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What changed in MFA FINANCIAL, INC.'s 10-K — 2023 vs 2024

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

+347 added−374 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-22)

Top changes in MFA FINANCIAL, INC.'s 2024 10-K

347 paragraphs added · 374 removed · 280 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Purchased Performing Loan portfolio includes: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the properties (“Transitional loans”); (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans”), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans”); and (v) previously originated loans secured by residential real estate that is generally owner occupied (“Seasoned performing loans”).
Biggest changeOur Residential whole loan portfolio includes primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”); (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, with Single-family transitional loans, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), and (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”).
At the end of 2023, residential whole loan investments comprised approximately 84% of our assets and 67% of our allocated net equity. During 2024, assuming economic conditions continue to support markets for residential mortgage assets, we expect to continue pursuing investment opportunities primarily focused on residential whole loans as market opportunities arise.
At the end of 2024, residential whole loan investments comprised approximately 77% of our assets and 62% of our allocated net equity. During 2025, assuming economic conditions continue to support markets for residential mortgage assets, we expect to continue pursuing investment opportunities primarily focused on residential whole loans as market opportunities arise.
At December 31, 2023, our total investment-related assets were comprised of the following: $9.0 billion, or approximately 90%, of residential whole loans (compared to $7.5 billion, or 92%, at December 31, 2022); $746.1 million, or 7%, of residential mortgage securities (compared to $333.4 million, or 4%, at December 31, 2022); and $327.1 million, or 3%, of remaining 1 Table of Contents investment-related assets, comprised primarily of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables (compared to $315.0 million, or 4% at December 31, 2022).
At December 31, 2024, our total investment-related assets were comprised of the following: $8.8 billion, or approximately 83%, of residential whole loans (compared to $9.0 billion, or 90%, at December 31, 2023); $1.5 billion, or 14%, of residential mortgage securities (compared to $746.1 million, or 7%, at December 31, 2023); and $299.5 million, or 3%, of remaining 5 Table of Contents investment-related assets, comprised primarily of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables (compared to $327.1 million, or 3% at December 31, 2023).
Item 1. Business. GENERAL We are a specialty finance company that invests in and finances residential mortgage assets. Our targeted investments include principally the following: • Residential whole loans, including Purchased Performing Loans, Purchased Credit Deteriorated and Purchased Non-performing Loans, which we acquire and hold through certain trusts that are consolidated on our balance sheet for financial reporting purposes.
Item 1. Business. GENERAL We are a specialty finance company that invests in and finances residential mortgage assets. Our targeted investments include principally the following: • Residential whole loans, including Non-QM loans, Business purpose loans, and Legacy RPL/NPL loans, which we acquire and hold through certain trusts that are consolidated on our balance sheet for financial reporting purposes.
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. 2 Table of Contents EMPLOYEES/HUMAN CAPITAL MANAGEMENT At December 31, 2023, we had approximately 377 full-time employees, including 317 employees working in our Lima One subsidiary.
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. 6 Table of Contents EMPLOYEES/HUMAN CAPITAL MANAGEMENT At December 31, 2024, we had approximately 348 employees, including 285 employees working in our Lima One subsidiary.
During 2023 we acquired approximately $3.0 billion of residential whole loans. This includes $2.1 billion of loans originated by our wholly-owned subsidiary, Lima One, which has funded more than $4.9 billion of loans since July 2021, when we fully acquired Lima One.
During 2024 we acquired approximately $2.6 billion of residential whole loans. This includes $1.5 billion of loans originated by our wholly-owned subsidiary, Lima One, which has funded more than $6.4 billion of loans since July 2021, when we fully acquired Lima One.
Through our wholly-owned subsidiary, Lima One Capital, LLC (or Lima One), a leading nationwide originator and servicer of business purpose loans (or BPLs), which we acquired on July 1, 2021, we originate and service BPLs for real estate investors.
Through our wholly-owned subsidiary, Lima One Capital, LLC (together with its parent company, Lima One Holdings, LLC, “Lima One”), a leading nationwide originator and servicer of Business purpose loans (or BPLs), which we acquired on July 1, 2021, we originate and service BPLs for real estate investors.
We use loan securitizations, term warehouse facilities and shorter term repurchase agreements to finance our holdings of residential mortgage assets. Going forward, in connection with our current and any future investment in residential whole loans, we expect that our financing strategy will continue to include loan securitization and other forms of structured financing, subject to market conditions.
For our MBS portfolio, we primarily use shorter term repurchase agreements to finance our holdings of Securities. Going forward, in connection with our current and any future investment in residential whole loans, we expect that our financing strategy will continue to include loan securitization and other forms of structured financing, subject to market conditions.
“Risk Factors” of this Annual Report on Form 10-K.) The Federal Housing Finance Agency (or FHFA) and both houses of Congress have discussed and considered various measures intended to restructure the U.S. housing finance system and the operations of Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency (or FHFA) and both houses of Congress have discussed and considered various measures intended to restructure the U.S. housing finance system and the operations of Fannie Mae and Freddie Mac.
We believe that investing in and fostering a diverse and inclusive workforce is a key pillar in operating our business. By supporting, recognizing, and investing in the employees, we believe that we are able to attract and retain the highest quality talent. REGULATORY MATTERS The U.S. Congress, the U.S. Federal Reserve (or Federal Reserve), U.S.
We believe that investing in and fostering our workforce is a key pillar in operating our business. By supporting, recognizing, and investing in our employees, we believe that we are able to attract and retain the highest quality talent.
Purchased Non-performing Loans are typically characterized by borrowers who have defaulted on their obligations and/or have payment delinquencies of 60 days or more at the time we acquire the loan. These loans were typically purchased at significantly discounted prices to the contractual loan balance. We also own REO property as a result of managing the resolution of non-performing loans.
Certain Legacy RPL/NPL acquired by the Company are accounted for as non-performing loans which are typically characterized by borrowers who have defaulted on their obligations and/or have payment delinquencies of 60 days or more at the time we acquire the loan. These loans were typically purchased at significantly discounted prices to the contractual loan balance.
Consumer Financial Protection Bureau, et al., concluding that the CFPB’s funding structure unconstitutionally violates the Appropriations Clause of the U.S. Constitution. As a result, the Court vacated the payday lending rule that was the subject of challenge.
For example, in October 2022, the Fifth Circuit Court of Appeals issued an opinion in Community Financial Services Association of America, et al. v. Consumer Financial Protection Bureau, et al. , concluding that the CFPB’s funding structure unconstitutionally violates the Appropriations Clause of the U.S. Constitution, and vacated the payday lending rule that was the subject of challenge.
In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (or the Dodd-Frank Act) created a new regulator, an independent bureau housed within the Federal Reserve System known as the Consumer Financial Protection Bureau (or the CFPB). The CFPB has broad authority over a wide range of consumer financial products and services, including mortgage lending and servicing.
REGULATION The Consumer Financial Protection Bureau (or the CFPB) has broad authority over a wide range of consumer financial products and services, including mortgage lending and servicing.
We addressed these challenges by prioritizing liquidity, prudently hedging our exposure to interest rates, and using loan securitizations to replace floating rate recourse mark-to-market financing with fixed rate non-recourse, non-mark-to-market financing.
Presidential administration; and the potential for recession. We sought to address these challenges by continuing to prioritize liquidity, prudently hedging our exposure to interest rates, and using loan securitizations to replace floating rate recourse mark-to-market financing with fixed rate non-recourse, non-mark-to-market financing. We were incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998.
We acquire and hold our non-business purpose loans and certain of our Transitional loans and Single-family rental loans through certain trusts that are consolidated on our balance sheet for financial reporting purposes. In addition, during 2023, we continued to manage our Purchased Non-performing residential whole loan and Purchased Credit Deteriorated Loan portfolios.
We acquire and hold our loans primarily through certain trusts that are consolidated on our balance sheet for financial reporting purposes.
Residential Whole Loans During 2023, we continued to acquire residential whole loans, primarily Purchased Performing Loans, with approximately two-thirds of acquisitions reflecting loans originated by Lima One.
Residential Whole Loans During 2024, we continued to acquire or originate residential whole loans, with the majority of our additions for the year originated by Lima One.
A combination of strong loan portfolio performance, and the efforts of our asset management team, has resulted in a continued reduction in the balances of REO property held during 2023. Securities, at Fair Value We invested in residential mortgage securities, including Agency MBS, Non-Agency MBS, CRT securities and MSR-related assets, which include term notes backed directly or indirectly by MSRs.
Securities, at Fair Value We invest in residential mortgage securities, including Agency MBS, Non-Agency MBS, CRT securities and MSR-related assets, which include term notes backed directly or indirectly by MSRs. During 2024, we opportunistically added $0.9 billion of Agency MBS. Going forward, we may continue to invest selectively in a range of residential mortgage securities as market opportunities arise.
We believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to continue to increase the economic and compliance costs for participants in the mortgage and securitization industries, including us. On October 19, 2022, a three-judge panel of the Fifth Circuit Court of Appeals issued an opinion in Community Financial Services Association of America, et al. v.
We believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to continue to increase the economic and compliance costs for participants in the mortgage and securitization industries, including us. In addition, certain court rulings may call into question the CFPB’s authority and other rules promulgated during CFPB’s self-funding structure.
During 2023 we opportunistically added $456.7 million of Agency MBS. Going forward, we may continue to invest selectively in a range of residential mortgage securities as market opportunities arise. FINANCING STRATEGY Our financing strategy is designed to increase the size of our investment portfolio by borrowing against a substantial portion of the market value of the assets in our portfolio.
FINANCING STRATEGY Our financing strategy is designed to increase the size of our investment portfolio by borrowing against a substantial portion of the market value of the assets in our portfolio. For our Residential whole loan portfolio, we use loan securitizations, term warehouse facilities and shorter term repurchase agreements to finance our holdings of Residential whole loans.
Removed
We are an internally-managed real estate investment trust (or REIT). 2023 was another challenging year for fixed income, as investors faced significant volatility as markets balanced aggressive monetary policy tightening, inflationary pressures, and increasing geopolitical uncertainty along with resilient macroeconomic data, the probability of a recession, and expectations regarding the timing of a potential monetary policy shift.
Added
We are an internally-managed real estate investment trust (or REIT). 2024 was a volatile year with mixed results for fixed income products, including the residential mortgage assets that we invest in and finance.
Removed
Despite the continued interest rate volatility, we believe the successful execution of our strategy allowed us to add to our target asset classes at attractive yields and deliver positive returns in challenging conditions. We were incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998.
Added
Investors continued to adjust to volatile conditions resulting from a number of macroeconomic challenges, including: monetary policy; the Federal Reserve’s first interest rate cut in four years, and the ongoing uncertainty as to the timing and extent of future rate cuts in light of ongoing inflationary challenges and generally resilient macroeconomic data; geopolitical uncertainty both in the U.S. and abroad; uncertainly with respect to U.S. policy in light of the new U.S.
Removed
Treasury, Federal Deposit Insurance Corporation (or FDIC), the Securities and Exchange Commission (or SEC) and other governmental and regulatory bodies have taken actions in response to the 2007-2008 financial crisis.
Added
Certain Legacy RPL/NPL loans acquired by the Company for which the Company did not elect the fair value option are accounted for as credit deteriorated, as they have experienced a deterioration in credit quality since origination and prior to our purchase and were acquired at discounted prices that reflect, in part, the impaired credit history of the borrower.
Removed
Although the Fifth Circuit’s decision applies only to the disputed regulation in that case, it may call into question the Bureau’s authority and other rules promulgated during CFPB’s self-funding structure.
Added
We also own REO property as a result of managing the resolution of non-performing loans. The volume of REO properties increased during the year, as a result of higher resolutions of non-performing loans via foreclosure in 2024.
Removed
On February 27, 2023, the Supreme Court granted the government's petition to review the Fifth Circuit's decision in Community Financial, and the Supreme Court held oral arguments in this matter in October 2023. On March 23, 2023, the Second Circuit Court of Appeals declined to follow Community Financial, concluding in Consumer Financial Protection Bureau v.
Added
On May 16, 2024, the Supreme Court reversed the Fifth Circuit's decision in the Community Financial case and upheld the CFPB's funding mechanism as constitutionally permissible. However, future litigation and court rulings may still cast uncertainty on the CFPB’s authority and funding mechanism. Any such uncertainty could adversely impact the cash flow on mortgage loans.
Removed
Law Offices of Crystal Moroney that CFPB’s funding structure is constitutional. It is unclear yet what impact these rulings may have on the mortgage lending markets but they may give rise to uncertainty, particularly in those markets in the Fifth Circuit. Any such uncertainty could adversely impact the cash flow on mortgage loans.
Added
In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of our Agency MBS and Residential whole loans in general. 7 Table of Contents AVAILABLE INFORMATION We maintain a website at www.mfafinancial.com.
Removed
In addition to the regulatory actions being implemented under the Dodd-Frank Act, on August 31, 2011, the SEC issued a concept release under which it is reviewing interpretive issues related to Section 3(c)(5)(C) of the Investment Company Act.
Removed
Section 3(c)(5)(C) excludes from the definition of “investment company” entities that are primarily engaged in, among other things, “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” Many companies that engage in the business of acquiring mortgages and mortgage-related instruments seek to rely on existing interpretations of the SEC Staff with respect to Section 3(c)(5)(C) so as not to be deemed an investment company for the purpose of regulation under the Investment Company Act.
Removed
In connection with the concept release, the SEC requested comments on, among other things, whether it should reconsider its existing interpretation of Section 3(c)(5)(C). We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act, and we seek to continue to meet the requirements for this exemption from registration.
Removed
To date the SEC has not taken or otherwise announced any further action in connection with the concept release. In conjunction with our legal department, we closely monitor our compliance with Section 3(c)(5)(C) 3 Table of Contents within our risk management program.
Removed
(For additional discussion of the SEC’s concept release and its potential impact on us, please see Part I, Item 1A.
Removed
In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in general. On October 27, 2021, FHFA announced that it is seeking comment on a proposed rulemaking that would introduce additional public disclosure requirements for the Enterprise Regulatory Capital Framework (or ERCF) for Fannie Mae and Freddie Mac.
Removed
As proposed, the rule would implement quarterly quantitative and qualitative disclosure requirements for Fannie Mae and Freddie Mac related to regulatory capital instruments, risk-weighted assets calculated under the ERCF’s standardized approach, and risk management policies and procedures.
Removed
This notice of proposed rulemaking suggests the potential for enhanced regulation and reporting obligations in the mortgage and securitization industries, which in turn may further increase the economic and compliance costs for participants in the mortgage and securitization industries, including us.
Removed
On February 25, 2022, FHFA announced its final rule amending the ERCF by refining the prescribed leverage buffer amount (leverage buffer) and risk-based capital treatment of retained CRT exposures for Fannie Mae and Freddie Mac. The final rule largely tracks the proposed rule.
Removed
Among other things, the final rule will replace the fixed leverage buffer equal to 1.5% of each of Fannie Mae’s and Freddie Mac’s adjusted total assets with a dynamic leverage buffer equal to 50% of each enterprise’s stability capital buffer; replace the prudential floor of 10% on the risk weight assigned to any retained CRT exposure with a prudential floor of 5% on the risk weight assigned to any retained CRT exposure; and remove the requirement that each of Fannie Mae and Freddie Mac must apply an overall effectiveness adjustment to its retained CRT exposures.
Removed
The final rule went into effect on May 16, 2022. On June 1, 2022, FHFA published a Final Rule that supplements the ERCF by requiring Fannie Mae and Freddie Mac to submit annual capital plans to the Agency and provide prior notice for certain capital actions.
Removed
The final rule also incorporates the stress capital buffer determination from the ERCF into the capital planning process.
Removed
Among other things, the final rule mandates that the each of Fannie Mae’s and Freddie Mac’s capital plans must include: • An assessment of the expected sources and uses of capital over the planning horizon; • Estimates of projected revenues, expenses, losses, reserves, and pro forma capital levels under a range of the enterprise's internal scenarios, as well as under FHFA's scenarios; • A description of all planned capital actions over the planning horizon; • A discussion of how the enterprise will, under expected and stressful conditions, maintain capital commensurate with the business risks and continue to serve the housing market; and • A discussion of any expected changes to the enterprise's business plan that are likely to have a material impact on the enterprise's capital adequacy or liquidity.
