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What changed in CHIMERA INVESTMENT CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CHIMERA INVESTMENT CORP'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.

+707 added−675 removedSource: 10-K (2025-02-19) vs 10-K (2024-02-29)

Top changes in CHIMERA INVESTMENT CORP's 2024 10-K

707 paragraphs added · 675 removed · 492 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

69 edited+39 added−15 removed29 unchanged
Biggest changeWe acquire residential mortgage loans primarily to securitize them, as discussed above, or to retain them in our portfolio as loans held for investment. Until we securitize our residential mortgage loans, we finance our residential mortgage loan portfolio through warehouse facilities and repurchase agreements, as discussed under “Our Financing Strategy” below.
Biggest changeUntil we securitize our residential mortgage loans, we finance our residential mortgage loan portfolio through warehouse facilities and repurchase agreements, as discussed under “Our Financing Strategy” below. Currently, we acquire mortgage loans in the secondary market that are originated by third parties and are not underwritten to our specifications. Third-party servicers service the mortgage loans in our portfolio.
To ensure we qualify as a REIT, no person may own more than 9.8%, in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, which includes our common stock and preferred stock, unless our Board of Directors waives this limitation.
To ensure we qualify as a REIT, no 8 person may own more than 9.8%, in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, which includes our common stock and preferred stock, unless our Board of Directors waives this limitation.
We make available on the website under “Filings & Reports,” free of charge, our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports and investor presentations on Form 8-K and any other reports that we file with the Securities and Exchange Commission, or SEC, (including any amendments to such reports) as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.
We make available on the website under “Filings & Reports,” free of charge, our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports and investor presentations on Form 8-K and any other reports that we file with the Securities and Exchange Commission (the “SEC”) (including any amendments to such reports) as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.
We have acquired and may in the future acquire Non-Agency RMBS for our portfolio with the intention of exercising the call rights and re-securitizing the underlying mortgage loans and retaining a portion of the re-securitized Non-Agency RMBS in our portfolio, typically the subordinate certificates. 7 • Secured Financing Agreements.
We have acquired and may in the future acquire Non-Agency RMBS for our portfolio with the intention of exercising the call rights and re-securitizing the underlying mortgage loans and retaining a portion of the re-securitized Non-Agency RMBS in our portfolio, typically the subordinate certificates. • Secured Financing Agreements.
A TRS is subject to U.S. federal income tax. 1940 Act Exclusion 8 We continue to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act.
A TRS is subject to U.S. federal income tax. 1940 Act Exclusion We continue to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act.
In order to maintain our qualification as a REIT, we must comply with the requirements under federal tax law, including that we must distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to our stockholders.
In order to maintain our qualification as a REIT, we must comply with the requirements under federal tax law, including the requirement that we distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to our stockholders.
See “ Risk Factors - Risks Associated with Our Investments - A significant portion of the RMBS we acquire through securitization is subject to the U.S. credit risk retention rules which materially limit our ability to sell or hedge such investments as needed, which may require us to hold investments that we may otherwise desire to sell during times of severe market disruption in the mortgage, housing or related sectors” discussion in Item 1A “Risk Factors” section for more details.
See “ Risk Factors - Risks Associated with Our Investments - A significant portion of the RMBS we acquire through securitization is subject to the Risk Retention Rules which materially limit our ability to sell or hedge such investments as needed, which may require us to hold investments that we may otherwise desire to sell during times of severe market disruption in the mortgage, housing, credit or related sectors” discussion in Item 1A “Risk Factors” section for more details.
These investment guidelines may be changed from time to time by a majority of our Board of Directors without the approval of our stockholders. Our Financing Strategy We use leverage to increase potential returns to our stockholders.
These investment guidelines may be changed from time to time by a majority of our Board of Directors without the approval of our stockholders. Our Portfolio Financing Strategy We use leverage to increase potential returns to our stockholders.
Additionally, we typically obtain representations and warranties with respect to the mortgage loans from each seller, including the origination and servicing of the mortgage loans as well as the enforceability of the lien on the related mortgaged properties.
We typically obtain representations and warranties with respect to the mortgage loans from each seller, including with respect to the origination and servicing of the mortgage loans as well as the enforceability of the lien on the related mortgaged properties.
“I” Programs. The securities issued in our “I” securitizations are rated by one or more nationally recognized statistical ratings organizations, or NRSRO, and are subject to the Risk Retention Rules.
“I” Programs. The securities issued in our “I” securitizations are rated by one or more nationally recognized statistical ratings organizations and are subject to the Risk Retention Rules.
Our Securitization Programs We currently have the following five securitization programs: • Our “R” program, our most active program, securitizes seasoned reperforming mortgage loans, whether newly acquired from a third party or upon the exercise of a call option, in a Real Estate Mortgage Investment Conduit, or REMIC, transaction; • Our “NR” program securitizes seasoned residential mortgage loans that are not eligible to be securitized in REMIC, transactions; • Our “I” program securitizes Non-Agency eligible investor mortgage loans; • Our “J” program securitizes jumbo prime residential mortgage loans; and • Our “INV” program securitizes Agency-eligible investor mortgage loans.
Our Securitization Programs We currently have the following five securitization programs: • Our “R” program, our most active program, securitizes seasoned RPLs, whether newly acquired from a third party or upon the exercise of a call option, in a Real Estate Mortgage Investment Conduit (“REMIC”) transaction; • Our “NR” program securitizes seasoned residential mortgage loans that are not eligible to be securitized in REMIC, transactions; • Our “I” program securitizes Non-Agency eligible investor mortgage loans; • Our “J” program securitizes jumbo prime residential mortgage loans; and • Our “INV” program securitizes Agency-eligible investor mortgage loans.
We are not required to maintain any specific debt-to-equity ratio as we believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At December 31, 2023 and 2022, our ratio of debt-to-equity was 4.0:1 .
We are not required to maintain any specific debt-to-equity ratio as we believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At December 31, 2024 and 2023, our ratio of debt-to-equity was 4.0:1.
The following briefly discusses the principal types of investments that we have made and may in the future make: Residential Mortgage Loans We invest in residential mortgage loans (mortgage loans secured by residential real property) through secondary market purchases from banks, non-bank financial institutions, and the Agencies.
The following briefly discusses the principal types of investments that we have made and may in the future make: Residential Mortgage Loans We invest in residential mortgage loans (mortgage loans secured by residential real property) through secondary market purchases from banks, non-bank financial institutions, lenders, originators, and the Agencies.
Our Board of Directors and its committees have adopted the following guidelines for our investments and borrowings: • No investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • No investment shall be made that would cause us to be regulated as an investment company under the 1940 Act; • With the exception of real estate and housing, no single industry shall represent greater than 20% of the securities or aggregate risk exposure in our portfolio; and • Investments in non-rated or deeply subordinated ABS or other securities that are non-qualifying assets for purposes of the 75% REIT asset test will be limited to an amount not to exceed 50% of our stockholders’ equity.
Our Board of Directors and its committees have adopted the following guidelines for our investments and borrowings: • No investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • No investment shall be made that would cause us to be required to register as an investment company under the 1940 Act; • With the exception of real estate and real estate related assets, no single industry shall represent greater than 20% of the securities or aggregate risk exposure in our portfolio; and • Investments in non-rated or deeply subordinated ABS or other securities that are non-qualifying assets for purposes of the 75% REIT asset test will be limited to an amount not to exceed 50% of our stockholders’ equity.
Our interest rate management techniques may include: • interest rate caps, swaps and swaptions; • puts and calls on securities or indices of securities; • Eurodollar futures contracts and options on such contracts; • U.S. Treasury futures, forward contracts, other derivative contracts and options on U.S. Treasury securities; and • other similar transactions.
Our interest rate management techniques may include: • interest rate caps, swaps and swaptions; • puts and calls on securities or indices of securities; • Swap futures contracts and options on such contracts; • U.S. Treasury futures, forward contracts, other derivative contracts and options on U.S. Treasury securities; and • other similar transactions.
For purposes of calculating this ratio, our equity is equal to the Total stockholders’ equity on our Consolidated Statements of Financial Condition, and our debt consists of securitized debt and secured financing agreements. Subject to maintaining our qualification as a REIT, we may use a variety of sources to finance our investments, including the following primary sources: • Securitization .
For purposes of calculating this ratio, our equity is equal to the total stockholders’ equity on our Consolidated Statements of Financial Condition, and our debt consists of securitized debt, long-term debt, and secured financing agreements. 7 Subject to maintaining our qualification as a REIT, we may use a variety of sources to finance our investments, including the following primary sources: • Securitization .
In general, a TRS may hold assets and engage in activities that a REIT or qualified REIT subsidiary, or QRS, cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business.
In general, a TRS may hold assets and engage in activities that a REIT or qualified REIT subsidiary (“QRS”) cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business.
Most, but not all, of the properties securing our business purpose loans are residential, and a portion of the loan is used to cover renovation costs. Our business purpose loans are included as a part of our Loans held for investment portfolio and are carried at fair value.
Most, but not all, of the properties securing our RTLs are residential, and a portion of the loan is used to cover renovation costs. Our RTLs are included as a part of our loans held for investment portfolio and are carried at fair value.
We did not sponsor any securitizations under our “J” and “INV” programs during the year ended December 31, 2023. “R” and “NR” Non-Rated Programs. The securities issued in our “R” and “NR” securitizations are generally not rated and are subject to the Risk Retention Rules.
We did not sponsor any securitizations under our “J” and “INV” programs during the year ended December 31, 2024. 4 “R” and “NR” Non-Rated Programs. The securities issued in our “R” and “NR” securitizations are generally not rated and are subject to the Risk Retention Rules.
As discussed in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” we reduced some of our Agency MBS positions during 2023.
As discussed in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” we reduced some of our Agency MBS positions during 2024.
(2) At the time of issuance. Our Investment Portfolio At December 31, 2023, based on the fair value of our interest earning assets, approximately 91% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 1% of our investment portfolio was Agency MBS.
At December 31, 2023, based on the fair value of our interest earning assets, approximately 91% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 1% of our investment portfolio was Agency MBS.
Other Real Estate-Related Assets We may invest in commercial mortgage loans consisting of first or second lien loans secured by multifamily properties, which are residential rental properties consisting of five or more dwelling units, or by mixed residential or other commercial properties, retail properties, office properties or industrial properties. These loans may or may not conform to the Agency guidelines.
We may invest in commercial mortgage loans consisting of first or second lien loans secured by multifamily properties, which are residential rental properties consisting of five or more dwelling units, or by mixed residential or other commercial properties, retail properties, office properties or industrial properties. These loans may or may not conform to the Agency guidelines.
We have granted waivers to two mutual funds to own certain classes of our preferred stock above the 9.8% limitation. Also, we have elected to treat certain of our subsidiaries as taxable REIT subsidiaries, or TRS.
We have granted waivers to two mutual funds to own certain classes of our preferred stock above the 9.8% limitation. Also, we have elected to treat certain of our subsidiaries as taxable REIT subsidiaries (“TRS”).
As of December 31, 2023, we hold all required licenses or exempt status through two of our wholly owned subsidiaries in 22 states.. We are required to comply with various information reporting and other regulatory requirements to maintain those licenses and exemption statuses.
As of December 31, 2024, we hold all required licenses or exempt status through two of our wholly owned subsidiaries in 21 states. We are required to comply with various information reporting and other regulatory requirements to maintain those licenses and exemption statuses.
In addition, most of these subordinate securities are subject to the Dodd-Frank Act and related laws and regulations relating to credit risk retention for securitizations, or the Risk Retention Rules, 3 which significantly limits the liquidity of these securities.
In addition, most of these subordinate securities are subject to the Dodd-Frank Act and related laws and regulations relating to credit risk retention for securitizations, (the “Risk Retention Rules”) which significantly limits the liquidity of these securities.
In these programs, we typically sell the senior securities to an unrelated third party and retain the subordinate securities, which include the first-loss securities which are subject to the Risk Retention Rules, and the interest-only securities. During 2023, we sponsored four “R” securitizations and two “NR” securitization.
In these programs, we typically sell the senior securities to an unrelated third party and retain the subordinate securities, which include the first-loss securities which are subject to the Risk Retention Rules, and the interest-only securities. During 2024, we sponsored one “R” securitization.
We have a matching gift program to encourage personnel to be charitable and to support 501(c)(3) organizations. 9 At December 31, 2023, we had 39 employees, all of whom were full-time. We believe that diversity and inclusion are conducive to a stronger workplace and better decision making.
We have a matching gift program to encourage personnel to be charitable and to support 501(c)(3) organizations. At December 31, 2024, we had 77 employees, all of whom were full-time and of which 36 were added through the Palisades Acquisition. We believe that diversity and inclusion are conducive to a stronger workplace and better decision making.
At December 31, 2022, based on the fair value of our interest earning assets, approximately 88% of our investment portfolio was residential mortgage loans, 9% of our investment portfolio was Non-Agency RMBS, and 3% of our investment portfolio was Agency MBS.
(2) At the time of issuance. Our Investment Portfolio At December 31, 2024, based on the fair value of our interest earning assets, approximately 88% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 4% of our investment portfolio was Agency MBS.
During 2024, we expect to continue acquiring and securitizing mortgage loans as well as calling our existing securitizations depending on market conditions. When we securitize mortgage loans, we typically retain the most subordinate classes of securities, which means we are the first-loss security holder.
During 2025, we expect to continue acquiring and securitizing mortgage loans as well as opportunistically calling our existing securitizations and reinvesting proceeds into attractive investments. When we securitize mortgage loans, we typically retain the most subordinate classes of securities, which means we are the first-loss security holder.
We adjust our strategy in response to changing market conditions by shifting our asset allocations across various asset classes as interest rate and credit cycles change over time. We believe that our strategy will provide us an opportunity to pay dividends throughout changing market cycles.
We adjust our strategy in response to changing market conditions by shifting our asset allocations across various asset classes as interest rate and credit cycles change over time.
Servicing procedures typically follow Fannie Mae guidelines but are specified in each servicing agreement. In addition, we have purchased residential mortgage loans on a servicing-retained basis, which means a third-party servicer (which may or may not be the seller of the mortgage loans) retained the right to service the loans.
In addition, we have purchased residential mortgage loans on a servicing-retained basis, which means a third-party servicer (which may or may not be the seller of the mortgage loans) retained the right to service the loans.
The respective bond class sizes are determined based on the review of the underlying collateral. The payments received from the underlying loans are used to make the payments on the RMBS. Based on the sequential payment priority, the risk of nonpayment for the investment grade RMBS is lower than the risk of nonpayment for the non-investment grade bonds.
The payments received from the underlying loans are used to make the payments on the RMBS. Based on the sequential payment priority, the risk of nonpayment for the most senior, or investment grade, RMBS is lower than the risk of nonpayment for the most junior, or non-investment grade, bonds.
In acquiring real estate-related assets, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, exchange traded funds, mutual funds, institutional investors, investment banking firms, financial institutions, hedge funds, governmental bodies (including the U.S. Federal Reserve) and other entities.
Competition In acquiring real estate-related assets for ourselves or for any new Discretionary Fund in our capacity as investment manager, we compete with other mortgage REITs, investment management firms, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, exchange traded funds, mutual funds, institutional investors, investment banking firms, financial institutions, private equity funds, hedge funds, governmental bodies (including the Federal Reserve) and other entities.
We may invest in non-Agency CMBS, which are secured by, or evidence ownership interests in, a single commercial mortgage loan or a pool of mortgage loans secured by commercial properties. These securities may be senior, subordinated, investment grade or non-investment grade.
These investments may complement our primary investment strategies by diversifying our portfolio and potentially enhancing risk-adjusted returns. We may invest in non-Agency CMBS, which are secured by, or evidence ownership interests in, a single commercial mortgage loan or a pool of mortgage loans secured by commercial properties. These securities may be senior, subordinated, investment grade or non-investment grade.
We encourage personnel to attend industry sponsored or other conferences and have a tuition reimbursement program to help personnel to further develop their skills and to stay current on evolving trends impacting our industry.
We offer internal training programs on financial markets, business ethics, government regulatory rules and other topics. We encourage personnel to attend industry sponsored or other conferences and have a tuition reimbursement program to help personnel to further develop their skills and to stay current on evolving trends impacting our industry.
The percentage of our financing allocated to such facilities will vary depending on market conditions. We believe that non-mark-to-market facilities will continue to be a material portion of our financing strategy.
The percentage of our financing allocated to such facilities will vary depending on market conditions. We believe that non-MTM facilities will continue to be a material portion of our financing strategy. We may also seek financing through capital markets offerings when appropriate.
We maintain a portion of our financing in non-mark-to-market facilities and mark-to-market holiday facilities (meaning, the market value of the collateral must drop below a threshold before a lender can issue a margin call) to finance a portion of our non-Agency RMBS, including risk retention securities.
We maintain a portion of our financing in non-mark-to-market ("non-MTM") facilities and limited mark-to-market facilities (“limited MTM”) (meaning, the market value of the collateral must drop below a threshold before a lender can issue a margin call or some other limitation such as magnitude of rate move or other financial variables) to finance a portion of our non-Agency RMBS, including risk retention securities.
In one or more states, in lieu of relying on such licenses, we may contribute our acquired residential mortgage loans to one or more trusts in which we or our subsidiaries hold beneficial interests; title to these residential mortgage loans may be held by one or more federally-charted banks as trustee, which may be exempt from state licensing requirements.
In one or more states, in lieu of relying on such licenses, we may contribute our acquired residential mortgage loans to one or more trusts in which we or our subsidiaries hold beneficial interests; title to these residential mortgage loans may be held by one or more federally-charted banks as trustee, which may be exempt from state licensing requirements. 9 There can be no assurance that the use of the trusts will satisfy an exemption from licensing requirements because regulatory agencies may adopt different interpretations of applicable laws.
Many of our competitors are significantly larger than we are, have access to greater capital and other resources and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more favorable relationships than we can.
In addition, some of our competitors may have higher risk tolerances, different risk assessments, or fewer regulatory burdens and restrictions, which could allow them to consider a wider variety of investments and establish more favorable relationships than we can.
We typically do not review all the loans in a pool, but rather select loans for diligence review utilizing random sampling based criteria such as property location, loan size, effective loan-to-value ratio, borrower’s credit score, delinquency status and other criteria we believe to be important indicators of credit risk.
However, in certain circumstances we may select loans for diligence review utilizing risk-based sampling criteria such as property location, loan size, loan-to-value ratio ("LTV"), borrower’s credit score, delinquency status and history and other criteria we believe to be important indicators of credit risk.
Qualifying securities are then analyzed using base line expectations of expected prepayments and loss severities, the current state of the fixed-income market and the broader economy in general. Losses and prepayments are stressed simultaneously based on a credit risk-based model. Securities in this portfolio are monitored for variance from expected prepayments, severities, losses and cash flow.
Qualifying securities are then analyzed using base line expectations of expected voluntary prepayments, involuntary defaults, and loss severities based on the collateral characteristics along with expectations surrounding the current state of credit markets and the broader economy in general. Defaults, losses and prepayments are stressed simultaneously based on a credit risk-based model.
