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Ellington Financial Inc.

Ellington Financial Inc.EFC決算レポート

NYSE · 不動産 · 不動産

Ellington Management Group is an American hedge fund firm. As of June 2019, the firm was reportedly managing $8.5 billion in structured products and other credit instruments.

What changed in Ellington Financial Inc.'s 10-K — 2024 vs 2025

Top changes in Ellington Financial Inc.'s 2025 10-K

871 paragraphs added · 841 removed · 690 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

54 edited+15 added−17 removed124 unchanged
For example, Ellington's analytic approach to the investment process involves collection of substantial amounts of data regarding historical performance of MBS collateral and MBS market transactions. Ellington analyzes this data to identify possible relationships and trends and develops financial models used to support our investment and risk management process.
For example, Ellington's analytic approach to the investment process involves the collection of substantial amounts of data regarding historical performance of MBS collateral and MBS market transactions. Ellington analyzes this data to identify possible relationships and trends and develops financial models used to support our investment and risk management process.
The investment and risk management committee has authority delegated by our Board of Directors to authorize transactions consistent with our investment guidelines. 7 Table of Contents Ellington has focused investment teams for many of our targeted asset classes.
The investment and risk management committee has authority delegated by our Board of Directors to authorize transactions consistent with our 7 Table of Contents investment guidelines. Ellington has focused investment teams for many of our targeted asset classes.
GAAP, as well as non-cash charges after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges.
GAAP, as well as non-cash charges after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges.
Such prior approval includes approval of the pricing methodology to be used, including with respect to assets for which there are no readily observable market prices. • Investment in Other Ellington Accounts— pursuant to the management agreement, if we invest at issuance in the equity of any collateralized debt obligation, or "CDO," that is managed, structured, or originated by Ellington or one of its affiliates, or if we invest in any other investment fund or other investment for which Ellington or one of its affiliates receives management, origination, or structuring fees, then, unless agreed otherwise by a majority of our independent 12 Table of Contents directors, the base management and incentive fees payable by us to our Manager will be reduced by (or our Manager will otherwise rebate to us) an amount equal to the applicable portion (as described in the management agreement) of any such management, origination or structuring fees. • Split Price Executions— pursuant to the management agreement, our Manager is authorized to combine purchase or sale orders on our behalf together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts.
Such prior approval includes approval of the pricing methodology to be used, including with respect to assets for which there are no readily observable market prices. • Investment in Other Ellington Accounts— pursuant to the management agreement, if we invest at issuance in the equity of any collateralized debt obligation, or "CDO," that is managed, structured, or originated by Ellington or one of its affiliates, or if we invest in any other investment fund or other investment for which Ellington or one of its affiliates receives management, origination, or structuring fees, then, unless agreed otherwise by a majority of our independent directors, the base management and incentive fees payable by us to our Manager will be reduced by (or our Manager will otherwise rebate to us) an amount equal to the applicable portion (as described in the management agreement) of any such management, origination or structuring fees. • Split Price Executions— pursuant to the management agreement, our Manager is authorized to combine purchase or sale orders on our behalf together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent 12 Table of Contents basis, among such accounts.
These laws and regulations include, but are not limited to: • the Truth in Lending Act, or "TILA," which regulates mortgage loan origination activities, requires certain disclosures be made to mortgagors regarding terms of mortgage financing and regulates certain mortgage servicing activities; • the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers; • the Equal Credit Opportunity Act, which prohibits discrimination on the basis of age, race and certain other characteristics in the extension of credit; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Real Estate Settlement Procedures Act, or "RESPA," which governs certain mortgage loan origination activities and practices and the actions of servicers related to transfers, lender-placed insurance, loss mitigation, error resolution, and other customer communications; • the Homeowners Protection Act, the CARES Act, and similar state laws; • laws that require and govern communications with consumers or reporting of public data, such as the Gramm-Leach-Bliley Act, which requires initial and periodic communication with consumers on privacy matters and the maintenance of privacy regarding certain consumer data in our possession, and the Home Mortgage Disclosure Act / Regulation C, which requires reporting of certain public loan data; • state and federal restrictions on marketing activities conducted by telephone, mail, email, mobile device or the internet, including the Telemarketing Sales Rule, the Telephone Consumer Protection Act, state telemarketing laws, and federal and state privacy laws; • the Controlling the Assault of Non-Solicited Pornography and Marketing and the Federal Trade Commission Act, together with their accompanying regulations and guidelines; • federal and state laws requiring company, branch and individual licensing for the solicitation of or brokering of consumer loans, including the SAFE Act; • federal and state laws relating to identity theft; • the Fair Debt Collection Practices Act, which regulates the timing and content of communications on debt collections; 15 Table of Contents • the California Consumer Privacy Act, which provides California consumers with additional privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers; • the Servicemembers Civil Relief Act; • the anti-money laundering and counter-terrorist financing provisions of the Bank Secrecy Act, including the USA Patriot Act, which require non-bank lenders to monitor for, detect, and report suspicious activity to the U.S.
These laws and regulations include, but are not limited to: • the Truth in Lending Act, or "TILA," which regulates mortgage loan origination activities, requires certain disclosures be made to mortgagors regarding terms of mortgage financing and regulates certain mortgage servicing activities; • the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers; • the Equal Credit Opportunity Act, which prohibits discrimination on the basis of age, race and certain other characteristics in the extension of credit; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Real Estate Settlement Procedures Act, or "RESPA," which governs certain mortgage loan origination activities and practices and the actions of servicers related to transfers, lender-placed insurance, loss mitigation, error resolution, and other customer communications; • the Homeowners Protection Act, the CARES Act, and similar state laws; • laws that require and govern communications with consumers or reporting of public data, such as the Gramm-Leach-Bliley Act, which requires initial and periodic communication with consumers on privacy matters and the maintenance of privacy regarding certain consumer data in our possession, and the Home Mortgage Disclosure Act / Regulation C, which requires reporting of certain public loan data; • state and federal restrictions on marketing activities conducted by telephone, mail, email, mobile device or the internet, including the Telemarketing Sales Rule, the Telephone Consumer Protection Act, state telemarketing laws, and federal and state privacy laws; • the Controlling the Assault of Non-Solicited Pornography and Marketing and the Federal Trade Commission Act, together with their accompanying regulations and guidelines; • federal and state laws requiring company, branch and individual licensing for the solicitation of or brokering of consumer loans, including the SAFE Act; • federal and state laws relating to identity theft; • the Fair Debt Collection Practices Act, which regulates the timing and content of communications on debt collections; • the California Consumer Privacy Act, which provides California consumers with additional privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers; • the Servicemembers Civil Relief Act; • the anti-money laundering and counter-terrorist financing provisions of the Bank Secrecy Act, including the USA Patriot Act, which require non-bank lenders to monitor for, detect, and report suspicious activity to the U.S.
Our strategy is adaptable to changing market environments, subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and maintaining our exclusion from registration as an investment company under the Investment Company Act. As a result, although we focus on the targeted assets described in the section captioned "Part II, Item 7.
Our strategy is adaptable to changing market environments, subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and maintaining our exclusion from registration as an investment company under the Investment Company Act. As a result, although we currently focus on the targeted assets described in the section captioned "Part II, Item 7.
In addition, our Manager currently does not have any employees and instead relies on the employees of Ellington to perform its obligations to us. Ellington is an investment management firm and registered investment advisor with a 30-year history of investing in a broad spectrum of mortgage-backed securities, or "MBS," and related derivatives.
In addition, our Manager currently does not have any employees and instead relies on the employees of Ellington to perform its obligations to us. Ellington is an investment management firm and registered investment advisor with an over 30-year history of investing in a broad spectrum of mortgage-backed securities, or "MBS," and related derivatives.
Base Management Fees, Incentive Fees, and Reimbursement of Expenses Base Management Fees Under the management agreement, we pay our Manager a base management fee quarterly in arrears in an amount equal to 1.50% per annum of the equity of the Operating Partnership (calculated in accordance with U.S.
Base Management Fees, Incentive Fees, and Reimbursement of Expenses Base Management Fees Under the management agreement, we pay our Manager a base management fee quarterly in arrears in an amount equal to 1.50% per annum of the total equity of the Operating Partnership (calculated in accordance with U.S.
Finally, we have also raised equity capital to finance acquisitions of our targeted assets, including through public offerings of our common and preferred stock, and as a result of the Arlington Merger, where we issued additional shares of our common and preferred stock in exchange for Arlington common and preferred shares.
Finally, we have also raised equity capital to finance acquisitions of our assets, including through public offerings of our common and preferred stock, and as a result of the Arlington Merger, where we issued additional shares of our common and preferred stock in exchange for Arlington common and preferred shares.
Incentive Fees In addition to the base management fee, with respect to each fiscal quarter we pay our Manager an incentive fee equal to the excess, if any, of (i) the product of (A) 25% and (B) the excess of (1) our Adjusted Net Income (described below) for the Incentive Calculation Period (which means such fiscal quarter and the immediately preceding three fiscal quarters) over (2) the sum of the Hurdle Amounts (described below) for the Incentive Calculation Period, over (ii) the sum of the incentive fees already paid or payable for each fiscal quarter in the Incentive Calculation Period preceding such fiscal quarter.
Incentive Fees In addition to the base management fee, with respect to each fiscal quarter we pay our Manager an incentive fee equal to the excess, if any, of (i) the product of (A) 25% and (B) the excess of (1) our Adjusted Net Income (as defined below) for the Incentive Calculation Period (which means such fiscal quarter and the immediately preceding three fiscal quarters) over (2) the sum of the Hurdle Amounts (described below) for the Incentive Calculation Period, over (ii) the sum of the incentive fees already paid or payable for each fiscal quarter in the Incentive Calculation Period preceding such fiscal quarter.
Regulations Applicable to the Longbridge Segment Longbridge is subject to extensive regulation by federal, state, and local authorities and a variety of statutes, rules, regulations, policies and procedures in numerous jurisdictions throughout the United States.
Regulations Applicable to Longbridge Longbridge is subject to extensive regulation by federal, state, and local authorities and a variety of statutes, rules, regulations, policies and procedures in numerous jurisdictions throughout the United States.
Ellington has well-established portfolio management resources for each of our targeted asset classes and an established infrastructure supporting those resources. Through our relationship with our Manager, we benefit from Ellington's highly analytical investment processes, broad-based deal flow, extensive relationships in the financial community, financial and capital structuring skills, investment surveillance database, and operational expertise.
Ellington has well-established portfolio management resources for our targeted asset classes and an established infrastructure supporting those resources. Through our relationship with our Manager, we benefit from Ellington's highly analytical investment processes, broad-based deal flow, extensive relationships in the financial community, financial and capital structuring skills, investment surveillance database, and operational expertise.
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filing we make with the SEC. In addition, all of our reports filed with or furnished to the SEC can be obtained at the SEC's website at www.sec.gov . 16 Table of Contents
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filing we make with the SEC. In addition, all of our reports filed with or furnished to the SEC can be obtained at the SEC's website at www.sec.gov . 17 Table of Contents
Our independent directors review our Manager's performance annually, and the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by the affirmative vote of the holders of at least a majority of the outstanding common shares, based upon unsatisfactory performance by our Manager that is materially detrimental to us or a determination by our independent directors that the fees payable to our Manager are not fair, subject to our Manager's right to prevent a fee-based termination by accepting a mutually acceptable reduction of its fees.
Our independent directors review our Manager's performance annually, and the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by the affirmative vote of the holders of at least a majority of the outstanding common shares, based upon unsatisfactory performance by our Manager that is materially detrimental to us or a determination that the fees payable to our Manager are not fair, subject to our Manager's right to prevent such a fee-based termination by agreeing to a mutually acceptable reduction of its fees.
The management agreement provides that 10% of each incentive fee payable to our Manager is to be paid in common shares, with the balance paid in cash; provided, however, that our Manager may, in its sole discretion, elect to receive a greater percentage of any incentive fee in the form of common shares by providing our Board of Directors with written notice of its election to receive a greater percentage of its incentive fee in common shares before the first day of the last calendar month in the quarter to which such incentive fee relates.
The management agreement provides that 10% of each incentive fee payable to our Manager is to be paid in common shares, with the balance paid in cash; provided, however, that our Manager may, in its sole discretion, elect to receive a greater 9 Table of Contents percentage of any incentive fee in the form of common shares by providing our Board of Directors with written notice of its election to receive a greater percentage of its incentive fee in common shares before the first day of the last calendar month in the quarter to which such incentive fee relates.
We may also terminate the management agreement without payment of the termination fee with 30 days prior written notice from our Board of Directors for cause, which is defined as: • our Manager's continued material breach of any provision of the management agreement following a period of 30 days after written notice of such breach; • our Manager's fraud, misappropriation of funds, or embezzlement against us; • our Manager's gross negligence in performance of its duties under the management agreement; • the occurrence of certain events with respect to the bankruptcy or insolvency of our Manager, including, but not limited to, an order for relief in an involuntary bankruptcy case or our Manager authorizing or filing a voluntary bankruptcy petition; • the dissolution of our Manager; and • certain changes of control of our Manager, including but not limited to the departure of Mr.
We may also terminate the management agreement, without payment of the termination fee, upon 30 days' prior written notice from our Board of Directors to our Manager (and, where applicable, following any applicable cure period) for cause, which is defined as: • our Manager's continued material breach of any provision of the management agreement following a period of 30 days after written notice of such breach; • our Manager's fraud, misappropriation of funds, or embezzlement against us; • our Manager's gross negligence in performance of its duties under the management agreement; • the occurrence of certain events with respect to the bankruptcy or insolvency of our Manager, including, but not limited to, an order for relief in an involuntary bankruptcy case or our Manager authorizing or filing a voluntary bankruptcy petition; • the dissolution of our Manager; and • the occurrence of certain changes of control of our Manager, including but not limited to, the departure of Mr.
Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Directors are also available at www.ellingtonfinancial.com and are available in print to any stockholder upon request in writing to Ellington Financial Inc., c/o Investor Relations, 53 Forest Avenue, Old Greenwich, CT 06870.
Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Directors are also available at www.ellingtonfinancial.com and are available in print to any stockholder upon request in writing to Ellington Financial Inc., c/o Investor Relations, 53 Forest 16 Table of Contents Avenue, Old Greenwich, CT 06870.
Despite being legally structured as sales and subsequent repurchases, repos are accounted for as collateralized borrowings under U.S. Generally Accepted Accounting Principles, or "U.S. GAAP." During the term of a repo, we generally receive the income and other payments distributed with respect to the underlying assets, and pay interest to the counterparty.
Despite being legally structured as sales and 8 Table of Contents subsequent repurchases, repos are accounted for as collateralized borrowings under U.S. Generally Accepted Accounting Principles, or "U.S. GAAP." During the term of a repo, we generally receive the income and other payments distributed with respect to the underlying assets, and pay interest to the counterparty.
These include the CARES Act as well as multiple forbearance programs, various foreclosure and eviction moratoriums, and other programs implemented by states, agencies and regulators. The CFPB also promulgated certain amendments to RESPA (Regulation X) that imposed certain additional requirements with respect to loss mitigation, early intervention call requirements, and initiating new foreclosures.
These include the CARES Act as well as multiple forbearance programs, various foreclosure and eviction moratoriums, and other programs implemented by states, agencies and regulators. The CFPB also promulgated certain amendments to RESPA (Regulation X) with respect to loss mitigation, early intervention call requirements, and initiating new foreclosures.
Vranos from senior management of Ellington, whether through resignation, retirement, withdrawal, long-term disability, death or termination of employment with or without cause or for any other reason.
Vranos from senior management of Ellington, whether through resignation, retirement, withdrawal, disability, death or termination of employment with or without cause or for any other reason.
We expect to continue to hold certain of our targeted assets through one or more domestic taxable REIT subsidiaries, or "TRSs." As a result, a portion of the income from such assets will be subject to U.S. federal and state corporate income tax. We may change our strategy and policies without a vote of our stockholders.
We expect to continue to hold certain of our assets through one or more domestic taxable REIT subsidiaries, or "TRSs." As a 6 Table of Contents result, a portion of the income from such assets will be subject to U.S. federal and state corporate income tax. We may change our strategy and policies without a vote of our stockholders.
The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our securities or our investments; market volatility; changes in the prepayment rates on the mortgage loans underlying the securities owned by us for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity; increased rates of default and/or decreased recovery rates on our assets; our ability to borrow to finance our assets and the available terms for such borrowings; changes in government regulations affecting our business; our ability to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the "Investment Company Act"; our ability to maintain our qualification as a real estate investment trust, or "REIT"; and risks associated with investing in real estate assets, including changes in business conditions and the general economy such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations.
The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our securities or our investments; market volatility; changes in the prepayment rates on the mortgage loans owned by us, or underlying the securities owned by us; increased rates of default and/or decreased recovery rates on our assets; our ability to borrow to finance our assets and the available terms for such borrowings; changes in government regulations affecting our business; our ability to maintain our exclusion from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"); our ability to maintain our qualification as a real estate investment trust ("REIT"); and risks associated with investing in real estate assets, including changes in business conditions and the general economy such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations.
Our Manager may terminate the management agreement effective upon 60 days prior written notice of termination to us in the event that we default in the performance or observance of any material term, condition or covenant in the management agreement and the default continues for a period of 30 days after written notice to us specifying the default and requesting that the default be remedied in such 30-day period.
Our Manager may terminate the management agreement effective upon 60 days prior written notice of termination to us in the event that we or the Operating Partnership default in the performance or observance of any material term, condition or covenant in the management agreement and the default continues for a period of 30 days after written notice to us or the Operating Partnership, as applicable, specifying such default and requesting that the same be remedied in such 30-day period.
Failure to maintain our qualification as a REIT in any taxable year would cause us to be subject to U.S. federal income tax on our taxable income at regular corporate rates (and any applicable state and local taxes).
Failure to 13 Table of Contents maintain our qualification as a REIT in any taxable year would cause us to be subject to U.S. federal income tax on our taxable income at regular corporate rates (and any applicable state and local taxes).
In that case, our investment in any such subsidiary would be classified as an investment security, and we might not be able to maintain our overall exclusion from registering as an investment company under the Investment Company Act.
In that case, our investment in any such subsidiary would be classified as an investment security, and we might not be able to maintain our overall exclusion from registering as an investment company under the Investment Company 14 Table of Contents Act.
In connection with our investments in loan originators, we may enter into flow agreements that will allow us to purchase loans from those originators in accordance with the parameters set forth in the applicable flow agreement.
In connection with our investments in loan originators, we may enter into flow agreements that will allow us to purchase loans from those originators in accordance with the parameters set forth in the applicable flow agreement. In addition, we may from time to time acquire real property.
In the event our Manager terminates the management agreement due to our 11 Table of Contents default in the performance or observance of any material term, condition, or covenant in the management agreement, we will be required to pay our Manager the termination fee.
In the event our Manager terminates the management agreement due to our default in the performance or observance of any material term, condition, or covenant in the management agreement, we will be required to pay our Manager the termination fee in accordance with the management agreement.
Term and Termination The management agreement has a current term that expires on December 31, 2025, and will automatically renew for a one year term on each anniversary date thereafter unless notice of non-renewal is delivered by either party to the other party at least 180 days prior to the expiration of the then current term.
Term and Termination The management agreement has a current term that expires on December 31, 2026, and will automatically renew for a one year term on each anniversary date thereafter unless notice of non-renewal is delivered by either party to the other party no earlier than 270 days and no later than 180 days prior to the expiration of the then current term.
As of December 31, 2024, the majority of our recourse borrowings consisted of repurchase agreements, or "repos." Currently, the majority of our repos are collateralized by Agency RMBS and residential mortgage loans.
As of December 31, 2025, the majority of our recourse borrowings consisted of repurchase agreements, or "repos." Currently, the majority of our repos are collateralized by residential mortgage loans.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes." Our Manager and Ellington We are externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was formed solely to serve as our manager and does not have any other clients.
Our Manager and Ellington We are externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was formed solely to serve as our manager and does not have any other clients.
In addition, throughout Ellington's 30-year investing history, it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information.
In addition, over its long investing history, Ellington has developed strong relationships with a wide array of dealers and other market participants, providing it with access to a broad range of trading opportunities and market information.
In particular, we may use currency forward contracts and other currency-related derivatives to mitigate this risk. 8 Table of Contents Our Financing Strategies and Use of Leverage We finance our assets with what we believe to be a prudent amount of leverage, the level of which varies from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions.
Our Financing Strategies and Use of Leverage We finance our assets with what we believe to be a prudent amount of leverage, the level of which varies from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions.
In the event we terminate the management agreement without cause or elect not to renew the management agreement, we will be required to pay our Manager a termination fee equal to the amount of three times the sum of (i) the average annual base management fee earned by our Manager during the 24-month period immediately preceding the date of notice of termination or non-renewal, calculated as of the end of the most recently completed fiscal quarter prior to the date of notice of termination or non-renewal and (ii) the average annual incentive fee earned by our Manager during the 24-month period immediately preceding the date of notice of termination or non-renewal, calculated as of the end of the most recently completed fiscal quarter prior to the date of notice of termination or non-renewal.
In the event we terminate the management agreement without cause or elect not to renew the management agreement, we will be required to pay our Manager a termination fee equal to the amount of three times the sum of (i) the average annual base management fees paid or payable to our Manager, and (ii) the average annual incentive fees paid or payable to our Manager, in each case calculated by reference to the two most recent 12-month periods ending on the last day of the most recently completed fiscal quarter prior to the date of the notice of termination or non-renewal.
Our Strategy We utilize an opportunistic strategy to seek to generate attractive, risk-adjusted returns. We pursue value across various types of mortgage-related, consumer-related, corporate-related, and other financial assets, through investments primarily in securities and loans.
As of December 31, 2025, Ellington had over 170 employees and had assets under management of approximately $20.1 billion. Our Strategy We utilize an opportunistic strategy to seek to generate attractive, risk-adjusted returns. We pursue value across various types of mortgage-related, consumer-related, corporate-related, and other financial assets, through investments primarily in loans and securities.
However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. 13 Table of Contents Operating and Regulatory Structure Tax Requirements We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or "the Code," commencing with our taxable year ended December 31, 2019.
Operating and Regulatory Structure Tax Requirements We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or "the Code," commencing with our taxable year ended December 31, 2019.
See "—Management Agreement" above. As of December 31, 2024, Longbridge had over 400 employees.
See "—Management Agreement" above. As of December 31, 2025, Longbridge had approximately 500 employees.
In addition, we believe that these relationships, along with our strategic equity investments in loan originators, enable us to compete more effectively for attractive asset acquisition opportunities.
In addition, we believe that these relationships, along with our strategic equity investments in loan originators, enable us to compete more effectively for attractive asset acquisition opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face.
Treasury’s Financial Crimes Enforcement Network; • restrictions imposed by the rules promulgated by the Office of Foreign Assets Control; and • restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act”, and current or future rules promulgated thereunder, including, but not limited to, limitations on fees charged by mortgage lenders, mortgage broker disclosures and rules promulgated by the Consumer Financial Protection Bureau, or the “CFPB,” which was created under the Dodd-Frank Act.
Department of Housing and Urban Development (“HUD”) governing the origination, servicing, and securitization of Home Equity Conversion Mortgages (“HECMs”), including eligibility, counseling, disclosure, underwriting, and documentation requirements applicable to FHA-insured reverse mortgage products. • restrictions imposed by the rules promulgated by the Office of Foreign Assets Control; and • restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act”, and current or future rules promulgated thereunder, including, but not limited to, limitations on fees charged by mortgage lenders, mortgage broker disclosures and rules promulgated by the Consumer Financial Protection Bureau, or the “CFPB,” which was created under the Dodd-Frank Act.
On August 31, 2011, the SEC published a concept release entitled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments" (Investment Company Act Rel. No. 29778).
On August 31, 2011, the SEC published a concept release entitled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments" (Investment Company Act Rel. No. 29778). This release notes that the SEC is reviewing the Section 3(c)(5)(C) exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities.
Our Manager is responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to the management, operation, and administration of our assets and liabilities, and business as may be appropriate. 9 Table of Contents Under the management agreement, we pay our Manager a management fee quarterly in arrears, which includes a "base" component and an "incentive" component, and we reimburse certain expenses of our Manager.
Our Manager is responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to the management, operation, and administration of our assets and liabilities, and business as may be appropriate.
We believe that Ellington's capabilities allow our Manager to identify attractive assets, value these assets, monitor and forecast the performance of these assets, and opportunistically hedge our risk with respect to these assets.
Moreover, although our independent directors may periodically review our investment guidelines and our portfolio, they generally do not review our proposed asset acquisitions or asset management decisions. We believe that Ellington's capabilities allow our Manager to identify attractive assets, value these assets, monitor and forecast the performance of these assets, and opportunistically hedge our risk with respect to these assets.
Our Manager is responsible for all costs incident to the performance of its duties under the management agreement, including compensation of Ellington's employees and other related expenses, other than our allocable portion of the costs incurred by our Manager for certain dedicated or partially dedicated employees including a Chief Financial Officer, one or more controllers, an in-house legal counsel, an investor relations professional, certain internal audit staff in connection with Sarbanes-Oxley compliance initiatives and certain other personnel performing duties for us, including certain personnel involved in the implementation of our more operationally intensive strategies, such as personnel involved in loan acquisition and loan management, based on the portion of their working time and efforts spent on our matters and subject to approval of the reimbursed amounts by the Compensation Committee of the Board of Directors.
These dedicated and partially dedicated personnel include a chief financial officer, one or more controllers, an in-house legal counsel, internal audit staff in connection with Sarbanes-Oxley compliance initiatives and certain other personnel performing duties for us, including certain personnel involved in the implementation of our more operationally intensive strategies, such as personnel involved in loan acquisition and loan management.
Our Manager may also terminate the management agreement in the event we become regulated as an investment company under the Investment Company Act, with such termination deemed to occur immediately prior to such event; provided, however, that in the case of such termination, if our Manager was not at fault for our becoming regulated as an investment company under the Investment Company Act, we will be required to pay the termination fee.
Our Manager may also terminate the management agreement in the event we become regulated as an investment company under the Investment Company Act, with such termination deemed to occur immediately prior to such event; provided, however, that in the case of such termination, if our Manager was not at fault for our becoming regulated as an investment company under the Investment Company Act, we will be required to pay the termination fee. 11 Table of Contents Conflicts of Interest; Equitable Allocation of Opportunities Ellington manages, and expects to continue to manage, other funds, accounts, and vehicles that have strategies that are similar to, or that overlap with, our strategy; as of December 31, 2025, these other funds, accounts, and vehicles, represented approximately $20.1 billion of assets under management (including $10.6 billion of accounts that do not employ financial leverage).
Reimbursement of Expenses Other than with respect to our subsidiary Longbridge, we do not maintain an office or employ personnel, but rather we rely on the facilities and resources of our Manager to conduct our operations. We pay all of our direct operating expenses, except those specifically required to be borne by our Manager under the management agreement.
The Hurdle Amount is appropriately adjusted for any issuances or repurchases of shares of common stock during the applicable fiscal quarter. 10 Table of Contents Reimbursement of Expenses Other than with respect to our subsidiary Longbridge, we do not maintain an office or employ personnel, but rather we rely on the facilities and resources of our Manager to conduct our operations.
For purposes of calculating the incentive fee, the "Hurdle Amount" means, with respect to any fiscal quarter, the product of (i) one-fourth of the greater of (A) 9% and (B) 3% plus the 10-year U.S.
For purposes of the Management Agreement, the “Hurdle Rate” means the greater of (A) 9% and (B) 3% plus the 10-year U.S. Treasury rate for such fiscal quarter.
Longbridge also originates and services non-FHA guaranteed proprietary reverse mortgage loan products, typically jumbo loans (i.e., loans with balances exceeding FHA limits) that are located in high property value areas.
Department of Housing and Urban Development, or "HUD." In addition, Longbridge is an approved issuer of Ginnie Mae HECM-backed securities, or "HMBS." Longbridge also originates and services non-FHA guaranteed proprietary reverse mortgage loan products, typically jumbo loans (i.e., loans with balances exceeding FHA limits), and other loan products.