Removed
This final rule was effective August 2, 2022. 4 Table of Contents AVAILABLE INFORMATION We maintain a website at www.mfafinancial.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

97 edited+11 added−23 removed389 unchanged
Biggest changeCredit and Other Risks Related to Our Investments • We may change our investment strategy, operating policies and/or asset allocations without stockholder consent. • Our investments in residential mortgage (including BPLs), residential mortgage securities, commercial mortgage loans and other assets involve credit risk. • Our investments are subject to changes in credit spreads and other risks. • A significant portion of our residential whole loans and residential mortgage securities are secured by properties in a small number of geographic areas and may be disproportionately affected by adverse climate changes or other adverse events specific to those markets. • We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties. • The due diligence we undertake on potential investments may be limited and/or not reveal all of the risks associated with such investments and may not reveal other weaknesses in such assets. • We have experienced and may experience in the future increased volatility in our U.S. generally accepted accounting principles (or GAAP) results of operations. • We have experienced, and may in the future experience, declines in the market value of certain of our investments securities resulting in our recording impairments and other losses. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Valuations of some of our assets are subject to inherent uncertainty, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed. • Our investments in residential whole loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated, as well as from unfavorable changes in the related geographic regions. • Our investments in residential whole loans subject us to servicing-related risks, including foreclosure and liquidation. • The expanding body of federal, state and local regulations and investigations of originators and servicers may increase costs of compliance and the risks of noncompliance. • Our ability to sell REO on terms acceptable to us or at all may be limited. 5 Table of Contents • Our investments in MSR-related assets expose us to additional risks. • Our investments in mortgage loan originators expose us to additional risks.
Biggest changeCredit and Other Risks Related to Our Investments • Our investments in residential mortgage (including BPLs), residential mortgage securities, commercial mortgage loans and other assets involve credit risk, which could materially adversely affect our results of operations. • We may change our investment strategy, operating policies and/or asset allocations without stockholder consent, which could materially adversely affect our results of operations. • Our investments are subject to changes in credit spreads and other risks. • A significant portion of our residential whole loans and residential mortgage securities are secured by properties in a small number of geographic areas and may be disproportionately affected by adverse climate changes or other adverse events specific to those markets. • We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties. • The due diligence we undertake on potential investments may be limited and/or not reveal all of the risks associated with such investments and may not reveal other weaknesses in such assets. • We have experienced and may experience in the future increased volatility in our U.S. generally accepted accounting principles (or GAAP) results of operations. • We have experienced, and may in the future experience, declines in the market value of certain of our investments securities resulting in our recording impairments and other losses. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Valuations of some of our assets are subject to inherent uncertainty, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed. • Our investments in residential whole loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated, as well as from unfavorable changes in the related geographic regions. • Our investments in residential whole loans subject us to servicing-related risks, including foreclosure and liquidation. • The expanding body of federal, state and local regulations and investigations of originators and servicers may increase costs of compliance and the risks of noncompliance. • Our ability to sell REO on terms acceptable to us or at all may be limited. • Our investments in MSR-related assets expose us to additional risks. • Our ownership of Lima One and our investments in mortgage loan originators expose us to additional risks. 8 Table of Contents Prepayment and Reinvestment Risk • Prepayment rates on the mortgage loans underlying certain of our residential mortgage assets may materially adversely affect our profitability or could require us to sell assets in unfavorable market conditions.
This test, as well as certain standards set forth in the “ability-to-repay” and “qualified mortgage” regulations, may be highly subjective and open to interpretation. As a result, a court may determine that a residential mortgage loan did not meet the applicable standard or test even if the originator reasonably believed such standard or test had been satisfied.
This test, as well as certain standards set forth in the CFPB “ability-to-repay” and “qualified mortgage” regulations, may be highly subjective and open to interpretation. As a result, a court may determine that a residential mortgage loan did not meet the applicable standard or test even if the originator reasonably believed such standard or test had been satisfied.
Accordingly, our investment portfolio may be concentrated by geography (see below), asset type (as is the case currently, as residential whole loans are by far our most concentrated asset type), property type and/or borrower, increasing the risk of loss to us if the particular concentration in our portfolio is subject to greater risks or is undergoing adverse developments.
Accordingly, our investment portfolio may be concentrated by geography (see the Risk Factor below), asset type (as is the case currently, as residential whole loans are by far our most concentrated asset type), property type and/or borrower, increasing the risk of loss to us if the particular concentration in our portfolio is subject to greater risks or is undergoing adverse developments.
Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally • Market conditions for mortgages and mortgage-related assets as well as the broader financial markets may materially adversely affect the value of the assets in which we invest. • A lack of liquidity in our investments may materially adversely affect our business. • Actions by the U.S.
Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally • Market conditions for mortgages and mortgage-related assets as well as the broader financial markets may materially adversely affect the value of the assets in which we invest. • A lack of liquidity in our investments may materially adversely affect our business. • Actions and regulations by the U.S.
For example, if we are to qualify as a REIT, annually at least 75% of our gross income must come from, among other sources, interest on obligations secured by mortgages on real property or interests in real property, gain from the disposition of real property, including mortgages or interests in real property (other than sales or dispositions of real property, including mortgages on real property, or securities 25 Table of Contents that are treated as mortgages on real property, that we hold primarily for sale to customers in the ordinary course of a trade or business (i.e., prohibited transactions)), dividends or other distributions on, and gains from the disposition of shares in other REITs, commitment fees received for agreements to make real estate loans and certain temporary investment income.
For example, if we are to qualify as a REIT, annually at least 75% of our gross income must come from, among other sources, interest on obligations secured by mortgages on real property or interests in real property, gain from the disposition of real property, including mortgages or interests in real property (other than sales or dispositions of real property, including mortgages on real property, or securities that are treated as mortgages on real property, that we hold primarily for sale to customers in the ordinary course of a trade or business (i.e., prohibited transactions)), dividends or other distributions on, and gains from the disposition of shares in other REITs, commitment fees received for agreements to make real estate loans and certain temporary investment income.
In certain circumstances, we may be required to expend cash to correct defects, pay expenses or to make improvements before a property can be sold, and we cannot assure that we will have cash available to make these payments. As a result, our ownership of REOs could materially and adversely affect our liquidity and results of operations.
In certain circumstances, we may be required to expend cash to correct defects, pay expenses (including insurance) or to make improvements before a property can be sold, and we cannot assure that we will have cash available to make these payments. As a result, our ownership of REOs could materially and adversely affect our liquidity and results of operations.
These alternatives could increase our costs or reduce our stockholders’ equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our common stock. 26 Table of Contents Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
These alternatives could increase our costs or reduce our stockholders’ equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our common stock. 27 Table of Contents Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Any transfer of shares of our capital stock or other event that, if effective, would (a) violate the ownership limit, (b) cause us to become “closely held” under Section 856(h) of the Code or (c) would cause our equity stock to be owned by fewer than 100 persons, will be void as to that number of shares of capital stock in excess of the ownership limit, causing us to be “closely held” or which would otherwise be owned by the transferee, respectively, and the intended transferee will acquire no rights in 31 Table of Contents such shares.
Any transfer of shares of our capital stock or other event that, if effective, would (a) violate the ownership limit, (b) cause us to become “closely held” under Section 856(h) of the Code or (c) would cause our equity stock to be owned by fewer than 100 persons, will be void as to that number of shares of capital stock in excess of the ownership limit, causing us to be “closely held” or which would otherwise be owned by the transferee, respectively, and the intended transferee will acquire no rights in such shares.
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 common 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 31 Table of Contents stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
Availability for foreclosure and forbearance protections for borrowers with federally backed mortgage loans, regardless of delinquency status, were extended multiple times. If the COVID-19 pandemic resurges or another public health crisis breaks out in the future, similar measures may be reenacted, which could adversely affect our business, results of operations and financial condition.
Availability for foreclosure and forbearance protections for borrowers with federally backed mortgage loans, regardless of delinquency status, were extended multiple times. If the COVID-19 pandemic resurges or another public health crisis breaks out in the future, similar measures may be reenacted, which could adversely affect our business, results of operations and financial condition. See Item 1.
These loan modification programs, future legislative or regulatory actions, including possible 10 Table of Contents amendments to the bankruptcy laws, that result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may materially adversely affect the value of, and the returns on, these assets.
These loan modification programs, future legislative or regulatory actions, including possible amendments to the bankruptcy laws, that result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may materially adversely affect the value of, and the returns on, these assets.
As a consequence of the foregoing matters, our business, financial condition, results of operations and ability to pay dividends, if any, to our stockholders may be adversely affected. Our ability to sell REO on terms acceptable to us or at all may be limited. REO properties are illiquid relative to other assets we own.
As a consequence of the foregoing matters, our business, financial condition, results of operations and ability to pay dividends, if any, to our stockholders may be adversely affected. 14 Table of Contents Our ability to sell REO on terms acceptable to us or at all may be limited. REO properties are illiquid relative to other assets we own.
Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those in which we have historically invested. These changes could materially adversely affect our financial condition, results of operations, the market price of our common stock or our ability to pay dividends or make distributions.
Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those in which we have historically invested. These changes could materially adversely affect our 10 Table of Contents financial condition, results of operations, the market price of our common stock or our ability to pay dividends or make distributions.
In addition, adverse conditions in the areas where the properties securing or otherwise underlying our investments are located (including business layoffs or downsizing, industry slowdowns, changing demographics and other factors) and local real estate conditions (such as oversupply or reduced demand) may have an adverse effect on the value of our investments.
In addition, adverse conditions in the areas where the properties securing or otherwise underlying our investments are located (including business layoffs or downsizing, industry slowdowns, changing demographics, availability and cost of insurance, and other factors) and local real estate conditions (such as oversupply or reduced demand) may have an adverse effect on the value of our investments.
We rely on third-party servicers to service and manage the mortgages underlying our residential whole loans. We do not interface with borrowers under the mortgage loans in which we invest or otherwise service the mortgage loans in which we invest. The ultimate returns generated by these investments may depend on the quality of the servicer.
We rely on third-party servicers to service and manage the mortgages underlying our residential whole loans. We do not interface with borrowers under the mortgage loans in which we invest or otherwise service the mortgage loans in which we invest. 13 Table of Contents The ultimate returns generated by these investments may depend on the quality of the servicer.
As a result, discount on securities acquired in the primary or secondary market is included in the determination of taxable income and is not impacted by losses until such losses are incurred. Such differences in accounting for tax and GAAP can lead to significant timing variances in the recognition of income and losses.
As a result, discount on securities acquired in the primary or secondary market is included in the determination of taxable income and is not impacted by losses until such losses are incurred. Such differences in 28 Table of Contents accounting for tax and GAAP can lead to significant timing variances in the recognition of income and losses.
Since a portion of our borrowings to finance longer-term residential mortgage investments are under short-term repurchase agreements, our ability to achieve our investment objectives depends on our ability to borrow funds in sufficient amounts and on 14 Table of Contents acceptable terms, and on our ability to renew or replace maturing borrowings on a continuous basis.
Since a portion of our borrowings to finance longer-term residential mortgage investments are under short-term repurchase agreements, our ability to achieve our investment objectives depends on our ability to borrow funds in sufficient amounts and on acceptable terms, and on our ability to renew or replace maturing borrowings on a continuous basis.
These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity. 18 Table of Contents We are dependent on information systems and their failure (including in connection with cybersecurity incidents) could significantly disrupt our business.
These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity. We are dependent on information systems and their failure (including in connection with cybersecurity incidents) could significantly disrupt our business.
Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. 24 Table of Contents We may enter into hedging instruments that could expose us to contingent liabilities in the future, which could materially adversely affect our results of operations.
Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. We may enter into hedging instruments that could expose us to contingent liabilities in the future, which could materially adversely affect our results of operations.
This could, in turn, have a material adverse effect on our credit loss experience on residential mortgage investments in the affected market if higher-than-expected rates of 8 Table of Contents default and/or higher-than-expected loss severities on our investments in residential whole loans and residential mortgage securities were to occur.
This could, in turn, have a material adverse effect on our credit loss experience on residential mortgage investments in the affected market if higher-than-expected rates of default and/or higher-than-expected loss severities on our investments in residential whole loans and residential mortgage securities were to occur.
Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other 17 Table of Contents liens; the loans’ compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien.
Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other liens; the loans’ compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien.
In addition, we do not manage any of the loan originators in which we have made investments, and because none of our investments give us a controlling stake in any of the loan originators, our ability to influence the business and operations of the originators is limited, in some instances significantly so.
In addition, we do not manage any of the loan originators in which we have made non-controlling investments, and because none of these investments give us a controlling stake in such loan originators, our ability to influence the business and operations of the originators is limited, in some instances significantly so.
We are not required to limit our assets in terms of geographic location, diversification or concentration, except that we concentrate in residential mortgage-related investments.
We are not required to limit our assets in terms of geographic location, diversification or concentration (including borrower concentration), except that we concentrate in residential mortgage-related investments.
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 11 Table of Contents restrictions and increased compliance costs on a substantial portion of their operations.
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.
Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption. All or substantially all of our residential mortgage loans are fully and exclusively secured by real property with a loan-to-value ratio of less than 100%.
Mortgage loans that are fully and exclusively secured by real property are generally qualifying real estate assets for purposes of the exemption. All or 24 Table of Contents substantially all of our residential mortgage loans are fully and exclusively secured by real property with a loan-to-value ratio of less than 100%.
In that event, we may be required to recognize taxable gain to the extent the principal amount of the modified instrument exceeds our adjusted tax basis in the unmodified instrument, even if the value of the instrument or the payment expectations have not changed.
In that event, we 30 Table of Contents may be required to recognize taxable gain to the extent the principal amount of the modified instrument exceeds our adjusted tax basis in the unmodified instrument, even if the value of the instrument or the payment expectations have not changed.
If general interest rates decline at the same time, we would likely not be able to reinvest the proceeds of the prepayments that we receive in assets yielding as much as those yields on the assets that were prepaid.
If general interest rates decline at the same time, we would likely 16 Table of Contents not be able to reinvest the proceeds of the prepayments that we receive in assets yielding as much as those yields on the assets that were prepaid.
As a result, we are subject to the risk that we would not be able to acquire, during the period that any short-term repurchase agreements are available, sufficient eligible assets or securities to maximize the efficiency of a securitization.
As a result, we are subject to the risk that we would not be able to acquire, during the period that 19 Table of Contents any short-term repurchase agreements are available, sufficient eligible assets or securities to maximize the efficiency of a securitization.
Because our decision to issue securities in 32 Table of Contents any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
As a result, the timing and amount of impairments recognized in earnings constitute material estimates that are susceptible to significant change. 12 Table of Contents Our investments in MSR-related assets expose us to additional risks.
As a result, the timing and amount of impairments recognized in earnings constitute material estimates that are susceptible to significant change. Our investments in MSR-related assets expose us to additional risks.
Because certain natural disasters are not typically covered by the standard hazard insurance policies maintained by borrowers (such as hurricanes, earthquakes or certain flooding), or the proceeds payable for losses covered by any such policy are not sufficient to make the related repairs, the affected borrowers may be required to pay for any repairs themselves.
Because certain natural disasters are not typically covered by the standard hazard insurance policies maintained by borrowers (such as hurricanes, earthquakes or certain flooding), or the proceeds payable for losses covered by any such policy are not sufficient to make the related repairs, the affected 11 Table of Contents borrowers may be required to pay for any repairs themselves.
In addition, any uncertainty in the global finance market or weak economic conditions in Europe could cause the conditions described above to have a more pronounced effect on our European lending counterparties. • Our profitability may be materially adversely affected by a reduction in our leverage.