We expect to finance our investments using a variety of financing sources, including securitizations, secured borrowing through the use of warehouse facilities and repurchase agreements, as well as the issuance of debt and equity capital.
Our income is generated primarily by the difference, or net spread, between the income we earn on our assets and the cost of our borrowings. We expect to finance our investments using a variety of financing sources, including securitizations, secured borrowings through the use of warehouse facilities and repurchase agreements, and the issuance of debt and equity capital.
Our Investment Strategy We make investment decisions based on various factors, including expected cash yield, relative value, risk-adjusted returns, credit fundamentals, macroeconomic considerations, supply and demand, credit and market risk concentration limits, liquidity, cost of financing and financing availability, as well as maintaining our REIT qualification and our exemption from registration under the 1940 Act.
We make investment decisions based on various factors, including expected cash yield, relative value, risk-adjusted returns, credit fundamentals, macroeconomic considerations, supply and demand dynamics, credit and market risk concentration limits, liquidity, cost of 3 financing and financing availability. Our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment.
We may invest in securities issued in various collateralized debt obligation, or CDO, offerings to gain exposure to bank loans, corporate bonds, ABS, mortgages, RMBS, CMBS, and other instruments. We have invested in a limited partnership managed by a registered investment advisor in which we own a minority equity interest.
We may invest in securities issued in various collateralized debt obligation, or CDO, offerings to gain exposure to bank loans, corporate bonds, asset-backed securities, mortgages, RMBS, CMBS, and other instruments.
Our residential mortgage loan portfolio is comprised primarily of reperforming residential mortgage loans, which have been outstanding, or seasoned, for more than 120 months, and typically have higher loan-to-value ratios and spottier pay histories. Our residential mortgage loan portfolio also includes business purpose loans and investor loans.
Our residential mortgage loan portfolio is comprised primarily of reperforming residential mortgage loans, which have been outstanding, or seasoned, for more than 120 months and experienced some history of delinquent payment activity. Our residential mortgage loan portfolio also includes RTLs.
The MBS and other real estate-related securities we purchase may include investment-grade, non-investment grade, and non-rated classes. We use leverage to increase potential returns from our investments. Subject to maintaining our REIT status and exemption from registration under the 1940 Act, we do not have any limitations on the amounts we may invest in any of our targeted asset classes.
Subject to maintaining our REIT status and exemption from registration under the 1940 Act, we do not have any limitations on the amounts we may invest in any of our targeted asset classes for our own account.
As of December 31, 2023, 72% of our workforce was either gender or racially diverse. We believe that our relationship with our employees is good. None of our employees are unionized or represented under a collective bargaining agreement. Competition Our net income depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs.
As of December 31, 2024, 61% of our workforce was either gender or racially diverse. We believe that our relationship with our employees is good. None of our employees are unionized or represented under a collective bargaining agreement.
We also invest in investment grade, non-investment grade and non-rated Non-Agency RMBS. We evaluate certain credit characteristics of these types of securities and the underlying mortgage loans, including, but not limited to, loan balance distribution, geographic concentration, property type, occupancy, periodic and lifetime caps, weighted-average loan-to-value and weighted-average Fair Isaac Corporation, or FICO, score.
In addition to the Non-Agency RMBS structure and cash flow priorities, we evaluate numerous credit characteristics of the underlying mortgage loans, including, but not limited to, loan balance distribution, geographic concentration, property type, occupancy, adjustable interest rate periodic and lifetime caps, LTV characteristics and Fair Isaac Corporation (“FICO”) score distributions.
We acquire pools of such loans which are eligible for sale to one of the Agencies as well as pools of loans which are not eligible for such sales. In both cases, we securitize the investor loans as part of our loan securitization program.
We acquire pools of such loans that are eligible for sale to one or more of the Agencies as well as pools of loans that are not eligible for such sales.
These IO RMBS represent the right to receive a specified proportion of the contractual interest flows of the collateral. We have invested in and intend to continue to invest in Non-Agency RMBS which are typically certificates created by the securitization of a pool of mortgage loans that are collateralized by residential real estate properties.
We have invested in and intend to continue to invest in Non-Agency RMBS, which are typically certificates created by the securitization of a pool of mortgage loans that are collateralized by residential real estate properties. The respective bond class sizes are determined based on the review of the underlying collateral, the security’s cash flow priorities and credit enhancement.
The limited partnership invests in REIT eligible assets, primarily residential assets. We make other similar investments as well as invest in entities which originate or service mortgage loans.
We have an investment in a limited partnership managed by a third-party registered investment advisor. The limited partnership invests in REIT eligible assets, primarily residential assets. We may make other similar investments as well as invest in operational platforms, including but not limited to entities that originate or service mortgage loans.
The due diligence process is particularly important and costly with respect to newly formed originators or issuers because there may be little or no information publicly available about these entities and investments. We may also invest in interest-only, or IO, Agency and Non-Agency RMBS.
Securities in this portfolio are monitored for variance from expected prepayments, defaults, loss severities, losses and cash flow. The due diligence process is particularly important and costly with respect to newly formed originators or issuers because there may be little or no information publicly available about these entities and investments.
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. Available Information Our investor relations website is www.chimerareit.com.
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, as well as limiting our ability to raise third-party funds for, and therefore earn fees and incentive based income from, any new Discretionary Funds.
We believe these business purpose loans strengthened our portfolio in 2023 because they are short duration assets and have a high average coupon, providing an attractive risk reward profile in times of rate volatility. Currently, we do not use term securitization to finance business purpose loans because of their short duration.
In addition, we have purchased and expect to continue to purchase RTLs and invest in various residential mortgage assets to take advantage of opportunities and market conditions. We believe these RTLs strengthened our portfolio in 2024 because they are short duration assets with a high average coupon, providing an attractive risk reward profile in times of rate volatility.
Our primary source of income is net interest income from our investment portfolio. Net interest income is the interest income we earn on investments less the interest expense we incur on borrowed funds. Our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment.
Net interest income from our investment portfolio is the interest income we earn on investments less the interest expense we incur on borrowed funds. In addition, we generate income from our third-party investment management and advisory services.
We may also invest in collateralized mortgage obligations, or CMOs, issued by the Agencies. CMOs consist of multiple classes of securities, with each class bearing different stated maturity dates.
We may also invest in CMOs issued by the Agencies. CMOs consist of multiple classes of securities, with each class bearing different stated maturity dates. Monthly payments of principal, including prepayments, are first returned to investors holding the shortest maturity class; investors holding the longer maturity classes receive principal only after the first class has been retired.
This helps us to minimize the risk that we have to refinance our liabilities before the maturities of our assets and to reduce the impact of changing interest rates on our asset values and net interest margins. Operational and Regulatory Structure REIT Qualification We have elected to be treated as a REIT for U.S. federal income tax purposes.
The duration mismatch may cause refinancing risk and we may seek to hedge this risk as part of our normal course interest rate hedge strategy. Operational and Regulatory Structure REIT Qualification We have elected to be treated as a REIT for U.S. federal income tax purposes.
We provide competitive compensation and benefits to attract and retain key personnel, while also providing a safe, inclusive and respectful workplace. We continue to have a focus on diversity initiatives. We offer internal training programs on financial markets, business ethics, government regulatory rules and other topics.
We believe our management team has the experience necessary to effectively implement our growth strategy and continue to drive shareholder value. We provide competitive compensation and benefits to attract and retain key personnel, while also providing a safe, inclusive and respectful workplace. We continue to have a focus on diversity initiatives.
Our principal business objective is to provide attractive risk-adjusted returns through the generation of distributable income and through asset performance linked to mortgage credit fundamentals. We were incorporated in Maryland on June 1, 2007 and commenced operations on November 21, 2007.
Our Business Strategy Our principal business objective is to provide attractive risk-adjusted returns through the generation of distributable income from our investment portfolio whose asset performance is linked to mortgage credit fundamentals and fees generated from providing third-party investment management and advisory services to third parties .
Our business purpose loans are loans to businesses that are secured by real property which will be renovated by the borrower. Upon completion of the renovation the property typically will be either (i) sold by the borrower, or (ii) refinanced by the borrower who may then subsequently sell or rent the property.
Our RTLs are loans to businesses that are secured by real property where the proceeds are generally used by the borrower to acquire and renovate the property. Upon completion of the renovation, the borrower will typically either (i) sell the property, or (ii) refinance and retain the property as a portfolio rental.
See “Risk Factors - Risks Related to Regulatory, Accounting and Our 1940 Exemption - Loss of our 1940 Act exemption would adversely affect us and negatively affect the market price of shares of our capital stock and our ability to distribute dividends.” Licenses While we are not required to obtain licenses to purchase mortgage-backed securities, the purchase and sale of residential mortgage loans in the secondary market may, in some circumstances, require us to maintain various state licenses.
See “Risk Factors – Risks Related to Our Recent Acquisition and Investment Management and Advisory Services – We may be unable to successfully integrate and realize the anticipated benefits of the Palisades Acquisition which may adversely affect our operations.” Licenses While we are not required to obtain licenses to purchase MBS, the purchase and sale of residential mortgage loans in the secondary market may, in some circumstances, require us, or the entities, including securitization trusts, we use to conduct our business, to maintain various state licenses.
In the future, however, we may decide to originate mortgage loans or other types of financing, and we may elect to service mortgage loans and other types of assets. 5 We engage a third party to perform an independent review of the mortgage files to assess the origination and servicing of the mortgage loans, as well as our ability to enforce the lien on the related mortgaged properties.
We engage third parties to perform independent reviews of the mortgage files to assess the credit underwriting and adherence to compliance at origination with respect to the mortgage loans, as well as our ability to enforce the lien on the related mortgaged properties. We typically review all of the loans we acquire.
Item 1. Business The Company We are a publicly traded REIT that is primarily engaged in the business of investing directly or having a beneficial interest in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency RMBS, Non-Agency RMBS, Agency CMBS, business purpose and investor loans, and other real estate-related assets.
Item 1. Business The Company We are a publicly traded REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets for ourselves and for unrelated third parties through our third-party investment management and advisory services.
We have also financed and may continue to finance a portion of our loan portfolio with long-term secured financing facilities rather than securitization until the securitization market improves once the Fed begins rate cuts.
We expect to continue financing our investments using a variety of sources, and as part of our overall strategy, may continue to finance a portion of our loan portfolio with long-term secured facilities.
We currently finance these loans using repurchase facilities, but we may look to finance these loans with revolving securitization structures in the future. In 2024, in addition to our securitization and business purpose loan activities, we will explore opportunities to increase our Agency MBS portfolio.
Currently, we do not use term securitization to finance RTLs and instead use repurchase facilities. We may evaluate revolving securitization structures as a means to finance RTLs in the future. In 2025, in addition to our securitization and RTL activities, we intend to explore opportunities to increase our Agency RMBS portfolio and other investment allocation strategies.
Our business purpose loans tend to be short duration, often less than one year, and generally the coupon rate is higher than our residential mortgage loans. Our investor loans are loans to individuals securing non-primary residences as well as to individuals or businesses who rent the residential properties secured by such loans.
Our RTLs tend to be short duration, often less than one year, and generally the coupon rate is higher than other traditional residential mortgage loan products, which we believe are good asset traits in times of rate volatility.
Accordingly, the investment grade class is typically sold at a lower yield compared to the non-investment grade or unrated classes which are sold at higher yields. Agency CMBS The Agency CMBS we acquire are Ginnie Mae Construction Loan Certificates, or CLCs, and the resulting project loan certificates, or PLCs, when the construction project is complete.
Accordingly, the investment grade class is typically sold at a lower yield compared to the non-investment grade or unrated classes which are sold at higher yields. Other Real Estate-Related Assets We may invest in MSRs, which are the rights to service a pool of residential mortgage loans in exchange for a portion of the interest payments on such loans.
Currently, we acquire mortgage loans in the secondary market that are originated by third parties and are not underwritten to our specifications. Third-party servicers service the mortgage loans in our portfolio. We conduct a due diligence review of each servicer before the servicer is retained and periodically thereafter.
We conduct a due diligence review of each servicer before the servicer is retained and periodically thereafter. The duties of servicers are generally required to be performed in accordance with industry-accepted servicing practices and the terms of the relevant pooling and servicing agreement, mortgage note and applicable law.
Our employees are critical to the success of our organization and we are committed to supporting our employees’ professional development. We believe our management team has the experience necessary to effectively implement our growth strategy and continue to drive shareholder value.
Human Capital The human capital objectives we focus on in managing our business include attracting, developing, and retaining key personnel. Our employees are critical to the success of our organization, and we are committed to supporting our employees’ professional development.
Removed
We attempt to increase our potential returns and finance the acquisition of our assets by borrowing funds secured by our assets (leverage). Our income is generated primarily by the difference, or net spread, between the income we earn on our assets and the cost of our borrowings.
Added
The assets we may invest in and manage for others include residential mortgage loans, Non-Agency RMBS, Agency RMBS, business purpose loans (“BPLs”) (including residential transition loans (“RTLs”)) and investor loans, mortgage servicing rights (“MSRs”) and other real estate-related assets such as Agency CMBS, junior liens and home equity lines of credit, or HELOCs, equity appreciation rights, and reverse mortgages.
Removed
During 2023, we focused our investment activities primarily on acquiring and securitizing pools of residential mortgage loans and, when we believed market or other conditions were favorable, exercising call options on existing securitizations to acquire the underlying mortgage loans and use additional securitization to re-finance those called mortgage loans.
Added
We hold our investments through our various subsidiaries. The MBS and other real estate-related securities we purchase may include investment-grade, non-investment grade, and non-rated securities.
Removed
As discussed below, during 2023 our use of leverage with respect to the retained securities from the securitizations we sponsored remained low and we have entered into several new non-mark-to-market facilities to finance these retained securities. In addition, we have purchased and expect to continue to purchase business purpose loans.
Added
Our investment management and advisory services are provided on a discretionary basis through investment funds that we manage (the “Discretionary Funds”) and on a non-discretionary basis with respect to assets acquired and owned by third-party institutions, including insurance companies, credit funds, and other institutional investors.
Removed
We sponsored two securitization under our “I” securitization program.
Added
We were incorporated in Maryland on June 1, 2007 and started trading on the NYSE in November 2007.
Removed
The table below sets forth certain information about our “R”, “NR” and the “I” securitizations we completed during the year ended December 31, 2023. 4 DEAL (1) TOTAL ORIGINAL FACE ORIGINAL FACE OF TRANCHES SOLD (2) ORIGINAL FACE OF TRANCHES RETAINED (2) TOTAL REMAINING FACE REMAINING FACE OF TRANCHES SOLD REMAINING FACE OF TRANCHES RETAINED (dollars in thousands) CIM 2023-R1 585,718 512,503 73,215 529,930 456,713 73,215 CIM 2023-NR1 134,016 97,161 36,855 112,401 75,706 36,695 CIM 2023-R2 447,384 364,841 82,543 411,467 328,913 82,543 CIM 2023-I1 236,161 205,578 30,583 220,543 189,960 30,583 CIM 2023-NR2 66,661 48,328 18,333 59,315 41,896 17,419 CIM 2023-R3 450,834 394,479 56,355 422,026 365,626 56,355 CIM 2023-R4 393,997 343,368 50,629 371,149 320,507 50,629 CIM 2023-I2 238,530 202,750 35,780 225,752 189,972 35,780 (1) For certain of the above securitization deals, we retained certain IO and/or excess servicing classes.
Added
On December 2, 2024, the Company acquired The Palisades Group, LLC (“TPG”), Palisades Advisory Services, LLC (“PAS”), Palisades Technology Holdings, LLC, and their respective subsidiaries for cash consideration of $30 million at closing, plus an additional potential earnout of up to $20 million over five years contingent upon achieving certain financial targets, with the option for us to pay 50% of the earnout payments in common shares (the “Palisades Acquisition”).
Removed
Monthly payments of principal, including prepayments, are first returned to investors holding the shortest maturity class; investors holding the longer maturity classes receive principal only after the first class has been retired. We refer to residential mortgage-backed securities issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac as Agency RMBS.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

184 edited+80 added−87 removed190 unchanged
Biggest changeRisks Associated with Our Investments • Interest rate fluctuations may lead to reduced earnings and increased volatility in our earnings. 10 • The current inversion of the yield curve has caused and may continue to cause differences in timing of interest rate adjustments on our interest earning assets and our borrowings, which may continue to adversely affect the net interest spread. • The impact of inflation may adversely affect our financial performance. • A significant portion of our investments are in the most subordinated Non-Agency RMBS, making us the first-loss security holder. • A significant portion of the RMBS we acquire through securitization is subject to the U.S. credit risk retention rules. • We have a significant amount of investments in Non-Agency MBS collateralized by mortgage loans that do not meet the prime loan underwriting standards and are subject to increased risk of losses. • The nature of the mortgage loans we acquire and that underlie the MBS we acquire exposes us to credit risk that could negatively affect the value of those assets and investments. • Changes in prepayment rates could negatively affect the value of our investment portfolio, which could result in reduced earnings or losses and negatively affect the cash available for distribution to our stockholders. • A significant portion of our Non-Agency MBS and residential loans are secured by properties in a small number of geographic areas and may be disproportionately affected by adverse events in those markets. • We may change our investment strategy, asset allocation, or financing plans without stockholder consent. • Changes in the fair values of our assets, liabilities, and derivatives can reduce earnings, increase earnings volatility, and create volatility in our book value. • Our calculations of the fair value of the assets we own or consolidate are based upon assumptions that are inherently subjective and involve a high degree of management judgment. • Any deterioration or uncertainty in market conditions for mortgages and mortgage-related assets, as well as in broader U.S. and global economic and geopolitical conditions, could have a material adverse effect on us.
Biggest changeRisks Associated with Our Investments • Interest rate fluctuations, including as a result of the Federal Reserve's monetary policy, may have various negative effects on us and may lead to reduced earnings and increased volatility in our earnings. • Changes in the yield curve may cause differences in timing between interest rate adjustments on our interest-earning assets and our borrowings, adversely affecting our net interest spread. • Significant changes in interest rates, particularly increases in long-term rates, may reduce the market value of our investments and negatively affect our book value, earnings and cash available for distribution. • The impact of inflation and related monetary policy efforts may adversely affect our financial performance. • A significant portion of our investments are in the most subordinated first-loss position of the capital structure of Non-Agency RMBS, disproportionately exposing us to credit risk. • A significant portion of the RMBS we acquire through securitization is subject to the Risk Retention Rules. • We have a significant amount of investments in Non-Agency RMBS collateralized by mortgage loans that do not meet the prime loan underwriting standards and are subject to increased risk of losses. • The nature of the mortgage loans we acquire and that underlie the RMBS we acquire exposes us to credit risk that could negatively affect the value of those assets and investments. • Changes in prepayment rates could negatively affect the value of our investment portfolio, which could result in reduced earnings or losses and negatively affect the cash available for distribution to our stockholders. • A significant portion of our Non-Agency RMBS and residential loans are secured by properties in a small number of geographic areas and may be disproportionately affected by adverse events in those markets. • We may change our investment strategy, adjust our asset allocation, or enter other operating businesses or financing plans without stockholder consent, which may result in riskier investments or subject us to new or increased regulatory risks and have an adverse effect on our business, results of operations and financial condition. • Changes in the fair values of our assets, liabilities, and derivatives can reduce earnings, affect liquidity, increase earnings volatility, and create volatility in our book value. • Our calculations of the fair value of the assets we own or consolidate are based upon assumptions that are inherently subjective and involve a high degree of management judgment. • Any deterioration or uncertainty in market conditions for mortgages and mortgage-related assets, as well as in broader U.S. and global economic and geopolitical conditions, could have a material adverse effect on us.