We also have made, and may in the future make, investments in the debt and/or equity of other entities engaged in loan-related businesses, such as loan originators and mortgage-related entities. We made a non-controlling investment in Longbridge in September 2014, and in October 2022, we completed the purchase of a controlling stake in the company (the "Longbridge Transaction").
Our loan investments include performing, non-performing, and sub-performing loans. We also invest in the debt and/or equity of other entities engaged in loan-related businesses, such as loan originators and mortgage-related entities.
Each party's payment obligation is computed using a different interest rate. In an interest rate swap, the notional principal is generally not exchanged. Credit Risk Hedging Subject to maintaining our qualification as a REIT, we enter into credit-hedging positions in order to protect against adverse credit events with respect to certain of our credit assets.
Treasury securities; • swaptions, caps, floors, and other derivatives on interest rates; • futures and forward contracts; and • options on any of the foregoing. Credit Risk Hedging Subject to maintaining our qualification as a REIT, we enter into credit-hedging positions in order to protect against adverse credit events with respect to certain of our credit assets.
Our primary objective is to generate attractive, risk-adjusted total returns for our stockholders by making investments that we believe compensate us appropriately for the risks associated with them. We seek to attain this objective by utilizing an opportunistic strategy.
We employ a credit-focused investment strategy and manage a diversified portfolio totaling approximately $4.9 billion as of December 31, 2025. Our primary objective is to generate attractive risk-adjusted total returns for our stockholders by making investments that we believe appropriately compensate us for the risks we assume.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes." Subject to maintaining our qualification as a REIT, we expect to continue to invest in these targeted asset classes: 4 Table of Contents • residential mortgage loans, including (i) residential mortgage loans that are not deemed to be "qualified mortgage loans" under the rules of the Consumer Financial Protection Bureau ("non-QM loans"), (ii) residential transition loans ("RTLs"), (iii) closed-end second lien mortgage loans ("CES loans") and home equity line of credit loans ("HELOCs"); and (iv) non-performing and re-performing residential mortgage loans ("residential NPLs and RPLs"); • commercial mortgage loans, commercial mortgage-backed securities ("CMBS") and other commercial real estate debt; • residential mortgage-backed securities ("RMBS") for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity ("Agency RMBS"); • RMBS backed by U.S. residential mortgage loans for which the principal and interest payments are not guaranteed by a U.S. government agency or a U.S. government-sponsored entity ("non-Agency RMBS") credit risk transfer securities, or "CRTs," and RMBS backed by European residential mortgage loans ("European RMBS"); • retained tranches from non-Agency RMBS securitizations to which we have contributed assets, including non-QM, RTL, HELOC, and CES loan securitizations; • residential reverse mortgage loans, including home equity conversion mortgage loans ("HECMs") which are insured by the Federal Housing Administration ("FHA") and which are eligible for inclusion in HECM-backed MBS ("HMBS") which are guaranteed by the Government National Mortgage Association ("GNMA") and "proprietary reverse mortgage loans," which are not insured by FHA, as well as mortgage servicing rights ("MSRs") related to reverse mortgage loans ("Reverse MSRs"); • retained tranches from residential reverse mortgage loan securitizations to which we have contributed assets; • MSR-related investments referencing MSRs related to forward mortgage loans ("Forward MSR-related investments"); • consumer loans and asset-backed securities ("ABS") including ABS backed by consumer loans, and retained tranches from securitizations to which we have contributed consumer loan assets; • collateralized loan obligations ("CLOs"); • mortgage-related and non-mortgage-related derivatives; • strategic equity and/or debt investments in companies from which we purchase, or may in the future purchase, targeted assets, and other strategic investments in companies related to our business; and • other investments, including corporate debt and equity securities, corporate loans, and other financial assets.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes." • Agency RMBS, including (i) whole pool pass-through certificates; (ii) partial pool pass-through certificates; and (iii) agency collateralized mortgage obligations ("CMOs"), including interest only securities ("IOs"), principal only securities ("POs"), and inverse interest only securities ("IIOs"); • CMBS and Commercial Mortgage Loans, including (i) CMBS; (ii) CLOs backed by commercial mortgage loans ("CRE CLOs"); and (iii) commercial mortgage loans and other commercial real estate debt; • Consumer Loans and ABS, including (i) consumer loans; (ii) ABS backed by consumer loans; (iii) ABS backed by Small Business Administration ("SBA") loans, including IOs backed by SBA loans; and (iv) retained tranches from securitizations to which we have contributed assets; • Corporate CLOs, including (i) corporate CLO debt and equity tranches; and (ii) investments in CLO loan accumulation facilities; • Mortgage-Related Derivatives, including (i) To-Be-Announced mortgage pass-through certificates ("TBAs"); (ii) credit default swaps ("CDS") on individual RMBS, on the CMBX and other mortgage-related indices; and (iii) other mortgage-related derivatives; • Non-Agency RMBS, including: (i) RMBS backed by prime jumbo, Alt-A, non-QM, manufactured housing, and subprime mortgages; (ii) RMBS backed by fixed rate mortgages, Adjustable rate mortgages ("ARMs"), Option-ARMs, and Hybrid ARMs; (iii) RMBS backed by mortgages on single-family-rental properties; (iv) RMBS backed by first-lien and second-lien mortgages; (v) RMBS backed by performing and non-performing mortgages; (vi) investment grade and non-investment grade securities; (vii) senior and subordinated securities; (viii) IOs, POs, IIOs, and inverse floaters; (ix) collateralized debt obligations ("CDOs"); (x) RMBS backed by European residential mortgages ("European RMBS"); (xi) retained tranches from securitizations in which we have participated; and (xi) credit risk transfer securities ("CRTs"); • Residential mortgage loans, including: (i) residential mortgage loans that are not deemed "qualified mortgage" loans under the rules of the Consumer Financial Protection Bureau ("non-QM loans"); (ii) residential "transition loans," such as residential bridge loans and residential "fix-and-flip" loans; (iii) residential non-performing mortgage loans ("NPLs"); (iv) re-performing loans ("RPLs"), which generally are loans that were modified and/or formerly NPLs where the borrower has resumed making payments in some form or amount; (v) residential mortgage loans that meet the criteria for inclusion in an Agency securitization ("Agency-eligible residential mortgage loans"); (vi) retained tranches from securitizations to which we have contributed assets; (vii) reverse mortgage loans; (viii) closed-end second lien mortgage loans; and (ix) home equity line of credit loans ("HELOCs"); • Strategic investments, including strategic equity and/or debt investments in loan originators, loan servicers, and mortgage-related entities; • Other investments, including: (i) Mortgage servicing rights ("MSRs") and MSR-related investments; (ii) real estate, including commercial and residential real property; (iii) corporate debt and equity securities and corporate loans; (iv) non-mortgage-related derivatives; and (v) IO strips backed by small business administration loans.
As a result of the Longbridge Transaction, beginning on October 3, 2022, we consolidate Longbridge and have two reportable segments, which we refer to as the Investment Portfolio Segment and the Longbridge Segment. Longbridge is primarily engaged in the business of originating, purchasing, selling and servicing HECM loans through various channels.
We have two reportable operating segments, which we refer to as the Investment Portfolio Segment and the Longbridge Segment. 5 Table of Contents Longbridge is primarily engaged in the business of originating, purchasing, selling and servicing reverse mortgage loans, including home equity conversion mortgage loans, or "HECM loans." Longbridge maintains its corporate office in Paramus, New Jersey, with branch offices in multiple states.
Subject to maintaining our qualification as a REIT, we opportunistically utilize derivatives and other hedging instruments to hedge our interest rate risk, yield spread risk, credit risk, and foreign currency risk. Our investments in residential and commercial mortgage loans may consist of performing, non-performing, or sub-performing loans. In addition, we may from time to time acquire real property.
We also opportunistically utilize derivatives and other hedging instruments to hedge our interest rate risk, yield spread risk, credit risk, and foreign currency risk.
Longbridge maintains its corporate office in Paramus, New Jersey, with branch offices in multiple states. Longbridge is approved as a Title II, non-supervised direct endorsement mortgagee with the U.S. Department of Housing and Urban Development, or "HUD." In addition, Longbridge is an approved issuer of HMBS.
Longbridge is approved as a Title II, non-supervised direct endorsement mortgagee with the U.S.
(the "Arlington Merger"), through which we increased our capital base and added a portfolio of investments and borrowings that we believe were complementary to our existing investment portfolio and liability structure. 5 Table of Contents Our "credit portfolio," which includes all of our assets other than Agency RMBS, has historically been the primary driver of our risk and return, and we expect that this will continue in the near to medium term.
On December 14, 2023, we completed the merger between Arlington Asset Investment Corp., a Virginia corporation ("Arlington"), and our subsidiary EF Merger Sub Inc. (the "Arlington Merger"), through which we increased our capital base and added a portfolio of investments and borrowings that we believe were complementary to our existing investment portfolio and liability structure.
Removed
Our Company We were organized in July 2007 and commenced operations in August 2007. We are a Delaware corporation that is externally managed by Ellington Financial Management LLC, an investment advisor registered with the Securities and Exchange Commission ("SEC").
Added
Our Company We are a Delaware corporation operating as a real estate investment trust ("REIT") and are listed on the New York Stock Exchange ("NYSE") under the symbol “EFC.” We were formed in July 2007 and became a publicly traded company following our initial public offering in October 2010.
Removed
We have elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") and we believe that we are organized and operate in such a manner as to qualify for taxation as a REIT. We acquire and manage mortgage-related, consumer-related, corporate-related, and other financial assets.
Added
Our strategic focus is on residential and commercial mortgage loan investments, sourced through a diverse array of loan origination channels, including certain affiliated loan originators. We opportunistically invest in both loans and securities.
Removed
Our targeted asset classes currently include investments in the U.S. and Europe (as applicable) in the categories listed below and as described in the section captioned "Part II, Item 7.
Added
Through Longbridge Financial LLC (“Longbridge”), a wholly-owned and consolidated subsidiary of our Operating Partnership, we are also in the business of originating, servicing, and investing in reverse mortgage loans. We are externally managed and advised by our Manager, an affiliate of Ellington, which is responsible for administering our business activities and day-to-day operations.
Removed
We also opportunistically engage in relative value trading strategies, whereby we seek to identify and capitalize on short-term pricing disparities in various equity and/or fixed-income markets. On December 14, 2023, we completed the merger between Arlington Asset Investment Corp., a Virginia corporation ("Arlington"), and our subsidiary EF Merger Sub Inc.
Added
Pursuant to a services agreement between our Manager and Ellington, our Manager relies on Ellington’s personnel and infrastructure to support our operations.
Removed
We also maintain a highly leveraged portfolio of Agency RMBS to take advantage of opportunities in that market sector, to help maintain our exclusion from registration as an investment company under the Investment Company Act, and to help maintain our qualification as a REIT. For more information on our targeted assets, see "Part II, Item 7.
Added
Most members of our executive management team also serve as officers of our Manager and Ellington. 4 Table of Contents We intend to maintain our qualification to be taxed as a REIT for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”).
Removed
As of December 31, 2024, Ellington had over 160 employees and had assets under management of approximately $13.7 billion, of which: (i) approximately $7.4 billion consisted of our company, various hedge funds and other alternative investment vehicles that employ financial leverage, and Ellington Credit Company, a Maryland company listed on the New York Stock Exchange, or the "NYSE," under the ticker "EARN," and (ii) approximately $6.2 billion consisted of accounts that do not employ financial leverage.
Added
Provided that we maintain our qualification as a REIT, we generally will not be subject to U.S. federal, state, and local income tax on our REIT taxable income that is currently distributed to our stockholders, so long as we distribute at least 90% of our REIT taxable income (excluding net capital gains) to our stockholders by prescribed dates and comply with various other requirements.
Removed
Moreover, although our independent directors may 6 Table of Contents periodically review our investment guidelines and our portfolio, they generally do not review our proposed asset acquisitions or asset management decisions.
Added
Any taxes paid by a taxable REIT subsidiary (“TRS”) will reduce the cash available for distribution to our stockholders. We acquire and manage mortgage-related, consumer-related, corporate-related, and other financial assets, including those listed below. For a more detailed description of our targeted asset classes, see Part II, Item 7.
Removed
Treasury securities; • swaptions, caps, floors, and other derivatives on interest rates; • futures and forward contracts; and • options on any of the foregoing.
Added
In particular, we may use currency forward contracts and other currency-related derivatives to mitigate this risk.
Removed
For example, from time to time we enter into short positions in interest rate swaps to offset the potential adverse effects that changes in interest rates would have on the value of certain of our assets and our financing costs.
Added
Under the management agreement, we pay our Manager a management fee quarterly in arrears, which includes a "base" component and an "incentive" component, and we reimburse certain expenses of our Manager.
Removed
An interest rate swap is an agreement to exchange interest rate cash flows, calculated on a notional principal amount, at specified payment dates during the life of the agreement. Typically, one party pays a fixed interest rate and receives a floating interest rate and the other party pays a floating interest rate and receives a fixed interest rate.
Added
For purposes of calculating the incentive fee, the “Hurdle Amount” for any fiscal quarter is equal to the product of (i) the total members’ equity of the Operating Partnership, calculated in accordance with U.S. GAAP as of the end of the immediately preceding fiscal quarter, adjusted to exclude the effects of one-time events resulting from changes in U.S.
Removed
Treasury rate for such fiscal quarter, (ii) the sum of (A) the weighted average gross proceeds per share of all common share and operating partnership unit, or "OP Unit," issuances since our inception and up to the end of such fiscal quarter, with each issuance weighted by both the number of shares and OP Units issued in such issuance and the number of days that such issued shares and OP Units were outstanding during such fiscal quarter, using a first-in first-out basis of accounting (i.e., attributing any share and OP Unit repurchases to the earliest issuances first) and (B) the result obtained by dividing (I) retained earnings attributable to common shares and OP Units at the beginning of such fiscal quarter by (II) the average number of common shares and OP Units outstanding for each day during such fiscal quarter, and (iii) the sum of (x) the average number of common shares and long term incentive plan units, or "LTIP Units," 10 Table of Contents outstanding for each day during such fiscal quarter and (y) the average number of OP Units, and limited liability company interests in the Operating Partnership which are designated as LTIP Units, or "OP LTIP Units," outstanding for each day during such fiscal quarter.