In addition, any uncertainty in the 17 Table of Contents global finance market or weak economic conditions in Europe could cause the conditions described above to have a more pronounced effect on our European lending counterparties. • Our profitability may be materially adversely affected by a reduction in our leverage.
Failure of residential mortgage loan originators or servicers to comply with federal consumer protection laws and regulations could subject us, or as an assignee or purchaser of these loans (or as an investor in securities backed by these loans), to monetary penalties and defenses to foreclosure, including by recoupment or setoff of damages and costs, which for some violations includes the sum of all finance charges and fees paid by the consumer, 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 federal consumer protection laws and regulations could subject us, or as an assignee or purchaser of these loans (or as an investor in securities backed by these loans), to monetary penalties and defenses to foreclosure, including by recoupment or setoff of damages and costs, which for some violations includes the sum of all finance charges and fees paid by the consumer, and could result in rescission of the affected residential mortgage loans.
The determination of whether we are a REIT requires an analysis of various factual matters and circumstances, some of which may not be totally within our control and some of which involve interpretation.
The determination of whether we are a REIT requires an analysis of various factual matters and circumstances, some of which may not be totally 26 Table of Contents within our control and some of which involve interpretation.
This risk may be more pronounced during times of market volatility and negative economic conditions. Our portfolio of residential whole loans (including BPLs) is by far our largest asset class and represented approximately 84% of our total assets as of December 31, 2023.
This risk may be more pronounced during times of market volatility and negative economic conditions. Our portfolio of residential whole loans (including BPLs) is by far our largest asset class and represented approximately 77% of our total assets as of December 31, 2024.
As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition. Actions by the U.S.
As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition. 21 Table of Contents Actions and regulations by the U.S.
Accordingly, we bear the risk of loss of principal and non-payment of interest and fees to 13 Table of Contents the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the loan.
Accordingly, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the loan.
In general, if the interest expense on our borrowings increases relative to the interest income we earn on our investments, our profitability may be materially adversely affected, including due to the following reasons: • Changes in interest rates, cyclical or otherwise, may materially adversely affect our profitability.
In general, if the interest expense on our borrowings increases relative to the interest income we earn on our investments, our profitability may be materially adversely affected, including due to the following reasons: 18 Table of Contents • Changes in interest rates, cyclical or otherwise, may materially adversely affect our profitability.
In connection with these licenses we would be required to comply with various information reporting and other regulatory requirements to maintain those licenses, and there is no assurance that we will be able to satisfy those requirements on an ongoing basis.
In connection with these licenses we would be required to comply with various information reporting and other regulatory requirements to maintain those licenses, and there is no assurance that we will be able to satisfy those 23 Table of Contents requirements on an ongoing basis.
The results of our business operations are affected by many factors, a number of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets and collateral, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, our ability to source new investments at appropriate yields, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions, especially in the real estate and mortgage sector, our competition, and the credit performance of our credit sensitive residential mortgage assets.
The results of our business operations are affected by many factors, a number of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets and collateral, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, our ability to source new investments at appropriate yields, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions and changes in the U.S. political environment (including as a result of the change in administration), especially in the real estate and mortgage sector, our competition, and the credit performance of our credit sensitive residential mortgage assets.
Risks Related to Our Taxation as a REIT and the Taxation of Our Assets • If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability. • If our foreign TRS is subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to pay its creditors and distribute to us. • Our use of TRSs may cause us to fail to qualify as a REIT. • We have not established a minimum dividend payment level. • Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements. • The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT. • Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. • We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. • The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests. • Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.” Risks Related to Our Corporate Structure • Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the Company. • Future offerings of debt securities and equity securities may adversely affect the market price of our common stock. 6 Table of Contents Other Business Risks • We are dependent on our executive officers and other key personnel for our success. • We operate in a highly competitive market for investment opportunities.
Risks Related to Our Taxation as a REIT and the Taxation of Our Assets • If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability. • If our foreign TRS is subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to pay its creditors and distribute to us. • Our use of TRSs may cause us to fail to qualify as a REIT. • We have not established a minimum dividend payment level. • Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements. • The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT. • Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. • We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. • The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests. • Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.” Risks Related to Our Corporate Structure • Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the Company. • Future offerings of debt securities and equity securities may adversely affect the market price of our common stock.
We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future 29 Table of Contents projected payments due on such debt instruments will be made.
We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future projected payments due on such debt instruments will be made.
This Credit Reserve is generally not accreted into income for financial statement reporting purposes. For tax purposes, however, we are not permitted to anticipate, 27 Table of Contents or establish a reserve for, credit losses prior to their occurrence.
This Credit Reserve is generally not accreted into income for financial statement reporting purposes. For tax purposes, however, we are not permitted to anticipate, or establish a reserve for, credit losses prior to their occurrence.
Also, as a result of this competition, desirable investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives. 33 Table of Contents Item 1B.
Also, as a result of this competition, desirable investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives. Item 1B. Unresolved Staff Comments.
In 23 Table of Contents addition, we may be limited in our ability to make certain investments and these limitations could result in us holding assets we might wish to sell or selling assets we might wish to hold.
In addition, we may be limited in our ability to make certain investments and these limitations could result in us holding assets we might wish to sell or selling assets we might wish to hold.
Interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related hedged instrument; • the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the party owing money in the hedging transaction may default on its obligation to pay.
Interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related hedged instrument; • the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the party owing money in the hedging transaction may default on its obligation to pay. 25 Table of Contents We primarily use Swaps to hedge against future increases in interest rates on our financing agreements.
As of December 31, 2023, we had approximately $79.9 million of investments in financial instruments whose cash flows are considered to be largely dependent on underlying MSRs that either directly or indirectly act as collateral for the investment.
As of December 31, 2024, we had approximately $54.6 million of investments in financial instruments whose cash flows are considered to be largely dependent on underlying MSRs that either directly or indirectly act as collateral for the investment.
In the event models and data prove to be incorrect, 9 Table of Contents misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
Therefore, a period of rising interest rates and flattening or inverted yield curves, such as the conditions experienced during 2022 and 2023, which may continue in 2024, presents challenges on our ability to effectively manage the risks associated with our business operations, including interest rate, prepayment, financing, liquidity and credit risks, while maintaining our qualification as a REIT.
Therefore, a period of high interest rates and flattening or inverted yield curves, such as the conditions experienced during the past few years, which may continue in 2025, presents challenges on our ability to effectively manage the risks associated with our business operations, including interest rate, prepayment, financing, liquidity and credit risks, while maintaining our qualification as a REIT.
In addition, if actual results are different from our assumptions in determining the prices paid to acquire such loans, particularly if the market value of the underlying properties decreases significantly subsequent to purchase, we may incur significant losses, which could materially adversely affect our results of operations. Our investments are subject to changes in credit spreads and other risks.
In addition, if actual results are different from our assumptions in determining the prices paid to acquire such loans, particularly if the market value of the underlying properties decreases significantly subsequent to purchase, we may incur significant losses, which could materially adversely affect our results of operations.
An RPL could become a NPL, which could reduce our earnings. Our investments in residential whole loans may require us to work with our designated third-party mortgage loan servicers to the extent that they engage in workout negotiations or a restructuring with a borrower and/or the possibility of foreclosure. These processes may be lengthy and expensive.
Our investments in residential whole loans may require us to work with our designated third-party mortgage loan servicers to the extent that they engage in workout negotiations or a restructuring with a borrower and/or the possibility of foreclosure. These processes may be lengthy and expensive.
Inflation by some measures is at the highest readings since 1982, and inflationary pressures have broadened from goods earlier in the pandemic to include shelter costs and a number of labor-intensive services.
The impact of inflation may adversely affect our financial performance. Inflation by some measures is at the highest readings since 1982, and inflationary pressures have broadened from goods earlier in the pandemic to include shelter costs and a number of labor-intensive services.
Treasuries of like maturity. Floating rate securities are generally valued based on a market credit spread over Secured Overnight Funding Rate (or SOFR) or another benchmark lending rate.
Fixed rate securities are valued based on a market credit spread above the rate payable on fixed rate U.S. Treasuries of like maturity. Floating rate securities are generally valued based on a market credit spread over Secured Overnight Funding Rate (or SOFR) or another benchmark lending rate.
Thus, our Board could authorize the issuance of shares of preferred or common stock with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of the outstanding shares of our common stock might receive a premium for their shares over the then current market price of our common stock.
Thus, our Board could authorize the issuance of shares of preferred or common stock with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of the outstanding shares of our common stock might receive a premium for their shares over the then current market price of our common stock. 33 Table of Contents Future issuances or sales of shares could cause our share price to decline.
Credit and Other Risks Related to Our Investments We may change our investment strategy, operating policies and/or asset allocations without stockholder consent, which could materially adversely affect our results of operations.
We may change our investment strategy, operating policies and/or asset allocations without stockholder consent, which could materially adversely affect our results of operations.
Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. 22 Table of Contents Government securities and cash items) on an unconsolidated basis (i.e., the 40% Test).
Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S.
In the event one or more of the loan originators in which we have made investments should experience a significant decline in its business and operations or otherwise not be able to respond adequately to managerial, compliance or operational challenges that it may encounter, we may be required to write-down all or a portion of the applicable investment, which could have a material adverse impact on our results of operations.
In the event Lima One or one or more of the loan originators in which we have made investments should experience a significant decline in its business and operations or otherwise not be able to respond adequately to managerial, compliance or operational challenges that it may encounter, we may be required to write-down all or a portion of the goodwill relating to Lima One or write down all or a portion of the applicable non-controlling investment, which could have a material adverse impact on our results of operations. 15 Table of Contents Business purpose loans involve a high degree of business and financial risk.
We expect that our investment portfolio in residential whole loans will 7 Table of Contents continue to increase during 2024. As an investor in residential whole loans, we are subject to the risk that the underlying borrowers may default or have defaulted on their obligations to make full and timely payments of principal and interest.
We expect that our investment portfolio in residential whole loans will continue to be our primary asset class in 2025. As an investor in residential whole loans, we are subject to the risk that the underlying borrowers may default or have defaulted on their obligations to make full and timely payments of principal and interest.
Given our reliance on short-term borrowings to generate interest income and the fact that the yield curve continues to flatten and has even recently inverted, or if the Federal Reserve finds itself continuing to fall behind on inflation and more aggressively tightens its 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 and the fact that the yield curve remains relatively flat after the recent inversion ended, or if the Federal Reserve finds itself continuing to fall behind on inflation and more aggressively tightens its current projections, our results of operations, financial condition and business could be materially adversely impacted.
The ownership limit provisions also may make our shares of common stock an unsuitable investment vehicle for any person seeking to obtain, either alone or with others as a group, ownership of more than 9.8% of the number or value of our outstanding shares of capital stock.
The ownership limit provisions also may make our shares of common stock an unsuitable investment vehicle for any person seeking to obtain, either alone or with others as a group, ownership of more than 9.8% of the number or value of our outstanding shares of capital stock. 32 Table of Contents Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire us.
Government designed to stabilize or reform the financial markets may not achieve their intended effect or otherwise benefit our business.
Government designed to stabilize or reform the mortgage finance markets may not achieve their intended effect or otherwise benefit our business, and could materially affect our business.
Interest rates increased significantly in 2022 and 2023 and may continue to remain high in 2024. As such, we could experience a decrease in net income or incur a net loss during these periods, which may negatively impact our distributions to stockholders. 16 Table of Contents The impact of inflation may adversely affect our financial performance.
Interest rates increased significantly in 2022 and 2023, remained high in 2024 and may continue to remain high in 2025, particularly as concerns of inflation have continued into 2025. As such, we could experience a decrease in net income or incur a net loss during these periods, which may negatively impact our distributions to stockholders.
Regulatory Risk and Risks Related to the Investment Company Act of 1940 Our business is subject to extensive regulation. We operate in a highly regulated industry and continually changing U.S. federal, state and local laws and regulation could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders.
We operate in a highly regulated industry and continually changing U.S. federal, state and local laws and regulation could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our stockholders. Our business is subject to extensive regulation by federal and state governmental authorities, self-regulatory organizations and securities exchanges.
Credit spreads, which at times can be highly volatile and react to various macroeconomic events or conditions, measure the additional yield demanded on securities by the market based on their perceived credit risk/credit quality relative to a specific benchmark. Fixed rate securities are valued based on a market credit spread above the rate payable on fixed rate U.S.
Our investments are subject to changes in credit spreads and other risks. Credit spreads, which at times can be highly volatile and react to various macroeconomic events or conditions, measure the additional yield demanded on securities by the market based on their perceived credit risk/credit quality relative to a specific benchmark.
These investments have taken the form of common equity and preferred equity. Unlike our investments in residential mortgage loans and mortgage-backed securities, our investments in loan originators are unsecured and not collateralized by any property of the originators.
Unlike our investments in residential mortgage loans and mortgage-backed securities, our non-controlling investments in loan originators are unsecured and not collateralized by any property of the originators.
We have not established a minimum dividend payment level for our common stock and our ability to pay dividends may be 28 Table of Contents negatively impacted by adverse changes in our operating results. Therefore, our dividend payment level may fluctuate significantly, and, under some circumstances, we may not pay dividends at all.
We have not established a minimum dividend payment level for our common stock and our ability to pay dividends may be negatively impacted by adverse changes in our operating results.
In addition, future issuances of our common stock may be dilutive to existing stockholders. The declaration, amount and payment of future cash dividends on shares of our common stock are subject to uncertainty due to disruption in the mortgage, housing or related sectors.
The declaration, amount and payment of future cash dividends on shares of our common stock are subject to uncertainty due to disruption in the mortgage, housing or related sectors. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of our Board.
We operate in a highly competitive market for investment opportunities and competition may limit our ability to acquire desirable investments, which could materially adversely affect our results of operations. We operate in a highly competitive market for investment opportunities. Our profitability depends, in large part, on our ability to acquire residential mortgage assets or other investments at favorable prices.
We operate in a highly competitive market for investment opportunities. Our profitability depends, in large part, on our ability to acquire residential mortgage assets or other investments at favorable prices.
Government designed to stabilize or reform the financial markets may not achieve their intended effect or otherwise benefit our business, and could materially adversely affect our business. Our business is heavily regulated. In July 2010, the U.S.
Government designed to stabilize or reform the mortgage finance markets may not achieve their intended effect or otherwise benefit our business, and could materially adversely affect our business.
Any publicized security problems affecting our businesses and/or those of such third parties may negatively impact the market perception of our products and discourage market participants from doing business with us.
Cybersecurity incidents could also significantly damage our reputation with existing and prospective loan sellers, borrowers, and third parties with whom we do business. Any publicized security problems affecting our businesses and/or those of such third parties may negatively impact the market perception of our products and discourage market participants from doing business with us.
Business purpose loans involve a high degree of business and financial risk. Our operations and activities include business purpose loans originated and serviced by Lima One.
Our operations and activities include Business purpose loans originated and serviced by Lima One.
In addition, we may be at risk for any collateral held by a hedging counterparty to a Swap, should such counterparty become insolvent or file for bankruptcy.
Should a Swap counterparty be unable to make required payments pursuant to such Swap, the hedged liability would cease to be hedged for the remaining term of the Swap. In addition, we may be at risk for any collateral held by a hedging counterparty to a Swap, should such counterparty become insolvent or file for bankruptcy.
Excluded from the term “investment securities,” among other things, are U.S. Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. We are a holding company and conduct our real estate business primarily through wholly-owned subsidiaries.
Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements and, therefore, our GAAP results may not be an accurate indicator of future taxable income and dividend distributions.
Therefore, our dividend payment level may fluctuate significantly, and, under some circumstances, we may not pay dividends at all. 29 Table of Contents Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements and, therefore, our GAAP results may not be an accurate indicator of future taxable income and dividend distributions.
Risks Related to Our Business and Industry General economic developments and trends and the performance of the housing, real estate, mortgage finance, broader financial markets and other factors that are out of our control may adversely affect our business operations.
Other Business Risks • We are dependent on our executive officers and other key personnel for our success. • We operate in a highly competitive market for investment opportunities. 9 Table of Contents Risks Related to Our Business and Industry General economic developments and trends and the performance of the housing, real estate, mortgage finance, broader financial markets and other factors that are out of our control may adversely affect our business operations.
