value and adjusted book value as many of our assets and related hedge derivatives, if any, are marked-to-market each quarter. Generally, as interest rates increase, the value of our mortgage assets decreases, and conversely, as interest rates decrease, the value of such investments will increase.
Interest rate changes may also impact our GAAP book value and adjusted book value as many of our assets and liabilities and related hedge derivatives, if any, are marked-to-market each quarter. Generally, as interest rates increase, the value of our mortgage-related assets decreases, and conversely, as interest rates decrease, the value of such investments will increase.
Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all or substantially all of our interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition. 114 Table of Contents Liquidity Risk Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs.
Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all or substantially all of our interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition. 117 Table of Contents Liquidity Risk Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs.
This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis. Investments in non-Agency RMBS, CMBS and ABS contain credit risk. These investments typically consist of either the senior, mezzanine or subordinate tranches in securitizations.
This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer for each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis. Investments in non-Agency RMBS, CMBS and ABS also contain credit risk. These investments typically consist of either the senior, mezzanine or subordinate tranches in securitizations.
We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios. In addition, we are exposed to credit risk in our Mezzanine Lending and equity investments in owners of multi-family properties, including joint venture equity investments in multi-family apartment communities.
We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and losses across different scenarios. In addition, we are exposed to credit risk in our Mezzanine Lending and equity investments in owners of multi-family properties, including joint venture equity investments in multi-family apartment communities.
(2) Certain assumptions have been made in connection with the calculation of the information set forth in the table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates as of December 31, 2023.
(2) Certain assumptions have been made in connection with the calculation of the information set forth in the table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates as of December 31, 2024.
Based on the currently uncertain market environment, we expect the capital markets to remain volatile and uncertain at varying levels for the near future and this may adversely affect our ability to access capital to fund our operations, meet our obligations and make distributions to our stockholders. 118 Table of Contents
Based on the currently uncertain market environment, we expect the capital markets to remain volatile and uncertain at varying levels for the near future and this may adversely affect our ability to access capital to fund our operations, meet our obligations and make distributions to our stockholders. 121 Table of Contents
Accordingly, we make extensive use of an earnings simulation model to further analyze our level of interest rate risk. Capital Market Risk We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Accordingly, we make extensive use of an earnings simulation model to further analyze our level of interest rate risk. 120 Table of Contents Capital Market Risk We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Our modeled prepayments will help determine the amount of hedging we use to off-set changes in interest rates. If actual prepayment rates are higher than modeled, the yield will be less than modeled in cases where we paid a premium for the particular residential mortgage asset.
Our modeled prepayments will help determine the amount of hedging we use to offset changes in interest rates. If actual prepayment rates are higher than modeled, the yield will be less than modeled in cases where we paid a premium for the particular residential mortgage asset.
However, the relationship between spreads on our assets and spreads on our hedging instruments may vary from time to time, resulting in a net aggregate book value increase or decline.
However, the relationship between spreads on our assets and liabilities and spreads on our hedging instruments may vary from time to time, resulting in a net aggregate GAAP book value and adjusted book value increase or decline.
Further, in the event of delinquencies, defaults and foreclosure, regulatory changes and policies designed to protect borrowers and renters may slow or prevent us from taking remediation actions. We purchase certain residential loans at a discount to par, reflecting a perceived higher risk of default.
Further, in the event of delinquencies, defaults and foreclosure, regulatory changes and policies designed to protect borrowers and renters may slow or prevent us from taking remediation actions or optimizing a resolution for or exit from the asset. We purchase certain residential loans at a discount to par, reflecting a perceived higher risk of default.
Current inflationary pressures have caused, and a possible economic recession in the U.S. in the near future may cause, an increase in the credit risk of our credit sensitive assets.
Recent inflationary pressures have caused, and a possible economic recession or stagnation in the U.S. in the near future may cause, an increase in the credit risk of our credit sensitive assets.
We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds. We are subject to “margin call” risk on a portion of our repurchase agreements.
We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds. We are subject to “margin call” risk on a significant portion of our repurchase agreements and certain derivative instruments.