Added
GAAP, as well as non-cash charges, in each case after discussion between the Manager and the Company’s independent directors and, in the case of non-cash charges, approval by a majority of the Company’s independent directors, and (ii) one-fourth of the Hurdle Rate.
Removed
For purposes of determining the Hurdle Amount, issuances of common shares, OP LTIP Units and OP Units (a) as equity incentive awards, (b) to the Manager as part of its base management fee or incentive fee and (c) to the Manager or any of its affiliates in privately negotiated transactions, are excluded from the calculation.
Added
We pay all of our direct operating expenses, except those specifically required to be borne by our Manager under the management agreement.
Removed
The payment of the incentive fee will be in a combination of common shares and cash, provided that at least 10% of any quarterly payment will be made in common shares.
Added
Under the management agreement, we are required to reimburse our Manager for certain operating expenses that it incurs on our behalf in the performance of its duties, including, among other things, our allocable portion of the costs incurred by our Manager for certain dedicated or partially dedicated personnel, based on the portion of their working time and efforts spent on our matters and subject to approval of the reimbursed amounts by the Compensation Committee of our Board of Directors.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Moreover, any changes to the nature of the guarantees provided by, or laws affecting, Fannie Mae, Freddie Mac, and Ginnie Mae could materially adversely affect the credit quality of the guarantees, could increase the risk of loss on purchases of Agency RMBS issued by these GSEs (or MSRs with underlying loans guaranteed by these GSEs) and could have broad adverse market implications for the Agency RMBS they currently guarantee.
Moreover, any changes to the nature of the guarantees provided by, or laws affecting, Fannie Mae, Freddie Mac, and Ginnie Mae could materially adversely affect the credit quality of the guarantees, increase the risk of loss on purchases of Agency RMBS issued by these GSEs (or MSRs with underlying loans guaranteed by these GSEs) and have broad adverse market implications for the Agency RMBS they currently guarantee.
However, the markets for our investments have experienced, and could in the future experience, extreme volatility, reduced transaction volume and liquidity, and disruption as a result of certain events, such as the COVID-19 pandemic, the regional banking crisis in 2023, ongoing geopolitical tensions, tariffs, and uncertainty in the monetary policy of the Federal Reserve (and other central banks), which has made, and could in the future make, it more difficult for our Manager, and for the third-party dealers and pricing services that we use, to rely on market-based inputs in connection with the valuation of our assets under U.S.
However, the markets for our investments have experienced, and could in the future experience, extreme volatility, reduced transaction volume and liquidity, and disruption as a result of certain events, such as the COVID-19 pandemic, the regional banking crisis in 2023, ongoing geopolitical tensions, tariffs, uncertainty in the monetary policy of the Federal Reserve (and other central banks), which has made, and could in the future make, it more difficult for our Manager, and for the third-party dealers and pricing services that we use, to rely on market-based inputs in connection with the valuation of our assets under U.S.
In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
Further, loans on properties operating under the close supervision of a mortgage lender are, in certain circumstances, subject to certain additional potential liabilities that may exceed the value of our investment.
Further, loans on properties operating under the close supervision of a mortgage lender are, in certain circumstances, subject to additional potential liabilities that may exceed the value of our investment.
See "—Our access to financing may not be available on favorable terms, may be limited or completely shut off, and our lenders and derivative counterparties may require us to post additional collateral.
See "—Our access to financing may not be available on favorable terms, or may be limited or completely shut off, and our lenders and derivative counterparties may require us to post additional collateral." Our access to financing may not be available on favorable terms, or may be limited or completely shut off, and our lenders and derivative counterparties may require us to post additional collateral.
If we are not able to renew our existing repurchase agreements or other borrowings, or arrange for new financing on terms acceptable to us, or if we default on our financial covenants (including those on our repurchase agreements, other borrowings, and our Senior Notes), are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities.
If we are not able to renew our existing repurchase agreements or other borrowings, or arrange for new financing on terms acceptable to us, or if we default on our financial covenants (including those on our repurchase agreements, other borrowings, and our Senior Notes), are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts, we may have to dispose of assets at significantly depressed prices and/or at inopportune times, which could cause significant losses, and may also force us to curtail our asset acquisition activities.
In addition, the interest rate on our Senior Notes is subject to upward adjustment based on certain changes, if any, in the ratings of the Senior Notes.
In addition, the interest rate on certain of our Senior Notes is subject to upward adjustment based on certain changes, if any, in the ratings of the Senior Notes.
Commodity Futures Trading Commission, or "CFTC," and certain commodity exchanges have established limits referred to as speculative position limits or position limits on the maximum net long or net short position which any person or group of persons may hold or control in particular futures and options.
Commodity Futures Trading Commission ("CFTC") and certain commodity exchanges have established limits referred to as speculative position limits or position limits on the maximum net long or net short position which any person or group of persons may hold or control in particular futures and options.
Under a typical MSR financing facility, if the fair value of the pledged underlying MSRs declines and the lender demands additional collateral from the Forward MSR Master Servicer through a margin call, we would be required to provide the Forward MSR Master Servicer with additional funds or other assets to meet such margin call; if we were unable to satisfy such margin call, the lender could declare an event of default.
Under a typical MSR financing facility, if the fair value of the pledged underlying MSRs declines and the lender demands additional collateral from the Forward MSR Master Servicer through a margin call, we would be required to provide the Forward MSR Master Servicer with additional funds or other assets to meet such margin call; if we were unable to satisfy the margin call, the lender could declare an event of default.
It is unclear how various regulatory requirements and/or changes would impact the reverse mortgage business, and the impact could be adverse to Longbridge’s business and results of operations.
It is unclear how various regulatory requirements and/or changes would impact Longbridge's reverse mortgage business, and the impact could be adverse to Longbridge’s business and results of operations.
Computer malware, ransomware, viruses, and computer hacking and phishing attacks have become more prevalent in the financial services industry and may occur on Ellington's, Longbridge's, or certain third party service providers' systems in the future. We rely heavily on Ellington's financial, accounting and other data processing systems.
Computer malware, ransomware, viruses, and computer hacking and phishing attacks have become more prevalent in the financial services industry and may occur on Ellington's, Longbridge's, or certain third-party service providers' systems in the future. We rely heavily on Ellington's and Longbridge's financial, accounting and other data processing systems.
To the extent that we overestimate the value of, and/or projected net income to be generated by certain assets or investment portfolios, and/or underestimate liabilities related to a company or its assets or investment portfolio or we are otherwise incorrect in our assumptions, we may be unable to realize the anticipated benefits of an acquisition or merger.
To the extent that we overestimate the value of, and/or projected net income to be generated by certain assets or investment portfolios, and/or underestimate liabilities related to a company or its assets or investment portfolio or we are otherwise incorrect in our assumptions, we may be unable to realize the anticipated benefits of an investment, acquisition or merger.
U.S. Federal Income Tax Risks An investment in our common or preferred stock has various U.S. federal, state, and local income tax risks. We strongly urge stockholders to consult their tax advisors concerning the effects of U.S. federal, state, and local income tax law on an investment in our common and preferred stock and on their individual tax situations.
Federal Income Tax Risks An investment in our common or preferred stock has various U.S. federal, state, and local income tax risks. We strongly urge stockholders to consult their tax advisors concerning the effects of U.S. federal, state, and local income tax law on an investment in our common and preferred stock and on their individual tax situations.
While we believe that each Subsidiary REIT has qualified as a REIT under the Code, we have joined the Subsidiary REIT in filing a "protective" TRS election under Section 856(l) of the Code for each taxable year in which we have owned an interest in the Subsidiary REIT.
While we believe that each Subsidiary REIT has qualified as a REIT under the Code, we have joined each Subsidiary REIT in filing a "protective" TRS election under Section 856(l) of the Code for each taxable year in which we have owned an interest in the Subsidiary REIT.
If a CLO issuer fails to comply with its investment guidelines, or if the Internal Revenue Service otherwise successfully asserts that the CLO should be treated as engaged in a U.S. trade or business, such CLO could be subject to U.S. federal income tax, which could reduce the amount available to distribute to mezzanine debt and equity holders in such CLO, including us.
If a CLO issuer fails to comply with its investment guidelines, or if the Internal Revenue Service otherwise successfully asserts that the CLO issuer should be treated as engaged in a U.S. trade or business, such CLO issuer could be subject to U.S. federal income tax, which could reduce the amount available to distribute to the CLO mezzanine debt and equity holders, including us.
If a CLO in which we invest fails to properly comply with these reporting requirements, certain payments received by such CLO may be subject to the 30% withholding tax, which could reduce the amount available to distribute to equity and mezzanine debt holders in such CLO, including us.
If a CLO in which we invest fails to properly comply with these reporting requirements, certain payments received by such CLO may be subject to the 30% withholding tax, which could reduce the amount available to distribute to the CLO mezzanine debt and equity holders, including us.
High inflation, whether caused by low unemployment, high corporate demand, supply-chain issues, geopolitical conflicts, quantitative easing, imposition of tariffs by the federal government, or a combination of these or other factors, may undermine the performance of our investments by reducing the value of such investments and/or the income received from such investments.
High inflation, whether caused by low unemployment, high corporate demand, supply-chain issues, geopolitical conflicts, quantitative easing, the imposition of tariffs by the federal government, or a combination of these or other factors, may undermine the performance of our investments by reducing the value of such investments and/or the income received from such investments.
Real estate assets are subject to various risks, including: • declines in the value of real estate, including due to declining property cash flows or rising capitalization rates; • acts of God, including pandemics, such as the COVID-19 pandemic, earthquakes, floods, droughts, wildfires, hurricanes, mudslides, volcanic eruptions and other natural disasters, which may result in uninsured losses; • war or geopolitical conflict or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001; • adverse changes in national and local economic and market conditions, including those related to high unemployment, elevated inflation and high energy costs; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and zoning ordinances; • costs of remediation and liabilities associated with environmental conditions such as indoor mold; • potential liabilities for other legal actions related to property ownership including tort claims; and • the potential for uninsured or under-insured property losses.
Real estate assets are subject to various risks, including: • declines in the value of real estate, including due to declining property cash flows or rising capitalization rates; • acts of God, including pandemics, such as the COVID-19 pandemic, earthquakes, floods, droughts, wildfires, hurricanes, mudslides, volcanic eruptions and other natural disasters, which may result in uninsured losses; • war or geopolitical conflict or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001; • adverse changes in national and local economic and market conditions, including those related to unemployment levels, elevated inflation and high energy costs; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and zoning ordinances; • costs of remediation and liabilities associated with environmental conditions, such as indoor mold; • potential liabilities for other legal actions related to property ownership including tort claims; and • the potential for uninsured or under-insured property losses.
When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, the value of such securities, and also to what extent those securities constitute qualified real estate assets for purposes of the REIT asset tests and produce income which qualifies under the REIT 75% gross income test.
When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, the value of such securities, and also to what extent those securities constitute qualified real estate assets for purposes of the REIT asset tests and produce income which qualifies under the REIT 75% and/or 95% gross income test.
In addition, as permitted by Section 102(b)(7) of the Delaware General Corporation Law, our certificate of incorporation provides that our directors will not be liable to us or any holder of shares for monetary damages for breach of a fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law.
In addition, as permitted by Section 102(b)(7) of the Delaware General Corporation Law, our certificate of incorporation provides that our directors will not be liable to us or any holder of shares for monetary damages for breach of a fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under applicable law.
Changes to FHA, VA, or Ginnie Mae policies could disrupt origination volumes, increase costs, or limit the availability of government insurance for HECM loans. • We rely on third-party subservicers and service providers for compliance, loan administration, and operational support. Failures or deficiencies in their performance could expose us to financial, operational, and reputational risks.
Changes to FHA, or Ginnie Mae policies could disrupt origination volumes, increase costs, or limit the availability of government insurance for HECM loans. • We rely on third-party subservicers and service providers for compliance, loan administration, and operational support. Failures or deficiencies in their performance could expose us to financial, operational, and reputational risks.
Various potential and actual conflicts of interest may arise from the activities of Ellington and its affiliates by virtue of the fact that our Manager is controlled by Ellington. Termination of our management agreement without cause, including termination for poor performance or non-renewal, is subject to several conditions which may make such a termination difficult and costly.
Various potential and actual conflicts of interest may arise from the activities of Ellington and its affiliates by virtue of the fact that our Manager is controlled by Ellington. Termination of our management agreement without cause, including termination for poor performance or non-renewal, is subject to several conditions which may make such a termination difficult, lengthy and costly.
When we do choose to hedge, hedging may fail to protect or could materially adversely affect us because, among other things: • our Manager may fail to correctly assess the degree of correlation between the hedging instruments and the assets being hedged; • our Manager may fail to recalculate, re-adjust, and execute hedges in an efficient and timely manner; • the hedging transactions may actually result in poorer overall performance for us than if we had not engaged in the hedging transactions; • credit hedging can be expensive, particularly when the market is forecasting future credit deterioration and when markets are more illiquid; • interest rate hedging can be expensive, particularly during periods of volatile interest rates; 36 Table of Contents • available hedges may not correspond directly, or be correlated in the manner desired, with the risks for which protection is sought; • the durations of the hedges may not match the durations of the related assets or liabilities being hedged; • many hedges are structured as over-the-counter contracts with counterparties whose creditworthiness is not guaranteed, raising the possibility that the hedging counterparty may default on their payment obligations; • to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty; • the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value.
When we do choose to hedge, hedging may fail to protect or could materially adversely affect us because, among other things: • our Manager may fail to correctly assess the degree of correlation between the hedging instruments and the assets being hedged; • our Manager may fail to recalculate, re-adjust, and execute hedges in an efficient and timely manner; • the hedging transactions may actually result in poorer overall performance for us than if we had not engaged in the hedging transactions; • credit hedging can be expensive, particularly when the market is forecasting future credit deterioration and when markets are more illiquid; • interest rate hedging can be expensive, particularly during periods of volatile interest rates; • available hedges may not correspond directly, or be correlated in the manner desired, with the risks for which protection is sought; • the durations of the hedges may not match the durations of the related assets or liabilities being hedged; • many hedges are structured as over-the-counter contracts with counterparties whose creditworthiness is not guaranteed, raising the possibility that the hedging counterparty may default on their payment obligations; • to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty; • the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value.