Subject to specified investment guidelines, the portfolios of Agency MBS purchased through the programs established by the U.S. Treasury and the Federal Reserve may be held to maturity and, based on mortgage market conditions, adjustments may be made to these portfolios. This flexibility may adversely affect the pricing and availability of Agency MBS during the remaining term of these portfolios.
Treasury and the Federal Reserve may be held to maturity and, based on mortgage market conditions, adjustments may be made to these portfolios. The program was reinstated in 2020 in response to the COVID-19 pandemic. This flexibility may adversely affect the pricing and availability of Agency MBS during the remaining term of these portfolios.
Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those in place under federal laws and regulations.
Business purpose loans secured by 1-4 family residences are also subject to federal and state regulation. Some states have also enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those in place under federal laws and regulations.
In addition, the sale of these shares could impair our ability to raise capital through a sale of additional equity securities. Other issuances of our common stock, such as through equity awards to our employees, could have an adverse effect on the market price of our common stock.
Other issuances of our common stock, such as through equity awards to our employees, could have an adverse effect on the market price of our common stock. In addition, future issuances of our common stock may be dilutive to existing stockholders.
Our investments in residential whole loans (including BPLs), residential mortgage securities, MSR-related assets and commercial mortgage loans involve credit risk, which could materially adversely affect our results of operations. Investors in residential and commercial mortgage assets assume the risk that the underlying borrowers may default on their obligations to make full and timely payments of principal and interest.
Investors in residential and commercial mortgage assets assume the risk that the underlying borrowers may default on their obligations to make full and timely payments of principal and interest.
Future issuances or sales of shares could cause our share price to decline. Sales of substantial numbers of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our common stock.
Sales of substantial numbers of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our common stock. In addition, the sale of these shares could impair our ability to raise capital through a sale of additional equity securities.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur management also coordinates with our IT department to help ensure that cyber risks are integrated into our overall risk identification, management and mitigation strategies, subject to our Board’s guidance. 34 Table of Contents As described above, our Chief Technology Officer works with our IT Steering Committee and other members of senior management, including our staff, in assessing the materiality of a cyber risk after a preliminary assessment by our IT department.
Biggest changeAs described above, our Chief Technology Officer works with our IT Steering Committee and other members of senior management, including our staff, in assessing the materiality of a cyber risk after a preliminary assessment by our IT department. If a cyber risk is material, our Chief Technology Officer will bring such risk to our Board’s attention.
In addition, members of the IT department involved in Information Security have an average of 15 years of experience in cybersecurity as well as relevant educational experience.
Our Chief Technology Officer has served in various roles in IT and information security for over 20 years. In addition, members of the IT department involved in Information Security have an average of 15 years of experience in cybersecurity as well as relevant educational experience. 35 Table of Contents
Removed
If a cyber risk is material, our Chief Technology Officer will bring such risk to our Board’s attention. Our Chief Technology Officer has served in various roles in IT and information security for over 20 years.
Added
Our management also coordinates with our IT department to help ensure that cyber risks are integrated into our overall risk identification, management and mitigation strategies, subject to our Board’s guidance.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAt December 31, 2023, we expect our future rent expense, for all lease commitments, exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes, to range between approximately $5.0 million and $6.1 million per year. Item 3. Legal Proceedings.
Biggest changeAt December 31, 2024, we expect our future rent expense, for all lease commitments, exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes, to range between approximately $7.1 million and $8.0 million per year from 2025 to 2032, approximately $6.7 million in 2033 and approximately $5.4 million from 2034 to 2036. Item 3.
There are no material legal proceedings to which we are a party or to which any of our assets are subject. Item 4. Mine Safety Disclosures Not applicable. 35 Table of Contents PART II
Legal Proceedings. There are no material legal proceedings to which we are a party or to which any of our assets are subject. Item 4. Mine Safety Disclosures Not applicable. 36 Table of Contents PART II
Item 2. Properties. Office Leases Our primary lease commitment relates to our corporate headquarters. For the year ended December 31, 2023, we recorded an expense of approximately $5.2 million in c onnection with this lease.
Item 2. Properties. Office Leases Our primary lease commitment relates to our corporate headquarters. For the year ended December 31, 2024, we recorded an expense of approximately $5.4 million in c onnection with this lease.
The original term specified in this lease is approximately 15 years with a termination date of December 2036, and an option to renew for an additional five years.
The original term specified in this lease is approximately 15 years with a termination date of December 2036, and an option to renew for an additional five years. Additionally, in December 2024, Lima One executed a lease agreement on new office space in Greenville, South Carolina for an 8.5-year term.
Added
The Company expects the average annual lease rental expense to be approximately $2.4 million. Lima One expects to relocate to the office space in the latter half of 2025.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAlthough we may borrow funds to make distributions, cash for such distributions has generally been, and is expected to continue to be, largely generated from our results of our operations. 36 Table of Contents The table below provides details of dividends on our common stock declared during the years 2023 and 2022: Year Declaration Date Record Date Payment Date Dividend Per Share 2023 December 13, 2023 December 29, 2023 January 31, 2024 $0.350 (1) September 20, 2023 October 2, 2023 October 31, 2023 0.350 June 15, 2023 June 30, 2023 July 31, 2023 0.350 March 10, 2023 March 31, 2023 April 28, 2023 0.350 2022 December 14, 2022 December 30, 2022 January 31, 2023 $0.350 (2) September 13, 2022 September 30, 2022 October 31, 2022 0.440 June 15, 2022 June 30, 2022 July 29, 2022 0.440 March 11, 2022 March 22, 2022 April 29, 2022 0.440 (3) (1) At December 31, 2023, we had accrued dividends and dividend equivalents payable of $35.8 million related to the common stock dividend declared on December 13, 2023.
Biggest changeThe table below provides details of dividends on our common stock declared during the years 2024 and 2023: Year Declaration Date Record Date Payment Date Dividend Per Share 2024 December 11, 2024 December 31, 2024 January 31, 2025 $0.35 (1) September 12, 2024 September 27, 2024 October 31, 2024 0.35 June 11, 2024 June 28, 2024 July 31, 2024 0.35 March 7, 2024 March 28, 2024 April 30, 2024 0.35 2023 December 13, 2023 December 29, 2023 January 31, 2024 $0.35 (2) September 20, 2023 October 2, 2023 October 31, 2023 0.35 June 15, 2023 June 30, 2023 July 31, 2023 0.35 March 10, 2023 March 31, 2023 April 28, 2023 0.35 (1) At December 31, 2024, we had accrued dividends and dividend equivalents payable of $36.0 million related to the common stock dividend declared on December 11, 2024.
Acquisitions under the stock repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws (including, in our discretion, through the use of one or more plans adopted under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (or the “Exchange Act”)).
Acquisitions under the stock repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws (including, in our discretion, through the use of one or more plans adopted under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (or the Exchange Act)).
This dividend will be treated as a dividend paid in 2024 to the extent of the Company’s earnings and profits in 2024. (2) At December 31, 2022, we had accrued dividends and dividend equivalents payable of $35.8 million related to the common stock dividend declared on December 14, 2022.
This dividend will be treated as a dividend paid in 2025 to the extent of the Company’s earnings and profits in 2025. (2) At December 31, 2023, we had accrued dividends and dividend equivalents payable of $35.8 million related to the common stock dividend declared on December 13, 2023.
We have not established a minimum payout level for our common stock. Dividends are declared and paid at the discretion of our Board and depend on our cash available for distribution, financial condition, ability to maintain our qualification as a REIT, and such other factors that our Board may deem relevant.
Dividends are declared and paid at the discretion of our Board and depend on our cash available for distribution, financial condition, ability to maintain our qualification as a REIT, and such other factors that our Board may deem relevant.
We did not repurchase any shares of our common stock during the year ended December 31, 2023.
We did not repurchase any shares of our common stock pursuant to the stock repurchase program during the year ended December 31, 2024.
(See Part I, Item 1A., “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends.) Purchases of Equity Securities On March 11, 2022, our Board authorized a stock repurchase program under which we may repurchase up to $250 million of our common stock through the end of 2023.
(See Part I, Item 1A., “Risk Factors” and Item 7, “Management’s Discussion 37 Table of Contents and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends.) Purchases of Equity Securities On February 29, 2024, the Company announced its Board had authorized a new $200 million stock repurchase program with respect to the Company’s common stock, which will be in effect through the end of 2025.
Upon expiration of the repurchase authorization on December 31, 2023, approximately $202.5 million remained unused under our stock repurchase program. 37 Table of Contents Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan In September 2003, we initiated a Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (or the DRSPP) to provide existing stockholders and new investors with a convenient and economical way to purchase shares of our common stock.
Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan In September 2003, we initiated a Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (or the DRSPP) to provide existing stockholders and new investors with a convenient and economical way to purchase shares of our common stock.
For the year ended December 31, 2021, the portion of our common stock dividends paid during the year deemed to be a return of capital was $1.0512 per share of common stock.
However, a portion of our common stock dividends may, from time to time, be characterized as capital gains or return of capital. For the year ended December 31, 2024, the portion of our common stock dividends paid during the year deemed to be a return of capital was $0.5516 per share of common stock.
A portion of this dividend was considered taxable income to the recipient in 2023. For more information see our 2023 Dividend Tax Information on our website.
A portion of this dividend was considered taxable income to the recipient in 2024. For more information see the Company’s 2024 Dividend Tax Information on its website. We have not established a minimum payout level for our common stock.
Holders As of February 15, 2024, we had 401 registered holders of our common stock. Such information was obtained through our registrar and transfer agent, based on the results of a broker search. Dividends No dividends may be paid on our common stock unless full cumulative dividends have been paid on our preferred stock.
Holders As of February 14, 2025, we had 388 registered holders of our common stock. Such information was obtained through our registrar and transfer agent, based on the results of a broker search; however, the number of beneficial owners of our common stock may exceed this number.
During the years ended 2023 and 2022, we issued 6,666 and 80,027 shares of common stock through the DRSPP generating net proceeds of approximately $74,000 and $1.2 million, respectively.
During the year ended 2024, the Company did not issue any shares pursuant to its DRSPP. During the year ended 2023, we issued 6,666 shares of common stock through the DRSPP generating net proceeds of approximately $74,000.
We have paid full cumulative dividends on our preferred stock on a quarterly basis through December 31, 2023. We have historically declared cash dividends on our common stock on a quarterly basis. During 2023 and 2022, we declared total cash dividends to holders of our common stock of $142.7 million ($1.400 per share) and $171.4 million ($1.670 per share), respectively.
Dividends No dividends may be paid on our common stock unless full cumulative dividends have been paid on our preferred stock. We have paid full cumulative dividends on our preferred stock on a quarterly basis through December 31, 2024. We have historically declared cash dividends on our common stock on a quarterly basis.
The Board’s authorization superseded and replaced the authorization under our prior stock repurchase program that had been adopted in November 2020, which also authorized us to repurchase up to $250 million. The stock repurchase program does not require the purchase of any minimum number of shares.
The Company’s prior stock repurchase program, which was adopted in March 2022, had authorized the repurchase of up to $250 million of the Company’s common stock and expired on December 31, 2023, with approximately $202.5 million remaining available at the date of expiration. The stock repurchase program does not require the purchase of any minimum number of shares.
In general, our common stock dividends have been characterized as ordinary income to our stockholders for income tax purposes. However, a portion of our common stock dividends may, from time to time, be characterized as capital gains or return of capital.
During 2024 and 2023, we declared total cash dividends to holders of our common stock of $142.9 million ($1.40 per share) and $142.7 million ($1.40 per share), respectively. In general, our common stock dividends have been characterized as ordinary income to our stockholders for income tax purposes.
Removed
(3) The $0.44 per share dividend declared on March 11, 2022, has been adjusted to reflect our one-for-four reverse stock split effected on April 4, 2022 (the “Reverse Stock Split”); the amount actually paid in respect of such dividend was $0.11 per share, which was based on the pre-split number of shares held by stockholders at the record date for such dividend (March 22, 2022).
Added
Although we may borrow funds to make distributions, cash for such distributions has generally been, and is expected to continue to be, largely generated from our results of our operations.
Added
The Company did withhold 129,949 shares (under the terms of grants under our Equity Compensation Plan (or Equity Plan)) during the first quarter of 2024 to satisfy tax and payroll withholding obligations resulting from the vesting and settlement of restricted stock awards and/or restricted stock units (RSUs).

Item 6. [Reserved]

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

117 edited+42 added−38 removed71 unchanged
Biggest changeDistributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. 54 Table of Contents The following table provides a reconciliation of our GAAP net income/(loss) used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below: Quarter Ended (In Thousands, Except Per Share Amounts) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 GAAP Net income/(loss) used in the calculation of basic EPS $ 81,527 $ (64,657) $ (34,146) $ 64,565 $ (1,647) $ (63,410) $ (108,760) $ (91,266) Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value (224,272) 132,894 130,703 (129,174) 68,828 291,818 218,181 287,935 Securities held at fair value (21,371) 13,439 3,698 (2,931) 383 (1,549) 1,459 2,934 Residential whole loans and securities at carrying value 332 — — — — — — — Interest rate swaps 97,400 (9,433) (37,018) 40,747 12,725 (108,917) (31,767) (80,753) Securitized debt held at fair value 108,693 (40,229) (30,908) 48,846 (44,988) (100,767) (84,348) (62,855) Investments in loan origination partners 254 722 872 — 8,526 2,031 39,162 780 Expense items: Amortization of intangible assets 800 800 1,300 1,300 1,300 1,300 3,300 3,300 Equity based compensation 3,635 4,447 3,932 3,020 2,480 2,673 3,540 2,645 Securitization-related transaction costs 2,702 3,217 2,071 4,602 1,744 5,014 6,399 3,233 Total adjustments (31,827) 105,857 74,650 (33,590) 50,998 91,603 155,926 157,219 Distributable earnings $ 49,700 $ 41,200 $ 40,504 $ 30,975 $ 49,351 $ 28,193 $ 47,166 $ 65,953 GAAP earnings/(loss) per basic common share $ 0.80 $ (0.64) $ (0.34) $ 0.63 $ (0.02) $ (0.62) $ (1.06) $ (0.86) Distributable earnings per basic common share $ 0.49 $ 0.40 $ 0.40 $ 0.30 $ 0.48 $ 0.28 $ 0.46 $ 0.62 Weighted average common shares for basic earnings per share 102,266 102,255 102,186 102,155 101,800 101,795 102,515 106,568 Selected Financial Ratios (using Distributable earnings) The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) December 31, 2023 2.23 % 12.29 % 0.71 September 30, 2023 1.98 10.36 0.88 June 30, 2023 2.06 9.81 0.88 March 31, 2023 1.69 7.76 1.17 December 31, 2022 2.45 11.34 0.73 September 30, 2022 1.53 6.79 1.57 June 30, 2022 1.99 9.60 0.96 March 31, 2022 2.82 11.90 0.71 (1) Reflects annualized Distributable earnings divided by average total assets.