In addition, if we default on a transaction under any one agreement and fail to honor the related guarantee, the counterparties on our other repurchase agreements could also declare a default under their respective repurchase agreements.
In addition, if we default on a transaction under any one agreement and fail to honor the related guarantee, the counterparties to our other repurchase agreements could also declare a default under their respective repurchase agreements.
Volatility in prepayment rates may affect our ability to maintain targeted amounts of leverage and return on our portfolio of residential mortgage loans and RMBS and may result in reduced earnings or losses for us and negatively affect the cash available for distribution to our stockholders.
Volatility in prepayment rates may affect our ability to maintain targeted amounts of leverage and return on our portfolio of residential mortgage loans and RMBS, may result in reduced earnings or losses for us, and negatively affect the cash available for distribution to our stockholders.
The fair values can change rapidly and significantly, and changes can result from changes in interest rates, perceived risk, supply, demand, and actual and projected cash flows, prepayments, and credit performance. A decrease in fair value may not necessarily be the result of deterioration in future cash flows.
Fair values can change rapidly and significantly, and changes can result from changes in interest rates, perceived risk, supply, demand, and actual and projected cash flows, prepayments, and credit performance. A decrease in fair value may not necessarily be the result of deterioration in future cash flows.
The mortgage servicing business is subject to extensive regulation by federal, state and local governmental authorities and is subject to various laws and judicial and administrative decisions imposing requirements and restrictions and increased compliance costs on a substantial portion of their operations. The volume of new or modified laws and regulations has increased in recent years.
The mortgage servicing business is subject to extensive regulation by federal, state and local governmental authorities and various laws and judicial and administrative decisions imposing requirements and restrictions and increased compliance costs on a substantial portion of their operations. The volume of new or modified laws and regulations has increased in recent years.
Pursuant to the statute, our Board of Directors has by resolution exempted business combinations between us and any other person, provided, that such business combination is first approved by our Board of Directors (including a majority of our directors who are not affiliates or associates of such person). • Unsolicited Takeovers : The “unsolicited takeover” provisions of Maryland law, permit our Board of Directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to elect to be subject to any or all of five provisions, including a classified board, a two-thirds vote requirement for removing a director, a requirement that the number of directors be fixed only by vote of the directors, a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred, and majority requirement for the calling of a special meeting of stockholders.
Pursuant to the statute, our Board of Directors has by resolution exempted business combinations between us and any other person, provided, that such business combination is first 34 approved by our Board of Directors (including a majority of our directors who are not affiliates or associates of such person). • Unsolicited Takeovers : The “unsolicited takeover” provisions of Maryland law, permit our Board of Directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to elect to be subject to any or all of five provisions, including a classified board, a two-thirds vote requirement for removing a director, a requirement that the number of directors be fixed only by vote of the directors, a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred, and majority requirement for the calling of a special meeting of stockholders.
Under Maryland law, no distributions on stock may be made if, after giving effect to the distribution, (i) the corporation would not be able to pay the indebtedness of the corporation as such indebtedness becomes due in the usual course of business or (ii) except in certain limited circumstances when distributions are made from net earnings, the corporation’s total assets would be less than the sum of the corporation’s total liabilities plus, unless the charter provides otherwise (which our charter does, with respect to any outstanding series of preferred stock), the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution.
Under Maryland law, no distributions on stock may be made if, after giving effect to the distribution, (i) the corporation would not be able to pay the indebtedness of the corporation as such indebtedness becomes due in the usual course of business or (ii) 35 except in certain limited circumstances when distributions are made from net earnings, the corporation’s total assets would be less than the sum of the corporation’s total liabilities plus, unless the charter provides otherwise (which our charter does, with respect to any outstanding series of preferred stock), the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution.
These risks include the following: (i) collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled based on simplifying assumptions that lead to errors; (ii) information about collateral may 24 be incorrect, incomplete, or misleading; (iii) collateral or bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different definitions of what constitutes a delinquent loan); or (iv) collateral or bond information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the date information was last updated.
These risks include the following: (i) collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled based on simplifying assumptions that lead to errors; (ii) information about collateral may be incorrect, incomplete, or misleading; (iii) collateral or bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different definitions of what constitutes a delinquent loan); or (iv) collateral or bond information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the date information was last updated.
If we or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our capital stock, the sustainability of our business model, and our ability to make distributions, which could have an adverse effect on our business and the market price for our shares of capital stock.
If we or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either to (a) substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our capital stock, the sustainability of our business model, and our ability to make distributions, which could have an adverse effect on our business and the market price for our shares of capital stock.
Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduced corporate tax rate could cause certain non-corporate investors 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 stock.
Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduced corporate tax rate could cause certain non-corporate investors to perceive investments in REITs to be relatively 36 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 stock.
We are dependent on information systems, including those of third parties, and their failure, including through a cyber-attack, could significantly disrupt our business or result in the disclosure or misuse of confidential or other information, including personal information, which could damage our reputation, result in regulatory sanctions, subject us to litigation and/or increase our costs and cause losses that have a material adverse impact on our business, financial results and financial condition.
We are dependent on information technology and systems, including those of third parties, and their failure, including through a cyber-attack, could significantly disrupt our business or result in the disclosure or misuse of confidential or other information, including personal information, which could damage our reputation, result in regulatory sanctions, subject us to litigation and/or increase our costs and cause losses that have a material adverse impact on our business, financial results and financial condition.
Unless our failure to qualify as a REIT was excused under U.S. federal tax laws, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. 30 The ability of our Board of Directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.
Unless our failure to qualify as a REIT was excused under U.S. federal tax laws, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. The ability of our Board of Directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.
If we fail to meet or satisfy any of these covenants or representations and warranties, we would be in default under these agreements and our lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable, enforce their respective rights against collateral pledged under such agreements, and restrict our ability to make additional borrowings.
If we fail to meet or satisfy any of these covenants or representations and warranties, we would be in default under these agreements and our lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable, enforce their 14 respective rights against collateral pledged under such agreements, and restrict our ability to make additional borrowings.
Furthermore, if a few of our lenders became unwilling or unable to continue to provide us with financing, we could be forced to sell assets , including assets in unrealized loss positions, to maintain liquidity. Forced sales, particularly under adverse market conditions, may result in lower sale prices than ordinary market sales made in normal market conditions.
Furthermore, if a few of our lenders became unwilling or unable to continue to provide us with financing, we could be forced to sell assets, including assets in unrealized loss positions, to maintain liquidity. Forced sales, particularly under adverse market conditions, could result in lower sale prices than ordinary market sales made in normal market conditions.
Given our reliance on short-term borrowings to generate interest income, if the curve continues to flatten or even invert, or if Federal Reserve finds itself falling behind on inflation and more aggressively tightens their current projections, our results of operations, financial condition and business could be materially adversely impacted.
Given our reliance on short-term borrowings to generate interest income, if the curve continues to flatten or even invert, or if the Federal Reserve finds itself falling behind on inflation and more aggressively tightens current projections, our results of operations, financial condition and business could be materially adversely impacted.
The Dodd-Frank Act also affects the securitization of mortgages (and other assets) with requirements for risk retention by securitizers and requirements for regulating rating agencies. 26 Numerous regulations have been issued pursuant to the Dodd-Frank Act, including regulations regarding mortgage loan servicing, underwriting and loan originator compensation and others could be issued in the future.
The Dodd-Frank Act also affects the securitization of mortgages (and other assets) with requirements for risk retention by securitizers and requirements for regulating rating agencies. Numerous regulations have been issued pursuant to the Dodd-Frank Act, including regulations regarding mortgage loan servicing, underwriting and loan originator compensation and others could be issued in the future.
The cost and availability of the short-term debt we use to finance our mortgage loan before securitization impacts the profitability of our securitization transactions. This short-term debt cost is affected by several factors including its availability to us, its interest rate, its duration, and the percentage of our mortgage loans for which third parties are willing to provide short-term financing.
The cost and availability of the short-term debt we use to finance our mortgage loans before securitization impacts the profitability of our securitization transactions. This short-term debt cost is affected by several factors including its availability to us, its interest rate, its duration, and the percentage of our mortgage loans for which third parties are willing to provide short-term financing.
As a result, we might have to limit our use of advantageous hedging techniques or implement certain hedges through a TRS. This could increase the cost of our hedging activities or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
As a result, we might have to limit our use 30 of advantageous hedging techniques or implement certain hedges through a TRS. This could increase the cost of our hedging activities or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
We report the fair values of securities, loans, derivatives, and certain other assets on our Consolidated Statements of Financial Condition. In computing the fair values for these assets, we may make several market-based assumptions, including assumptions regarding future interest rates, prepayment rates, discount rates, credit loss rates, and the timing of credit losses.
We report the fair values of securities, loans, derivatives, and certain other assets on our Consolidated Statements of Financial Condition. In computing the fair values for these assets, we may make several market-based assumptions, including 19 assumptions regarding future interest rates, prepayment rates, discount rates, credit loss rates, and the timing of credit losses.
In response to events having or expected to have adverse economic consequences or which create market uncertainty, clearing facilities or exchanges upon which some of our hedging instruments (i.e., interest rate swaps) are traded may require us to post additional collateral against our hedging instruments.
In response to events having or expected to have adverse economic consequences or which create market uncertainty, clearing facilities or exchanges upon which some of our hedging instruments (i.e., interest rate swaps) are traded may also require us to post additional collateral against our hedging instruments.
The net effect of these factors will be to lower our net interest income. If we fail to qualify for exemption from registration as an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described.
The net 29 effect of these factors will be to lower our net interest income. If we fail to qualify for exemption from registration as an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described.
If our investments were liquidated at prices below our amortized cost of such assets, we would incur losses, which would adversely affect our earnings. 14 • Our use of repurchase agreements to borrow money may give our lenders greater rights in the event of bankruptcy.
If our investments were liquidated at prices below our amortized cost of such assets, we would incur losses, which would adversely affect our earnings. • Our use of repurchase agreements to borrow money may give our lenders greater rights in the event of bankruptcy.
Our bylaws provide that we are not subject to the “control share” provisions of Maryland law. Our Board of Directors, however, may elect to make the “control share” statute applicable to us at any time and may do so without stockholder approval. 33 • Business Combinations.
Our bylaws provide that we are not subject to the “control share” provisions of Maryland law. Our Board of Directors, however, may elect to make the “control share” statute applicable to us at any time and may do so without stockholder approval. • Business Combinations.
When we securitize mortgage loans, we sell the most senior securities backed by those loans and retain the most subordinate classes of securities, which means we are the first-loss security holder and the securities we own represent a portion of the “securitized mortgage loans” on our balance sheet.
When we securitize mortgage loans, we sell the most senior and mezzanine securities backed by those loans and retain the most subordinate classes of securities, which means we are the first-loss security holder and the securities we own represent a portion of the “securitized mortgage loans” on our balance sheet.
Moreover, in the future, these regulators may propose additional changes that we do not currently anticipate. Changes to accounting rules that apply to us 27 could significantly impact our business or our reported financial performance in ways that we cannot predict or protect against.
Moreover, in the future, these regulators may propose additional changes that we do not currently anticipate. Changes to accounting rules that apply to us could significantly impact our business or our reported financial performance in ways that we cannot predict or protect against.
In the future, we may attempt to increase our capital resources by making offerings of debt or additional offerings of equity or equity-linked securities, including commercial paper, warrants, senior or subordinated notes and series or classes of preferred stock or common stock.
In the future, we may also attempt to increase our capital resources by making offerings of debt or additional offerings of equity or equity-linked securities, including commercial paper, warrants, senior or subordinated notes and series or classes of preferred stock or common stock.
In addition, if we purchased an investment at a premium, faster than expected prepayments will result in a faster than expected amortization of the premium paid, which would adversely affect our earnings. Conversely, if these investments were purchased at a discount, faster than expected prepayments accelerate our recognition of income.
In addition, if we purchased an investment at a premium, faster than expected prepayments would result in a faster than expected amortization of the premium paid, which would adversely affect our earnings. Conversely, if these investments were purchased at a discount, faster than expected prepayments would accelerate our recognition of income.
In addition, before the Sunset Date, we may not engage in any hedging transactions if payments on the hedge instrument are materially related to the Required Credit Risk and the hedge position would limit our financial exposure to the Required Credit Risk.
In addition, before the Sunset Date, we may not engage in any hedging transactions if 17 payments on the hedge instrument are materially related to the Required Credit Risk and the hedge position would limit our financial exposure to the Required Credit Risk.
To the extent 21 global economic conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our investment portfolio. Volatility or uncertainty in global or domestic political conditions also can significantly affect economic conditions and financial markets.
To the extent global economic conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our investment portfolio. Volatility or uncertainty in global or domestic political conditions also can significantly affect economic conditions and financial markets.
We may not achieve what we believe to be optimal levels of leverage or we may become overleveraged, which may materially adversely affect our liquidity, results of operations or financial condition. Our business strategy involves the use of borrowing, or leverage.
We may not achieve what we believe to be optimal levels of leverage or we may become overleveraged, which may materially adversely affect our liquidity, results of operations, profitability or financial condition. Our business strategy involves the use of borrowing, or leverage.
To the extent any one sub-servicer counterparty services a significant percentage of the loans with respect to which we own the servicing rights, the risks associated with our use of that sub-servicer are concentrated around this single sub-servicer counterparty.
To the extent any one sub-servicer counterparty services a significant 25 percentage of the loans with respect to which we own the servicing rights, the risks associated with our use of that sub-servicer are concentrated around this single sub-servicer counterparty.
Some jurisdictions and municipalities have enacted laws that restrict loan servicing activities, including delaying, preventing foreclosures, forcing the modification of certain mortgages, or preventing the collection of interest or other charges from borrowers under certain circumstances.
Some jurisdictions and municipalities have enacted laws that restrict loan servicing activities, including delaying or preventing prompt foreclosures, forcing the modification of certain mortgages, or preventing the collection of interest or other charges from borrowers under certain circumstances.
Recent years have seen frequent and severe natural disasters in the U.S., including wildfires, hurricanes, high winds, severe flooding and mudslides, the frequency and intensity of which may be indicative of the impact of climate change.
Recent years have seen frequent and severe natural disasters in the U.S., including wildfires, hurricanes, high winds, severe flooding and mudslides, the frequency and intensity of which may be 18 indicative of the impact of climate change.
The mortgage loans we have securitized are generally recorded on our balance sheet as “securitized mortgage loans” for 17 GAAP purposes, but in effect we own these assets in the form of securities.
The mortgage loans we have securitized are generally recorded on our balance sheet as “securitized mortgage loans” for GAAP purposes, but in effect we own these assets in the form of securities.
When we enter a repurchase agreement, we generally sell assets to our counterparty to the agreement for cash. The counterparty is obligated to resell the assets back to us at the end of the transaction term.
When we enter into a repurchase agreement, we generally sell assets to our counterparty to the agreement for cash. The counterparty is obligated to resell the assets back to us at the end of the transaction term.
We cannot assure you that we will be able to obtain all the licenses we need or that we would not experience significant delays in obtaining these licenses.
We 28 cannot assure you that we will be able to obtain all the licenses we need or that we would not experience significant delays in obtaining these licenses.
Failure of residential mortgage loan originators or servicers to comply with the ability-to-repay laws and regulations could subject us, as an assignee or purchaser of these loans (or as an investor in securities backed by these loans), to monetary penalties assessed by the Consumer Financial Protection Bureau, or CFPB, through its administrative enforcement authority and by mortgagors through a private right of action against lenders or as a defense to foreclosure, including by recoupment or setoff of finance charges and fees collected, and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and financial results.
Failure of residential mortgage loan originators or servicers to comply with the ability-to-repay laws and regulations could subject us, as an assignee or purchaser of these loans (or as an investor in securities backed by these loans), to monetary penalties assessed by the Consumer Financial Protection Bureau (the “CFPB”) through its administrative enforcement authority and by mortgagors through a private right of action against lenders or as a defense to foreclosure, including by recoupment or setoff of finance charges and fees collected, 16 and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and financial results.
Rules issued by the Commodities Futures Trading Commission or, CFTC, that became effective in October 2012 require the clearing of all swap transactions through registered derivatives clearing organizations, or swap execution facilities, through standardized documents under which each swap counterparty transfers its position to another entity whereby the centralized clearinghouse effectively becomes the counterparty to each side of the swap.
Rules issued by the Commodities Futures Trading Commission (the “CFTC”) that became effective in October 2012 require the clearing of all swap transactions through registered derivatives clearing organizations, or swap execution facilities, through standardized documents under which each swap counterparty transfers its position to another entity whereby the centralized clearinghouse effectively becomes the counterparty to each side of the swap.
Certain markets within these states (particularly in California and Florida) have experienced significant decreases in residential home values from time to time. Any event that adversely affects the economy or real estate market in any of these states could have a disproportionately adverse effect on our Non-Agency MBS and Loans held for investments.
Certain markets within these states (particularly in California and Florida) have experienced significant decreases in residential home values from time to time. Any event that adversely affects the economy or real estate market in any of these states could have a disproportionately adverse effect on our Non-Agency RMBS and Loans held for investments.
In general, any material decline in the economy or significant problems in a particular real estate market would likely cause a decline in the value of residential properties securing the mortgages in that market, thereby increasing the risk of delinquency, default, and foreclosure of mortgage loans underlying our Non-Agency MBS and residential loan investments and the risk of loss upon liquidation of these assets.
In general, any material decline in the economy or significant problems in a particular real estate market would likely cause a decline in the value of residential properties securing the mortgages in that market, thereby increasing the risk of delinquency, default, and foreclosure of mortgage loans underlying our Non-Agency RMBS and residential loan investments and the risk of loss upon liquidation of these assets.
Changes in local laws and regulations, fiscal policies, property taxes and zoning ordinances in such states can also have a negative impact on property values, which could result in borrowers’ deciding to stop paying their mortgages. This circumstance could cause defaults and loss severities to increase, thereby adversely impacting our results of operations.
Changes in local laws and regulations, fiscal policies, property taxes and zoning ordinances in such states can also have a negative impact on property values, which could result in borrowers deciding to stop paying their mortgages. This circumstance could cause defaults and loss severities to increase, thereby adversely impacting our results of operations.
Item 1A. Risk Factors You should carefully consider the following factors, together with all the other information included in this 2023 Form 10-K, in evaluating our company and our business. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected, and the value of our stock could decline.
Item 1A. Risk Factors You should carefully consider the following factors, together with all the other information included in this 2024 Form 10-K, in evaluating our company and our business. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected, and the value of our stock could decline.
A significant portion of our Non-Agency MBS and residential loans are secured by properties in a small number of geographic areas and may be disproportionately affected by economic or housing downturns, natural disasters including natural disasters exacerbated by climate change, terrorist events, regulatory changes, or other adverse events specific to those markets.