Consequently, for these instruments there may be less stringent requirements with respect to record keeping and compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. Our Manager is not restricted from dealing with any particular counterparty or from concentrating any or all of its transactions with one counterparty.
Consequently, for these instruments there may be less stringent requirements with respect to record keeping and compliance with applicable statutory and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. Our Manager is not restricted from dealing with any particular counterparty or from concentrating any or all of its transactions with one counterparty.
Longbridge has relied on annual waivers from Ginnie Mae, whereby Ginnie Mae has granted an exception to the leverage ratio requirement in Ginnie Mae’s guidelines, based on Ginnie Mae's determination, in its sole discretion, that Longbridge's failure to meet this requirement is directly attributable to the lack of true sale accounting treatment of its securitized loans.
Longbridge has relied on annual waivers from Ginnie Mae, whereby Ginnie Mae has granted an exception to the leverage ratio requirement in Ginnie Mae’s guidelines, based on Ginnie Mae's determination, in its sole discretion, that Longbridge's failure to meet this requirement is directly attributable to the lack of true sale accounting treatment of its securitized HECM loans.
We may also face other restrictions on our ability to liquidate any assets for which we or our Manager has or could be attributed with material non-public information. Furthermore, assets that are illiquid are more difficult to finance, and to the extent that we finance assets that are or become illiquid, we may lose that financing or have it reduced.
We may also face restrictions on our ability to liquidate any assets for which we or our Manager has or could be attributed with material non-public information. Furthermore, assets that are illiquid are more difficult to finance, and to the extent that we finance assets that are or become illiquid, we may lose that financing or have it reduced.
Our Manager's entitlement to non-performance-based compensation might reduce its incentive to devote the time and effort of its professionals to seeking profitable opportunities for our portfolio, which could result in a lower performance of our portfolio and could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Our Manager's entitlement to non-performance-based compensation might reduce its incentive to devote the time and effort of its professionals to seeking profitable opportunities for our portfolio, which could result in lower portfolio performance and could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
We generally fund our targeted assets with borrowings whose interest rates reset frequently, and as a result we generally have an interest rate mismatch between our assets and liabilities, which could cause our net interest margin (the spread between the average yield on our assets and our average borrowing costs) to compress, or even become negative.
We generally fund our assets with borrowings whose interest rates reset frequently, and as a result we generally have an interest rate mismatch between our assets and liabilities, which could cause our net interest margin (the spread between the average yield on our assets and our average borrowing costs) to compress, or even become negative.
Additionally, merger and acquisition transactions are frequently the subject of litigation or other legal proceedings, including actions alleging breaches of fiduciary or other duties. If litigation or other legal proceedings are brought against us or against our board of directors in connection with any acquisition or merger, we might not be successful in defending against such proceedings.
Additionally, investment, merger and acquisition transactions are frequently the subject of litigation or other legal proceedings, including actions alleging breaches of fiduciary or other duties. If litigation or other legal proceedings are brought against us or against our board of directors in connection with any investment, acquisition or merger, we might not be successful in defending against such proceedings.
CLOs in which we invest could become subject to U.S. federal income tax or withholding requirements. The CLO issuers in which we invest will generally operate pursuant to investment guidelines intended to ensure that the CLO is not treated for U.S. federal income tax purposes as engaged in a U.S. trade or business.
The issuers of the CLOs in which we invest could become subject to U.S. federal income tax or withholding requirements. The issuers of the CLOs in which we invest will generally operate pursuant to investment guidelines intended to ensure that the CLO is not treated for U.S. federal income tax purposes as engaged in a U.S. trade or business.
In addition, the policies permit departure from proportional allocations under certain circumstances, including, for example, when such allocation would result in an inefficiently small amount of the security or assets being purchased for an account, which may also result in our not participating in certain allocations.
In addition, Ellington's policies permit departure from proportional allocations under certain circumstances, including, for example, when such allocation would result in an inefficiently small amount of the security or assets being purchased for an account, which may also result in our not participating in certain allocations.
Because our Manager earns base management fees that are based on the total amount of our equity capital, and earns incentive fees that are based in large part on the total net income that we are able to generate, our Manager may have an incentive to recommend that we issue additional debt or equity securities.
Because our Manager earns base management fees that are effectively based on the total amount of our equity capital, and earns incentive fees that are based in large part on the total net income that we are able to generate, our Manager may have an incentive to recommend that we issue additional debt or equity securities.
Ginnie Mae, which guarantees MBS backed by federally insured or guaranteed loans primarily consisting of loans insured by FHA, or guaranteed by the Department of Veterans Affairs, or "VA," is part of the U.S. Department of Housing and Urban Development and its guarantees are backed by the full faith and credit of the United States.
Ginnie Mae, which guarantees MBS backed by federally insured or guaranteed loans primarily consisting of loans insured by FHA, or guaranteed by the Department of Veterans Affairs is part of the U.S. Department of Housing and Urban Development and its guarantees are backed by the full faith and credit of the United States.
To the extent that we are exposed to foreign currency risk, changes in exchange rates of such foreign currencies to the U.S. dollar could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
To the extent that we are exposed to foreign currency risk, changes in exchange rates between such foreign currencies and the U.S. dollar could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales or securitization structures, even though the transactions might otherwise be beneficial to us. Alternatively, in order to avoid the prohibited transactions tax, we may choose to implement certain transactions through a TRS, including by contributing or selling the assets to a TRS.
Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales or securitization structures, even though the transactions might otherwise be beneficial to us. Alternatively, in order to avoid the prohibited transactions tax, we may choose to implement certain transactions through a TRS, including by contributing the assets to a TRS.
We do not own the brand, trademark, or logo that we will use in our business and may be unable to protect this intellectual property against infringement from third parties. Ellington retains the right to continue using the "Ellington" brand and trademark.
We do not own the brand, trademark, or logo that we use in our business and may be unable to protect this intellectual property against infringement from third parties. Ellington retains the right to continue using the "Ellington" brand and trademark.
Therefore, if the value of our assets were to decline, the prior issuance of preferred equity and debt would result in a greater decrease in net asset value to the holders of our common stock than if we had not issued debt and preferred equity.
Therefore, if the value of our assets were to decline, the prior issuance of preferred equity and debt would result in a greater decrease in net asset value for holders of our common stock than if we had not issued debt and preferred equity.
Federal Income Tax Risks • Failure to maintain REIT qualification would subject us to significant corporate tax liabilities, reducing cash available for distributions and potentially impacting stockholder returns. • Changes in tax laws or regulatory rulings could alter the tax treatment of REITs, negatively affecting our financial position, investment strategy, and distributions to stockholders. • Complying with our election to be treated as REIT may cause us to forgo or liquidate otherwise attractive investments and/or may limit our ability to hedge efficiently. • Complying with REIT requirements may limit our ability to hedge effectively.
Federal Income Tax Risks • Failure to maintain REIT qualification would subject us to significant corporate tax liabilities, reducing cash available for distributions and potentially impacting stockholder returns. • Changes in tax laws or regulatory rulings could alter the tax treatment of REITs, negatively affecting our financial position, investment strategy, and distributions to stockholders. • Complying with our election to be treated as REIT may cause us to forgo or liquidate otherwise attractive investments and/or may limit our ability to hedge efficiently.
We cannot predict with certainty the benefits of such acquisitions or mergers, which often constitute multi-year endeavors, and we often make a number of assumptions about a company's assets, investment portfolio and/or liabilities when assessing such acquisitions or mergers.
We cannot predict with certainty the benefits of such acquisitions or mergers, which often constitute multi-year endeavors, and we often make a number of assumptions about a company's assets, investment portfolio and/or liabilities when assessing such transactions.
There can be significant mismatches between the timing and frequency of coupon resets on the floating rate CLO debt tranches and the underlying floating rate corporate loans, and furthermore some of the underlying corporate loans may bear fixed coupon rates.
There can be significant mismatches between the timing and frequency of coupon resets on the floating rate CLO debt tranches and the underlying floating rate corporate loans, and furthermore some of the underlying assets may bear fixed coupon rates.
Some of the factors that could negatively affect our common stock price, our preferred stock price, or result in fluctuations in the price or trading volume of our common stock and/or our preferred stock include: • actual or anticipated variations in our dividends or quarterly operating results; • changes in our earnings estimates, failure to meet earnings or operating results expectations of public market analysts and investors, or publication of research reports about us or the real estate specialty finance industry; • increases in market interest rates that lead purchasers of our common stock or our preferred stock to demand a higher yield; • repurchases and issuances by us of our common stock or our preferred stock; • passage of legislation, changes in applicable law, court rulings, enforcement actions, or regulatory developments that adversely affect us or our industry; • changes in government policies or changes in timing of implementation of government policies, including with respect to Fannie Mae, Freddie Mac, and Ginnie Mae; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key management personnel; • actions by stockholders; • speculation in the press or investment community; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics, such as the COVID-19 pandemic, high unemployment, elevated inflation, tariffs, volatile interest rates, volatile and/or elevated credit spreads, concerns regarding a recession, geopolitical conflicts, social unrest, or civil disturbances; • our inclusion in, or exclusion from, various stock indices; • our operating performance and the performance of other similar companies; and • changes in accounting principles.
Some of the factors that could negatively affect our common stock price, our preferred stock price, or result in fluctuations in the price or trading volume of our common stock and/or our preferred stock include: • actual or anticipated variations in our dividends or quarterly operating results; • changes in our earnings estimates, failure to meet earnings or operating results expectations of public market analysts and investors, or publication of research reports about us or the real estate specialty finance industry; • increases in market interest rates that lead purchasers of our common stock or our preferred stock to demand a higher yield; • repurchases and issuances by us of our common stock or our preferred stock; • passage of legislation, changes in applicable law, court rulings, enforcement actions, or regulatory developments that adversely affect us or our industry; • changes in government policies or changes in timing of implementation of government policies, including with respect to Fannie Mae, Freddie Mac, and Ginnie Mae; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key management personnel; • actions by stockholders; • speculation in the press or investment community; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics, high unemployment, elevated inflation, tariffs, volatile interest rates, volatile and/or elevated credit spreads, concerns regarding a recession, geopolitical conflicts, social unrest, or civil disturbances; • our inclusion in, or exclusion from, various stock indices; • our operating performance and the performance of other similar companies; and • changes in accounting principles.
Under the terms of the management agreement, our Manager, Ellington, and their affiliates and each of their officers, directors, members, shareholders, managers, investment and risk management committee members, employees, agents, successors and assigns, will not be liable to us for acts or omissions performed in accordance with and pursuant to the management agreement, except because of acts or omissions constituting bad faith, willful misconduct, 54 Table of Contents gross negligence, or reckless disregard of their duties under the management agreement.
Under the terms of the management agreement, our Manager, Ellington, and their affiliates and each of their officers, directors, members, shareholders, managers, investment and risk management committee members, employees, agents, successors and assigns, will not be liable to us for acts or omissions performed in accordance with and pursuant to the management agreement, except because of acts or omissions constituting bad faith, willful misconduct, 56 Table of Contents gross negligence, or reckless disregard of their duties under the management agreement.
Pursuant to our Base MSR Contracts, to the extent that costs of servicing exceed servicing proceeds, we are obligated to pay the equivalent of such excess to cover such “servicing advances,” which can include the payment of unpaid principal and interest due to the third-party owners of the loans, property taxes and insurance premiums, legal expenses and other protective advances that have not yet been received from the individual borrowers.
Pursuant to our Base MSR Contracts, to the extent that servicing expenditures exceed servicing proceeds, we are obligated to pay the equivalent of such excess to cover such “servicing advances,” which can include the payment of unpaid principal and interest due to the third-party owners of the loans, property taxes and insurance premiums, legal expenses and other protective advances that have not yet been received from the individual borrowers.
In addition, the two rules may conflict with each other in that our ability to reduce the value of our TRSs below 20% of our assets by causing a TRS to distribute a dividend to us may be limited by our need to comply with the REIT 75% gross income test, which requires that, in general, 75% of our gross income come from certain real estate-related sources (and TRS dividends are not qualifying income for such test).
In addition, the two rules may conflict with each other in that our ability to reduce the value of our TRSs below 25% of our assets by causing a TRS to distribute a dividend to us may be limited by our need to comply with the REIT 75% gross income test, which requires that, in general, 75% of our gross income come from certain real estate-related sources (and TRS dividends are not qualifying income for such test).
Substantial indebtedness adds additional risk with respect to a borrower and could (i) limit its ability to borrow money or otherwise access funds for its working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes; (ii) require it to dedicate a substantial portion of its cash flow from operations to the repayment of its indebtedness, thereby reducing funds available to it for other purposes; (iii) make it more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and/or (iv) subject it to restrictive financial and operating covenants, which may preclude it from executing on favorable business activities or from financing future operations or other capital needs.
Substantial indebtedness adds additional risk with respect to a borrower and could (i) limit its ability to borrow money or otherwise access funds for its working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes; (ii) require it to dedicate a substantial portion of its cash flow from operations to the repayment of its indebtedness, thereby reducing funds 41 Table of Contents available to it for other purposes; (iii) make it more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and/or (iv) subject it to restrictive financial and operating covenants, which may preclude it from executing on favorable business activities or from financing future operations or other capital needs.
There can be no assurance that our Manager will conduct any specific level of due diligence, or that, among other things, our Manager's due diligence processes will uncover all relevant facts or that any purchase will be successful, which could result in losses on these assets, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
There can be no assurance that our Manager will conduct any specific level of due diligence, or that, among other things, our Manager's due diligence processes will uncover all relevant facts or that any purchase will be successful, any such failure could result in losses on these assets and which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Residential mortgage loans are also subject to property damage caused by hazards, such as earthquakes, fires or environmental hazards, not covered by standard property insurance policies, or "special hazard risk." Special hazard-related risks also include the risk of rising property insurance costs, the risk of insurers cancelling or non-renewing insurance coverage, and climate-related risks, particularly in regions affected by hurricanes, droughts, wildfires, and flooding.