Biggest changeDistributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. 54 Table of Contents The following table provides a reconciliation of our GAAP net income/(loss) used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below: Quarter Ended (In Thousands, Except Per Share Amounts) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 GAAP Net income/(loss) used in the calculation of basic EPS $ (2,396) $ 39,870 $ 33,614 $ 14,827 $ 81,527 $ (64,657) $ (34,146) $ 64,565 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 102,339 (143,416) (16,430) 11,513 (224,272) 132,894 130,703 (129,174) Securities held at fair value 26,273 (17,107) 4,026 4,776 (21,371) 13,439 3,698 (2,931) Residential whole loans and securities at carrying value — (7,324) (2,668) (418) 332 — — — Interest rate swaps (46,632) 84,629 10,237 (23,182) 97,400 (9,433) (37,018) 40,747 Securitized debt held at fair value (47,267) 71,475 7,597 20,169 108,693 (40,229) (30,908) 48,846 Other portfolio investments (94) 1,503 1,484 — 254 722 872 — Expense items: Amortization of intangible assets 800 800 800 800 800 800 1,300 1,300 Equity based compensation 1,637 2,104 3,899 6,243 3,635 4,447 3,932 3,020 Securitization-related transaction costs 5,252 3,485 3,009 1,340 2,702 3,217 2,071 4,602 Depreciation 938 2,604 822 889 869 841 704 1,866 Total adjustments 43,246 (1,247) 12,776 22,130 (30,958) 106,698 75,354 (31,724) Distributable earnings $ 40,850 $ 38,623 $ 46,390 $ 36,957 $ 50,569 $ 42,041 $ 41,208 $ 32,841 GAAP earnings/(loss) per basic common share $ (0.02) $ 0.38 $ 0.32 $ 0.14 $ 0.80 $ (0.64) $ (0.34) $ 0.63 Distributable earnings per basic common share $ 0.39 $ 0.37 $ 0.45 $ 0.36 $ 0.49 $ 0.41 $ 0.40 $ 0.32 Weighted average common shares for basic earnings per share 103,675 103,647 103,446 103,175 102,266 102,255 102,186 102,155 Selected Financial Ratios (using Distributable earnings) The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) December 31, 2024 1.72 % 10.49 % 0.90 September 30, 2024 1.69 9.89 0.95 June 30, 2024 1.98 11.53 0.78 March 31, 2024 1.66 9.12 0.97 December 31, 2023 2.27 12.47 0.70 September 30, 2023 2.01 10.53 0.85 June 30, 2023 2.09 9.95 0.88 March 31, 2023 1.66 9.12 1.09 (1) Reflects annualized Distributable earnings divided by average total assets.
For GAAP reporting purposes, purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.
For GAAP reporting purposes, securities purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.
Our financial results are impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.
Our financial results are also impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.
Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance. Accretable purchase discounts on these investments are accreted to interest income.
Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their unpaid principal balance. Accretable purchase discounts on these investments are accreted to interest income.
Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their aggregate principal balance.
Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their unpaid principal balance.
(6) Represents the sum of our borrowings under financing agreements (excluding securitized and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity.
(5) Represents the sum of our borrowings under financing agreements and payable for unsettled purchases divided by stockholders’ equity. (6) Represents the sum of our borrowings under financing agreements (excluding securitized debt and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity.
(3) Includes average interest-earning cash, cash equivalents and restricted cash. (4) Collateralized financing agreements include the following: mark-to-market asset based financing and non-mark-to-market asset based financing. For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K. (5) Includes both securitized debt, at carrying value and securitized debt, at fair value.
(2) Includes average interest-earning cash, cash equivalents and restricted cash. (3) Includes both securitized debt, at carrying value and securitized debt, at fair value. (4) Collateralized financing agreements include the following: mark-to-market asset based financing and non-mark-to-market asset based financing. For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K.
We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2023, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement.
We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2024, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement.
With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to increase; (ii) the value of certain of our residential mortgage assets and securitized debt to decline; (iii) coupons on our adjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging 39 Table of Contents instruments, if any, to increase.
With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to increase; (ii) the value of certain of our residential mortgage assets and securitized debt to decline; (iii) coupons on our adjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging instruments, if any, to increase.
(8) Net interest margin reflects net interest income (including net swap income or expense) divided by average interest-earning assets. 49 Table of Contents Rate/Volume Analysis The following table presents the extent to which changes in interest rates (yield/cost) and changes in the volume (average balance) of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated.
(7) Net interest margin reflects net interest income (including net swap income or expense) divided by average interest-earning assets. 49 Table of Contents Rate/Volume Analysis The following table presents the extent to which changes in interest rates (yield/cost) and changes in the volume (average balance) of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated.
In connection with our repurchase agreement financings and Swaps, we routinely receive margin calls/reverse margin calls from our counterparties and make margin calls to our counterparties. Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required.
In connection with our repurchase agreement financings and Swaps, we routinely receive margin calls from our counterparties and make margin calls (“reverse margin calls”) to our counterparties. Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required.
Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to decrease; (ii) the value of certain of our residential mortgage assets and securitized debt, to increase; (iii) coupons on our adjustable-rate assets, on a delayed basis, to lower interest rates; (iv) prepayments on our assets to increase, thereby accelerating the amortization of purchase premiums and the accretion of our purchase discounts, and accelerating the redeployment of our capital to generally lower yielding investments; and (v) the value of our derivative hedging instruments, if any, to decrease.
Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to decrease; (ii) the value of certain of our residential mortgage assets and securitized debt, to increase; (iii) coupons on 39 Table of Contents our adjustable-rate assets, on a delayed basis, to lower interest rates; (iv) prepayments on our assets to increase, thereby accelerating the amortization of purchase premiums and the accretion of our purchase discounts, and accelerating the redeployment of our capital to generally lower yielding investments; and (v) the value of our derivative hedging instruments, if any, to decrease.
(6) Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds. (7) Reflects the impact of positive or negative swap carry. Positive swap carry results when income from the receive leg of a swap is greater than the expense on the pay leg.
(5) Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds. (6) Reflects the impact of positive or negative swap carry. Positive swap carry results when income from the receive leg of a swap is greater than the expense on the pay leg.
Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, taxes, and miscellaneous expenses.
Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses.
We are subject to various financial covenants under our financing agreements, which include minimum liquidity and net worth requirements, net worth decline limitations and maximum debt-to-equity ratios. We were in compliance with all financial covenants as of December 31, 2023.
We are subject to various financial covenants under our financing agreements, which include minimum liquidity and net worth requirements, net worth decline limitations and maximum debt-to-equity ratios. We were in compliance with all financial covenants as of December 31, 2024.
During 2023, heightened interest rate volatility led to significant fluctuations in the fair values of our residential mortgage asset portfolio and associated financing liabilities and hedges, which drove volatility in our quarterly GAAP financial results.
During 2024, heightened interest rate volatility led to significant fluctuations in the fair values of our residential mortgage asset portfolio and associated financing liabilities and hedges, which drove volatility in our quarterly GAAP financial results.
At December 31, 2023, we had borrowings under asset-backed financing agreements of $3.6 billion, of which $2.9 billion were secured by residential whole loans, $622.6 million were secured by securities and $25.2 million were secured by REO. In addition, at December 31, 2023, we had securitized debt of $4.8 billion in connection with our loan securitization transactions.
In addition, at December 31, 2024, we had securitized debt of $5.8 billion in connection with our loan securitization transactions. At December 31, 2023, we had borrowings under asset-backed financing agreements of $3.6 billion, of which $2.9 billion were secured by residential whole loans, $622.6 million were secured by securities and $25.2 million were secured by REO.
For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and estimated home price levels. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset.
For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and 56 Table of Contents estimated home price levels. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset.
Management believes the policies which more significantly rely on estimates and judgments to be as follows: 57 Table of Contents Fair Value Measurements - Residential Whole Loans GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy.
Management believes the policies which more significantly rely on estimates and judgments to be as follows: Fair Value Measurements - Residential Whole Loans GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy.
We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business. Our GAAP book value per common share was $13.98 as of December 31, 2023.
We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business. Our GAAP book value per common share was $13.39 as of December 31, 2024.
For a discussion related to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7.
For a discussion related to our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2022, which was filed with the SEC on February 24, 2023, and is available on the SEC’s website at www.sec.gov and on our website at www.mfafinancial.com.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2023, which was filed with the SEC on February 22, 2024, and is available on the SEC’s website at www.sec.gov and on our website at www.mfafinancial.com.
For the quarters ended September 30, 2023, June 30, 2023, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total assets. (2) Reflects annualized net income divided by average total stockholders’ equity.
For the quarters ended September 30, 2023, and June 30, 2023, the amounts calculated reflect the quarterly net income divided by average total assets. (2) Reflects annualized net income divided by average total stockholders’ equity. For the quarters ended September 30, 2023, and June 30, 2023, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity.
At December 31, 2023 and 2022, we had REO with an aggregate carrying value of $110.2 million and $130.6 million, respectively, which is included in Other assets on our consolidated balance sheets.
At December 31, 2024 and 2023, we had REO with an aggregate carrying value of $130.9 million and $110.2 million, respectively, which is included in Other assets on our consolidated balance sheets.
Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $14.57 as of December 31, 2023, a decrease from $15.55 as of December 31, 2022.
Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $13.93 as of December 31, 2024, a decrease from $14.57 as of December 31, 2023.
(4) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements as a multiple of net equity allocated. 42 Table of Contents Residential Whole Loans The following table presents the contractual maturities of our residential whole loan portfolios at December 31, 2023. Amounts presented do not reflect estimates of prepayments or scheduled amortization.
(2) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements as a multiple of net equity allocated. 43 Table of Contents Residential Whole Loans The following table presents the contractual maturities of our residential whole loan portfolios at December 31, 2024. Amounts presented do not reflect estimates of prepayments or scheduled amortization.
As a result, the income recognized from securitization and re-securitization transactions may differ for tax and GAAP purposes. Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS) We estimate that for 2023, our net TRS taxable loss will be $24.3 million.
As a result, the income recognized from securitization and re-securitization transactions may differ for tax and GAAP purposes. Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS) We estimate that for 2024, our net TRS taxable income (loss) will be $7.4 million.
Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income. 45 Table of Contents Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income. Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.
During 2023, we paid $143.1 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $32.9 million on our preferred stock.
During 2024, we paid $143.9 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $32.9 million on our preferred stock.
Average yields are derived by dividing interest income by the average amortized cost of the related assets, and average costs are derived by dividing interest expense by the daily average balance of the related liabilities, for the periods shown. The yields and costs include premium amortization and purchase discount accretion which are considered adjustments to interest rates.
Average yields are derived by dividing interest income by the average amortized cost of the related assets, and average costs are derived by dividing interest expense by the average balance of the related liabilities, for the periods shown. The yields and costs may include premium amortization and discount accretion which are considered adjustments to interest income or expense.
The changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “Interest Income” and “Interest Expense.” For 2023, our net interest spread and margin (including the impact of swaps) were 2.05% and 2.90%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 1.74% and 2.52%, respectively, for 2022.
The changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “Interest Income” and “Interest Expense.” For 2024, our net interest spread and margin (including the impact of swaps) were 2.10% and 2.91%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.05% and 2.90%, respectively, for 2023.
As of December 31, 2023, we had $2.4 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $6.1 billion of total unpaid principal balance related to asset-backed financing agreements that do not include mark-to-market collateral provisions.
As of December 31, 2024, we had $2.6 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $6.5 billion of total unpaid principal balance related to asset-backed financing agreements that do not include mark-to-market collateral provisions.
Net interest income for 2023 also includes approximately $13.1 million of additional interest income from other interest earning assets and cash compared to the prior year period. 48 Table of Contents Analysis of Net Interest Income The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2023 and 2022 .
Net interest income for 2024 also includes approximately $4.0 million of additional interest income from cash and other interest earning assets compared to 2023. 48 Table of Contents Analysis of Net Interest Income The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2024 and 2023 .
(2) Includes draws on previously originated Transitional loans. (3) Primarily includes sales, changes in fair value and changes in the allowance for credit losses. At December 31, 2023, our total recorded investment in residential whole loans and REO was $9.2 billion, or 92.5% of our residential mortgage asset portfolio.
(2) Includes draws on previously originated Transitional loans. (3) Primarily includes sales, changes in fair value and changes in the allowance for credit losses. 41 Table of Contents At December 31, 2024, our total recorded investment in residential whole loans and REO was $8.9 billion, or 85.3% of our residential mortgage asset portfolio.
We held $7.5 billion and $5.7 billion of residential whole loans, at fair value, at December 31, 2023 and 2022, respectively, which represented 69.7% and 62.9% of our total assets at those dates, respectively.
We held $7.5 billion and $7.5 billion of residential whole loans, at fair value, at December 31, 2024 and 2023, respectively, which represented 65.8% and 69.7% of our total assets at those dates, respectively.
Residential whole loans, at fair value recorded valuation changes of $89.9 million, $866.8 million and $16.2 million during the years ended December 31, 2023, 2022, and 2021, respectively.
Residential whole loans, at fair value recorded valuation changes of $46.0 million, $89.9 million and $866.8 million during the years ended December 31, 2024, 2023, and 2022, respectively.
For example: a) while our REIT uses fair value accounting for GAAP in some instances, it generally is not used for purposes of determining taxable income; b) impairments generally are not recognized by us for income tax purposes until the asset is written-off or sold; c) capital losses may only be recognized by us to the extent of its capital gains; capital losses in excess of capital gains generally are carried over 44 Table of Contents by us for potential offset against future capital gains; and d) tax hedge gains and losses resulting from the termination of Swaps by us generally are amortized over the remaining term of the Swap.
For example: a) while our REIT uses fair value accounting for GAAP in some instances, it generally is not used for purposes of determining taxable income; b) impairments generally are not recognized by us for income tax purposes until the asset is written-off or sold; c) capital losses may only be recognized by us to the extent of its capital gains; capital losses in excess of capital gains generally are carried over by us for potential offset against future capital gains; and d) tax hedge gains and losses resulting from the termination of Swaps by us generally are amortized over the remaining term of the Swap. 45 Table of Contents Securitization Generally, securitization transactions for GAAP and tax can be characterized as either sales or financings, depending on transaction type, structure and available elections.
The reversal of provision recorded in the current period primarily reflects updated modeling assumptions, as well as the run-off of loans held at carrying value, partially offset by the impact of loan charge-offs.
The reversal of provision recorded in 2024 primarily reflects the run-off of loans held at carrying value and minor changes to modeling assumptions. The prior period reversal primarily reflects updated modeling assumptions, as well as the run-off of loans held at carrying value, partially offset by the impact of loan charge-offs.
Provision for Credit Losses on Residential Whole Loans Held at Carrying Value For 2023, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $8.9 million compared to a reversal of provision of $2.6 million for 2022.
Provision for Credit Losses on Residential Whole Loans Held at Carrying Value For 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $3.1 million compared to a reversal of provision of $8.9 million for 2023.
Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid.
Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid.
For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points. For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points. For the quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points.
For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 basis points. For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points. For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points.
During the year we generated GAAP earnings per share (or EPS) of $0.46 per common share and Distributable Earnings, a non-GAAP financial measure that excludes the impact of fair value changes and certain other items, of $1.59 per common share and declared dividends of $1.40 per common share.
During the year we generated GAAP earnings per share (or EPS) of $0.83 per basic common share and Distributable earnings, a non-GAAP financial measure that excludes the impact of fair value changes and certain other items, of $1.57 per basic common share.
This increase primarily reflects an increase in the average amortized cost of the portfolio of $362.2 million due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 7.57% for 2023, compared to 14.67% for 2022.
This increase primarily reflects an increase in the average amortized cost of the portfolio of $368.5 million due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 6.59% for 2024, compared to 7.57% for 2023.
With respect to investments in Purchased Performing Loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss.
With respect to investments in Business purpose and Non-QM loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss.
We held $1.5 billion and $1.8 billion of residential whole loans, at carrying value, at December 31, 2023 and 2022, respectively, which represented 14.2% and 19.7% of our total assets at those dates, respectively.
We held $1.3 billion and $1.5 billion of residential whole loans, at carrying value, at December 31, 2024 and 2023, respectively, which represented 11.4% and 14.2% of our total assets at those dates, respectively.
CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general.
CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general. In particular, CPR presents the annualized constant rate of principal repayment in excess of scheduled principal amortization.
Other non-repurchase agreement financing arrangements also contain provisions governing collateral maintenance. At December 31, 2023, we had unused financing capacity of approximately $2.4 billion across our financing arrangements for all collateral types.
Other non-repurchase 58 Table of Contents agreement financing arrangements also contain provisions governing collateral maintenance. At December 31, 2024, we had unused financing capacity of approximately $3.8 billion across our financing arrangements for all collateral types.
At December 31, 2023, we had a total of $3.9 billion of residential whole loans and securities and $19.0 million of restricted cash pledged to our financing counterparties. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements.