A significant portion of our Non-Agency RMBS and residential loans are secured by properties in a small number of geographic areas and may be disproportionately affected by economic or housing downturns, natural disasters including natural disasters exacerbated by climate change, terrorist events, regulatory changes, or other adverse events specific to those markets.
Moreover, even if the "protective" election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.
Moreover, even if the “protective” election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.
In the event of our insolvency or bankruptcy, certain repurchase agreements may qualify for special treatment under the Bankruptcy Code, the effect of which, among other things, would be to allow the creditor under the agreement to avoid the automatic stay provisions of the Bankruptcy Code and take possession of, and liquidate, the collateral under such repurchase agreements without delay. • A re-characterization of the repurchase agreements as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to maintain our qualification as a REIT and to maintain our 1940 Act exemption.
In the event of our insolvency or bankruptcy, certain repurchase agreements may qualify for special treatment under the Bankruptcy Code, the effect of which, among other things, would be to allow the creditor under the agreement to avoid the automatic stay provisions of the Bankruptcy Code and take possession of, and liquidate, the collateral under such repurchase agreements without delay. • A recharacterization of the repurchase agreements as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to maintain our qualification as a REIT and to maintain our 1940 Act exemption.
A majority of the Non-Agency MBS we have acquired on the secondary market or retained in our securitizations are backed by collateral pools containing mortgage loans that were originated using underwriting standards that were less strict than those used in underwriting “prime mortgage loans.” These lower standards permitted mortgage loans, often with LTV ratios exceeding 80%, to be made to borrowers having impaired credit histories, lower credit scores, higher debt-to-income ratios or unverified income.
Lower Underwriting Standards Risk : A majority of the Non-Agency RMBS we have acquired on the secondary market or retained in our securitizations are backed by collateral pools containing mortgage loans that were originated using underwriting standards that were less strict than those used in underwriting “prime mortgage loans.” These lower standards permitted mortgage loans, often with LTV ratios exceeding 80%, to be made to borrowers having impaired credit histories, lower credit scores, higher debt-to-income ratios or unverified income.
For further information regarding our assets recorded at fair value see Note 5 to the consolidated financial statements within this 2023 Form 10-K. Use of different assumptions could materially affect our fair value calculations and our financial results and our actual experience may cause us to substantially revise our assumptions.
For further information regarding our assets recorded at fair value see Note 5 to the consolidated financial statements within this 2024 Form 10-K. Use of different assumptions could materially affect our fair value calculations and our financial results and our actual experience may cause us to substantially revise our assumptions.
The nature of the mortgage loans we acquire and that underlie the MBS we acquire, exposes us to credit risk that could negatively affect the value of those assets and investments. We assume credit risk primarily through the ownership of securities backed by residential, multi-family, and commercial real estate loans and through direct investments in residential real estate loans.
The nature of the mortgage loans we acquire and that underlie the RMBS we acquire exposes us to credit risk that could negatively affect the value of those assets and investments. We assume credit risk primarily through the ownership of securities backed by residential, multi-family, and commercial real estate loans and through direct investments in residential real estate loans.
Risks Related to Financing Our inability to access funding, our cost of funding or the terms on which such funding is available could have a material adverse effect on our financial condition, particularly during times of severe market disruption in the financial, mortgage, housing or related sectors.
Risks Related to Financing Our inability to access funding, our cost of funding or the terms on which such funding is available could have a material adverse effect on our financial condition, liquidity or profitability, particularly during times of severe market disruption in the financial, mortgage, housing or related sectors.
This could have a material adverse effect on our Non-Agency MBS credit loss experience and residential loan investments in the affected market if higher-than-expected rates of default or higher-than-expected loss severities on such loans were to occur.
This could have a material adverse effect on our Non-Agency RMBS credit loss experience and residential loan investments in the affected market if higher-than-expected rates of default or higher-than-expected loss severities on such loans were to occur.
In addition, the occurrence of a natural disaster or a terrorist attack may cause a sudden decrease in the value of real estate in the area or areas affected and would likely reduce the value of the properties securing the mortgages collateralizing our Non-Agency MBS or Loans held for investments.
In addition, the occurrence of a natural disaster or a terrorist attack may cause a sudden decrease in the value of real estate in the area or areas affected and would likely reduce the value of the properties securing the mortgages collateralizing our Non-Agency RMBS or Loans held for investments.
Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this 2023 Form 10-K. Additionally, we may enter other operating businesses that may or may not be closely related to our current business.
Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this 2024 Form 10-K. Additionally, we may enter other operating businesses that may or may not be closely related to our current business.
Fair values for illiquid assets can be difficult to estimate, which may lead to volatility and uncertainty of earnings and book value. For GAAP purposes, we may mark-to-market most, but not all, of the assets and liabilities on our Consolidated Statements of Financial Condition.
Fair values for illiquid assets can be difficult to estimate, which could lead to volatility and uncertainty of earnings and book value. For GAAP purposes, we mark-to-market most, but not all, of the assets and liabilities on our Consolidated Statements of Financial Condition.
If demand for buying loans weakens, we may be forced to incur additional debt on unfavorable terms or may be unable to borrow to finance these assets, which may in turn impact our ability to continue acquiring loans over the short or long term • Diligence Risk: We engage in due diligence with respect to the loans or other assets we are securitizing and make representations and warranties relating to those loans and assets.
If demand for securitized securities weakens, we may be forced to incur additional debt on unfavorable terms or may be unable to borrow to finance these assets, which may in turn impact our ability to continue acquiring loans over the short or long term. • Diligence Risk: We engage in due diligence with respect to the loans or other assets we are securitizing and make representations and warranties relating to those loans and assets.
Changes in the fair values of our assets, liabilities, and derivatives can have various negative effects on us, including reduced earnings, increased earnings volatility, and volatility in our book value. Fair values for our assets and liabilities, including derivatives, can be volatile and our revenue and income can be impacted by changes in fair values.
Changes in the fair values of our assets, liabilities, and derivatives can have various negative effects on us, including reduced earnings, less liquidity, increased earnings volatility, and volatility in our book value. Fair values for our assets and liabilities, including derivatives, can be volatile and our revenue and income can be impacted by changes in fair values.
Losses could occur because a counterparty that sold us a loan or other asset refuses or is unable (e.g., due to its financial condition) to repurchase that loan or asset or pay damages to us if we determine after purchase that one or more of the representations or warranties made to us was inaccurate or because we don’t get a representation or warranty that covers a discovered defect or violation.
Losses could occur because a counterparty that sold us a loan or other asset refuses or is unable (e.g., due to its financial condition) to repurchase that loan or asset or pay damages to us if we determine after purchase that one or more of the representations or warranties made to us was inaccurate or because we do not get a representation or warranty that covers a discovered defect or violation.
Global economic conditions can also adversely affect our business and financial results. Changes or volatility in market conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of our assets, which could materially adversely affect our results of operations, net worth and financial condition.
Changes or volatility in market conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of our assets, which could materially adversely affect our results of operations, net worth and financial condition.
While we believe that the Subsidiary REIT has qualified as a REIT under the Code, we have joined the Subsidiary REIT in filing a "protective" TRS election under Section 856(l) of the Code for each taxable year in which we have owned an interest in the Subsidiary REIT.
While we believe that the Subsidiary REIT has qualified as a REIT under the Code, we have joined the Subsidiary REIT in filing a “protective” TRS election under Section 856(l) of the Code for each taxable year in which we have owned an interest in the Subsidiary REIT.
We have a limited capacity to hold loans on our balance sheet as investments, and our business is not structured to buy-and-hold the full volume of loans that we routinely acquire with the intent to sell.
We have a limited capacity to hold loans on our balance sheet as investments, and our business is not structured to buy-and-hold the full volume of loans that we routinely acquire with the intent to securitize.
See "Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax." below.
See “Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.” below.
However, if we have borrowings with two or more maturities and, (1) those borrowings are secured by mortgages or mortgage-backed securities and (2) the payments made on the borrowings are related to the payments received on the underlying assets, then the borrowings and the pool of mortgages or mortgage-backed securities to which such borrowings relate may be classified as a taxable mortgage pool under the Code.
However, if we have borrowings with two or more maturities and, (1) those borrowings are secured by mortgages or MBS and (2) the payments made on the borrowings are related to the payments received on the underlying assets, then the borrowings and the pool of mortgages or MBS to which such borrowings relate may be classified as a taxable mortgage pool under the Code.
We are required to hold the Required Credit Risk until the later of (i) the fifth anniversary of the securitization closing date and (ii) the date on which the aggregate unpaid principal balance of the mortgage loans in such securitization has been reduced to 25% of the aggregate unpaid principal balance of the mortgage loans as of the securitization closing date, but no longer than the seventh anniversary of the closing date (such date, the Sunset Date).
We are required to hold the Required Credit Risk until the later of (i) the fifth anniversary of the securitization closing date and (ii) the date on which the aggregate unpaid principal balance of the mortgage loans in such securitization has been reduced to 25% of the aggregate unpaid principal balance of the mortgage loans as of the securitization closing date, but no longer than the seventh anniversary of the closing date (the “Sunset Date”).
We can retain either an “eligible vertical interest” (which consists of at least 5% of each class of securities issued in the securitization), an “eligible horizontal residual interest” (which is the most subordinate class of securities with a fair market value of at least 5% of the aggregate credit risk) or a combination of both totaling 5%, or the Required Credit Risk.
We can retain either an “eligible vertical interest” (which consists of at least 5% of each class of securities issued in the securitization), an “eligible horizontal residual interest” (which is the most subordinate class of securities with a fair market value of at least 5% of the aggregate credit risk) or a combination of both totaling 5% (the “Required Credit Risk”).
A substantial portion of the mortgage loans that we securitize and the subordinate securities that we retain are not newly originated “prime mortgage loans” but rather seasoned reperforming mortgage loans and Non-QM loans that have less strict underwriting standards and are therefore subject to greater risk of loss, as discussed below.
A substantial portion of the mortgage loans that we securitize and the subordinate securities that we retain are not newly originated “prime mortgage loans” but rather seasoned reperforming mortgage loans and Non-QM loans that have less strict underwriting standards and are therefore subject to greater risk of loss.
Federal Income Tax Risks and Risk Related to Our REIT Status • Your investment has various U.S. federal income tax risks. • Risks related to compliance with REIT requirements. • Risks related to our qualification as a REIT and our election to qualify as a REIT. • Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors. • Classification of our securitizations or financing arrangements as a taxable mortgage pool could subject us or certain of our stockholders to increased taxation. • Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders. 11 • Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. • The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes. • The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests. • We may be subject to adverse tax changes that could reduce the market price of our capital stock.
Federal Income Tax Risks and Risk Related to Our REIT Status • Risks related to compliance with REIT requirements. • Risks related to our qualification as a REIT and our election to qualify as a REIT. • Distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors. • Classification of our securitizations or financing arrangements as a taxable mortgage pool could subject us or certain of our stockholders to increased taxation. • Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders. • Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. • The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes. • The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests. • We may be subject to adverse tax changes that could reduce the market price of our capital stock and our business in general.
These new assets or business operations may have new, different or increased risks than what we are currently exposed to in our business and we may not be able to manage these risks successfully.
These new assets or business operations may have new, different or increased risks than what we are currently exposed to and we may not be able to manage these risks successfully.
A significant part of our business and growth strategy is to engage in various securitization transactions related to mortgage assets, and such transactions expose us to potentially material risks, including without limitation: • Financing Risk: Engaging in securitization transactions and other similar transactions generally require us to incur short-term debt on a recourse basis to finance the accumulation of residential mortgage loans.
A significant part of our business and growth strategy is to engage in various securitization transactions related to mortgage assets, and such transactions expose us to potentially material risks, including without limitation: • Financing at Unfavorable Terms Risk: Engaging in securitization transactions and other similar transactions generally require us to incur short-term debt on a recourse basis to finance the accumulation of residential mortgage 23 loans.
Pursuant to our leverage strategy, we borrow against a substantial portion of the market value of our assets and use the borrowed funds to finance our investment portfolio and the acquisition of additional investment assets.
Pursuant to our leverage strategy, we borrow against a substantial portion of our assets and use the borrowed funds to finance our investment portfolio and the acquisition of additional investment assets.
A significant number of the mortgages underlying our Non-Agency MBS and Loans held for investments are concentrated in certain geographic areas. For example, we have significant exposure in California, New York and Florida. For further information on the geographic concentration of our investments see Note 3 and Note 4 to the consolidated financial statements within this 2023 Form 10-K.
A significant number of the mortgages underlying our Non-Agency RMBS and Loans held for investments are concentrated in certain geographic areas. For example, we have significant exposure in California, New York and Florida. For further information on the geographic concentration of our investments see Note 3 and Note 4 to the consolidated financial statements within this 2024 Form 10-K.
The mortgage loans we acquire may be subject to the interest apportionment rules under Treasury Regulations Section 1.856-5(c), or the Interest Apportionment Regulation, which generally provides that if a mortgage is secured by both real property and other property, a REIT is required to apportion its annual interest income for purposes of the REIT 75% gross income test.
The mortgage loans we acquire may be subject to the interest apportionment rules under Treasury Regulations Section 1.856-5(c) (the “Interest Apportionment Regulation”), which generally provides that if a mortgage is secured by both real property and other property, a REIT is required to apportion its annual interest income for purposes of the REIT 75% gross income test.
Section 3(c)(5)(C) as interpreted by the staff of the SEC, requires us to invest at least 55% of our assets in “mortgages and other liens on and interest in real estate”, or Qualifying Real Estate Assets, and at least 80% of our assets in Qualifying Real Estate Assets plus real estate-related assets.
Section 3(c)(5)(C) as interpreted by the staff of the SEC, requires us to invest at least 55% of our assets in “mortgages and other liens on and interest in real estate” (“Qualifying Real Estate Assets”) and at least 80% of our assets in Qualifying Real Estate Assets plus real estate-related assets.
We also indirectly own an entity that has elected to be taxed as a REIT under the U.S. federal income tax laws, or a "Subsidiary REIT." Our Subsidiary REIT is subject to the same REIT qualification requirements that are applicable to us.
We also indirectly own an entity that has elected to be taxed as a REIT under the U.S. federal income tax laws (the “Subsidiary REIT”). Our Subsidiary REIT is subject to the same REIT qualification requirements that are applicable to us.
Therefore, we believe that the Interest Apportionment Regulation does not apply to our portfolio. 32 Nevertheless, if the IRS were to assert successfully that our mortgage loans were secured by property other than real estate, that the Interest Apportionment Regulation applied for purposes of our REIT testing, and that the position taken in Revenue Procedure 2014-51 should be applied to our portfolio, then we might not be able to meet the REIT 75% gross income test, and possibly the asset tests applicable to REITs.
Nevertheless, if the IRS were to assert successfully that our mortgage loans were secured by property other than real estate, that the Interest Apportionment Regulation applied for purposes of our REIT testing, and that the position taken in Revenue Procedure 2014-51 should be applied to our portfolio, then we might not be able to meet the REIT 75% gross income test, and possibly the asset tests applicable to REITs.
Our Required Credit Risk subjects us to the first losses on 18 our securitizations and is illiquid, which may make it more difficult to meet our liquidity needs, each of which may materially and adversely affect our business and financing condition.
Our Required Credit Risk subjects us to the first losses on our securitizations and is illiquid, which may make it more difficult to meet our liquidity needs, each of which may materially and adversely affect our business and financial condition.
Also, validating third party pricing for illiquid investments may be more subjective than more liquid investments and may not be reliable. Illiquid investments may also experience greater price volatility because an active market does not exist. We value our investments quarterly based on our judgment and valuation models and in accordance with our valuation policy.
Also, validating third-party pricing for illiquid investments may be more subjective than more liquid investments and may not be reliable. Illiquid investments may also experience greater price volatility because an active market does not exist. We value our investments quarterly based on internally developed processes and valuation models and in accordance with our valuation policy.
The price that investors in mortgage-backed securities will pay for securities issued in our securitization transactions also has a significant impact on the profitability of the transactions to us, and these prices are impacted by numerous market forces and factors including the uncertainty, potential delinquencies, and lack of liquidity.
The price that investors in MBS will pay for securities issued in our securitization transactions also has a significant impact on the profitability of the transactions to us, and these prices are impacted by numerous market forces and factors including the 24 uncertainty, potential delinquencies, and lack of liquidity.
Risks Associated with Our Operations • Through certain of our wholly-owned subsidiaries we may from time to time engage in securitization transactions relating to residential mortgage loans, which may expose us to potentially material risks. • Our ability to profitably execute future securitization transactions may be negatively impacted by adverse market conditions. • Competition may affect ability and pricing of our target assets. • The loss of any executive officer or key employee may materially adversely affect our business. • Risks related to servicers and other third-parties, including their ability to perform their services at a high level and comply with applicable laws, and the use of third-party analytical models and data. • The expanding body of regulations and the investigations of servicers may increase their cost of compliance and the risks of noncompliance. • We are dependent on information systems and their failure, including through cyber-attacks, could significantly disrupt our business.
Risks Associated with Our Operations • Through certain of our wholly owned subsidiaries we may from time to time engage in securitization transactions relating to residential mortgage loans, which may expose us to potentially material risks. • Our ability to profitably execute future securitization transactions may be negatively impacted by adverse market conditions. • Competition may affect our ability to source our target assets at attractive prices and have a material adverse effect on our business, financial condition and results of operations. • The loss of any executive officer or key employee may materially adversely affect our business. • Risks related to servicers and other third parties, including their ability to perform their services at a high level and comply with applicable laws, and the use of third-party analytical models and data. • The expanding body of regulations and the investigations of servicers may increase their cost of compliance and the risks of noncompliance. • We are dependent on information technology and systems and their failure, including through cyber-attacks, could significantly disrupt our business.
These federal, state and local legislative or regulatory actions that result in modifications of our outstanding mortgages, or interests in mortgages acquired by us either directly through consolidated trusts or through our investments in residential MBS, may adversely affect the value of, and returns on, such investments.
These federal, state and local legislative or regulatory actions that result in modifications of our outstanding mortgages, or interests in mortgages acquired by us either directly through consolidated trusts or through our 26 investments in RMBS, may adversely affect the value of, and returns on, such investments.
The substantial majority of our investment assets are subject to various credit risks, as discussed below. No U.S. Government Guarantee . We acquire residential loans including reperforming loans, nonperforming loans (the borrower is severely delinquent), and Non-QMs, which are subject to increased risk of loss. Unlike Agency RMBS, residential mortgage loans generally are not guaranteed by the U.S.
The substantial majority of our investment assets are subject to various credit risks, as discussed below. No U.S. Government Guarantee . We acquire residential loans including reperforming loans, nonperforming loans, Non-QMs, and RTLs, which are subject to increased risk of loss. Unlike Agency RMBS, residential mortgage loans generally are not guaranteed by the U.S.
Additionally, when investing in new assets or businesses we will be exposed to the risk that those assets, or income generated by those assets or businesses, will affect our ability to meet the requirements to maintain our qualification as a REIT or our exemption from registration under the 1940 Act.