In general, we expect that, over time, decreases in the value of our portfolio attributable to interest rate changes may be offset, to the degree we are hedged, by increases in the value of our interest rate swaps or other financial instruments used for hedging purposes, and vice versa.
In general, we expect that, over time, changes in the net fair value of our portfolio attributable to interest rate changes may be offset, to the degree we are hedged, by changes in the value of our interest rate swaps or other financial instruments used for hedging purposes.
Historically, we have not hedged 100% of our liability costs due to prepayment risk. 115 Table of Contents Credit Risk Credit risk is the risk that we will not fully collect the principal we have invested in our credit sensitive assets, including residential loans, non-Agency RMBS, preferred equity and mezzanine loan and joint venture equity investments, due to borrower defaults or defaults by our operating partners in their payment obligations to us.
Credit Risk Credit risk is the risk that we will not fully collect the principal we have invested in our credit sensitive assets, including residential loans, non-Agency RMBS, preferred equity and mezzanine loan and joint venture equity investments, due to borrower defaults or defaults by our operating partners in their payment obligations to us.
See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" and the other information in this Annual Report on Form 10-K for further information about our liquidity and capital resource management. Derivative financial instruments are also subject to “margin call” risk.
See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" and the other information in this Annual Report on Form 10-K for further information about our liquidity and capital resource management.
Based on the results of the model, the instantaneous changes in interest rates specified below would have had the following effect on adjusted net interest income based on our assets and liabilities as of December 31, 2023 (dollar amounts in thousands): Changes in Interest Rates (basis points) Changes in Adjusted Net Interest Income (1) (2) +200 $ (50,224) +100 $ (25,101) -100 $ 25,043 -200 $ 49,993 (1) Represents a non-GAAP financial measure.
Based on the results of the model, the instantaneous changes in interest rates specified below would have had the following effect on adjusted net interest income based on our assets and liabilities as of December 31, 2024 (dollar amounts in thousands): Changes in Interest Rates (basis points) Changes in Adjusted Net Interest Income (1) (2) +200 $ (80,917) +100 $ (40,271) -100 $ 40,450 -200 $ 80,939 (1) Represents a non-GAAP financial measure.
Furthermore, we stress-test the portfolio as to prepayment speeds and interest rate risk in order to further develop or make modifications to our hedge balances.
Furthermore, we stress-test the portfolio as to prepayment speeds and interest rate risk in order to further develop or make modifications to our hedge balances. Historically, we have not hedged 100% of our liability costs due to prepayment risk.
In the event the value of our assets pledged as collateral suddenly decreases, margin calls relating to our repurchase agreements could increase, causing an adverse change in our liquidity position.
In the event the value of our assets pledged as collateral or the value of our derivative instruments suddenly decrease, margin calls could increase, causing an adverse change in our liquidity position.
The Company also has an interest rate cap contract related to a repurchase agreement for residential loans, as required by the counterparty. 113 Table of Contents We utilize a model-based risk analysis system to assist in projecting interest rate-sensitive asset and liability portfolio performances over a scenario of different interest rates.
The Company may also be required by lenders on repurchase agreements for residential loans to enter into interest rate cap contracts. 116 Table of Contents We utilize a model-based risk analysis system to assist in projecting interest rate-sensitive asset and liability portfolio performances over a scenario of different interest rates.
We seek to manage credit risk through our pre-acquisition or pre-funding due diligence process, and by factoring projected credit losses into the purchase price we pay or loan terms we negotiate for all of our credit sensitive assets.
In selecting the credit sensitive assets in our portfolio, we seek to identify and invest in assets with characteristics that we believe offset or limit our exposure to defaults. 118 Table of Contents We seek to manage credit risk through our pre-acquisition or pre-funding due diligence process, and by factoring projected credit losses into the purchase price we pay or loan terms we negotiate for all of our credit sensitive assets.
We also formulate annual budgets and performance goals alongside our operating partners for use in measuring the ongoing investment performance and credit quality of our investments.
We also formulate annual budgets and performance goals alongside our operating partners for use in measuring the ongoing investment performance and credit quality of our investments. Additionally, the Company's preferred equity and equity investments typically provide us with various rights and remedies to protect our investment.