Residential mortgage loans are also subject to property damage caused by hazards, such as earthquakes, fires or environmental hazards, not covered by standard property insurance policies, or "special hazard risk." Special hazard-related risks also include the risk of rising property insurance costs, the risk of insurers cancelling or non-renewing insurance coverage, and the risk of increased climate-related losses, particularly in regions affected by hurricanes, droughts, wildfires, and flooding.
Additionally, an increase in short-term interest rates would increase the amount of interest owed on our repo borrowings, for which see "—Interest rate mismatches between our assets and our borrowings may reduce our income during periods of changing interest rates, and increases in interest rates could adversely affect the value of our assets." See also "— Certain actions by the Federal Reserve could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.” 27 Table of Contents Changes in market conditions may cause a decrease in the issuance volumes of certain of our targeted assets, which could adversely affect our ability to acquire targeted assets that satisfy our investment objectives, and which could adversely affect the loan originators in which we invest.
Additionally, an increase in short-term interest rates would increase the amount of interest owed on our repo borrowings, for which see "—Interest rate mismatches between our assets and our borrowings may reduce our income during periods of changing interest rates, and increases in interest rates could adversely affect the value of our assets." See also "— Certain actions by the Federal Reserve could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.” Changes in market conditions may cause a decrease in the issuance volumes of certain of our targeted assets, which could adversely affect our ability to acquire assets that satisfy our investment objectives, and which could adversely affect the loan originators in which we invest.
While we intend to manage our affairs so as to satisfy the requirement that no more than 20% of the value of our total assets consists of stock or securities of our TRSs, as well as the requirement that taxable income from our TRSs plus other non-qualifying gross income not exceed 25% of our total gross income, there can be no assurance that we will be able to do so in all market circumstances.
While we intend to manage our affairs so as to satisfy the requirement that no more than 25% of the value of our total assets consists of stock or securities of our TRSs and other non-qualifying assets, as well as the requirement that taxable income from our TRSs plus other non-qualifying gross income not exceed 25% of our total gross income, there can be no assurance that we will be able to do so in all market circumstances.
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Report, including the matters set forth below in this Item 1A. 18 Table of Contents If any of the following risks occurs, our business, financial condition or results of operations could be materially and adversely affected.
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Report, including the matters set forth below in this Item 1A. 19 Table of Contents If any of the following risks occurs, our business, financial condition or results of operations could be materially and adversely affected.
Accordingly, the subordinated and lower-rated (or unrated) securities in which we invest may experience significant price and performance volatility relative to more senior or higher-rated securities, and they are subject to greater risk of loss than more senior or higher-rated securities which, if realized, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Accordingly, the subordinated and lower-rated (or unrated) securities in which we invest may experience significant price and performance volatility and are subject to greater risk of loss than more senior and/or higher-rated securities, which, if realized, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Additionally, if liquidity conditions tighten or securitization markets weaken, the ability to sell future draws at a premium could be impaired, further reducing reverse MSR values. Any regulatory changes affecting reverse mortgage lending, including potential CFPB or HUD actions, could also introduce additional risks to draw rate expectations and securitization economics.
Additionally, if liquidity conditions tighten or securitization markets weaken, our ability to sell future draws at a premium could be impaired, further reducing reverse MSR values. Any regulatory changes affecting reverse mortgage lending, including potential CFPB or HUD actions, could also introduce additional risks to draw rate expectations and securitization economics.
We may experience significant fluctuations in our book value per share from month to month and in our quarterly operating results due to a number of factors, including the timing of distributions to stockholders, fluctuations in the value of our investments, our ability or inability to make investments that meet our investment criteria, the interest and other income earned on our investments, the level of our expenses (including the interest or dividend rate payable on any debt securities or preferred stock that we issue), variations in and the timing of realized and unrealized gains or losses in our portfolio, the degree 69 Table of Contents to which we encounter competition in our markets and general economic conditions.
We may experience significant fluctuations in our book value per share from month to month and in our quarterly operating results due to a number of factors, including the timing of distributions to stockholders, fluctuations in the value of our investments, our ability or inability to make investments that meet our investment criteria, the interest and other income earned on our investments, the level of our expenses (including the interest or dividend rate payable on any debt securities or preferred stock that we issue), variations in and the timing of realized and unrealized gains or losses in our portfolio, the degree to which we encounter competition in our markets and general economic conditions.
Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets. The U.S. Government, through the U.S.
Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our assets. The U.S. Government, through the U.S.
See "—Our investments in MSR related assets expose us to additional risk of loss if our counterparty were unable to satisfy its obligation to us" and "—Risks Related to Our Loan Origination and Servicing Businesses—Longbridge relies on subservicers and other service providers to perform reverse mortgage servicing 25 Table of Contents functions, which presents us with a number of risks." We rely on mortgage servicers to service effectively, including loss mitigation efforts, and we also may engage in our own loss mitigation efforts with respect to whole mortgage loans that we own directly and such loss mitigation efforts may be unsuccessful or not cost effective.
See "—Our investments in MSR related assets expose us to additional risk of loss if our counterparty were unable to satisfy its obligation to us" and "—Risks Related to Our Loan Origination and Servicing Businesses—Longbridge relies on subservicers and other service providers to perform reverse mortgage servicing functions, which presents us with a number of risks." We rely on mortgage servicers to service effectively, including loss mitigation efforts, and we also may engage in our own loss mitigation efforts with respect to whole mortgage loans that we own directly and such loss mitigation efforts may be unsuccessful or not cost effective.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of either Ellington's or Longbridge's networks or systems (or the networks or systems of certain third parties that facilitate our, Ellington's, and Longbridge's business activities) or any failure to maintain performance, reliability and security of Ellington's, Longbridge's, or certain third-party service providers' technical infrastructure, but such computer malware, ransomware, viruses, and computer hacking and phishing attacks could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
It is difficult to determine what, if any, negative 50 Table of Contents impact may directly result from any specific interruption or cyber-attacks or security breaches of either Ellington's or Longbridge's networks or systems (or the networks or systems of certain third parties that facilitate our, Ellington's, and Longbridge's business activities) or any failure to maintain performance, reliability and security of Ellington's, Longbridge's, or certain third-party service providers' technical infrastructure, but such computer malware, ransomware, viruses, and computer hacking and phishing attacks could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of fiduciary duty owed by any current or former director, officer or stockholder of ours to us or our stockholders; any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; or any action asserting a claim against us governed by the internal affairs doctrine.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: any derivative action or proceeding 60 Table of Contents brought on our behalf; any action asserting a claim of breach of fiduciary duty owed by any current or former director, officer or stockholder of ours to us or our stockholders; any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; or any action asserting a claim against us governed by the internal affairs doctrine.
Future changes may adversely affect our operating environment, including through increasing competition, and therefore our business, operating costs, financial condition and results of operations.
Future policy changes may adversely affect our operating environment, including through increasing competition, and therefore our business, operating costs, financial condition and results of operations.
See "—General Risk Factors—Future offerings of debt securities, which would rank senior to our common and preferred stock upon our liquidation, and future offerings of equity 53 Table of Contents securities, which could dilute our existing stockholders and, in the case of preferred equity, may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock." The officers of our Manager and its affiliates devote as much time to us as our Manager deems appropriate; however, these officers may have conflicts in allocating their time and services among us and Ellington and its affiliates' accounts.
See "—General Risk Factors—Future offerings of debt securities, which would rank senior to our common and preferred stock upon our liquidation, and future offerings of equity securities, which could dilute our existing stockholders and, in the case of preferred equity, may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock." The officers of our Manager and its affiliates devote as much time to us as our Manager deems appropriate; however, these officers may have conflicts in allocating their time and services among us and Ellington and its affiliates' accounts.
If long-term rates were to increase significantly, such as we saw during 2022 and parts of 2023 and 2024, not only would the market value of these assets be expected to decline, but these assets could lengthen in duration because borrowers would be less likely to prepay their mortgages.
If long-term rates were to increase significantly, such as we observed during 2022 and parts of 2023 and 2024, not only would the market value of these assets be expected to decline, but these assets could lengthen in duration because borrowers would be less likely to prepay their mortgages.
Item 1A. Risk Factors Summary of Risk Factors Risks Related To Our Investments and Investment Activities • Challenging conditions in the mortgage, real estate, and financial markets—including economic downturns, inflation, elevated interest rates, declining property values, and tightening credit availability—could adversely affect the value of our investments and our financial performance.
Item 1A. Risk Factors Summary of Risk Factors Risks Related To Our Investments and Investment Activities • Difficult conditions in the mortgage, real estate, and financial markets, including economic downturns, inflation, elevated interest rates, declining property values, and tightening credit availability, could adversely affect the value of our investments and our financial performance.
GAAP. Furthermore, in determining the fair value of our assets, our Manager uses proprietary models 24 Table of Contents that require the use of a significant amount of judgment and the application of various assumptions including, but not limited to, assumptions concerning future prepayment rates, interest rates, default rates and loss severities.
GAAP. Furthermore, in determining the fair value of our assets, our Manager uses proprietary models that 25 Table of Contents require the use of a significant amount of judgment and the application of various assumptions including, but not limited to, assumptions concerning future prepayment rates, interest rates, default rates and loss severities.
If we are unable to successfully integrate our acquisitions and/or mergers into our business, we may never realize their expected benefits.
If we are unable to successfully integrate our investments, acquisitions and/or mergers into our business, we may never realize their expected benefits.
There can be no assurance that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our asset acquisition activities and/or dispose of assets, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders, or in the worst case, cause our insolvency.
There can be no assurance that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause us to curtail our asset acquisition activities 35 Table of Contents and/or dispose of assets, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders, or in the worst case, cause our insolvency.
In addition, in conducting periodic reviews, our Board of Directors relies primarily on information provided to them by our Manager. Furthermore, our Manager may arrange for us to use complex strategies or to enter into complex transactions that may be difficult or impossible to unwind by the time they are reviewed by our Board of Directors.
In addition, in conducting periodic reviews, our Board of Directors relies primarily on information provided to it by our Manager. Furthermore, our Manager may arrange for us to use complex strategies or to enter into complex transactions that may be difficult or impossible to unwind by the time they are reviewed by our Board of Directors.
Changes in U.S. federal policy, including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which lead to changes involving the level of oversight and focus on the financial services industry or the tax rates paid by corporate entities.
Changes in U.S. federal policy, including tax policies, and at regulatory agencies typically occur over time through policy and personnel changes following elections and otherwise, which lead to changes involving the level of oversight and focus on the financial services industry or the tax rates paid by corporate entities.
Further, economic disruptions may result in liquidity pressures on servicers and other third-party vendors that we rely upon. Servicers and certain other parties are responsible for dealing with delinquent borrowers, and are responsible in certain capital markets securitization transactions for funding advances with respect to delinquent payments of principal and interest.
Further, economic disruptions may result in liquidity pressures on servicers and other vendors that we rely upon. Servicers and certain other parties are responsible for dealing with delinquent borrowers, and are responsible in certain capital markets securitization transactions for funding advances with respect to delinquent payments of principal and interest.
As part of these policies, accounts that are in a "start-up" or "ramp-up" phase may get allocations above their proportion of available capital, which could work to our disadvantage, particularly because there are no limitations surrounding Ellington's ability to create new accounts.
As part of these policies, accounts that are in a "start-up" or "ramp-up" phase may get allocations above their proportion of available capital, which could work to our disadvantage, particularly because there are no limitations on Ellington's ability to create new accounts.
For example, certain states now require that relevant state entities or managers/administrators of state investments make investments based solely on pecuniary factors without consideration of ESG factors or have enacted "boycott bills." If investors subject to such legislation viewed us, our policies, or our practices, as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in us, which could negatively affect our financial performance.
For example, certain states now require 72 Table of Contents that relevant state entities or managers/administrators of state investments make investments based solely on pecuniary factors without consideration of ESG factors or have enacted "boycott bills." If investors subject to such legislation viewed us, our policies, or our practices, as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in us, which could negatively affect our financial performance.
Generally we will seek to reserve the right to terminate derivative transactions upon a counterparty's insolvency, but absent an actual insolvency, we may not be able to terminate derivative transaction without the consent of the counterparty, and we may not be able to assign or otherwise dispose of derivative transactions to another counterparty without the consent of both the original counterparty and the potential assignee.
Generally we will seek to reserve the right to terminate derivatives transactions upon a counterparty's insolvency, but absent an actual insolvency, we may not be able to terminate derivatives transaction without the consent of the derivatives transaction counterparty, and we may not be able to assign or otherwise dispose of derivatives transactions to another counterparty without the consent of both the original counterparty and the potential assignee.
In addition, we must also ensure that each taxable year we satisfy the REIT 75% and 95% gross income tests, which require that, in general, 75% of our gross income come from certain real estate-related sources and 95% of our gross income consist of gross income that qualifies for the REIT 75% gross income test or certain other passive income sources.
Further, we must also ensure that each taxable year we satisfy the REIT 75% and 95% gross income tests, which require that, in general, 75% of our gross income come from certain real estate-related sources and 95% of our gross income consist of gross income that qualifies for the REIT 75% gross income test or certain other passive income sources.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in 22 Table of Contents home prices, deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and of more limited reliability.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and of more limited reliability.
If our belief is incorrect, or if we acquire an excess servicing spread asset with terms that are different from the terms of our current excess servicing spread assets, the IRS could assert that such excess servicing spread assets do not qualify under the REIT asset and income tests, and if successful, we might fail to qualify as a REIT, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
If our belief is incorrect, or if we 66 Table of Contents acquire an excess servicing spread asset with terms that are different from the terms of our current excess servicing spread assets, the IRS could assert that such excess servicing spread assets do not qualify under the REIT asset and income tests, and if successful, we might fail to qualify as a REIT, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Consequently, depending on market conditions at the relevant time, we may have to rely on additional equity issuances to meet our capital and financing needs, which may be dilutive to our stockholders, or we may have to rely on less efficient forms of debt financing that consume a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash dividends to our stockholders, and other purposes.