Additionally, when investing in new assets or businesses we could be exposed to the risk that those assets, or income generated by those assets or businesses, affects our ability to meet the requirements to maintain our qualification as a REIT or our exemption from registration under the 1940 Act.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThey receive regular reports from senior management and our Chief Information Security Office (“CISO”) on, among other things, the threat landscape, the Company’s cybersecurity program, infrastructure improvements, cybersecurity incident investigations and information security vulnerabilities.
Biggest change“Risk Factors” in this Annual Report on Form 10-K. Governance Our Board of Directors, in coordination with the Audit Committee and the Risk Committee, oversees management of cybersecurity risk. They receive regular reports from senior management and our CISO on, among other things, the threat landscape, the Company’s cybersecurity program, infrastructure improvements, cybersecurity incident investigations and information security vulnerabilities.
We have a written cybersecurity framework that closely aligns with NIST’s CSF.
We have a written cybersecurity framework that closely aligns with the NIST’s CSF.
Refer to Item 7A, "Quantitative or Qualitative Disclosures about Market Risk - Risk Management" included in this 2023 Form 10-K for additional information on our enterprise risk management.
Refer to Item 7A, "Quantitative or Qualitative Disclosures about Market Risk - Risk Management" included in this 2024 Form 10-K for additional information on our enterprise risk management.
Our cybersecurity risk management framework is closely aligned with the National Institute of Standards and Technology (“NIST”)’s Cybersecurity Framework (“CSF”) and is incorporated into our enterprise risk management process, information systems, vendor engagement process and employee training programs.
Our cybersecurity risk management framework is closely aligned with the National Institute of Standards and Technology’s (“NIST”) Cybersecurity Framework (“CSF”) and is incorporated into our enterprise risk management process, information systems, vendor engagement process and employee training programs.
We focus on people, processes and technology to build a defensive posture against cybersecurity threats that minimizes disruption to our business while maximizing the security and resiliency of the organization. We focus on people because we believe that one of the first lines of defense is our employees. All new employees are required to complete cybersecurity training.
We focus on people, processes and technology to build a defensive posture against cybersecurity threats that minimizes disruption to our business while maximizing the security and resiliency of the organization. We believe that one of the first lines of defense against cybersecurity threats is our employees. Accordingly, we require all new employees to complete cybersecurity training.
As part of our cybersecurity risk management process, we also conduct third-party led tabletop exercises to practice and prepare to respond to a confirmed or suspected security incident and to highlight any areas for potential improvement. We focus on process, which includes policies, procedures and governance structures designed to help us identify, assess and response to cybersecurity risks.
As part of our cybersecurity risk management process, we also conduct third-party led tabletop exercises to practice and prepare to respond to a confirmed or suspected security incident and to highlight any areas for potential improvement. We also maintain policies, procedures and governance structures designed to help us identify, assess and respond to cybersecurity risks.
In addition, we provide quarterly cybersecurity training to existing employees, conduct simulated phishing tests, and perform security awareness proficiency assessments to create more effective and targeted training campaigns to strengthen the human firewall. Our employees are required to annually re-affirm adherence to company-wide IT and related policies designed to secure a safe information and communications systems environment.
In addition, we provide quarterly cybersecurity training to existing employees, conduct simulated phishing tests, and perform security awareness proficiency assessments to create more effective and targeted training campaigns to strengthen the human firewall. We also require our employees to annually re-affirm adherence to company-wide IT and related policies designed to protect our information and communications systems.
Designated individuals within the Incident Response Team will notify the Chief Executive Officer, and if the situation so warrants, the Board of Directors, cybersecurity experts, outside counsel and other advisors to help further assess and formulate an appropriate response to the situation.
Designated individuals within the Incident Response Team notify the Chief Executive Officer, and if the situation so warrants, the Board of Directors, cybersecurity experts, outside counsel and other advisors to help further assess and formulate an appropriate response to the situation and regulatory and other government authorities as applicable and as required by law.
In addition, we maintain a cyber incident response plan to facilitate our response to cybersecurity incidents and formed an Incident Response Team composed of the Chief Information Security Officer, the Chief Legal Officer, the Chief Operating Officer, the Chief Risk Officer, the Head of Investor Relations, and the Associate General Counsel.
In addition, we maintain a cyber incident response plan to facilitate our response to cybersecurity incidents and formed an Incident Response Team composed of the Chief Information Security Officer & Head of IT Infrastructure (“CISO”), the Chief Credit & Risk Officer, the Chief Legal Officer, the Head of Operations, the Chief Compliance Officer of the RIA, the Head of Data Science, and the Associate General Counsel.
To date, no risks from cybersecurity threats, including those resulting from any previous cybersecurity incidents, have materially affected us, or, to our knowledge are reasonably likely to materially affect us including our business strategy, results of operations or financial condition. Governance Our Board, in coordination with the Audit Committee and the Risk Committee, oversees management of cybersecurity risk.
To date, no risks from cybersecurity threats, including those resulting from any previous cybersecurity incidents, have materially affected us, or, to our knowledge are reasonably likely to materially affect us including our business strategy, results of operations or financial condition.
We have also implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers, including requiring key service providers to provide evidence that their systems meet appropriate cybersecurity requirements (collaborating with service providers to help assess the sufficiency of their cybersecurity measures, and requiring service providers to notify us promptly of cyber incidents that may affect our systems or data) .
We have also implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers, including requiring key service providers to provide evidence that their systems meet appropriate cybersecurity requirements.
Employees outside of the IT infrastructure and cybersecurity team have also been instructed to elevate any potential cybersecurity issues, whether internal or at a third-party with whom we do business, to the CISO.
The CISO receives regular updates on cybersecurity matters from his internal IT infrastructure and cybersecurity team as well as outside vendors and advisors that we have engaged. Employees outside of the IT infrastructure and cybersecurity team also elevate any potential cybersecurity issues, whether internal or at a third party with whom we do business, to the CISO.
The Incident Response Team and the non-management employees who support the Incident Response Team are best positioned to identify, assess, respond to and galvanize both internal and third-party resources in the event of a cybersecurity incident.
The Incident Response Team and the non-management employees who support the Incident Response Team identify, assess, respond to and coordinate both internal and third-party resources in the event of a cybersecurity incident. In the event of a potentially material cybersecurity event, all members of the Incident Response Team are notified and a preliminary assessment of the situation is made.
Lastly, we use technology to minimize our exposure to cybersecurity vulnerabilities, implementing software patches in a timely manner and using other technology to promote a safe information and communications systems environment. We avail ourselves of third-party technologies and tools, including tools provided by the Cybersecurity and Infrastructure Security Agency (CISA), other government agencies and third-party cybersecurity experts.
We avail ourselves of third-party technologies and tools, including tools provided by the Cybersecurity and Infrastructure Security Agency (CISA), other government agencies and third-party cybersecurity experts.
Removed
The CISO receives regular updates on cybersecurity matters from his internal IT infrastructure and cybersecurity team as well 37 as outside vendors and advisors that we have engaged.
Added
We collaborate with service providers to help assess the sufficiency of their cybersecurity measures and require service providers to notify us promptly of cyber incidents that may affect our systems or data. 37 Lastly, we use technology to minimize our exposure to cybersecurity vulnerabilities and promote a safe information and communications systems environment.
Removed
In the event of a potentially material cybersecurity event, all members of the Incident Response Team are notified and a preliminary assessment of the situation is made.
Added
In December 2024, we completed the Palisades Acquisition and have aligned all new employees acquired through such acquisition with our cybersecurity training and governance framework, including the Incident Response Team, which now includes legacy Palisades employees.
Removed
A strong working relationship exists between the legal, accounting/finance, IT and business departments so that identified issues are addressed in a timely manner and incidents are reported to the appropriate regulatory bodies as required.
Added
We are conducting comprehensive risk assessments to identify additional steps that may be necessary to fully align the legacy Palisades information systems and cyber security practices with our systems and practices.
Added
For further discussion, please see the risk factor titled “We are dependent on information technology and systems, including those of third parties, and their failure, including through a cyber-attack, could significantly disrupt our business or result in the disclosure or misuse of confidential or other information, including personal information, which could damage our reputation, result in regulatory sanctions, subject us to litigation and/or increase our costs and cause losses that have a material adverse impact on our business, financial results and financial condition” in Item 1A.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we have leases through November 2026, for our off-site back-up facilities and data centers located in Wappingers Falls, New York and Norwalk, Connecticut. Item 3. Legal Proceedings None. Item 4. Mine Safety Disclosures Not applicable. Part II
Biggest changeIn addition, we have leases through November 2026, for our off-site back-up facilities and data centers located in Wappingers Falls, New York and Norwalk, Connecticut.
Item 2. Properties As of December 31, 2023, we do not own any property. Our corporate headquarters is located in leased space at 630 Fifth Avenue, Ste 2400, New York, New York 10111, telephone (212) 626-2300. Our office lease expires in January 2027. We believe that this space is suitable and adequate for our current needs.
Item 2. Properties As of December 31, 2024, we do not own any property. Our corporate headquarters is located in leased space at 630 Fifth Avenue, Ste 2400, New York, New York 10111, telephone (212) 626-2300. Our office lease expires in January 2027. We believe that this space is suitable and adequate for our current needs.
Added
As a result of the Palisades Acquisition, we have acquired leases on spaces located at 6001 Bold Ruler Way, Suite 110, Austin, Texas 78746, which runs through December 2026, 401 South 1st Street, Suite 850, Austin, Texas 78704, which runs through March 2035, and 909 Davis Street, Ste 500, Evanston, Illinois 60201, which runs through June 2025. Item 3.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph and table assume that $100 was invested in our common stock and each of the two other indices on December 31, 2018. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Chimera 100 128 73 118 50 51 S&P 500 Index 100 131 156 200 164 207 BBG REIT Index 100 124 96 113 86 98 The information in the share performance graph and table has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
Biggest changeThe graph and table assume that $100 was invested in our common stock and each of the two other indices on December 31, 2019. 39 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Chimera 100 57 92 39 40 41 S&P 500 Index 100 118 152 125 157 197 iShares Mortgage Real Estate ETF 100 79 92 67 77 76 The information in the share performance graph and table has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
Among other factors, the Company intends to only consider repurchasing shares of its common stock and preferred stock when the purchase price is less than the last publicly reported book value per common share. In addition, the Company does not intend to repurchase any shares from directors, 38 officers or other affiliates.
Among other factors, the Company intends to only consider repurchasing shares of its common stock and preferred stock when the purchase price is less than the last publicly reported book value per common share. In addition, the Company does not intend to repurchase any shares from directors, officers or other affiliates.
The share performance graph and table shall not be deemed, under either the Securities Act of 1933, as amended, or the Exchange Act, to be (i) “soliciting material” or “filed” or (ii) incorporated by reference by any general statement into any filing made by us with the SEC, except to the extent that we specifically incorporate such share performance graph and table by reference.
The share performance graph and table shall not be deemed, under either the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, to be (i) “soliciting material” or “filed” or (ii) incorporated by reference by any general statement into any filing made by us with the SEC, except to the extent that we specifically incorporate such share performance graph and table by reference.
The program does not obligate the Company to acquire any specific number of shares, and all repurchases will be made in accordance with Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases. The company did not repurchase any of its common stock and preferred stock during the quarter ended December 31, 2023.
The program does not obligate the Company to acquire any specific number of shares, and all repurchases will be made in accordance with Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases. The company did not repurchase any of its common stock and preferred stock during the year ended December 31, 2024.
Share Performance Graph The following graph and table set forth certain information comparing the yearly percentage change in cumulative total return on our common stock to the cumulative total return of the Standard & Poor’s Composite-500 Stock Index or S&P 500 Index, and the Bloomberg REIT Mortgage Index, or BBG REIT Index, an industry index of mortgage REITs.
Share Performance Graph The following graph and table set forth certain information comparing the yearly percentage change in cumulative total return on our common stock to the cumulative total return of the Standard & Poor’s Composite-500 Stock Index or S&P 500 Index, and the iShares Mortgage Real Estate ETF, an industry index of mortgage REITs.
The approximate dollar of shares that may yet to be purchased under the share repurchase program was $217 million as of December 31, 2023.
The approximate dollar of shares that may yet to be purchased under the share repurchase program was $250 million as of December 31, 2024.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock began trading publicly on the NYSE under the trading symbol “CIM” on November 16, 2007. As of January 31, 2024, we had 241,361,867 shares of common stock issued and outstanding which were held by 177 holders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock began trading publicly on the NYSE under the trading symbol “CIM” on November 16, 2007. As of January 31, 2025, we had 80,922,573 shares of common stock issued and outstanding which were held by 167 holders of record.
Our Board of Directors declared dividends of $0.70 and $1.12 per share during 2023 and 2022, respectively. Purchases of Equity Securities In June 2023, the Company's Board of Directors increased the authorization of the Company's share repurchase program, or the Repurchase Program, by $73 million to $250 million.
Our Board of Directors declared dividends of $1.42 and $2.10 per share during 2024 and 2023, respectively. Purchases of Equity Securities In June 2023, the Company's Board of Directors increased the authorization of the Company's share repurchase program, or the Repurchase Program, by $73 million to $250 million.
The comparison is for the period from December 31, 2018 to December 31, 2023 and assumes the reinvestment of dividends.
The comparison is for the period from December 31, 2019 to December 31, 2024 and assumes the reinvestment of dividends.

Item 7. Management's Discussion & Analysis

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

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Biggest changeDecember 31, 2023 December 31, 2022 (dollars in thousands) Principal Weighted Average Borrowing Rates Range of Borrowing Rates Principal (1) Weighted Average Borrowing Rates Range of Borrowing Rates Overnight — N/A N/A — N/A NA 1 to 29 days $ 272,490 7.35% 6.30% - 8.22% $ 493,918 4.66% 3.63% - 6.16% 30 to 59 days 495,636 6.68% 5.58% - 7.87% 762,768 6.14% 4.60% - 7.34% 60 to 89 days 305,426 7.17% 5.93% - 7.85% 225,497 6.04% 4.70% - 7.12% 90 to 119 days 54,376 7.46% 6.59% - 7.80% 43,180 6.54% 5.50% - 6.70% 120 to 180 days 105,727 7.09% 6.72% - 7.80% 401,638 5.88% 5.57% - 6.92% 180 days to 1 year 39,620 7.06% 6.66% - 7.39% 402,283 6.06% 5.63% - 6.64% 1 to 2 years 808,601 9.36% 8.36% - 12.50% 251,286 13.98% 13.98% - 13.98% 2 to 3 years — —% 0.00% - 0.00% 480,022 8.07% 8.07% - 8.07% Greater than 3 years 362,215 5.11% 5.10% - 7.15% 382,839 5.14% 5.10% - 6.07% Total $ 2,444,091 7.51% $ 3,443,431 6.61% (1) The outstanding balance for secured financing agreements in the table above is net of $1 million of deferred financing cost as of December 31, 2022.
Biggest changeAt December 31, 2024 and December 31, 2023, the remaining maturities and borrowing rates on our RMBS and loan secured financing agreements were as follows. 59 December 31, 2024 December 31, 2023 (dollars in thousands) Principal Weighted Average Borrowing Rates Range of Borrowing Rates Principal Weighted Average Borrowing Rates Range of Borrowing Rates Overnight $ — — NA $ — N/A NA 1 to 29 days 642,358 5.61% 4.66% - 7.52% 272,490 7.35% 6.30% - 8.22% 30 to 59 days 959,559 7.79% 5.34% - 12.50% 495,636 6.68% 5.58% - 7.87% 60 to 89 days 318,750 5.58% 4.87% - 7.02% 305,426 7.17% 5.93% - 7.85% 90 to 119 days 51,416 6.38% 5.51% - 6.77% 54,376 7.46% 6.59% - 7.80% 120 to 180 days 123,072 6.15% 5.82% - 6.77% 105,727 7.09% 6.72% - 7.80% 180 days to 1 year 409,760 6.79% 5.80% - 7.49% 39,620 7.06% 6.66% - 7.39% 1 to 2 years — NA NA 808,601 9.36% 8.36% - 12.50% 2 to 3 years 337,245 5.02% 5.02% - 5.02% — NA N/A Greater than 3 years — NA NA 362,215 5.11% 5.10% - 7.15% Total $ 2,842,160 6.48% $ 2,444,091 7.51% Average remaining maturity of Secured financing agreements secured by: December 31, 2024 December 31, 2023 Agency RMBS 16 Days N/A Agency CMBS 8 Days 32 Days Non-Agency RMBS and Loans held for investment 237 Days 418 Days We collateralize the secured financing agreements we use to finance our operations with our MBS investments and mortgage loans held in trusts controlled by us.
When we acquire our outstanding securitized debt, we extinguish the outstanding debt and recognize a gain or loss based on the difference between the carrying value of the debt and the cost to acquire the debt which is reflected in the Consolidated Statements of Operations as a gain or loss on extinguishment of debt.
Gain and Loss on Extinguishment of Debt When we acquire our outstanding securitized debt, we extinguish the outstanding debt and recognize a gain or loss based on the difference between the carrying value of the debt and the cost to acquire the debt which is reflected in the Consolidated Statements of Operations as a gain or loss on extinguishment of debt.
Securitized Debt Collateralized by Loans Held for Investment During the year ended December 31, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $551 million for $545 million. These transactions resulted in net gain on extinguishment of debt of $6 million.
During the year ended December 31, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $551 million for $545 million. These transactions resulted in net gain on extinguishment of debt of $6 million.
Weighted Average Yield is calculated using each investment's respective amortized cost.
Weighted Average Yield is calculated using each investment's respective amortized cost.
When our interest rate swaps are in a net loss position (expected cash payments are in excess of expected cash receipts on the swaps), we post collateral as required by the terms of our swap agreements. Exposure to Financial Counterparties We actively manage the number of secured financing agreements counterparties to reduce counterparty risk and manage our liquidity needs.
When our interest rate swaps are in a net loss position (expected cash payments are in excess of expected cash receipts on the swaps), we post collateral as required by the terms of our swap agreements. Exposure to Financial Counterparties We actively manage the number of secured financing counterparties to reduce counterparty risk and manage our liquidity needs.
To meet our longer-term liquidity needs (greater than one year), we expect our principal sources of capital and funds to continue to be provided by earnings, principal paydowns and sales from our investments, borrowings under securitizations and re-securitizations, secured financing agreements and other financing facilities, as well as proceeds from equity or other securities offerings.
To meet our longer-term liquidity needs (greater than one year), we expect our principal sources of capital and funds to continue to be provided by earnings, principal paydowns and sales from our investments, borrowings under securitizations and re-securitizations, secured financing agreements and other financing facilities, as well as proceeds from equity, debt or other securities offerings.
Compensation expense will be recognized on a straight-line basis over the three-year vesting period based on an estimate of our Economic Return and share price performance in relation to the entities in the peer group and will be adjusted each period based on our best estimate of the actual number of shares awarded.
Compensation expense will be recognized on a straight-line basis over the three-year vesting period based on an estimate of the Company Economic Return and share price performance in relation to the entities in the peer group and will be adjusted each period based on our best estimate of the actual number of shares awarded.