At December 31, 2024, we had a total of $1.8 billion of residential whole loans, $1.4 billion of securities and $17.0 million of restricted cash pledged to our financing counterparties, excluding securitized debt. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements.
Margin calls/reverse margin calls are satisfied when we pledge/receive additional collateral in the form of additional assets and/or cash. 61 Table of Contents The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented: Collateral Pledged for Margin Cash and Securities Received for Reverse Margin Net Assets Received/(Pledged) for Margin Activity For the Quarter Ended (1) Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged for Margin (In Thousands) December 31, 2023 $ 10,616 $ 4,085 $ 14,701 $ 23,060 $ 8,359 September 30, 2023 35,690 4,363 40,053 34,846 (5,207) June 30, 2023 5,982 2,909 8,891 5,328 (3,563) March 31, 2023 676 2,965 3,641 6,529 2,888 (1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract.
The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented: Collateral Pledged for Margin Activity Cash and Securities Received for Reverse Margin Net Assets Received/(Pledged) for Margin Activity For the Quarter Ended (1) Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged for Margin (In Thousands) December 31, 2024 $ 30,607 $ 30,806 $ 61,413 $ 36,992 $ (24,421) September 30, 2024 7,368 7,076 14,444 15,361 917 June 30, 2024 — 6,795 6,795 17,348 10,553 March 31, 2024 17,379 3,358 20,737 16,514 (4,223) December 31, 2023 10,616 4,085 14,701 23,060 8,359 September 30, 2023 35,690 4,363 40,053 34,846 (5,207) June 30, 2023 5,982 2,909 8,891 5,328 (3,563) March 31, 2023 676 2,965 3,641 6,529 2,888 (1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract.
In addition, for the year ended December 31, 2023, the repayment rate (which includes both voluntary and involuntary repayments of principal) was 38.0% for our Transitional loans. It is generally our business strategy to hold our residential mortgage assets as long-term investments.
In addition, for the year ended December 31, 2024, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 60.6% for our Single-family transitional loans and 24.4% for our Multifamily transitional loans. It is generally our business strategy to hold our residential mortgage assets as long-term investments.
The following table provides a reconciliation of our GAAP book value per common share to our non-GAAP Economic book value per common share as of the quarterly periods below: Quarter Ended: (In Millions, Except Per Share Amounts) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 GAAP Total Stockholders’ Equity $ 1,899.9 $ 1,848.5 $ 1,944.8 $ 2,018.6 $ 1,988.8 $ 2,033.9 $ 2,146.4 $ 2,349.0 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share 1,424.9 1,373.5 1,469.8 1,543.6 1,513.8 1,558.9 1,671.4 1,874.0 Adjustments: Fair value adjustment to Residential whole loans, at carrying value (35.6) (85.3) (58.3) (33.9) (70.2) (58.2) 9.5 54.0 Fair value adjustment to Securitized debt, at carrying value 95.6 122.5 129.8 122.4 139.7 109.6 75.4 47.7 Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) $ 1,484.9 $ 1,410.7 $ 1,541.3 $ 1,632.1 $ 1,583.3 $ 1,610.3 $ 1,756.3 $ 1,975.7 GAAP book value per common share $ 13.98 $ 13.48 $ 14.42 $ 15.15 $ 14.87 $ 15.31 $ 16.42 $ 17.84 Economic book value per common share (1) $ 14.57 $ 13.84 $ 15.12 $ 16.02 $ 15.55 $ 15.82 $ 17.25 $ 18.81 Number of shares of common stock outstanding 101.9 101.9 101.9 101.9 101.8 101.8 101.8 105.0 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements include the accounts of all of our subsidiaries.
The following table provides a reconciliation of our GAAP book value per common share to our non-GAAP Economic book value per common share as of the quarterly periods below: Quarter Ended: (In Millions, Except Per Share Amounts) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 GAAP Total Stockholders’ Equity $ 1,841.8 $ 1,880.5 $ 1,883.2 $ 1,884.2 $ 1,899.9 $ 1,848.5 $ 1,944.8 $ 2,018.6 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share 1,366.8 1,405.5 1,408.2 1,409.2 1,424.9 1,373.5 1,469.8 1,543.6 Adjustments: Fair value adjustment to Residential whole loans, at carrying value (15.3) 6.7 (26.8) (35.4) (35.6) (85.3) (58.3) (33.9) Fair value adjustment to Securitized debt, at carrying value 70.3 64.3 82.3 88.4 95.6 122.5 129.8 122.4 Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) $ 1,421.8 $ 1,476.5 $ 1,463.7 $ 1,462.2 $ 1,484.9 $ 1,410.7 $ 1,541.3 $ 1,632.1 GAAP book value per common share $ 13.39 $ 13.77 $ 13.80 $ 13.80 $ 13.98 $ 13.48 $ 14.42 $ 15.15 Economic book value per common share $ 13.93 $ 14.46 $ 14.34 $ 14.32 $ 14.57 $ 13.84 $ 15.12 $ 16.02 Number of shares of common stock outstanding 102.1 102.1 102.1 102.1 101.9 101.9 101.9 101.9 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements include the accounts of all of our subsidiaries.
This increase primarily reflects an increase in the yield to 6.15% for 2023 from 5.19% for 2022 and a $233.5 million increase in the average balance of this portfolio to $8.7 billion for 2023 from $8.5 billion for 2022.
This increase primarily reflects an increase in the yield to 6.74% for 2024 from 6.15% for 2023 and a $0.7 billion increase in the average balance of this portfolio to $9.4 billion for 2024 from $8.7 billion for 2023.
The value of securities pledged as collateral fluctuates reflecting changes in: (i) the face (or par) value of our assets; (ii) market interest rates and/or other market conditions; and (iii) the market value of our Swaps.
The value of securities pledged as collateral fluctuates reflecting changes in: (i) the face (or par) value of our assets; (ii) market interest rates and/or other market conditions; and (iii) the market value of our Swaps. Margin calls and reverse margin calls are satisfied when we pledge or receive additional collateral in the form of additional assets and/or cash.
On December 13, 2023, we declared our fourth quarter 2023 dividend on our common stock of $0.35 per share; on January 31, 2024, we paid this dividend, which totaled approximately $35.8 million, including dividend equivalents of approximately $119,000.
On December 11, 2024, we declared our fourth quarter 2024 dividend on our common stock of $0.35 per share; on January 31, 2025, we paid this dividend, which totaled approximately $36.0 million, including dividend equivalents of approximately $0.3 million. 60 Table of Contents
Where a securitization has been characterized as a sale, gain or loss is recognized for tax purposes. In addition, we own or may in the future acquire interests in securitization and/or re-securitization trusts, in which several of the classes of securities are or will be issued with original issue discount (or OID).
In addition, we own or may in the future acquire interests in securitization and/or re-securitization trusts, in which several of the classes of securities are or will be issued with original issue discount (or OID).
No such provision was recorded for 2023. Other Income/(Loss), net For 2023, Other Income/(Loss), net was $63.1 million, compared to an Other Income/(Loss), net of $(265.3) million for 2022.
No such provision was recorded for 2023. 52 Table of Contents Other Income/(Loss), net For 2024, Other Income/(Loss), net was $85.4 million, compared to an Other Income/(Loss), net of $63.1 million for 2023.
In addition, at December 31, 2023, we had approximately $746.1 million in investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.
In addition, at December 31, 2024, we had approximately $1.5 billion or 13% of total assets invested in investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.
(2) Reflects annualized net interest income (including net swap income or expense) divided by average interest-earning assets. 50 Table of Contents The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented: Quarter Ended December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Purchased Performing Loans Net Yield (1) 6.22 % 6.06 % 5.66 % 5.38 % 5.04 % 4.75 % 4.20 % 4.18 % Cost of Funding (2) 4.43 % 4.23 % 3.97 % 3.95 % 3.70 % 3.60 % 3.28 % 2.74 % Net Interest Spread 1.79 % 1.83 % 1.69 % 1.43 % 1.34 % 1.15 % 0.92 % 1.44 % Purchased Credit Deteriorated Loans Net Yield (1) 6.49 % 6.63 % 7.09 % 6.13 % 6.59 % 6.49 % 6.85 % 6.79 % Cost of Funding (2) 2.68 % 2.43 % 1.98 % 2.23 % 2.13 % 2.72 % 3.17 % 2.88 % Net Interest Spread 3.81 % 4.20 % 5.11 % 3.90 % 4.46 % 3.77 % 3.68 % 3.91 % Purchased Non-Performing Loans Net Yield (1) 9.65 % 9.59 % 10.11 % 8.46 % 11.15 % 9.84 % 9.40 % 9.82 % Cost of Funding (2) 3.63 % 3.65 % 3.53 % 3.53 % 3.01 % 2.86 % 3.34 % 3.09 % Net Interest Spread 6.02 % 5.94 % 6.58 % 4.93 % 8.14 % 6.98 % 6.06 % 6.73 % Total Residential Whole Loans Net Yield (1) 6.47 % 6.34 % 6.10 % 5.68 % 5.62 % 5.30 % 4.85 % 4.94 % Cost of Funding (2) 4.29 % 4.10 % 3.83 % 3.82 % 3.56 % 3.49 % 3.28 % 2.79 % Net Interest Spread 2.18 % 2.24 % 2.27 % 1.86 % 2.06 % 1.81 % 1.57 % 2.15 % (1) Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans.
(2) Reflects annualized net interest income (including net swap income or expense) divided by average interest-earning assets. 50 Table of Contents The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented: Quarter Ended December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Business Purpose Loans Net Yield (1) 7.73 % 7.91 % 7.99 % 7.66 % 7.48 % 7.21 % 6.88 % 6.62 % Cost of Funding (2) 5.59 % 5.65 % 5.80 % 5.67 % 5.55 % 5.34 % 5.01 % 4.81 % Net Interest Spread 2.14 % 2.26 % 2.19 % 1.99 % 1.93 % 1.87 % 1.87 % 1.81 % Non-QM Loans Net Yield (1) 5.63 % 5.47 % 5.49 % 5.39 % 5.06 % 5.10 % 4.69 % 4.64 % Cost of Funding (2) 3.76 % 3.47 % 3.55 % 3.44 % 3.34 % 3.22 % 3.07 % 3.05 % Net Interest Spread 1.87 % 2.00 % 1.94 % 1.95 % 1.72 % 1.88 % 1.62 % 1.59 % Legacy RPL/NPL Loans Net Yield (1) 7.52 % 7.75 % 8.72 % 7.62 % 8.25 % 8.23 % 8.69 % 7.39 % Cost of Funding (2) 4.04 % 4.08 % 3.70 % 3.44 % 3.28 % 3.21 % 2.96 % 3.06 % Net Interest Spread 3.48 % 3.67 % 5.02 % 4.18 % 4.97 % 5.02 % 5.73 % 4.33 % Total Residential Whole Loans Net Yield (1) 6.65 % 6.74 % 6.92 % 6.63 % 6.47 % 6.34 % 6.10 % 5.68 % Cost of Funding (2) 4.50 % 4.45 % 4.54 % 4.43 % 4.29 % 4.10 % 3.83 % 3.82 % Net Interest Spread 2.15 % 2.29 % 2.38 % 2.20 % 2.18 % 2.24 % 2.27 % 1.86 % (1) Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans.
Book value per common share decreased from $14.87 as of December 31, 2022.
Book value per common share decreased from $13.98 as of December 31, 2023.
Our residential mortgage investments have longer-term contractual maturities than our non-securitization related financing liabilities, and the interest rates we pay on our non-securitization related financings will typically change at a faster pace than the interest rates we earn on our investments.
Our residential mortgage investments have longer-term contractual maturities than our non-securitization related financing liabilities, and the interest rates we pay on our non-securitization related financings will typically change at a faster pace than the interest rates we earn on our investments. In order to reduce this interest rate risk exposure, we may enter into derivative instruments, which currently include Swaps.
For 2023, net interest income includes lower net interest income from our residential whole loan portfolio of $51.1 million compared to 2022, primarily due to higher rates paid on our financing agreement borrowings partially offset by higher asset yields and higher amounts invested in the loan portfolio.
For 2024, net interest income includes higher net interest income from our residential whole loan portfolio of $27.2 million compared to 2023, primarily due to higher asset yields and higher amounts invested in the loan portfolio, partially offset by an increase in average balance and financing rates for our securitized debt.
For the quarter ended March 31, 2022, this increased the overall funding cost by 35 basis points for our Residential whole loans, 33 basis points for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basis points for our Purchased Non-Performing Loans. 51 Table of Contents The following table presents the components of the net interest spread earned on our Securities for the quarterly periods presented: Securities, at fair value Quarter Ended Net Yield (1)(2) Cost of Funding (3) Net Interest Rate Spread December 31, 2023 7.20 % 3.75 % 3.45 % September 30, 2023 7.38 3.92 3.46 June 30, 2023 7.67 4.29 3.38 March 31, 2023 8.76 4.52 4.24 December 31, 2022 30.33 5.47 24.86 September 30, 2022 11.06 3.94 7.12 June 30, 2022 10.09 2.54 7.55 March 31, 2022 10.13 1.72 8.41 (1) Reflects annualized interest income divided by average amortized cost.
For the quarter ended March 31, 2023, this increased the overall funding cost by 127 basis points for our Residential whole loans, 100 basis points for our Business purpose loans, 161 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. 51 Table of Contents The following table presents the components of the net interest spread earned on our Securities for the quarterly periods presented: Securities, at fair value Quarter Ended Net Yield (1) Cost of Funding (2) Net Interest Rate Spread December 31, 2024 6.05 % 3.34 % 2.71 % September 30, 2024 6.48 3.94 2.54 June 30, 2024 7.03 3.84 3.19 March 31, 2024 7.24 4.00 3.24 December 31, 2023 7.20 3.75 3.45 September 30, 2023 7.38 3.92 3.46 June 30, 2023 7.67 4.29 3.38 March 31, 2023 8.76 4.52 4.24 (1) Reflects annualized interest income divided by average amortized cost.
Further, we believe the discounted purchase prices paid on Purchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that we receive less than 100% of the par value of these investments.
Further, we believe the discounted purchase prices paid on Legacy RPL/NPL loans mitigate our risk of loss in the event that we receive less than 100% of the unpaid principal balance of these investments.
Interest income on our Securities, at fair value portfolio increased $13.5 million to $42.4 million for 2023 from $28.9 million for 2022.
Interest income on our Securities, at fair value portfolio for 2024 increased $18.7 million to $61.1 million from $42.4 million for 2023.
Cost of funding shown in the table above for the quarterly periods ended December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023 includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value.
(2) Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value.
During the year ended December 31, 2023, we repurchased $20.4 million principal amount of the Convertible Senior Notes for $20.2 million and recorded a gain of $89,000 to Other Income/(Loss), net on the consolidated statement of operations. At December 31, 2023, the aggregate principal amount of the our Convertible Senior Notes outstanding was $209.6 million.
During the year ended December 31, 2023, we repurchased $20.4 million principal amount of the Convertible Senior Notes for $20.2 million and recorded a gain of $0.1 million to Other Income/(Loss), net on the consolidated statement of operations. During the three months ended June 30, 2024, the Convertible Senior Notes matured and we repaid the amount in full.
The ratio has not been calculated for periods where earnings per share is negative as the calculations are not meaningful. (4) Reflects total average stockholders’ equity divided by total average assets. (5) Represents the sum of our borrowings under financing agreements and payable for unsettled purchases divided by stockholders’ equity.
(3) Reflects dividends declared per share of common stock divided by earnings per share. The ratio has not been calculated for periods where earnings per share is negative as the calculations are not meaningful. (4) Reflects total average stockholders’ equity divided by total average assets.
Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (or Non-QM loans), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the properties (or Transitional loans), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (or Single-family rental loans), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) loans on which a borrower was previously delinquent but has resumed repaying (or RPLs) and loans on which the borrower continues to be more than 60 days delinquent with respect to payment (non-performing loans or NPLs).
Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, with Single-family transitional loans, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans,” which are included in “Other loans”).