Additionally, the Company's preferred equity and equity investments typically provide us with various rights and remedies to protect our investment. 116 Table of Contents Fair Value Risk Changes in interest rates, market liquidity, credit quality and other factors also expose us to market value (fair value) fluctuation on our assets, liabilities and hedges.
Fair Value Risk Changes in interest rates, market liquidity, credit quality and other factors also expose us to market value (fair value) fluctuation on our assets, liabilities and hedges.
Our fair value estimates and assumptions are indicative of the interest rate and business environments as of December 31, 2023 and do not take into consideration the effects of subsequent changes.
Minor changes in assumptions or estimation methodologies can have a material effect on these derived or estimated fair values. 119 Table of Contents Our fair value estimates and assumptions are indicative of the interest rate and business environments as of December 31, 2024 and do not take into consideration the effects of subsequent changes.
The table below presents the sensitivity of the fair value and net duration changes of our portfolio as of December 31, 2023, using a discounted cash flow simulation model assuming an instantaneous interest rate shift.
The table below presents the sensitivity of the fair value of our portfolio as of December 31, 2024, using a discounted cash flow simulation model assuming an instantaneous interest rate shift. Application of this method results in an estimation of the fair market value change of our assets, liabilities and hedging instruments per 100 basis point shift in interest rates.
Our net interest income, adjusted net interest income and the fair value of our assets and our financing activities could be negatively affected by volatility in interest rates, as has been the case throughout much of 2022 and in 2023.
Such increased dividend costs could have an impact on net aggregate GAAP book value and adjusted book value. Our net interest income, adjusted net interest income and the fair value of our assets and our financing activities could be negatively affected by volatility in interest rates, as was the case in 2024.
As a result, we believe our market value (fair value) risk has significantly increased. Minor changes in assumptions or estimation methodologies can have a material effect on these derived or estimated fair values.
As a result, we believe our market value (fair value) risk has significantly increased.
Since this time, we have placed a greater emphasis on procuring longer-termed and/or more committed financing arrangements for our credit investments, such as non-mark-to-market repurchase agreements, securitizations and other term financings, which may involve greater expense relative to repurchase agreement funding.
We also utilize longer-termed and/or more committed financing arrangements for certain of our credit investments, such as securitizations, term financings and corporate debt securities that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets. These financings may involve greater expense relative to repurchase agreement funding.
Removed
As previously disclosed, in March 2020, we observed unprecedented illiquidity in repurchase agreement financing and MBS markets which resulted in our receiving margin calls under our repurchase agreements that were well beyond historical norms. We took a number of decisive actions in response to these conditions, including the sale of assets and termination of our interest rate swaps.
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Changes in interest rates would have the opposite impact on our liabilities at fair value.
Removed
For example, under the interest rate swaps we utilize, typically we pay a fixed rate to the counterparties while they pay us a floating rate. If interest rates drop below the fixed rate we pay on an interest rate swap, we may be required to post cash margin.
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The floating rates that become effective at the conclusion of the fixed rate period on our Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock subject us to interest rate risk and could significantly increase the cost of dividends on such preferred stock.
Removed
In selecting the credit sensitive assets in our portfolio, we seek to identify and invest in assets with characteristics that we believe offset or limit our exposure to defaults.
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We also manage credit risk with credit default swaps on corporate bond indices for which the Company buys credit protection and pays periodic payments at fixed rates to credit protection sellers, in return for compensation for default (or similar credit event) by a reference index.
Removed
Application of this method results in an estimation of the fair market value change of our assets, liabilities and hedging instruments per 100 basis point shift in interest rates. Net duration is the sensitivity of our portfolio to changes in interest rates and we estimate duration using management's assumptions.
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Fair Value Changes Changes in Interest Rates Changes in Fair Value (1) Percentage Change in Portfolio Fair Value (1) (basis points) (dollar amounts in thousands) +200 $(163,842) (2.82)% +100 $(63,153) (1.09)% Base — -100 $91,842 1.58% -200 $123,573 2.12% (1) Includes residential loans, Mezzanine Lending investments, investment securities, derivatives, mortgage servicing rights, residential loan securitizations, non-Agency RMBS re-securitization and senior unsecured notes at fair value.

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