We delineate between (1) Agency MBS and (2) Non-Agency RMBS as follows: The Agency MBS are mortgage pass-through certificates, collateralized mortgage obligations, or CMOs, and other RMBS representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed as to principal and/or interest repayment by agencies of the U.S.
We delineate between (1) Agency MBS and (2) Non-Agency RMBS as follows: The Agency MBS are mortgage pass-through certificates, CMOs, and other RMBS representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed as to principal and/or interest repayment by agencies of the U.S.
Variable Interest Entities VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.
VIEs VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.
In addition, when financing assets using the standard form of SIFMA Master Repurchase Agreements, the counterparty to the agreement typically nets its 59 exposure to us on all outstanding repurchase agreements and issues margin calls if movement of the fair values of the assets in the aggregate exceeds their allowable exposure to us.
In addition, when financing assets using the standard form of SIFMA Master Repurchase Agreements, the counterparty to the agreement typically nets its exposure to us on all outstanding repurchase agreements and issues margin calls if movement of the fair values of the assets in the aggregate exceeds their allowable exposure to us.
Critical accounting policies are described in this section. An accounting policy is considered critical if it requires management to make assumptions or judgments about matters that are highly uncertain at the time the accounting estimate was made or require significant management judgment in interpreting the accounting literature.
Critical accounting policies are described in this section. An accounting policy is considered critical if it requires management to make assumptions or judgments about matters that are 65 highly uncertain at the time the accounting estimate was made or require significant management judgment in interpreting the accounting literature.
We are not obligated to provide any financial support to these VIEs. Our Consolidated Statements of Financial Condition separately present: (i) our direct assets and liabilities, and (ii) the assets and liabilities of our consolidated securitization vehicles net of intercompany eliminations representing securities from the securitization trusts retained by us.
We are not obligated to provide any financial support to these VIEs. 67 Our Consolidated Statements of Financial Condition separately present: (i) our direct assets and liabilities, and (ii) the assets and liabilities of our consolidated securitization vehicles net of intercompany eliminations representing securities from the securitization trusts retained by us.
The loan price is adjusted in the model by considering the loan factors which would impact the value of a loan. These loan factors include loan coupon as compared to coupon currently available in the market, FICO, loan-to-value ratios, delinquency history, owner occupancy, and property type, among other factors.
The loan price is adjusted in the model by considering the loan factors which would impact the value of a loan. These loan factors include loan coupon as compared to coupon currently available in the market, FICO, LTV ratios, delinquency history, owner occupancy, and property type, among other factors.
In light of the applicability of the Act to the aforementioned preferred stock, we believe, given all of the information available to us to date, that three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum will automatically replace three-month LIBOR as the reference rate for calculations of the dividend rate payable on the relevant preferred stock for dividend periods from and after (i) March 30, 2024, in the case of the Series B Preferred Stock, (ii) September 30, 2025, in the case of the Series C Preferred Stock, or (iii) March 30, 2024, in the case of the Series D Preferred Stock.
In light of the applicability of the Act to the aforementioned preferred stock, we believe, given all of the information available to the us to date, that three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum have automatically replaced, or will automatically replace, three-month LIBOR as the reference rate for calculations of the dividend rate payable on the relevant preferred stock for dividend periods from and after (i) March 30, 2024, in the case of the Series B Preferred Stock, (ii) September 30, 2025, in the case of the Series C Preferred Stock, and (iii) March 30, 2024, in the case of the Series D Preferred Stock.
To corroborate that the estimates of fair values generated by these internal models are reflective of current market prices, we compare the fair values generated by the model to non-binding independent prices provided by an independent third party pricing services.
To corroborate that the estimates of fair values generated by these internal models are 66 reflective of current market prices, we compare the fair values generated by the model to non-binding independent prices provided by an independent third-party pricing services.
Interest rate swaps are used to manage the increase in interest paid on secured financing agreements in a rising rate environment. Presenting the net contractual interest payments on interest rate swaps with the interest paid on interest-bearing liabilities reflects our total contractual interest payments.
Interest rate swaps are used to manage the increase in interest paid on secured financing agreements in a rising rate environment. Presenting the net contractual interest payments on interest rate swaps with the interest paid on interest-bearing 46 liabilities reflects our total contractual interest payments.
At December 31, 2023, the weighted average borrowing rates for our secured financing agreements collateralized by Agency CMBS was 5.6% and Non-Agency MBS and Loans held for investment was 7.6%.
At December 31, 60 2023, the weighted average borrowing rates for our secured financing agreements collateralized by Agency CMBS was 5.6%, and Non-Agency MBS and Loans held for investment was 7.6%.
The fair value of the Non-Agency MBS is more difficult to determine in current financial conditions, as well as more volatile period to period than Agency MBS, the Non-Agency MBS typically requires a larger haircut.
Because the fair value of the Non-Agency MBS is more difficult to determine in current financial conditions, as well as more volatile period to period than Agency MBS, the Non-Agency MBS typically requires a larger haircut.
Recent Accounting Pronouncements Refer to Note 2 in the Notes to Consolidated Financial Statements for a discussion of accounting guidance we have recently adopted or expect to be adopted in the future. 66
Recent Accounting Pronouncements Refer to Note 2 in the Notes to Consolidated Financial Statements for a discussion of accounting guidance we have recently adopted or expect to be adopted in the future.
We believe that excluding these costs is useful to investors as it is generally consistent with our peer groups treatment of these costs in their non-GAAP measures presentation, mitigates period to period comparability issues tied to the timing of securitization and structured finance transactions, and is consistent with the accounting for the deferral of debt issue costs prior to the fair value election option made by us.
We believe that excluding these costs is useful to investors as it is generally consistent with our peer group’s treatment of these costs in their non-GAAP measures presentation, mitigates period to period comparability issues tied to the timing of securitization and structured finance transactions, and is consistent with the accounting for the deferral of debt issue costs prior to the fair value election option made by us.
Where indicated, interest expense, adjusting for any interest earned on 46 cash, is referred to as Economic interest expense. Where indicated, net interest income reflecting net periodic interest cost of interest rate swaps and any interest earned on cash, is referred to as Economic net interest income.
Where indicated, interest expense, adjusting for any interest earned on cash, is referred to as Economic interest expense. Where indicated, net interest income reflecting net periodic interest cost of interest rate swaps and any interest earned on cash, is referred to as Economic net interest income.
For VIEs’ that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIEs’ economic performance may be determined by an entity’s involvement with the design of the VIE. Our Consolidated Statements of Financial Condition contain the assets and liabilities related to 40 consolidated variable interest entities or VIEs.
For VIEs’ that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIEs’ economic performance may be determined by an entity’s involvement with the design of the VIE. Our Consolidated Statements of Financial Condition contain the assets and liabilities related to 41 consolidated variable interest entities or VIEs.
The RMBS re-securitization transactions contain Non-Agency RMBS comprised of primarily first lien mortgages of 2005-2007 vintages. Our determination to consolidate these 40 VIEs was significantly influenced by management’s judgment related to the activities that most significantly impact the economic performance of these entities and the identification of the party with the power over such activities.
The RMBS re-securitization transactions contain Non-Agency RMBS comprised of primarily first lien mortgages of 2005-2007 vintages. Our determination to consolidate these 41 VIEs was significantly influenced by management’s judgment related to the activities that most significantly impact the economic performance of these entities and the identification of the party with the power over such activities.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this 2023 Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this 2024 Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
We offset the interest rate risk of our repurchase agreements primarily through the use of derivatives, which primarily consist of interest rate swaps, swaptions and U.S. Treasury futures. The average remaining maturities on our interest rate swaps at December 31, 2023 was less than one year. All of our swaps are cleared by a central clearing house.
We offset the interest rate risk of our repurchase agreements primarily through the use of derivatives, which primarily consist of interest rate swaps, swaptions and U.S. Treasury futures. The average remaining maturities on our interest rate swaps at December 31, 2024 was less than one year. All of our swaps are cleared by a central clearing house.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in Item 15 of this 2023 Form 10-K. The discussion may contain certain forward-looking statements that involve risks and uncertainties.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in Item 15 of this 2024 Form 10-K. The discussion may contain certain forward-looking statements that involve risks and uncertainties.
Our recourse leverage excludes the securitized debt which can only be repaid from the proceeds on the assets securing this debt in their respective VIEs. Our recourse leverage is presented as a ratio of our secured financing agreements, which are recourse to our assets and our equity.
Our recourse leverage excludes the securitized debt which can only be repaid from the proceeds on the assets securing this debt in their respective VIEs. Our recourse leverage is presented as a ratio of our secured financing agreements and long term debt, which are recourse to our assets and our equity.
We issued approximately 14.5 million shares of our common stock at an average price of $5.09 for a total of $74 million during the year ended December 31, 2023. We did not issue any shares under the at-the-market sales program during the year ended December 31, 2022.
We issued approximately 14.5 million shares of our common stock at an average price of $5.09 for a total of $74 million during the year ended December 31, 2023. We did not issue any shares under the at-the-market sales program during the year ended December 31, 2024.
Forward-looking statements are those that are not historical in nature. As a result of many factors, such as those set forth under “Risk Factors” in this 2023 Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements.
Forward-looking statements are those that are not historical in nature. As a result of many factors, such as those set forth under “Risk Factors” in this 2024 Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements.
The terms of the secured financing transaction borrowings under our master secured financing agreement generally conform to the terms in the standard master secured financing agreement as published by the Securities Industry and Financial Markets Association, or SIFMA, or similar market accepted agreements, as to repayment and margin requirements.
The terms of the secured financing transaction borrowings under our master secured financing agreement generally conform to the terms in the standard master secured financing agreement as published by the Securities Industry and Financial Markets Association, (“SIFMA”) or similar market accepted agreements, as to repayment and margin requirements.
Financial Condition Portfolio Review During the year ended December 31, 2023, we focused our efforts on taking advantage of the opportunity to acquire higher yielding assets while maintaining low leverage and ample liquidity.
Financial Condition Portfolio Review During the year ended December 31, 2024, we focused our efforts on taking advantage of the opportunity to acquire higher yielding assets while maintaining low leverage and ample liquidity.
The Plan will replace our 2007 Equity Incentive Plan, as amended and restated effective December 10, 2015 (the “Prior Plan”), and no new awards will be granted under the Prior Plan. Any awards outstanding under the Prior Plan will remain subject to and be paid under the Prior Plan.
The Plan replaced our 2007 Equity Incentive Plan, as amended and restated effective December 10, 2015 (the “Prior Plan”), and no new awards will be granted under the Prior Plan. Any awards outstanding under the Prior Plan will remain subject to and be paid under the Prior Plan.
We entered into a secured financing agreement during fourth quarter of 2022 for which we have elected fair value option. we believe electing fair value for this financial instrument better reflects the transactional economics. The total principal balance outstanding on this secured financing at December 31, 2023 and December 31, 2022 was $362 million and $383 million, respectively.
We entered into a secured financing agreement during the fourth quarter of 2022 for which we have elected fair value option. we believe electing fair value for this financial instrument better reflects the transactional economics. The total principal balance outstanding on this secured financing at December 31, 2024 and December 31, 2023 was $337 million and $362 million, respectively.
We believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At December 31, 2023 and December 31, 2022, the carrying value of our total interest-bearing debt was approximately $10.1 billion and $10.6 billion, respectively, which represented a leverage ratio of approximately 4.0:1 and 4.0:1, respectively.
We believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At December 31, 2024 and December 31, 2023, the carrying value of our total interest-bearing debt was approximately $10.0 billion and $10.1 billion, respectively, which represented a leverage ratio of approximately 4.0:1 and 4.0:1, respectively.
Level 3 liabilities represent approximately 96% and 95% of total liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively. Our accounting policies for the determination of fair value of our investments are described in further detail in Note 2 and Note 5 of the consolidated financial statements.
Level 3 liabilities represent approximately 96% and 96% of total liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023, respectively. Our accounting policies for the determination of fair value of our investments are described in further detail in Note 2 and Note 5 of the consolidated financial statements.
Pursuant to the terms of the Sales Agreements, we may offer and sell shares of our common stock, having an aggregate offering price of up to $500,000,000, from time to time in “at the market offerings” through any of the Sales Agents under the Securities Act of 1933.
Pursuant to the terms of the Sales Agreements, we may offer and sell shares of our common stock, having an aggregate offering price of up to $500 million from time to time in “at the market offerings” through any of the Sales Agents under the Securities Act.
The consolidated financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, for which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities (“VIEs”) for which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Due to the non-recourse nature of these VIEs our net exposure to loss from investments in these entities is limited to our retained beneficial interests. At December 31, 2023, we consolidated 38 residential mortgage loan securitizations and 2 RMBS re-securitization transactions which are VIEs. The residential mortgage loan securitizations contain jumbo prime and Non-QM residential mortgage loans.
Due to the non-recourse nature of these VIEs our net exposure to loss from investments in these entities is limited to our retained beneficial interests. At December 31, 2024, we consolidated 39 residential mortgage loan securitizations and 2 RMBS re-securitization transactions which are VIEs. The residential mortgage loan securitizations contain jumbo prime and Non-QM residential mortgage loans.
Economic Interest Expense and the Cost of Funds The borrowing rate at which we are able to finance our assets using secured financing agreements is typically correlated to SOFR and the term of the financing. The borrowing rate on the majority of our securitized debt is fixed and correlated to the term of the financing.
Economic Interest Expense and the Cost of Funds The borrowing rate at which we are able to finance our assets using secured financing agreements is typically correlated to Secured Overnight Financing Rate (“SOFR”) and the term of the financing. The borrowing rate on the majority of our securitized debt is fixed and correlated to the term of the financing.
Our three-year Economic Return is equal to our change in book value per common share plus common stock dividends. Share price performance equals change in share prices plus common stock dividends.
Our three-year Company Economic Return is equal to our change in book value per common share plus common stock dividends. Share price performance equals change in share price plus common stock dividends.
Not included in the table above are the unfunded construction loan commitments of $5 million and $9 million as of December 31, 2023 and December 31, 2022, respectively. We expect the majority of these commitments will be paid within one year and are reported under Payable for investments purchased in our Consolidated Statements of Financial Condition.
Not included in the table above are the unfunded construction loan commitments of $5 million as of December 31, 2024 and December 31, 2023. We expect the majority of these commitments will be paid within one year and are reported under Payable for investments purchased in our Consolidated Statements of Financial Condition.
GAAP recourse leverage is calculated as a ratio of our secured financing agreements over stockholders equity. The following table presents details of each asset class in our portfolio at December 31, 2023 and December 31, 2022. The principal or notional value represents the interest income earning balance of each class.
GAAP recourse leverage is calculated as a ratio of our secured financing agreements over stockholders' equity. The following table presents details of each asset class in our portfolio at December 31, 2024 and December 31, 2023. The principal or notional value represents the interest income earning balance of each class.
Realized gains and losses include the net cash paid and received on our interest rate swaps during the period as well as sales, terminations and settlements of our swaps, swaptions and U.S. Treasury futures.
The net gains and losses on our derivatives include both unrealized and realized gains and losses. Realized gains and losses include the net cash paid and received on our interest rate swaps during the period as well as sales, terminations and settlements of our swaps, swaptions and U.S. Treasury futures.
December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Portfolio Composition Amortized Cost Fair Value Non-Agency RMBS 7.5 % 7.5 % 8.3 % 8.9 % Senior 4.0 % 4.0 % 5.4 % 5.9 % Subordinated 2.3 % 2.3 % 2.2 % 2.2 % Interest-only 1.2 % 1.2 % 0.7 % 0.8 % Agency RMBS 0.2 % 0.1 % 0.1 % 0.1 % Interest-only 0.2 % 0.1 % 0.1 % 0.1 % Agency CMBS 0.7 % 3.3 % 0.7 % 3.2 % Project loans 0.6 % 2.3 % 0.6 % 2.2 % Interest-only 0.1 % 1.0 % 0.1 % 1.0 % Loans held for investment 91.6 % 89.1 % 90.9 % 87.8 % Fixed-rate percentage of portfolio 96.5 % 96.5 % 95.9 % 95.6 % Adjustable-rate percentage of portfolio 3.5 % 3.5 % 4.1 % 4.4 % GAAP leverage at period-end is calculated as a ratio of our secured financing agreements and securitized debt liabilities over GAAP book value.
December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 Portfolio Composition Amortized Cost Fair Value Non-Agency RMBS 7.9 % 7.5 % 8.3 % 8.3 % Senior 3.7 % 4.0 % 4.8 % 5.4 % Subordinated 3.0 % 2.3 % 2.9 % 2.2 % Interest-only 1.2 % 1.2 % 0.6 % 0.7 % Agency RMBS 3.7 % 0.2 % 3.7 % 0.1 % CMO 3.6 % — % 3.6 % — % Interest-only 0.1 % 0.2 % 0.1 % 0.1 % Agency CMBS 0.4 % 0.7 % 0.4 % 0.7 % Project loans 0.3 % 0.6 % 0.3 % 0.6 % Interest-only 0.1 % 0.1 % 0.1 % 0.1 % Loans held for investment 88.0 % 91.6 % 87.6 % 90.9 % Fixed-rate percentage of portfolio 87.9 % 96.5 % 87.3 % 95.9 % Adjustable-rate percentage of portfolio 12.1 % 3.5 % 12.7 % 4.1 % 56 GAAP leverage at period-end is calculated as a ratio of our secured financing agreements and securitized debt liabilities over GAAP book value.
For the PSU awards granted during the year ended December 31, 2023, the final number of shares awarded will be between 0% and 200% of the PSUs granted based on our Economic Return and share price performance compared to a peer group.
For the PSU awards granted during the year ended December 31, 2024, and 2023, the final number of shares awarded will be between 0% and 200% of the PSUs granted based equally on the Company Economic Return and share price performance compared to a peer group.
Additionally, during the year ended December 31, 2023, we terminated our existing $1.0 billion notional swaption contract in exchange for a one-year swap. We also entered into and terminated three new swaptions contracts with $2.3 billion notional during the year ended December 31, 2023. We had net realized gains of $11 million on these swaption terminations.
Additionally, during the year ended December 31, 2023, we terminated our existing $1.0 billion notional swaption contract for a one-year forward starting swap. We also entered and terminated three new swaptions contracts with $2.3 billion notional during the year ended December 31, 2023. We had net realized gains of $11 million on these swaption terminations.
This section of the 2023 Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
This section of the 2024 Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
IO MBS strips represent our right to receive a specified proportion of the contractual interest flows of the collateral. Income on our investments is recognized based on an effective interest rate we expect to earn over the life of the investment.
We also invests in IO MBS strips which represent our right to receive a specified proportion of the contractual interest flows of the collateral. Income on our investments is recognized based on an effective interest rate we expect to earn over the life of the investment.
Our estimates are deemed to be significant to the fair value measurement process, which renders the resulting Non-Agency fair value estimates Level 3 inputs in the fair value hierarchy. Level 3 assets represent 65 approximately 97% and 95% of total assets measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively.
Our estimates are deemed to be significant to the fair value measurement process, which renders the resulting Non-Agency fair value estimates Level 3 inputs in the fair value hierarchy. Level 3 assets represent approximately 93% and 97% of total assets measured at fair value on a recurring basis as of December 31, 2024 and 2023, respectively.