For additional information regarding our residential whole loan portfolios, including information about delinquency trends, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. 43 Table of Contents Securities, at Fair Value The following table presents information with respect to our Securities, at fair value at December 31, 2023 and December 31, 2022: (Dollars in Thousands) December 31, 2023 December 31, 2022 Agency MBS Face/Par $ 554,300 $ 131,165 Fair Value 559,144 131,700 Amortized Cost 555,624 132,025 Weighted average yield (2) 5.59 % N/A (1) Weighted average time to maturity 29.3 years 30.0 years Term notes backed by MSR collateral Face/Par $ 85,000 $ 105,000 Fair Value 79,895 97,898 Amortized Cost 74,184 86,399 Weighted average yield (2) 16.96 % 14.30 % Weighted average time to maturity 1.8 years 0.8 years CRT Securities Face/Par $ 79,617 $ 80,791 Fair Value 83,222 79,214 Amortized Cost 68,971 70,438 Weighted average yield (2) 10.30 % 9.96 % Weighted average time to maturity 17.9 years 19.0 years Non-Agency MBS Face/Par $ 28,485 $ 29,858 Fair Value 23,828 24,552 Amortized Cost 23,482 24,552 Weighted average yield (2) 5.84 % N/A (1) Weighted average time to maturity 27.8 years 28.8 years (1) These securities were acquired at the end of the reporting period and, therefore, no interest income was recorded with respect to these securities in 2022.
For additional information regarding our residential whole loan portfolios, including information about delinquency trends, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. 44 Table of Contents Securities, at Fair Value The following table presents information with respect to our Securities, at fair value at December 31, 2024 and December 31, 2023: (Dollars in Thousands) December 31, 2024 December 31, 2023 Agency MBS Face/Par $ 1,403,891 $ 554,300 Fair Value 1,392,635 559,144 Amortized Cost 1,405,900 555,624 Weighted average yield (1) 5.45 % 5.59 % Weighted average time to maturity 29.1 years 29.3 years Term notes backed by MSR collateral Face/Par $ 55,000 $ 85,000 Fair Value 54,588 79,895 Amortized Cost 50,639 74,184 Weighted average yield (1) 13.95 % 16.96 % Weighted average time to maturity 0.8 years 1.8 years CRT securities Face/Par $ 64,602 $ 79,617 Fair Value 67,642 83,222 Amortized Cost 58,930 68,971 Weighted average yield (1) 9.35 % 10.30 % Weighted average time to maturity 15.0 years 17.9 years Non-Agency MBS Face/Par $ 27,206 $ 28,485 Fair Value 22,648 23,828 Amortized Cost 22,633 23,482 Weighted average yield (1) 5.67 % 5.84 % Weighted average time to maturity 26.8 years 27.8 years (1) Weighted average yield is annualized interest income divided by average amortized cost for Securities, at fair value held at December 31, 2024 and December 31, 2023.
Accordingly, all share and per share data included in the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split. For all periods presented, all share and per share data have been adjusted on a retroactive basis to reflect the effect of the Reverse Stock Split.
On April 4, 2022, we effected a one-for-four reverse stock split of our issued and outstanding shares of common stock (or the Reverse Stock Split). Accordingly, all share and per share data included in the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split.
At December 31, 2022, we had borrowings under asset-backed financing agreements of $3.2 billion, of which $3.1 billion were secured by residential whole loans, $111.7 million were secured by securities and $25.5 million were secured by REO. In addition, at December 31, 2022, we had securitized debt of $3.4 billion in connection with our loan securitization transactions.
Our recourse leverage multiple at December 31, 2024 and December 31, 2023 was 1.7 times. At December 31, 2024, we had borrowings under asset-backed financing agreements of $3.2 billion, of which $1.9 billion were secured by residential whole loans, $1.3 billion were secured by securities and $25.4 million were secured by REO.
The components of Other (Loss)/Income, net for 2023 and 2022 are summarized in the table below: For the Year Ended December 31, (In Thousands) 2023 2022 Net gain/(loss) on residential whole loans measured at fair value through earnings $ 89,850 $ (866,762) Impairment and other net gain/(loss) on securities and other portfolio investments 6,225 (25,067) Net gain on real estate owned 9,392 25,379 Net gain/(loss) on derivatives used for risk management purposes 3,761 255,179 Net gain/(loss) on securitized debt measured at fair value through earnings (99,589) 290,639 Lima One - origination, servicing and other fee income 43,384 46,745 Net realized loss on residential whole loans held at carrying value (1,240) — Other, net 11,331 8,623 Other Income/(Loss), net $ 63,114 $ (265,264) Operating and Other Expense During 2023, we had compensation and benefits and other general and administrative expenses of $129.9 million, compared to $111.9 million for 2022.
The components of Other (Loss)/Income, net for 2024 and 2023 are summarized in the table below: For the Year Ended December 31, (In Thousands) 2024 2023 Net gain/(loss) on residential whole loans measured at fair value through earnings $ 45,994 $ 89,850 Impairment and other net gain/(loss) on securities and other portfolio investments (10,869) 6,225 Net gain/(loss) on real estate owned 3,136 9,392 Net gain/(loss) on derivatives used for risk management purposes 78,503 3,761 Net gain/(loss) on securitized debt measured at fair value through earnings (64,813) (99,589) Lima One mortgage banking income 32,944 43,384 Net realized gain/(loss) on residential whole loans held at carrying value 418 (1,240) Other, net 115 11,331 Other Income/(Loss), net $ 85,428 $ 63,114 Operating and Other Expense Operating and other expenses are composed of compensation and benefits, other general and administrative, loan servicing and other related operating expenses and amortization of Lima One intangible assets.
This increase in net income available to common stock and participating securities primarily reflects higher Other Income/(Loss), net, of $328.4 million, primarily driven by mark-to-market gains in the current period on our residential whole loans that are measured at fair value through earnings, partially offset by lower net gains on derivatives used for risk management purposes and unrealized losses on securitized debt measured at fair value through earnings.
Higher Other Income/Loss was primarily driven by mark-to-market gains in 2024 compared with losses in 2023 on derivatives used for risk management purposes and lower losses on securitized debt 47 Table of Contents measured at fair value through earnings, partially offset by lower realized losses and lower unrealized gains on our residential whole loans that are measured at fair value through earnings, realized losses on the unwind of derivatives used for risk management purposes, mark-to-market losses in 2024 compared with gains in 2023 on fair value option securities and lower Lima One mortgage banking income.
In addition, Other expenses for 2023 and 2022 also includes $4.2 million and $9.2 million, respectively, of amortization related to intangible assets recognized as part of the purchase accounting for the Lima One acquisition. 53 Table of Contents Selected Financial Ratios The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) Total Average Stockholders’ Equity to Total Average Assets (4) Leverage Multiple (5) Recourse Leverage Multiple (6) December 31, 2023 3.46 % 19.04 % 0.44 18.16 % 4.5 1.7 September 30, 2023 (0.56) (2.96) — 19.10 4.3 2.0 June 30, 2023 (0.27) (1.31) — 20.99 3.9 1.9 March 31, 2023 3.14 14.40 0.56 21.81 3.5 1.6 December 31, 2022 0.29 1.32 — 21.59 3.5 1.8 September 30, 2022 (0.58) (2.57) — 22.53 3.6 1.7 June 30, 2022 (1.06) (4.35) — 24.33 3.3 1.8 March 31, 2022 (0.89) (3.33) — 26.63 3.1 1.9 (1) Reflects annualized net income divided by average total assets.
These expenses increased compared to 2023 by approximately $1.2 million, or 3.4%, primarily due to higher non-recoverable advances and upfront costs on securitization. 53 Table of Contents Selected Financial Ratios The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) Total Average Stockholders’ Equity to Total Average Assets (4) Leverage Multiple (5) Recourse Leverage Multiple (6) December 31, 2024 0.21 % 1.26 % — 16.41 % 5.0 1.7 September 30, 2024 1.74 10.17 0.92 17.10 4.8 1.8 June 30, 2024 1.52 8.85 1.09 17.14 4.7 1.7 March 31, 2024 0.85 4.69 2.50 18.23 4.6 1.8 December 31, 2023 3.46 19.04 0.44 18.16 4.5 1.7 September 30, 2023 (0.56) (2.96) — 19.10 4.3 2.0 June 30, 2023 (0.27) (1.31) — 20.99 3.9 1.9 March 31, 2023 3.14 14.40 0.56 21.81 3.5 1.6 (1) Reflects annualized net income divided by average total assets.
Certain of these arrangements are collateralized directly by our residential mortgage investments or otherwise have recourse to us, while securitized debt financing is non-recourse financing. Further, certain of our financing agreements contain terms that allow the lender to make margin calls on us based on changes in the value of the underlying collateral securing the borrowing.
Further, certain of our financing agreements contain terms that allow the lender to make margin calls on us based on changes in the value of the underlying collateral securing the borrowing.
Our net interest income, which does not include the benefit of swap carry, decreased by $47.1 million, or 21.1%, to $176.5 million from $223.6 million for 2022.
Our net interest income, which does not include the benefit of swap carry, increased by $26.3 million, or 14.9%, to $202.7 million from $176.5 million for 2023.
For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 142 basis points for our Purchased Performing Loans, 143 basis points for our Purchased Credit Deteriorated Loans, and 102 basis points for our Purchased Non-Performing Loans.
For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 105 basis points for our Business purpose loans, 177 basis points for our Non-QM loans, and 112 basis points for our Legacy RPL/NPL loans.
For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 146 basis points for our Purchased Performing Loans, 161 basis points for our Purchased Credit Deteriorated Loans, and 89 basis points for our Purchased Non-Performing Loans.
For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 113 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 111 basis points for our Legacy RPL/NPL loans.
The following table presents the activity for our residential mortgage asset portfolio for the year ended December 31, 2023: (In Millions) December 31, 2022 Runoff (1) Acquisitions (2) Other (3) December 31, 2023 Change Residential whole loans and REO $ 7,649 $ (1,505) $ 2,987 $ 20 $ 9,151 $ 1,502 Securities, at fair value 333 (33) 457 (11) 746 413 Totals $ 7,982 $ (1,538) $ 3,444 $ 9 $ 9,897 $ 1,915 (1) Primarily includes principal repayments and sales of REO.
The following table presents the activity for our residential mortgage asset portfolio for the year ended December 31, 2024: (In Millions) December 31, 2023 Runoff (1) Acquisitions & Originations (2) Other (3) December 31, 2024 Change Residential whole loans and REO $ 9,151 $ (2,239) $ 2,634 $ (604) $ 8,942 $ (209) Securities, at fair value 746 (83) 932 (57) 1,538 792 Totals $ 9,897 $ (2,322) $ 3,566 $ (661) $ 10,480 $ 583 (1) Primarily includes principal repayments and sales of REO.
For the Year Ended December 31, 2023 2022 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) Assets: Interest-earning assets (1) : Residential whole loans $ 8,740,248 $ 537,883 6.15 % $ 8,506,728 $ 441,223 5.19 % Securities, at fair value (2) 559,434 42,376 7.57 197,188 28,921 14.67 Cash and cash equivalents (3) 465,481 16,311 3.50 507,798 4,838 0.95 Other interest-earning assets 68,959 9,027 13.09 63,254 7,437 11.76 Total interest-earning assets 9,834,122 605,597 6.16 9,274,968 482,419 5.20 Liabilities: Interest-bearing liabilities: Collateralized financing agreements (4) $ 3,389,774 $ 246,598 7.18 % $ 3,511,565 $ 139,585 3.98 % Securitized debt (5) 4,168,322 166,919 4.00 3,456,319 103,498 2.99 Convertible Senior Notes 224,768 15,601 6.94 227,097 15,760 6.94 Total interest-bearing liabilities 7,782,864 429,118 5.47 7,194,981 258,843 3.60 Net interest income/net interest rate spread (6) 176,479 0.69 223,576 1.60 Impact of net swap carry (7) 107,154 1.36 10,042 0.14 Net interest rate spread (including the impact of Swaps) $ 283,633 2.05 % $ 233,618 1.74 % Net interest-earning assets/net interest margin (8) $ 2,051,258 2.90 % $ 2,079,987 2.52 % (1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses.
For the Year Ended December 31, 2024 2023 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) Assets: Interest-earning assets (1) : Residential whole loans $ 9,404,477 $ 633,556 6.74 % $ 8,740,248 $ 537,883 6.15 % Securities, at fair value 927,927 61,110 6.59 559,434 42,376 7.57 Cash and cash equivalents (2) 540,408 22,241 4.12 465,481 16,311 3.50 Other interest-earning assets 35,941 7,058 19.64 68,959 9,027 13.09 Total interest-earning assets 10,908,753 723,965 6.64 9,834,122 605,597 6.16 Liabilities: Interest-bearing liabilities: Securitized debt (3) $ 5,220,172 $ 251,582 4.82 % $ 4,168,322 $ 166,919 4.00 % Collateralized financing agreements (4) 3,490,693 248,444 7.00 3,389,774 246,598 7.18 Convertible Senior Notes 80,985 5,540 6.84 224,768 15,601 6.94 8.875% Senior Notes 107,914 10,603 9.83 — — — 9.00% Senior Notes 51,121 5,065 9.91 — — — Total interest-bearing liabilities 8,950,885 521,234 5.78 7,782,864 429,118 5.47 Net interest income/net interest rate spread (5) 202,731 0.86 176,479 0.69 Impact of net swap carry (6) 112,771 1.24 107,154 1.36 Net interest rate spread (including the impact of Swaps) $ 315,502 2.10 % $ 283,633 2.05 % Net interest-earning assets/net interest margin (7) $ 1,957,868 2.91 % $ 2,051,258 2.90 % (1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following table presents the five largest geographic concentrations by state of our residential whole loan portfolio at December 31, 2023: Property Location Percent of Interest-Bearing Unpaid Principal Balance California 27.1 % Florida 12.6 % Texas 7.2 % Georgia 5.3 % New York 5.0 % CRT Securities We are exposed to potential credit losses from our investments in CRT securities issued by or sponsored by Fannie Mae and Freddie Mac.
Biggest changeExcluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots for which the LTV ratio is not meaningful. 63 Table of Contents The following table presents the five largest geographic concentrations by state of certain of our residential whole loan portfolio and in total at December 31, 2024: Business purpose loans Non-QM loans Legacy RPL/NPL loans All Loans Rank State Percent of UPB State Percent of UPB State Percent of UPB State Percent of UPB 1 FL 11.4% CA 48.3% CA 22.1% CA 27.5% 2 TX 10.8% FL 17.5% NY 16.4% FL 13.7% 3 GA 9.0% TX 5.2% FL 7.4% TX 7.0% 4 NY 6.4% AZ 3.1% NJ 7.1% NY 5.4% 5 NC 5.9% WA 2.5% MD 5.1% GA 4.5% CRT securities We are exposed to potential credit losses from our investments in CRT securities issued by or sponsored by Fannie Mae and Freddie Mac.
Certain assumptions have been made in connection with the calculation of the information set forth in the Shock Table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at December 31, 2023 and 2022.
Certain assumptions have been made in connection with the calculation of the information set forth in the Shock Table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at December 31, 2024 and 2023.
The Shock Table quantifies the potential changes in net interest income and portfolio value, which includes the value of our derivative and other hedging transactions (if any) and securitized and other fixed rate debt, (which are carried at fair value), should interest rates immediately change (i.e., are shocked).
The Shock Table quantifies the potential changes in portfolio value, which includes the value of our derivative and other hedging transactions (if any) and securitized and other fixed rate debt, (which are carried at fair value), should interest rates immediately change (i.e., are shocked).
Similarly, decreased prepayments are generally associated with increasing market interest rates and may slow our ability to redeploy capital to generally higher yielding investments. 67 Table of Contents
Similarly, decreased prepayments are generally associated with increasing market interest rates and may slow our ability to redeploy capital to generally higher yielding investments. 65 Table of Contents
The analysis presented 63 Table of Contents utilizes assumptions and estimates based on management’s judgment and experience. Furthermore, while we generally expect to retain the majority of our assets and the associated interest rate risk to maturity, future purchases and sales of assets could materially change our interest rate risk profile.