Consequently, depending on market conditions at the relevant time, we may have to rely on additional equity issuances to meet our capital and financing needs, which we may not be able to issue, or which may be dilutive to our stockholders, or we may have to rely on less efficient forms of debt financing that consume a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash dividends to our stockholders, and other purposes.
Our certificate of incorporation provides that each person that is or was a director, officer, employee, or agent of ours shall not be liable to us or any of our stockholders for any acts or omissions by any such person arising from the performance of their 57 Table of Contents duties and obligations in connection with us, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law.
Our certificate of incorporation provides that each person that is or was a director, officer, employee, or agent of ours shall not be liable to us or any of our stockholders for any acts or omissions by any such person arising from the performance of their duties and obligations in connection with us, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law.
Treasury entered into Preferred Stock Purchase Agreements ("PSPAs") with the FHFA and have taken various actions intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability. In January 2025, the FHFA and the U.S.
Treasury entered into Preferred Stock Purchase Agreements ("PSPAs") with the FHFA and has taken various actions intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability. In January 2025, the FHFA and the U.S.
Our acquisitions, mergers and the integration of acquired or merged-with businesses and companies subject us to various risks and may not result in all of the cost savings and benefits anticipated, which could adversely affect our financial condition or results of operations.
Our acquisitions, equity investments, mergers and the integration of acquired or merged-with businesses and companies subject us to various risks and may not result in all of the cost savings and benefits anticipated, which could adversely affect our financial condition or results of operations.
If the loans are found to have been originated in violation of predatory or abusive lending laws, we could incur losses, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
If loans in our portfolio are found to have been originated in violation of predatory or abusive lending laws, we could incur losses, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Other than Longbridge's office locations, which are dedicated solely to Longbridge’s business, we have no separate facilities and are completely reliant on our Manager, which has significant discretion as to the implementation of our operating policies and execution of our business strategies and risk management practices.
Other than Longbridge's office locations, which are dedicated solely to Longbridge’s business, we have no separate facilities and are completely reliant on our Manager, which has significant discretion over the implementation of our operating policies and execution of our business strategies and risk management practices.
In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any calendar year (subject to specific timing rules for certain dividends paid in January) are less than the sum of: • 85% of our REIT ordinary income for that year; • 95% of our REIT capital gain net income for that year; and • any undistributed taxable income from prior years.
In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by 63 Table of Contents which our distributions in any calendar year (subject to specific timing rules for certain dividends paid in January) are less than the sum of: • 85% of our REIT ordinary income for that year; • 95% of our REIT capital gain net income for that year; and • any undistributed taxable income from prior years.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Longbridge's Risk Management and Strategy Longbridge’s cybersecurity program is focused on the following key areas: • Governance : As discussed in more detail below under "Governance,” our Board of Directors’ oversight of cybersecurity risk management is completed through the Audit Committee, which regularly interacts with both our and Longbridge's management teams who are responsible for assessing and managing material risks from cybersecurity threats at Longbridge. • Collaborative Approach : Longbridge has implemented a cross-functional approach to identifying and evaluating, preventing, mitigating and remediating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents.
Longbridge's Cybersecurity Risk Management and Strategy Longbridge’s cybersecurity program is focused on the following key areas: • Governance : As discussed in more detail below under "Governance,” our Board of Directors’ oversight of cybersecurity risk management is completed through the Audit Committee, which regularly interacts with both our and Longbridge's management teams who are responsible for assessing and managing material risks from cybersecurity threats at Longbridge. • Collaborative Approach : Longbridge has implemented a cross-functional approach to identifying and evaluating, preventing, mitigating and remediating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents.
Longbridge's COO has developed and executed IT strategy, including cybersecurity programs, and helped achieve and maintain Sarbanes-Oxley compliance and SOC-2 certification. Longbridge's VP of IT has extensive leadership experience with enterprise information technology, both in the banking and manufacturing industries. She has also developed and executed IT strategy, including cybersecurity programs and helped achieve and maintain Sarbanes-Oxley compliance.
Longbridge's COO has developed and executed IT strategy, including cybersecurity programs, and helped achieve and maintain Sarbanes-Oxley compliance and SOC-2 certification. Longbridge's VP of TOE has extensive leadership experience with enterprise information technology, both in the banking and manufacturing industries. She has also developed and executed IT strategy, including cybersecurity programs and helped achieve and maintain Sarbanes-Oxley compliance.
Risk Factors—We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders." and "—Because we are highly dependent on information systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could 72 Table of Contents significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows." While Ellington did experience two business email compromise incidents in recent years, neither had a material impact on our business strategy, results of operations or financial condition.
Risk Factors—We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders." and "—Because we are highly dependent on information systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows." While Ellington did experience two business email compromise incidents in recent years, neither had a material impact on our business strategy, results of operations or financial condition.
Risk Factors—We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.” and “—Because we are highly dependent on information 73 Table of Contents systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows.” Governance Our Board of Directors, through the Audit Committee, oversees our cybersecurity risk management process.
Risk Factors—We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.” and “—Because we are highly dependent on information systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows.” Governance Our Board of Directors, through the Audit Committee, oversees our cybersecurity risk management process.
In these reviews, Longbridge's COO informs the Audit Committee of what Longbridge believes are the key focus items of Longbridge in its cybersecurity program and the COO and VP of IT provide an overview of their views of emerging threats, and any significant cyber response activities or incidents.
In these reviews, Longbridge's COO informs the Audit Committee of what Longbridge believes are the key focus items of Longbridge in its cybersecurity program and the COO and VP of TOE provide an overview of their views of emerging threats, and any significant cyber response activities or incidents.
These meetings cover a broad range of topics including implementation planning for the deployment of new hardware and software, patch and vulnerability management, considerations for disaster recovery and business continuity, user access controls, data security and more.
These meetings cover a broad range of 75 Table of Contents topics including implementation planning for the deployment of new hardware and software, patch and vulnerability management, considerations for disaster recovery and business continuity, user access controls, data security and more.
Longbridge's COO, accompanied by its VP of IT, regularly discusses Longbridge’s cybersecurity risks and posture, and its information technology roadmap, with the Audit Committee.
Longbridge's COO, accompanied by its VP of TOE, regularly discusses Longbridge’s cybersecurity risks and posture, and its information technology roadmap, with the Audit Committee.
Longbridge had over 400 employees as of December 31, 2024. 71 Table of Contents Ellington's Risk Management and Strategy Ellington’s cybersecurity program is focused on the following key areas: • Governance : As discussed in more detail below under "Governance," our Board of Directors' oversight of cybersecurity risk management is supported by the Audit Committee of our Board of Directors (the "Audit Committee"), which regularly interacts with our management team and other professionals who are responsible for assessing and managing material risks from cybersecurity threats at Ellington. • Collaborative Approach : Ellington has implemented a cross-functional approach to identifying and evaluating, preventing, mitigating and remediating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents.
Ellington's Cybersecurity Risk Management and Strategy Ellington’s cybersecurity program is focused on the following key areas: • Governance : As discussed in more detail below under "Governance," our Board of Directors' oversight of cybersecurity risk management is supported by the Audit Committee of our Board of Directors (the "Audit Committee"), which regularly interacts with our management team and other professionals who are responsible for assessing and managing material risks from cybersecurity threats at Ellington. • Collaborative Approach : Ellington has implemented a cross-functional approach to identifying and evaluating, preventing, mitigating and remediating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents.
Longbridge's cybersecurity risk management and strategy is co-led by its Chief Operating Officer ("COO") and its Vice President of Information Technology ("VP of IT"). Longbridge's COO has extensive leadership experience with enterprise information technology in the mortgage banking industry, where he has held various executive roles, including Chief Privacy Officer and Chief Information Officer.
Longbridge's cybersecurity risk management and strategy is co-led by its Chief Operating Officer ("COO") and its Vice President of Technology and Operational Excellence ("VP of TOE"). Longbridge's COO has extensive leadership experience 77 Table of Contents with enterprise information technology in the mortgage banking industry, where he has held various executive roles, including Chief Privacy Officer and Chief Information Officer.
Third-party service providers are regularly evaluated by Longbridge to assess their cyber security posture and general information technology practices to determine if they are suitable partners; where applicable, relevant certifications are obtained such as SOC 2 or ISO 27001. • Education and Awareness : Longbridge: (i) provides regular, mandatory cyber security training to all personnel to equip them with tools to identify and address cybersecurity threats; (ii) communicates evolving information security policies, standards, processes and practices to employees via a variety of communication methods; and (iii) conducts phishing tests to assess user alertness, and retains an external cybersecurity vendor to conduct similar tests on an annual basis.
Third-party service providers are regularly evaluated by Longbridge to assess their cyber security posture and general information technology practices to determine if they are suitable partners; where applicable, relevant certifications are obtained such as SOC 2 or ISO 27001. • Education and Awareness : Longbridge: (i) provides regular, mandatory cyber security training to all personnel to equip them with tools to identify and address cybersecurity threats; (ii) communicates evolving information security policies, standards, processes and practices to employees via a variety of communication methods; and (iii) conducts phishing and social engineering tests to assess user alertness, and retains an external cybersecurity vendor to conduct similar tests on an annual basis. 76 Table of Contents Longbridge's technology team, and its operational risk management group, perform regular assessments of the firm’s cybersecurity and infrastructure posture.
In general, Longbridge also seeks to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that Longbridge collects and stores by identifying, preventing and mitigating cybersecurity threats and responding to cybersecurity incidents when they occur.
In general, Longbridge also seeks to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that Longbridge collects and stores by identifying, preventing and mitigating cybersecurity threats and responding to cybersecurity incidents when they occur. Longbridge had approximately 500 employees as of December 31, 2025.
Longbridge's technology team, and its operational risk management group, perform regular assessments of the firm’s cybersecurity and infrastructure posture. These reviews cover a broad range of topics including implementation planning for the deployment of new hardware and software, patch and vulnerability management, considerations for disaster recovery and business continuity, user access controls, data security and Longbridge’s threat monitoring services.
These reviews cover a broad range of topics including implementation planning for the deployment of new hardware and software, patch and vulnerability management, considerations for disaster recovery and business continuity, user access controls, data security and Longbridge’s threat monitoring services.

Item 2. Properties

Properties — owned and leased real estate

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For an overview of our real estate owned (“REO”), see Note 9—Real Estate Owned, of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 74 Table of Contents
For an overview of our real estate owned (“REO”), see Note 9—Real Estate Owned, of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Added
In addition, as described in "Note 27 Subsequent Events — Longbridge Settlement Agreement in the notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, on January 28, 2026, Longbridge entered into a settlement agreement (the “Settlement Agreement”) pursuant to which it is entitled to receive a payment of $17.0 million from one of the other parties to the Settlement Agreement.
Added
The timing and amount of any payment to be received under the Settlement Agreement will depend on the other party’s performance of its obligations thereunder.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The following graph provides a comparison of the cumulative total return on our common shares to the cumulative total return on the Standard & Poor's 500 Composite Stock Price Index, or the "S&P 500," and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT Index, or the "FTSE NAREIT MREIT." The comparison is for the period from December 31, 2019 to December 31, 2024, and assumes in each case, a $100 investment on December 31, 2019 and the reinvestment of dividends.
The following graph provides a comparison of the cumulative total return on our common shares to the cumulative total return on the Standard & Poor's 500 Composite Stock Price Index, or the "S&P 500," and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT Index, or the "FTSE NAREIT MREIT." The comparison is for the period from December 31, 2020 to December 31, 2025, and assumes in each case, a $100 investment on December 31, 2020 and the reinvestment of dividends.
Holders of Our Common Stock Based upon a review of a securities position listing as of the close of business on February 21, 2025, we had an aggregate of 186 holders of record and holders of our common stock who are nominees for an undetermined number of beneficial owners.
Holders of Our Common Stock Based upon a review of a securities position listing as of the close of business on February 20, 2026, we had an aggregate of 194 holders of record and holders of our common stock who are nominees for an undetermined number of beneficial owners.
Unregistered Sales of Equity Securities Pursuant to our 2017 Plan, on December 12, 2024, we granted 48,826 OP LTIP Units to certain of our partially dedicated employees.
Unregistered Sales of Equity Securities Pursuant to our 2017 Plan, on December 17, 2025, we granted 61,911 OP LTIP Units to certain of our partially dedicated employees.
The OP LTIP Units are subject to forfeiture restrictions that will lapse with respect to 30,443 of the OP LTIP Units on December 12, 2025 and 18,383 of the OP LTIP Units on December 12, 2026.
The OP LTIP Units are subject to forfeiture restrictions that will lapse with respect to 33,506 of the OP LTIP Units on December 16, 2026 and 28,405 of the OP LTIP Units on December 16, 2027.
The actual cumulative total returns shown on the graph above are as follows: December 31, 2019 2020 2021 2022 2023 2024 Ellington Financial Inc. $ 100.00 $ 90.17 $ 113.92 $ 93.05 $ 109.94 $ 119.53 S&P 500 100.00 118.39 152.34 124.73 157.48 196.85 FTSE NAREIT MREIT 100.00 81.38 94.05 69.27 79.79 79.96 The performance information above has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
The actual cumulative total returns shown on the graph above are as follows: December 31, 2020 2021 2022 2023 2024 2025 Ellington Financial Inc. $ 100.00 $ 126.33 $ 103.19 $ 121.92 $ 132.55 $ 167.05 S&P 500 100.00 128.68 105.36 133.03 166.28 195.98 FTSE NAREIT MREIT 100.00 115.56 85.11 98.04 98.25 114.13 The performance information above has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
Such grants were exempt from the registration requirements of the Securities Act based on the exemption provided in Section 4(a)(2) of the Securities Act. On December 27, 2024, 16,756 unvested OP LTIP Units previously issued on September 11, 2024 were exchanged for shares of restricted common stock on a one-for-one basis.
Such grants were exempt from the registration requirements of the Securities Act based on the exemption provided in Section 4(a)(2) of the Securities Act.
The Series E Preferred Stock redemption price was $25.540558 per share of Series E Preferred Stock, which was equal to the liquidation preference of $25.00 per share plus $0.540558 per share representing accrued and unpaid dividends to the Redemption Date. 76 Table of Contents Performance This performance graph is furnished and shall not be deemed filed with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act.