To minimize the risk of margin calls, as of December 31, 2023, we have entered into $924 million of financing arrangements for which the collateral cannot be adjusted as a result of changes in market value, minimizing the risk of a margin call as a result in price volatility. We refer to these agreements as non-mark-to-market (non-MTM) facilities.
To minimize the risk of margin calls, as of December 31, 2024, we have entered into $853 million of financing arrangements for which the collateral cannot be adjusted as a result of changes in market value, minimizing the risk of a margin call as a result in price volatility. We refer to these agreements as non-MTM facilities.
Grants of Performance Share Units, or PSUs PSU awards are designed to align compensation with our future performance. The PSU awards granted during the years ended December 31, 2023 and 2022, include a three-year performance period ending on December 31, 2025 and December 31, 2024, respectively.
Grants of Performance Share Units (“PSUs”) PSU awards are designed to align compensation with our future performance. The PSU awards granted during the years ended December 31, 2024 and 2023, include a three-year performance period ending on December 31, 2026 and December 31, 2025, respectively.
Servicing and Asset Manager Fees The servicing fees and asset manager expenses were $33 million and $36 million for the year ended December 31, 2023 and December 31, 2022, respectively. These servicing fees are primarily related to the servicing costs of the whole loans held in consolidated securitization vehicles and are paid from interest income earned by the VIEs.
Servicing and Asset Manager Fee Expense The servicing fees and asset manager expenses were $30 million and $33 million for the year ended December 31, 2024 and December 31, 2023, respectively. These servicing fees are primarily related to the servicing costs of the whole loans held in consolidated securitization vehicles and are paid from interest income earned by the VIEs.
We include our secured financing agreements and securitized debt in the numerator of our leverage ratio and stockholders’ equity as the denominator. At December 31, 2023, we had secured financing agreements with 12 counterparties. All of our secured financing agreements are secured by Agency MBS, Non-Agency RMBS and Loans held for investment and cash.
We include our secured financing agreements, long term debt, and securitized debt in the numerator of our leverage ratio and stockholders’ equity as the denominator. At December 31, 2024, we had secured financing agreements with 13 counterparties. All of our secured financing agreements are secured by Agency MBS, Non-Agency RMBS and Loans held for investment and cash.
The weighted average maturities of the secured financing agreements with Nomura were 582 days. The amount at risk with Nomura was $308 million. At December 31, 2023, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.
The weighted average maturities of the secured financing agreements with Nomura were 412 days. The amount at risk with Nomura was $433 million. At December 31, 2024, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.
The terminated swaps had original maturity of 2024. During the year ended December 31, 2023, we entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with a 3.56% strike rate. The underlying swap terms will allow us to pay a fix rate of 3.56% and receive floating overnight SOFR rate.
During the year ended December 31, 2023, we entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with a 3.56% strike rate . The underlying swap terms will allow us to pay a fixed rate of 3.56% and receive floating overnight SOFR rate.
Hedging transactions during 2023 We engaged in a series of interest rate hedges to help mitigate the impact of higher interest rates on our future financing and soften the impact of higher interest rates on the overall portfolio value. Our hedging strategies are dynamic.
Hedging transactions during 2024 We engaged in a series of interest rate hedges to help mitigate the impact of higher interest rates on our future financing and protect against the impact of higher interest rates on the overall portfolio value. Our hedging strategies are dynamic.
We believe Earnings available for distribution as described above helps us and investors evaluate our financial performance period over period without the impact of certain transactions. Therefore, Earnings available for distribution should not be viewed in isolation and is not a substitute for net income or net income per basic share computed in accordance with GAAP.
We believe Earnings available for distribution helps us and investors evaluate our financial performance period over period without the impact of certain non-recurring transactions. Therefore, Earnings available for distribution should not be viewed in isolation and is not a substitute for or superior to net income or net income per basic share computed in accordance with GAAP.
Shares of our common stock and preferred stock may be purchased in the open market, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.
Shares of our common stock and preferred stock may be purchased in the open market, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
On October 30, 2021, all 5,800,000 issued and outstanding shares of Series A Preferred Stock with an outstanding liquidation preference of $145 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including, the redemption date. The dividend rate on shares of Series A Preferred Stock is 8.00% per annum.
On October 30, 2021, all 5,800,000 issued and outstanding shares of Series A Preferred Stock with an outstanding liquidation preference of $145 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including the redemption date.
Management has made significant estimates in several areas, including current expected credit losses of Non-Agency 64 RMBS, valuation of Loans held for investments, Agency and Non-Agency MBS, forward interest rates for interest rate swaps, and income recognition on Loans held for investments and Non-Agency RMBS. Actual results could differ materially from those estimates.
Management has made significant estimates in several areas, including current expected credit losses of Non-Agency RMBS, valuation of Loans held for investments, Agency and Non-Agency MBS, forward interest rates for interest rate swaps, and income recognition on Loans held for investments, Non-Agency RMBS, goodwill, intangibles and contingent earn-out liability. Actual results could differ materially from those estimates.
During the year ended December 31, 2023, we sold some of our Agency MBS investments as part of our portfolio optimization efforts and realized a loss of $31 million. During the year ended December 31, 2022, we sold some of our Agency IO and Non-Agency RMBS investments and realized a loss of $76 million.
During the year ended December 31, 2023, we sold some of our Agency MBS investments as part of our portfolio optimization efforts and realized a loss of $31 million.
We declared dividends to Series D preferred stockholders of $16 million, or $2.00 per preferred share, during the years ended December 31, 2023, and 2022, respectively.
We declared dividends to Series D preferred stockholders of $20 million or $2.55 per preferred share, and $16 million, or $2.00 per preferred share, during years ended December 31, 2024 and December 31, 2023, respectively.
In addition we have entered into certain secured financing agreements which are not subject to additional margin requirement until the drop in fair value of collateral is greater than a threshold. We refer to these agreements as limited mark-to-market (limited MTM) facilities. As of December 31, 2023 we have $546 million, of limited MTM facilities.
In addition we have entered into certain secured financing agreements that are not subject to additional margin requirement until the drop in fair value of collateral is greater than a threshold. We refer to these agreements as limited MTM facilities. As of December 31, 2024 we have $512 million of limited MTM facilities.
We declared dividends to Series B preferred stockholders of $26 million, or $2.00 per preferred share, during the years ended December 31, 2023, and 2022, respectively. We declared dividends to Series C preferred stockholders of $20 million, or $1.937500 per preferred share, during the years ended December 31, 2023, and 2022, respectively.
We declared dividends to Series B preferred stockholders of $34 million, or $2.59 per preferred share, and $26 million, or $2.00 per share, during years ended December 31, 2024 and December 31, 2023, respectively. We declared dividends to Series C preferred stockholders of $20 million, or $1.94 per preferred share, during the years ended December 31, 2024 and 2023.
December 31, 2023 Principal or Notional Value at Period-End (dollars in thousands) Weighted Average Amortized Cost Basis Weighted Average Fair Value Weighted Average Coupon Weighted Average Yield at Period-End (1) Weighted Average 3 Month Prepay Rate at Period-End Weighted Average 12 Month Prepay Rate at Period-End Weighted Average 3 Month CDR at Period-End Weighted Average 12 Month CDR at Period-End Weighted Average Loss Severity (2) Weighted Average Credit Enhancement Non-Agency Mortgage-Backed Securities Senior $ 1,073,632 $ 45.69 $ 62.98 5.7 % 17.3 % 4.1 % 5.0 % 1.5 % 1.8 % 32.2 % 2.6 % Subordinated $ 583,049 $ 50.92 $ 47.49 3.3 % 6.7 % 4.6 % 5.7 % 0.2 % 0.9 % 18.4 % 6.5 % Interest-only $ 2,874,680 $ 5.49 $ 3.16 0.5 % 4.2 % 4.5 % 5.0 % 0.9 % 1.0 % 24.9 % 1.9 % Agency RMBS Interest-only $ 392,284 $ 4.90 $ 3.83 0.1 % 5.7 % 8.6 % 9.4 % N/A N/A N/A N/A Agency CMBS Project loans $ 86,572 $ 101.44 $ 91.46 4.0 % 3.8 % — % — % N/A N/A N/A N/A Interest-only $ 478,239 $ 1.62 $ 1.73 0.5 % 8.2 % 0.3 % 1.0 % N/A N/A N/A N/A Loans held for investment $ 12,028,480 $ 98.35 $ 94.90 5.7 % 5.4 % 6.5 % 6.5 % 0.6 % 0.6 % 23.9 % N/A (1) Bond Equivalent Yield at period-end.
(2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.) December 31, 2023 Principal or Notional Value at Period-End (dollars in thousands) Weighted Average Amortized Cost Basis Weighted Average Fair Value Weighted Average Coupon Weighted Average Yield at Period-End (1) Weighted Average 3 Month Prepay Rate at Period-End Weighted Average 12 Month Prepay Rate at Period-End Weighted Average 3 Month CDR at Period-End Weighted Average 12 Month CDR at Period-End Weighted Average Loss Severity (2) Weighted Average Credit Enhancement Non-Agency MBS Senior $ 1,073,632 $ 45.69 $ 62.98 5.7 % 17.3 % 4.1 % 5.0 % 1.5 % 1.8 % 32.2 % 2.6 % Subordinated $ 583,049 $ 50.92 $ 47.49 3.3 % 6.7 % 4.6 % 5.7 % 0.2 % 0.9 % 18.4 % 6.5 % Interest-only $ 2,874,680 $ 5.49 $ 3.16 0.5 % 4.2 % 4.5 % 5.0 % 0.9 % 1.0 % 24.9 % 1.9 % Agency RMBS Interest-only $ 392,284 $ 4.90 $ 3.83 0.1 % 5.7 % 8.6 % 9.4 % N/A N/A N/A N/A Agency CMBS Project loans $ 86,572 $ 101.44 $ 91.46 4.0 % 3.8 % — % — % N/A N/A N/A N/A Interest-only $ 478,239 $ 1.62 $ 1.73 0.5 % 8.2 % 0.3 % 1.0 % N/A N/A N/A N/A Loans held for investment $ 12,028,480 $ 98.35 $ 94.90 5.7 % 5.4 % 6.5 % 6.5 % 0.6 % 0.6 % 23.9 % N/A (1) Bond Equivalent Yield at period-end.
The following table provides GAAP measures of net income and net income per diluted share available to common stockholders for the periods presented and details with respect to reconciling the line items to Earnings available for distribution and related per average diluted common share amounts.
The following table provides GAAP measures of net income and net income per diluted share available to common stockholders for the periods presented and details with respect to reconciling the line items to Earnings available for distribution and related per average diluted common share amounts. Earnings available for distribution is presented on an adjusted dilutive shares basis.
If our exposure to our financing counterparties exceeds internally developed thresholds, we develop a plan to reduce the exposure to an acceptable level. At December 31, 2023, we had amounts at risk with Nomura Securities International, Inc., or Nomura, of 17% of our equity related to the collateral posted on secured financing agreements.
If our exposure to our financing counterparties exceeds internally developed thresholds, we develop a plan to reduce the exposure to an acceptable level. At December 31, 2024, we had amounts at risk with Nomura of 20% of our equity related to the collateral posted on secured financing agreements.
The table below shows a summary of our net gains (losses) on derivative instruments, for the years ended December 31, 2023, 2022, and 2021, respectively. 50 For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (dollars in thousands) Periodic interest income (expense) on interest rate swaps, net $ 17,167 $ (1,752) $ — Realized gains (losses) on derivative instruments, net: Swaps - Terminations (45,226) (561) — Treasury futures (6,344) — — Swaptions 10,613 — — Total realized gains (losses) on derivative instruments, net $ (40,957) (561) — Unrealized gains (losses) on derivative instruments, net: Interest rate swaps 497 (10,358) — Swaptions (6,908) 8,876 — Total unrealized gains (losses) on derivative instruments, net: (6,411) (1,482) — Total gains (losses) on derivative instruments, net $ (30,201) $ (3,795) $ — During the year ended December 31, 2023 and 2022, we recognized total net losses on derivatives of $30 million and $4 million, respectively.
The table below shows a summary of our net gains (losses) on derivative instruments, for the years ended December 31, 2024, 2023, and 2022, respectively. 50 For the Years Ended December 31, 2024 December 31, 2023 December 31, 2022 (dollars in thousands) Periodic interest income (expense) on interest rate swaps, net $ 23,780 $ 17,167 $ (1,752) Realized gains (losses) on derivative instruments, net: Swaps (17,317) (45,226) (561) Treasury futures (4,223) (6,344) — Swaptions — 10,613 — Total realized gains (losses) on derivative instruments, net (21,540) (40,957) (561) Unrealized gains (losses) on derivative instruments, net: Interest rate swaps 4,224 497 (10,358) Treasury futures 117 — — Swaptions (1,378) (6,908) 8,876 Total unrealized gains (losses) on derivative instruments, net: 2,963 (6,411) (1,482) Total gains (losses) on derivative instruments, net $ 5,203 $ (30,201) $ (3,795) During the years ended December 31, 2024 and 2023, we recognized total net gains on derivatives of $5 million and total net losses on derivatives of $30 million, respectively.
Our Average net interest-earning assets decreased by $240 million to $2.1 billion for the year ended December 31, 2023, compared to $2.4 billion for the same period of 2022.
Our Average net interest-earning assets decreased by $127 million to $2.0 billion for the year ended December 31, 2024, compared to $2.1 billion for the same period of 2023.
The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, decreased by 120 basis points for the year ended December 31, 2023, as compared to the same period of 2022.
The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, increased by 20 basis points for the year ended December 31, 2024, as compared to the year ended December 31, 2023.
At December 31, 2022, the weighted average borrowing rates for our secured financing agreements collateralized by Agency RMBS IOs was 4.7%, Agency CMBS was 4.5%, and Non-Agency MBS and Loans held for investment was 6.9%.
At December 31, 2024, the weighted average borrowing rates for our secured financing agreements collateralized by Agency RMBS was 4.8%, Agency CMBS was 4.8% and Non-Agency MBS and Loans held for investment was 6.8%.
The fair value of collateral pledged was $401 million and $418 million as of December 31, 2023 and December 31, 2022 , respectively. We carry this secured financing instrument at fair value of $350 million and $374 million as of December 31, 2023 and December 31, 2022 , respectively.
The fair value of collateral pledged was $383 million and $401 million as of December 31, 2024 and December 31, 2023, respectively. We carry this secured financing instrument at fair value of $319 million and $350 million as of December 31, 2024 and December 31, 2023, respectively.
Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, decreased by 130 basis points for the year ended December 31, 2023, as compared to the same period of 2022.
Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, increased by 20 basis points for the year ended December 31, 2024, as compared to the year ended December 31, 2023.
The weighted average maturities of the secured financing agreements with Nomura were 412 days. The amount at risk with Nomura was $433 million. At December 31, 2022, we had amounts at risk with Nomura of 12% of our equity related to the collateral posted on secured financing agreements.
The weighted average maturities of the secured financing agreements with Nomura were 108 days. The amount at risk with Nomura was $512 million. At December 31, 2023, we had amounts at risk with Nomura, of 17% of our equity related to the collateral posted on secured financing agreements.
Also, shares withheld for tax withholding requirements after stockholder approval of the Plan for full value awards originally granted under the Prior Plan (such as the RSUs and PSUs awarded to our named executive officers) will automatically become available for issuance under the Plan.
Also, shares withheld for tax withholding requirements after stockholder approval of the Plan for full value awards originally granted under the Prior Plan (such as the RSUs and PSUs awarded to our named executive officers) will automatically become available for issuance under the Plan. 63 As of December 31, 2024, approximately 5 million shares were available for future grants under the Plan.
This cash received was offset in part by cash used on investment purchases of $1.3 billion, primarily consisting of Loans held for investment. During the year ended December 31, 2022, we received cash for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $2.6 billion.
During the year ended December 31, 2023, we received cash for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $1.5 billion and from the sale of our Agency MBS of $313 million. This cash received was offset in part by cash used on investment purchases of $1.3 billion, primarily consisting of Loans held for investment.
LLC and RBC Capital Markets, LLC (the “Existing Sales Agents”). In February 2023, we amended the Existing Sales Agreements and entered into separate Distribution Agency Agreements (together with the Existing Sales Agreements, as amended, the “Sales Agreements”) with J.P. Morgan Securities LLC and UBS Securities LLC to include J.P.
In February 2023, we amended the Existing Sales Agreements and entered into separate Distribution Agency Agreements (together with the Existing Sales Agreements, as amended, the “Sales Agreements”) with J.P. Morgan Securities LLC and UBS Securities LLC (replacing Credit Suisse Securities LLC) to include J.P.
During the year ended December 31, 2022, we declared dividends to common shareholders of $266 million, or $1.12 per share, respectively. We declared dividends to Series A preferred stockholders of $12 million, or $2.00 per preferred share, during the years ended December 31, 2023 and 2022, respectively.
We declared dividends to common shareholders of $117 million, or $1.42 per share, and $167 million, or $2.10 per share, during years ended December 31, 2024 and December 31, 2023, respectively. We declared dividends to Series A preferred stockholders of $12 million, or $2.00 per preferred share, during the years ended December 31, 2024 and 2023.
During the year ended December 31, 2023, on an aggregate basis, we purchased $1.3 billion of investments, sold $316 million of investments, and received $1.5 billion in principal payments related to our Agency MBS, Non-Agency RMBS and Loans held for investment portfolio.
During the year ended December 31, 2024, on an aggregate basis, we purchased $1.8 billion of investments, sold $569 million of investments, and received $1.5 billion in principal payments related to our Agency MBS, Non-Agency RMBS and Loans held for investment portfolio. The following table summarizes certain characteristics of our portfolio at December 31, 2024 and December 31, 2023.
Securitized Debt Collateralized by Non-Agency RMBS We did not acquire any securitized debt collateralized by Non-Agency RMBS during the year ended December 31, 2023 and December 31, 2022.
Securitized Debt Collateralized by Non-Agency RMBS We did not acquire any securitized debt collateralized by Non-Agency RMBS during the year ended December 31, 2024, and December 31, 2023. Securitized Debt Collateralized by Loans Held for Investment We did not acquire any securitized debt collateralized by Loans held for investment during the year ended December 31, 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

35 edited+4 added−4 removed47 unchanged
Biggest changeFor the Quarters Ended (dollars in thousands) Non-Agency RMBS December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Balance, beginning of period $ 81,236 $ 80,532 $ 79,875 $ 89,234 $ 103,394 Realized losses (1,225) (1,727) (2,445) (2,293) (3,063) Accretion 2,569 2,576 2,765 2,949 3,133 Losses on purchases — 6 — — — Losses on sold/paid-off — 95 — — (4,444) Increase/(decrease) 12,786 (246) 337 (10,015) (9,786) Balance, end of period $ 95,366 $ 81,236 $ 80,532 $ 79,875 $ 89,234 67 For the Quarters Ended (dollars in thousands) Loans held for investment December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Balance, beginning of period $ 251,002 $ 254,354 $ 285,823 $ 321,017 $ 285,174 Realized losses (8,457) (8,200) (10,281) (7,992) (11,023) Accretion 3,427 3,444 3,554 3,650 3,715 Losses on purchases — — — 404 7,677 Increase/(decrease) (32,328) 1,404 (24,742) (31,256) 35,474 Balance, end of period $ 213,644 $ 251,002 $ 254,354 $ 285,823 $ 321,017 Additionally, the Non-Agency RMBS which we acquire for our portfolio are reviewed by us to ensure that they satisfy our risk-based criteria.