The analysis presented utilizes assumptions and estimates based on management’s judgment and experience. Furthermore, while we generally expect to retain the majority of our assets and the associated interest rate risk to maturity, future purchases and sales of assets could materially change our interest rate risk profile.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.53), which is the weighted average of (0.61) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (0.37) for our Securities investments, and zero for our Other assets and cash and cash equivalents.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.53), which is the weighted average of (0.53) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (0.93) for our Securities and zero for our Other assets and cash and cash equivalents.
Further, when liquidity tightens, our repurchase agreement counterparties may increase our collateral cushion (or margin) requirements on new financings, including repurchase agreement borrowings that we roll with the same counterparty, reducing our ability to use leverage. At December 31, 2023, we had access to various sources of liquidity, including $318.0 million of cash and cash equivalents.
Further, when liquidity tightens, our repurchase agreement counterparties may increase our collateral cushion (or margin) requirements on new financings, including repurchase agreement borrowings that we roll with the same counterparty, reducing our ability to use leverage. At December 31, 2024, we had access to various sources of liquidity, including $338.9 million of cash and cash equivalents.
For Transitional loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available.
For Single-family and Multifamily transitional loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available.
All changes in income and value are measured as the percentage change from the projected net interest income and portfolio value under the base interest rate scenario at December 31, 2023 and 2022.
All changes in value are measured as the percentage change from the projected portfolio value under the base interest rate scenario at December 31, 2024 and 2023.
For certain loans that were re-performing or non-performing when purchased and where the borrower has brought the loan current, but nonetheless may be less likely to prepay due to weak credit history and/or high LTV, we believe these loans exhibit positive duration.
For certain loans that were re-performing or non-performing when purchased and where the borrower has brought the loan current, but nonetheless may be less likely to prepay due to weak credit history and/or high LTV, we believe these loans exhibit positive duration. We estimate the duration of these residential whole loans using management’s assumptions.
Credit risk on Purchased Performing Loans is mitigated through our process to underwrite the loan before it is acquired and/or originated and includes an assessment of the borrower’s financial condition and ability to repay the loan, nature of the collateral and relatively low LTV, including after-repair LTV for the majority of our Transitional loans.
Credit risk on our residential whole loans is mitigated through our process to underwrite the loan before it is acquired and/or originated and includes an assessment of the borrower’s financial condition and ability to repay the loan, nature of the collateral and relatively low LTV, including after-repair LTV for the majority of our Single-family and Multifamily transitional loans.
An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets. Fees payable by borrowers on the early repayment of certain of our Purchased Performing Loans serve to mitigate the impact on our income of higher prepayment rates.
An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets. Fees payable by borrowers on the early repayment of certain of our Business purpose and Non-QM loans serve to mitigate the impact on our income of higher prepayment rates.
(2) Change in estimated net portfolio value includes the effect of our interest rate swaps, securitized debt, and other fixed rate debt. (3) Includes the impact of the net carry on our Swaps.
(2) Change in estimated net portfolio value includes the effect of our interest rate swaps, securitized debt, and other fixed rate debt.
At December 31, 2022, the impact on portfolio value was approximated using estimated net effective duration (i.e., the price sensitivity to changes in interest rates), including the effect of securitized and other fixed rate debt, of 0.99, which is the weighted average of 3.69 for our Residential whole loans, 1.94 for our Securities investments, (2.85) for our derivative and other hedging transactions and securitized and other fixed rate debt, and 0.01 for our Other assets and cash and cash equivalents.
At December 31, 2024, the impact on portfolio value was approximated using estimated net effective duration (i.e., the price sensitivity to changes in interest rates), including the effect of securitized and other fixed rate debt, of 1.02, which is the weighted average of 3.48 for our Residential whole loans, 3.72 for our Securities investments, (2.66) for our derivative and other hedging transactions and securitized and other fixed rate debt, and 0.00 for our Other assets and cash and cash equivalents.
For certain Transitional loans, totaling $551.3 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68%.
For certain Multifamily transitional loans, totaling $252.1 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 69%.
Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance. Premiums paid are amortized against interest income and accretable purchase discounts on these investments are accreted to interest income.
Conversely, discounts arise when we acquire an MBS or loan at a price below below their unpaid principal balance. Premiums paid are amortized against interest income and accretable purchase discounts on these investments are accreted to interest income.
Our exposure to credit risk from our credit sensitive investments is discussed in more detail below: Residential Whole Loans We are exposed to credit risk from our investments in residential whole loans.
We do not believe we are exposed to credit risk in our Agency MBS portfolio. Our exposure to credit risk from our credit sensitive investments is discussed in more detail below: Residential Whole Loans We are exposed to credit risk from our investments in residential whole loans.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.49), which is the weighted average of (0.50) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (1.08) for our Securities and zero for our Other assets and cash and cash equivalents.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.49), which is the weighted average of (0.50) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (1.08) for our Securities investments, and zero for our Other assets and cash and cash equivalents. 62 Table of Contents CREDIT RISK We are exposed to credit risk through our credit sensitive residential mortgage investments, in particular residential whole loans and certain of our securities investments.
Non-Performing and Purchased Credit Deteriorated Loans are acquired at purchase prices that are generally discounted to the contractual loan balances based on a number of factors, including the impaired credit history 64 Table of Contents of the borrower and the value of the collateral securing the loan.
Legacy RPL/NPL loans are acquired at purchase prices that are generally discounted to the contractual loan balances based on a number of factors, including the impaired credit history of the borrower and the value of the collateral securing the loan.
Given the extent of home price appreciation that has occurred since the majority of our Purchased Performing Loans were acquired or originated, we estimate that current LTVs have decreased significantly, further mitigating the risk of material credit losses on this portfolio. Our investment process for Purchased Non-performing and Purchased Credit Deteriorated Loans is focused on quantifying and pricing credit risk.
Given the extent of home price appreciation that has occurred since the majority of our loans collateralized by single-family homes were acquired or originated, we estimate that current LTVs have decreased significantly, further mitigating the risk of material credit losses on this portfolio.
We assess the credit risk associated with our investments in CRT securities by assessing the current and expected future performance of the associated loan pool. 65 Table of Contents Term Notes Backed by MSR Collateral We have invested in certain term notes that are issued by special purpose vehicles (or SPVs) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.
Term Notes Backed by MSR Collateral We have invested in certain term notes that are issued by special purpose vehicles (or SPVs) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.
Purchase premiums, which are primarily carried on our Purchased Performing Loans (excluding Transitional loans that are typically purchased at par), are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity.
Purchase premiums, which are primarily carried on our Single-family rental and Non-QM loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity.
December 31, 2023 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Interest Income (3) Percentage Change in Portfolio Value (Dollars in Thousands) +100 Basis Point Increase $ (124,116) 0.91 % (1.17) % + 50 Basis Point Increase $ (55,474) 0.28 % (0.52) % Actual at December 31, 2023 $ — — % — % - 50 Basis Point Decrease $ 42,307 0.02 % 0.40 % -100 Basis Point Decrease $ 71,446 (1.31) % 0.68 % December 31, 2022 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Interest Income (3) Percentage Change in Portfolio Value (Dollars in Thousands) +100 Basis Point Increase $ (110,637) 1.53 % (1.27) % + 50 Basis Point Increase $ (49,483) 0.74 % (0.57) % Actual at December 31, 2022 $ — — % — % - 50 Basis Point Decrease $ 37,811 (0.19) % 0.43 % -100 Basis Point Decrease $ 63,950 (1.89) % 0.73 % (1) Assets in our portfolio include residential whole loans and REO, securities, other portfolio investments, goodwill, intangibles, receivables, and cash and cash equivalents and restricted cash.
December 31, 2024 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Portfolio Value Percentage Change in Total Stockholders’ Equity (Dollars in Thousands) +100 Basis Point Increase $ (145,759) (1.28) % (7.91) % + 50 Basis Point Increase $ (65,291) (0.57) % (3.54) % Actual at December 31, 2024 $ — — % — % - 50 Basis Point Decrease $ 50,113 0.44 % 2.72 % -100 Basis Point Decrease $ 85,049 0.75 % 4.62 % December 31, 2023 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Portfolio Value Percentage Change in Total Stockholders’ Equity (Dollars in Thousands) +100 Basis Point Increase $ (124,116) (1.17) % (6.53) % + 50 Basis Point Increase $ (55,474) (0.52) % (2.92) % Actual at December 31, 2023 $ — — % — % - 50 Basis Point Decrease $ 42,307 0.40 % 2.23 % -100 Basis Point Decrease $ 71,446 0.68 % 3.76 % (1) Assets in our portfolio include residential whole loans and REO, securities, other portfolio investments, goodwill, intangibles, receivables, and cash and cash equivalents and restricted cash.
While use of such derivatives does not extend the maturities of our borrowings under repurchase agreements, they do, in effect, lock in a fixed rate of interest over their term for a corresponding amount of our repurchase agreement financings that are hedged, or otherwise act as a hedge against changes in interest rates.
While use of such derivatives does not extend the maturities of our borrowings under repurchase agreements, they do, in effect, lock in a fixed rate of interest over their term for a corresponding amount of our repurchase agreement financings that are hedged, or otherwise act as a hedge against changes in interest rates. 61 Table of Contents Shock Table The information presented in the following “Shock Table” projects the potential impact of sudden parallel changes in interest rates on our portfolio value, including the impact of Swaps and securitized debt and other fixed rate debt, based on the assets in our investment portfolio at December 31, 2024 and 2023.
In addition, at December 31, 2023, we had $13.8 million of unencumbered residential whole loans. 66 Table of Contents PREPAYMENT RISK Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their aggregate principal balance.
Our sources of liquidity do not include restricted cash. In addition, at December 31, 2024, we had unencumbered residential whole loans and Agency MBS of $87.8 million and $75.0 million, respectively. 64 Table of Contents PREPAYMENT RISK Premiums arise when we acquire an MBS or loan at a price in excess of their unpaid principal balance.
Because these loans are primarily newly or recently originated performing loans, we believe these investments exhibit positive duration. Given the short duration of our Transitional loans, we believe the fair value of these loans exhibits little sensitivity to changes in interest rates. We estimate the duration of these Purchased Performing Loans held at carrying value using management’s assumptions.
Given the short duration of our Single-family and Multifamily transitional loans, we believe the fair value of these loans exhibits little sensitivity to changes in interest rates. We estimate the duration of these Business purpose and Non-QM loans using management’s assumptions.
We estimate the duration of these residential whole loans using management’s assumptions. 62 Table of Contents The fair value of our Purchased Performing Loans is typically dependent on the value of the underlying real estate collateral, as well as the level of interest rates.
The fair value of our Business purpose and Non-QM loans is typically dependent on the value of the underlying real estate collateral, as well as the level of interest rates. Because these loans are primarily newly or recently originated performing loans, we believe these investments exhibit positive duration.
Removed
Shock Table The information presented in the following “Shock Table” projects the potential impact of sudden parallel changes in interest rates on our net interest income and portfolio value, including the impact of Swaps and securitized debt and other fixed rate debt, based on the assets in our investment portfolio at December 31, 2023 and 2022.
Added
As a result of higher capitalization rates and an increasing supply of multifamily units in certain markets, we estimate that current LTVs on certain of our Multifamily transitional loans may have increased since origination, increasing the risk of credit losses on this portfolio. Our investment process for Legacy RPL/NPL loans is focused on quantifying and pricing credit risk.
Removed
The cash flows associated with our portfolio for each rate shock are calculated based on assumptions, including, but not limited to, prepayment speeds, yield on replacement assets, the slope of the yield curve and composition of our portfolio.
Added
The following table presents certain information about our Residential whole loans at December 31, 2024: Single-family transitional loans Multifamily transitional loans Single-family rental loans Non-QM loans Legacy RPL/NPL loans Loans with an LTV: Loans with an LTV: Loans with an LTV: Loans with an LTV: Loans with an LTV: (Dollars in Thousands) 80% or Below Above 80% 80% or Below Above 80% 80% or Below Above 80% 80% or Below Above 80% 80% or Below Above 80% Amortized cost $ 1,028,009 $ 80,179 $ 922,736 $ 55,326 $ 1,400,054 $ 23,277 $ 4,297,995 $ 223,090 $ 881,384 $ 119,911 Unpaid principal balance (UPB) $ 1,026,649 $ 79,983 $ 921,691 $ 55,272 $ 1,393,460 $ 23,245 $ 4,189,790 $ 218,870 $ 1,032,910 $ 189,348 Weighted average coupon (1) 10.5 % 9.7 % 9.2 % 9.1 % 6.4 % 5.5 % 6.5 % 7.0 % 5.2 % 5.0 % Weighted average term to maturity (months) 6 3 7 4 321 322 339 343 245 296 Weighted average LTV (2) 65 % 106 % 63 % 95 % 67 % 159 % 63 % 85 % 46 % 103 % Loans 90+ days delinquent UPB $ 69,044 $ 30,963 $ 53,613 $ 32,011 $ 29,872 $ 19,415 $ 103,638 $ 15,202 $ 165,673 $ 50,587 (1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category.
Removed
Assumptions made with respect to the interest rate sensitive liabilities include anticipated interest rates, collateral requirements as a percent of repurchase agreement financings, and the amounts and terms of borrowing. At December 31, 2023 and 2022, we applied a floor of 0% for all anticipated interest rates included in our assumptions.
Added
For certain Single-family transitional loans, totaling $445.6 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 73%.
Removed
Because the presence of this floor could limit the potential impact of an interest rate decrease in certain rate environments, hypothetical interest rate shock decreases below the assumed floor could cause changes in the fair value of our financial instruments and our net interest income in excess of the amounts assumed.
Added
We assess the credit risk associated with our investments in CRT securities by assessing the current and expected future performance of the associated loan pool.
Removed
The impact on our net interest income is driven mainly by the difference between portfolio yield and cost of funding of our repurchase agreements. Our asset/liability structure is generally such that an increase in interest rates would be expected to result in a decrease in net interest income, as our borrowings are generally shorter in term than our interest-earning assets.
Removed
When interest rates are shocked, prepayment assumptions are adjusted based on management’s expectations along with the results from the prepayment model.
Removed
CREDIT RISK Although we do not believe we are exposed to credit risk in our Agency MBS portfolio, we are exposed to credit risk through our credit sensitive residential mortgage investments, in particular residential whole loans and certain of our securities investments.
Removed
The following table presents certain information about our Residential whole loans at December 31, 2023: Purchased Performing Loans Purchased Credit Deteriorated Loans Purchased Non-Performing Loans Loans with an LTV: Loans with an LTV: Loans with an LTV: (Dollars in Thousands) 80% or Below Above 80% 80% or Below Above 80% 80% or Below Above 80% Total Amortized cost $ 8,009,613 $ 276,804 $ 367,748 $ 61,978 $ 513,147 $ 100,194 $ 9,329,484 Unpaid principal balance (UPB) $ 7,902,317 $ 273,070 $ 421,365 $ 85,463 $ 599,714 $ 173,023 $ 9,454,952 Weighted average coupon (1) 6.9 % 6.2 % 4.9 % 4.7 % 5.2 % 5.1 % 6.0 % Weighted average term to maturity (months) 237 334 261 299 258 311 234 Weighted average LTV (2) 64.2 % 96.2 % 49.8 % 103.5 % 49.2 % 107.5 % 64.7 % Loans 90+ days delinquent (UPB) $ 191,388 $ 47,590 $ 54,174 $ 15,139 $ 136,579 $ 63,643 $ 508,513 (1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category.
Removed
Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots for which the LTV ratio is not meaningful.
Removed
Our sources of liquidity do not include restricted cash.
Removed
Generally, if prepayments on residential whole loans purchased at significant discounts and not accounted for at fair value are less than anticipated, we expect that the income recognized on these assets will be reduced and impairments and/or credit loss reserves may result.

Other MFAO 10-K year-over-year comparisons