Biggest changeAn increase (positive balance) in the "Increase/(decrease)" line item in the tables below represents an unfavorable change in expected credit losses. 68 For the Quarters Ended (dollars in thousands) Non-Agency RMBS December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Balance, beginning of period $ 81,368 $ 78,366 $ 98,035 $ 95,366 $ 81,236 Realized losses (1,182) 534 (1,940) (345) (1,225) Accretion 2,820 2,926 3,140 2,978 2,569 Losses on purchases — — — — — Losses on sold/paid-off 48 — (2) — — Increase/(decrease) 2,251 (458) (20,867) 36 12,786 Balance, end of period $ 85,305 $ 81,368 $ 78,366 $ 98,035 $ 95,366 For the Quarters Ended (dollars in thousands) Loans held for investment December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Balance, beginning of period $ 181,895 $ 190,675 $ 213,050 $ 213,644 $ 251,002 Realized losses (6,180) (6,226) (8,149) (8,078) (8,457) Accretion 2,584 2,703 2,964 2,961 3,427 Losses on purchases — — — — — Increase/(decrease) (35,071) (5,257) (17,190) 4,523 (32,328) Balance, end of period $ 143,228 $ 181,895 $ 190,675 $ 213,050 $ 213,644 Additionally, the Non-Agency RMBS which we acquire for our portfolio are reviewed by us to ensure that they satisfy our risk-based criteria.
During periods of rising interest rates, the borrowing costs associated with our investments tend to increase while the income earned on our investments may remain substantially unchanged or decrease. This will result in a narrowing of the net interest spread between the related assets and borrowings and may even result in losses.
During periods of rising interest rates, the borrowing costs associated with our investments tend to increase while 69 the income earned on our investments may remain substantially unchanged or decrease. This will result in a narrowing of the net interest spread between the related assets and borrowings and may even result in losses.
These analyses contain certain forward-looking statements and are subject to the safe harbor statement set forth under the heading, “Special Note Regarding Forward-Looking Statements.” Enterprise Risk Management We employ a “Three Layers of Defense Approach” to Enterprise Risk Management (“ERM”) designed to assess and manage risk to achieve our strategic goals.
These analyses contain certain forward-looking statements and are subject to the safe harbor statement set forth under the heading, “Special Note Regarding Forward-Looking Statements.” Enterprise Risk Management We employ a “Three Layers of Defense Approach” to Enterprise Risk Management designed to assess and manage risk to achieve our strategic goals.
The “First Layer of Defense” consists of assessing key risks indicators (“KRIs”) facing each respective business unit within the Company. Our risk management unit is an independent group that acts as the “Second Layer of Defense”. The risk management unit partners with various business units to understand, monitor, manage and escalate risks as appropriate.
The “First Layer of Defense” consists of assessing key risks indicators facing each respective business unit within the Company. Our risk management unit is an independent group that acts as the “Second Layer of Defense”. The risk management unit partners with various business units to understand, monitor, manage and escalate risks as appropriate.
We primarily assess our interest rate risk by estimating the duration of our assets compared to 68 the duration of our liabilities and hedges. Duration essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data.
We primarily assess our interest rate risk by estimating the duration of our assets compared to the duration of our liabilities and hedges. Duration essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data.
Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our investments may be adversely impacted.
Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; 71 conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our investments may be adversely impacted.
The following table quantifies the potential changes in net interest income and market value on the assets we retain and derivatives, if interest rates go up or down 50 and 100 basis points, assuming parallel movements in 69 the yield curves.
The following table quantifies the potential changes in net interest income and market value on the assets we retain and derivatives, if interest rates go up or down 50 and 100 basis points, assuming parallel movements in the yield curves.
We generally seek to manage risk by: • monitoring and adjusting, if necessary, the reset index and interest rate related to our RMBS and our financings; • attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods, rights to post both cash and collateral for margin calls and provisions for non-mark-to-market financing facilities; • using derivatives, financial futures, swaps, options, caps, floors and forward sales to adjust the interest rate sensitivity of our investments and our borrowings; • using securitization financing to receive the benefit of attractive financing terms for an extended period of time in contrast to short term financing and maturity dates of the investments not included in the securitization; and • actively managing, through assets selection, on an aggregate basis, the interest rate indices, interest rate adjustment periods, and gross reset margins of our investments and the interest rate indices and adjustment periods of our financings.
We generally seek to manage risk by: • monitoring and adjusting, if necessary, the reset index and interest rate related to our RMBS and our financings; • attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods, rights to post both cash and collateral for margin calls and provisions for non-MTM financing facilities; • using derivatives, financial futures, swaps, options, caps, floors and forward sales to adjust the interest rate sensitivity of our investments and our borrowings; • using securitization financing to receive the benefit of attractive financing terms for an extended period of time in contrast to short term financing and maturity dates of the investments not included in the securitization; and • actively managing, through assets selection, on an aggregate basis, the interest rate indices, interest rate adjustment periods, and gross reset margins of our investments and the interest rate indices and adjustment periods of our financings.
The financial reporting unit operates under the requirements of the Sarbanes Oxley (“SOX”). The “Third Layer of Defense” consists of many of our internal controls which are subject to an independent evaluation by our third-party internal auditors.
The financial reporting unit operates under the requirements of the Sarbanes Oxley . The “Third Layer of Defense” consists of many of our internal controls which are subject to an independent evaluation by our third-party internal auditors.
Depending on the size of the loans, we may not review all of the loans in a pool, but rather a sample of loans for diligence review based upon specific risk-based criteria such as property location, loan size, effective loan-to-value ratio, borrower’s characteristics and other criteria we believe to be important indicators of credit risk.
Depending on the size of the loans, we may not review all of the loans in a pool, but rather a sample of loans for diligence review based upon specific risk-based criteria such as property location, loan size, effective LTV ratio, borrower’s characteristics and other criteria we believe to be important indicators of credit risk.
Business Continuity Plan (“BCP”) Our BCP is prepared with the intent of providing guidelines to facilitate (i) employee safety and relocation; (ii) preparedness for carrying out activities and receiving communication; (iii) resumption and restoration of systems and business processes and (iv) the protection and integrity of the Company’s assets.
Business Continuity Plan Our Business Continuity Plan is prepared with the intent of providing guidelines to facilitate (i) employee safety and relocation; (ii) preparedness for carrying out activities and receiving communication; (iii) resumption and restoration of systems and business processes and (iv) the protection and integrity of the Company’s assets.
All changes in income and value are measured as percentage changes from the projected net interest income and the value of the assets we retain at the base interest rate scenario. The base interest rate scenario assumes interest rates at December 31, 2023 and various estimates regarding prepayment and all activities are made at each level of rate change.
All changes in income and value are measured as percentage changes from the projected net interest income and the value of the assets we retain at the base interest rate scenario. The base interest rate scenario assumes interest rates at December 31, 2024 and various estimates regarding prepayment and all activities are made at each level of rate change.
Our secured financing agreements and warehouse facilities may be of limited duration that is periodically refinanced at current market rates. We typically mitigate this risk through utilization of derivative contracts, primarily interest rate swap agreements, swaptions, futures and mortgage options.
Our secured financing agreements and warehouse facilities may be of limited duration that is periodically refinanced at current market rates. We typically mitigate this risk through utilization of derivative contracts, primarily interest rate swap agreements swaptions, and futures.
As an independent third-party, the mandate of the internal auditor is to objectively assess the adequacy and effectiveness of our internal control environment to improve risk management, control and governance processes. Periodic reporting from the risk management unit is provided to executive management and to our audit committee.
As an independent third party, the mandate of the internal auditor is to objectively assess the adequacy and effectiveness of our internal control environment to improve risk management, control and governance processes. Periodic reporting from the risk management unit is provided to executive management and to the Audit Committee of the Board of Directors.
Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions and unemployment (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; natural disasters and other acts of God; and retroactive changes to building or similar codes.
Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions and unemployment (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as housing supply and demand); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; natural disasters and other acts of God; and retroactive changes to building or similar codes.
Interest Rate Risk Our net interest income, borrowing activities and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from the effect of inflation and updated Federal Rate increase projections in 2023. As the Federal Reserve increases its Federal Funds Rate, the margin between short and long-term rates could further compress.
Interest Rate Risk Our net interest income, borrowing activities and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from the effect of inflation and updated Federal Rate projections in 2024. As the Federal Reserve increases its federal funds rate, the margin between short and long-term rates could further compress.
This includes applications which facilitate financial transactions, transaction settlements, financial reporting, and business communication and the personnel who perform such actions. Our BCP provides guidelines to aid in the timely resumption of business operations and for communication with employees, service providers and other key stakeholders needed to support these operations.
This includes applications which facilitate financial transactions, transaction settlements, financial reporting, and business communication and the personnel who perform such actions. Our Business Continuity Plan provides guidelines to aid in the timely resumption of business operations and for communication with employees, service providers and other key stakeholders needed to support these operations.
Real Estate Market Risk 70 We own assets secured by real property and may own real property directly.
Real Estate Market Risk We own assets secured by real property and may own real property directly.
Financial Statements and Supplementary Data Our consolidated financial statements and the related notes, together with the Reports of Independent Registered Public Accounting Firm thereon, are set forth in Part IV of this 2023 Form 10-K. 72 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Financial Statements and Supplementary Data Our consolidated financial statements and the related notes, together with the Reports of Independent Registered Public Accounting Firm thereon, are set forth in Part IV of this 2024 Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Our BCP identifies the critical systems and processes necessary for business operations as well as the resources, employees, and planning needed to support these systems and processes. Critical systems and processes are defined as those which have a material impact on core operations, financial performance, or regulatory requirements.
Our Business Continuity Plan identifies the critical systems and processes necessary for business operations as well as the resources, employees, and planning needed to support these systems and processes. Critical systems and processes are defined as those which have a material impact on core operations, financial performance, or regulatory requirements.
To mitigate potential interest rate mismatches, we have entered into agreements for longer term, non-mark-to-market financing facilities at rates that are higher than short term secured financing agreements. These longer term agreements are primarily on our less liquid Non-Agency RMBS assets.
To mitigate potential interest rate mismatches, we have entered into agreements for longer term, non-MTM financing facilities at rates that are higher than short term secured financing agreements. These longer term agreements are primarily on our less liquid Non-Agency RMBS assets.
The following table sets forth the estimated maturity or re-pricing of our interest-earning assets and interest-bearing liabilities at December 31, 2023.
The following table sets forth the estimated maturity or re-pricing of our interest-earning assets and interest-bearing liabilities at December 31, 2024.
We believe that residual loan credit quality, and thus the quality of our assets, is primarily determined by the borrowers’ credit profiles and loan characteristics.
We believe that residential loan credit quality, and thus the quality of our assets, is primarily determined by the borrowers’ credit profiles and loan characteristics.
Our BCP is designed to facilitate business process resilience in a broad range of scenarios with a dedicated Disaster Recovery Team (“DRT”) which is comprised of executive management, head of technology, and professionals across our various business units.
Our Business Continuity Plan is designed to facilitate business process resilience in a broad range of scenarios with a dedicated Disaster Recovery Team which is comprised of executive management, head of technology, and professionals across our various business units.
Interest Rate Mismatch Risk We fund a substantial portion of the acquisitions of our investments with borrowings that have interest rates based on indices and re-pricing terms similar to, but of somewhat shorter maturities than, the interest rate indices and re-pricing terms of the mortgages and mortgage-backed securities.
Interest Rate Mismatch Risk We fund a substantial portion of the acquisitions of our investments with borrowings that have interest rates based on indices and re-pricing terms similar to, but of somewhat shorter maturities than, the interest rate indices and re-pricing terms of the mortgages and MBS we purchase.
Our BCP is a "living process" that will evolve with the input and guidance of the key stakeholders, subject matter experts and industry best practices and is reviewed and updated at least annually. Item 8 .
Our Business Continuity Plan is a "living process" that will evolve with the input and guidance of the key stakeholders, subject matter experts and industry best practices and is reviewed and updated at least annually. 73 Item 8 .
A decrease (negative balance) in the "Increase/(decrease)" line item in the tables below represents a favorable change in expected credit losses. An increase (positive balance) in the "Increase/(decrease)" line item in the tables below represents an unfavorable change in expected credit losses.
A decrease (negative balance) in the "Increase/(decrease)" line item in the tables below represents a favorable change in expected credit losses.
Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown below and such difference might be material and adverse to our stockholders. Effect of U.S.
Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown below and such difference might be material and adverse to our stockholders. Interest Rate Cap Risk We may also invest in adjustable-rate residential mortgage loans and RMBS.
This problem will be magnified to the extent we acquire adjustable-rate RMBS that are not based on mortgages which are fully indexed. In addition, the mortgages or the underlying mortgages in an RMBS may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding.
In addition, the mortgages or the underlying mortgages in an RMBS may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding.
However, our borrowing costs pursuant to our financing agreements will not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our adjustable-rate residential mortgage loans and RMBS would effectively be limited.
Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our adjustable-rate residential mortgage loans and RMBS would effectively be limited. This problem will be magnified to the extent we acquire adjustable-rate RMBS that are not based on mortgages which are fully indexed.
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk and to maintain capital levels consistent with the risks we undertake. Additionally, refer to Item 1A, "Risk Factors" included in this 2023 Form 10-K for additional information on risks we face.
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk and to maintain capital levels consistent with the risks we undertake.
Interest Rate Cap Risk We may also invest in adjustable-rate residential mortgage loans and RMBS. These are mortgages or RMBS in which the underlying mortgages are typically subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the security’s interest yield may change during any given period.
These are mortgages or RMBS in which the underlying mortgages are typically subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the security’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements will not be subject to similar restrictions.
Our profitability and the value of our investment portfolio including derivatives may be adversely affected during any period as a result of changing interest rates.
If the market normalizes and repurchase rates fall, we may be locked into long term and higher interest expenses than are otherwise available in the market to finance our portfolio. 70 Our profitability and the value of our investment portfolio including derivatives may be adversely affected during any period as a result of changing interest rates.
Having non-mark-to-market financing facilities may be useful in this market to prevent significant margin calls or collateral liquidation in a volatile market. If the market normalizes and repurchase rates fall, we may be locked into long term and higher interest expenses than are otherwise available in the market to finance our portfolio.
Having non-MTM financing facilities may be useful in this market to prevent significant margin calls or collateral liquidation in a volatile market.
The interest rate sensitivity of our assets and liabilities in the table could vary substantially based on actual prepayments. 71 December 31, 2023 (dollars in thousands) Within 3 Months 3-12 Months 1 Year to 3 Years Greater than 3 Years Total Rate sensitive assets $ 26,728 $ 407,205 $ 9,151 $ 12,118,598 $ 12,561,682 Cash equivalents 221,684 — — — 221,684 Total rate sensitive assets $ 248,412 $ 407,205 $ 9,151 $ 12,118,598 $ 12,783,366 Rate sensitive liabilities 2,421,880 4,907,278 — 2,767,244 10,096,402 Interest rate sensitivity gap $ (2,173,468) $ (4,500,073) $ 9,151 $ 9,351,354 $ 2,686,964 Cumulative rate sensitivity gap $ (2,173,468) $ (6,673,541) $ (6,664,390) $ 2,686,964 Cumulative interest rate sensitivity gap as a percentage of total rate sensitive assets (17) % (52) % (52) % 21 % Our analysis of risks is based on our management’s experience, estimates, models and assumptions.
The interest rate sensitivity of our assets and liabilities in the table could vary substantially based on actual prepayments. 72 December 31, 2024 (dollars in thousands) Within 3 Months 3-12 Months 1 Year to 3 Years Greater than 3 Years Total Rate sensitive assets $ 1,072,126 $ 5,298,513 $ 10,520 $ 6,423,555 $ 12,804,713 Cash equivalents 83,998 — — — 83,998 Total rate sensitive assets $ 1,156,124 $ 5,298,513 $ 10,520 $ 6,423,555 $ 12,888,712 Rate sensitive liabilities 2,771,254 1,957,504 — 5,146,918 9,875,676 Interest rate sensitivity gap $ (1,615,130) $ 3,341,009 $ 10,520 $ 1,276,637 $ 3,013,036 Cumulative rate sensitivity gap $ (1,615,130) $ 1,725,879 $ 1,736,399 $ 3,013,036 Cumulative interest rate sensitivity gap as a percentage of total rate sensitive assets (13) % 13 % 13 % 23 % Our analysis of risks is based on our management’s experience, estimates, models and assumptions.
Removed
Dollar London Inter Bank Offered Rate or, LIBOR transition The interest rates on our certain adjustable-rate mortgage loans in our securitizations were based on LIBOR, as were some classes of our preferred stock. After June 30, 2023, all LIBOR tenors relevant to us ceased to be published or became no longer representative.
Added
Additionally, refer to Item 1A, "Risk Factors" included in this Annual Report on Form 10-K for the year ended December 31, 2024 for additional information on risks we face.
Removed
This means that all of our LIBOR-based adjustable-rate mortgage loans have been converted to an equivalent SOFR-based rates plus the appropriate spread adjustment as of July 1, 2023.
Added
December 31, 2024 (1) Change in Interest Rate Projected Percentage Change in Net Interest Income (2) Projected Percentage Change in Market Value (3) -100 Basis Points 12.14 % 6.30 % -50 Basis Points 6.28 % 3.07 % Base Interest Rate — — +50 Basis Points (4.61) % (2.95) % +100 Basis Points (10.17) % (5.79) % (1) The retained securities are securities retained by us from securitization VIEs included in our portfolio and not the consolidated assets and liabilities of the VIEs.
Removed
We have evaluated the impact of the Act on our adjustable-rate mortgage loan investments covered by the legislation including the impact on certain classes of our outstanding fixed-to-floating preferred stock and determined that LIBOR transition to SOFR-based rates had no material impact on our financial statements.
Added
Our consolidated statement of financial condition includes assets of consolidated VIEs that can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to us. (2) Includes preferred stock dividend expense. (3) Projected Percentage Change in Market Value is based on instantaneous moves in interest rates.
Removed
December 31, 2023 Change in Interest Rate Projected Percentage Change in Net Interest Income Projected Percentage Change in Market Value (1) -100 Basis Points 6.22 % 7.92 % -50 Basis Points 3.01 % 3.77 % Base Interest Rate — — +50 Basis Points (3.00) % (3.34) % +100 Basis Points (5.84) % (6.55) % (1) Projected Percentage Change in Market Value is based on instantaneous moves in interest rates.
Added
Cybersecurity Risk Our cybersecurity risk management and strategy is incorporated into our Enterprise Risk Management process. Our Board of Directors, in coordination with the Audit Committee and the Risk Committee, oversees management of cybersecurity risk. Please refer to Item 1C, “Cybersecurity” in this Annual Report on Form 10-K for additional information about our cybersecurity risk management, strategy and governance.

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