On December 31, 2025, 7,657 OP LTIP Units previously granted under our 2017 Plan were converted into shares of common stock on a one-for-one basis. 79 Table of Contents Performance This performance graph is furnished and shall not be deemed filed with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act.
Removed
The 16,756 shares of restricted common stock are subject to forfeiture restrictions that will lapse on December 26, 2025.
Removed
Issuer Purchases of Equity Securities We redeemed all 957,133 outstanding shares of our 8.250% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the "Series E Preferred Stock") on December 13, 2024 (the "Redemption Date"), pursuant to the terms of the Certificate of Designations relating to the Series E Preferred Stock.

Item 7. Management's Discussion & Analysis

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

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In our Investment Portfolio Segment, we invest in a diverse array of financial assets, including residential and commercial mortgage loans; residential mortgage-backed securities, or "RMBS," including RMBS for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "Agency RMBS"; commercial mortgage-backed securities, or "CMBS"; consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans; investments referencing mortgage servicing rights on traditional forward mortgage loans, or "Forward MSR-related investments"; collateralized loan obligations, or "CLOs"; non-mortgage- and mortgage-related derivatives; debt and equity investments in loan origination companies; and other strategic investments.
In our Investment Portfolio Segment, we invest in a diverse array of financial assets, including residential and commercial mortgage loans; residential mortgage-backed securities ("RMBS"), including RMBS for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity ("Agency RMBS"); commercial mortgage-backed securities ("CMBS"); consumer loans and asset-backed securities ("ABS") including ABS backed by consumer loans; investments referencing mortgage servicing rights on traditional forward mortgage loans ("Forward MSR-related investments"); collateralized loan obligations ("CLOs"); non-mortgage- and mortgage-related derivatives; debt and equity investments in loan origination companies; and other strategic investments.
Agency RMBS Our Agency RMBS assets consist primarily of whole pool (and to a lesser extent, partial pool) pass-through certificates, the principal and interest of which are guaranteed by a federally chartered corporation, such as the Federal National Mortgage Association, or "Fannie Mae," the Federal Home Loan Mortgage Corporation, or "Freddie Mac," or the Government National Mortgage Association, within the U.S.
Agency RMBS Our Agency RMBS assets consist primarily of whole pool (and to a lesser extent, partial pool) pass-through certificates, the principal and interest of which are guaranteed by a federally chartered corporation, such as the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), or the Government National Mortgage Association, within the U.S.
Department of Housing and Urban Development, or "Ginnie Mae," and which are backed by ARMs, Hybrid ARMs, or fixed-rate mortgages. In addition to investing in pass-through certificates which are backed by traditional mortgages, we have also invested in Agency RMBS backed by reverse mortgages.
Department of Housing and Urban Development ("Ginnie Mae") and which are backed by ARMs, Hybrid ARMs, or fixed-rate mortgages. In addition to investing in pass-through certificates which are backed by traditional mortgages, we have also invested in Agency RMBS backed by reverse mortgages.
A non-QM loan is not necessarily high-risk, or subprime, but is instead a loan that does not conform to the complex Qualified Mortgage, or "QM," rules of the Consumer Financial Protection Bureau. For example, many non-QM loans are made to creditworthy borrowers who cannot provide traditional documentation for income, such as borrowers who are self-employed.
A non-QM loan is not necessarily high-risk, or subprime, but is instead a loan that does not conform to the complex Qualified Mortgage ("QM") rules of the Consumer Financial Protection Bureau. For example, many non-QM loans are made to creditworthy borrowers who cannot provide traditional documentation for income, such as borrowers who are self-employed.
Longbridge For the year ended December 31, 2024, other income (loss) from the Longbridge segment was $156.5 million, consisting primarily of gains from Net change from HECM reverse mortgage loans, at fair value of $637.0 million, net gains of $24.8 million on securities and loans, $20.3 million of Other, net, net gains of $16.0 million on financial derivatives, and net gains of $4.1 million on Other secured borrowings, at fair value.
For the year ended December 31, 2024, other income (loss) from the Longbridge segment was $156.5 million, consisting primarily of gains from Net change from HECM reverse mortgage loans, at fair value of $637.0 million, net gains of $24.8 million on securities and loans, $20.3 million of Other, net, net gains of $16.0 million on financial derivatives, and net gains of $4.1 million on Other secured borrowings, at fair value.
(5) For the year ended December 31, 2024, includes $7.2 million of non-capitalized transaction costs, $2.1 million of non-cash equity compensation and depreciation expense, $2.0 million of one-time compensation expense related to the cancellation of employee stock options, $0.5 million of merger and other business transition related-expenses, and $1.2 million of various other expenses.
For the year ended December 31, 2024, includes $7.2 million of non-capitalized transaction costs, $2.1 million of non-cash equity compensation and depreciation expense, $2.0 million of one-time compensation expense related to the cancellation of employee stock options, $0.5 million of merger and other business transition related-expenses, and $1.2 million of various other expenses.
As a result, we have continued to focus our acquisitions on less-competitively-bid, and more attractively-priced mixed legacy pools sourced from motivated sellers. We also acquire HELOCs and closed-end second lien loans, which are loans made to homeowners collateralized by the existing equity in their homes.
As a result, we have continued to focus our acquisitions on less-competitively-bid, and more attractively-priced mixed legacy pools sourced from motivated sellers. We acquire HELOCs and closed-end second lien loans, which are loans made to homeowners collateralized by the existing equity in their homes.
Treasury securities, securities sold short, or financial derivatives. (2) Conformed to current period presentation. (3) Also includes related REO. In accordance with U.S. GAAP, REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to consolidated financial statements.
Treasury securities, securities sold short, or financial derivatives. (2) Conformed to current period presentation. (3) Includes related REO. In accordance with U.S. GAAP, REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to consolidated financial statements.
Critical Accounting Estimates Our consolidated financial statements include the accounts of Ellington Financial Inc., its Operating Partnership, its subsidiaries, and variable interest entities, or "VIEs," for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated. The preparation of our consolidated financial statements in accordance with U.S.
Critical Accounting Estimates Our consolidated financial statements include the accounts of Ellington Financial Inc., its Operating Partnership, its subsidiaries, and variable interest entities ("VIEs"), for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated. The preparation of our consolidated financial statements in accordance with U.S.
Corporate/Other For the year ended December 31, 2024, other income (loss) was $(15.9) million, consisting primarily of net losses on our Unsecured borrowings, at fair value and on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity.
For the year ended December 31, 2024, other income (loss) was $(15.9) million, consisting primarily of net losses on our Unsecured borrowings, at fair value and on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity.
ABS backed by consumer loans; . ABS backed by Small Business Administration, or "SBA," loans, including IOs backed by SBA loans; and . Retained tranches from securitizations to which we have contributed assets. Corporate CLOs . Corporate CLO debt and equity tranches; and . Investments in CLO loan accumulation facilities. Mortgage-Related Derivatives . To-Be-Announced mortgage pass-through certificates, or "TBAs"; .
ABS backed by consumer loans; . ABS backed by Small Business Administration ("SBA") loans, including IOs backed by SBA loans; and . Retained tranches from securitizations to which we have contributed assets. Corporate CLOs . Corporate CLO debt and equity tranches; and . Investments in CLO loan accumulation facilities. Mortgage-Related Derivatives . To-Be-Announced mortgage pass-through certificates ("TBAs"); .
In accordance with U.S. GAAP, so long as Longbridge retains such mortgage servicing rights and the obligations relating thereto, such HECM loans do not meet the requirement for sale accounting in accordance with US GAAP and remain on Longbridge's balance sheet. The sold HMBS securities are accounted for as secured borrowings.
In accordance with U.S. GAAP, so long as Longbridge retains such mortgage servicing rights and the obligations relating thereto, such HECM loans do not meet the requirement for sale accounting and remain on Longbridge's balance sheet. The sold HMBS securities are accounted for as secured borrowings.
We compare estimated prepayments to actual prepayments on a quarterly basis, and effective yields are recalculated retroactive to the time of purchase. When differences arise between our previously calculated effective yields and our current calculated effective yields, a catch-up adjustment, or "Catch-up Amortization Adjustment," is made to interest income to reflect the cumulative impact of the changes in effective yields.
We compare estimated prepayments to actual prepayments on a quarterly basis, and effective yields are recalculated retroactive to the time of purchase. When differences arise between our previously calculated effective yields and our current calculated effective yields, a catch-up adjustment ("Catch-up Amortization Adjustment") is made to interest income to reflect the cumulative impact of the changes in effective yields.
We are also active in the market for residential NPLs and RPLs. The market for large residential NPL and RPL pools has remained highly concentrated, with the great majority having traded to only a handful of large players who typically securitize the residential NPLs and RPLs that they purchase.
We are active in the market for residential NPLs and RPLs. The market for large residential NPL and RPL pools has remained highly concentrated, with the great majority having traded to only a handful of large players who typically securitize the residential NPLs and RPLs that they purchase.
Agency collateralized mortgage obligations, or "CMOs," including interest only securities, or "IOs," principal only securities, or "POs," inverse interest only securities, or "IIOs"; and CMBS and Commercial Mortgage Loans . CMBS; . CLOs backed by commercial mortgage loans, or "CRE CLOs"; and . Commercial mortgage loans and other commercial real estate debt. Consumer Loans and ABS . Consumer loans; .
Agency collateralized mortgage obligations ("CMOs"), including interest only securities ("IOs"), principal only securities ("POs"), and inverse interest only securities ("IIOs"). CMBS and Commercial Mortgage Loans . CMBS; . CLOs backed by commercial mortgage loans ("CRE CLOs"); and . Commercial mortgage loans and other commercial real estate debt. Consumer Loans and ABS . Consumer loans; .
Our credit hedges consist of financial instruments tied to corporate credit, such as CDS on corporate bond indices, short positions in and CDS on corporate bonds, and positions involving exchange traded funds, or "ETFs," of corporate bonds.
Our credit hedges consist of financial instruments tied to corporate credit, such as CDS on corporate bond indices, short positions in and CDS on corporate bonds, and positions involving exchange traded funds ("ETFs") of corporate bonds.
Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet. The table below summarizes our interests in commercial mortgage loans by geographic location of the underlying real estate collateral, as a percentage of total outstanding unpaid principal balance, as of December 31, 2024: Property Location by U.S.
Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet. The table below summarizes our interests in commercial mortgage loans by geographic location of the underlying real estate collateral, as a percentage of total outstanding unpaid principal balance, as of December 31, 2025: Property Location by U.S.
Our financial results are generally not expected to reflect provisions for current or deferred income taxes, except for any activities conducted through one or more TRSs that are subject to corporate income taxation. Establishing a provision for income tax expense requires judgement and interpretation of the application of various federal, state, local, and foreign jurisdiction's tax laws.
Our financial results are generally not expected to reflect provisions for current or deferred income taxes, except for any activities conducted through one or more TRSs that are subject to corporate income taxation. Establishing a provision for income tax expense requires judgment and interpretation of the application of various federal, state, local, and foreign jurisdiction's tax laws.
(3) Represents net change in fair value of HMBS MSR Equivalent and mortgage servicing rights related to proprietary mortgage loans attributable to changes in market conditions and model assumptions. This adjustment also includes net (gains) losses on certain hedging instruments (including interest rate swaps, futures, and short U.S.
(4) Represents net change in fair value of HMBS MSR Equivalent and mortgage servicing rights related to proprietary mortgage loans attributable to changes in market conditions and model assumptions. This adjustment also includes net (gains) losses on certain hedging instruments (including interest rate swaps, futures, and short U.S.
We do not typically purchase real property directly; rather, our real estate ownership usually results from foreclosure activity with respect to our acquired residential and commercial loans. Hedging Instruments Interest Rate Hedging We opportunistically hedge our interest rate risk by using various hedging strategies, subject to maintaining our qualification as a REIT.
We do not typically purchase real property directly; rather, our real estate ownership usually results from foreclosure activity with respect to our residential and commercial mortgage loans. Hedging Instruments Interest Rate Hedging We opportunistically hedge our interest rate risk by using various hedging strategies, subject to maintaining our qualification as a REIT.
The remaining ownership interest of approximately 0.8% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest.
The remaining ownership interest of approximately 0.9% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest.
Longbridge originates home equity conversion mortgage loans ("HECM loans"), which are insured by the Federal Housing Administration ("FHA"), and non-FHA-insured reverse mortgage loans, which we refer to as "proprietary reverse mortgage loans." HECM loans are generally eligible for securitization into HECM-backed MBS ("HMBS"), which are guaranteed by the Government National Mortgage Association ("GNMA").
Longbridge Financial, LLC ("Longbridge") originates home equity conversion mortgage loans ("HECM loans"), which are insured by the Federal Housing Administration ("FHA"), and non-FHA-insured reverse mortgage loans, which we refer to as "proprietary reverse mortgage loans." HECM loans are generally eligible for securitization into HECM-backed MBS ("HMBS"), which are guaranteed by the Government National Mortgage Association ("GNMA").
For more information on our targeted assets, see "—Our Targeted Asset Classes" below. 78 Table of Contents Our Targeted Asset Classes Our targeted asset classes currently include investments in the U.S. and Europe (as applicable) in the categories listed below. Subject to maintaining our qualification as a REIT, we expect to continue to invest in these targeted asset classes.
For more information on our targeted assets, see "—Our Targeted Asset Classes" below. 81 Table of Contents Our Targeted Asset Classes Our targeted asset classes currently include investments in the U.S. and Europe (as applicable) in the categories listed below. Subject to maintaining our qualification as a REIT, we expect to continue to invest in these targeted asset classes.
(2) Includes unrealized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), borrowings carried at fair value, and foreign currency transactions which are components of Other Income (Loss) on the Consolidated Statement of Operations.
(3) Includes unrealized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), borrowings carried at fair value, and foreign currency transactions which are components of Other Income (Loss) on the Consolidated Statement of Operations.
In addition, Longbridge opportunistically acquires, in the secondary market, HECM loans that have been mandatorily repurchased from HMBS pools ("HECM Buyout Loans") by other HECM servicers upon the outstanding principal balance of such loans reaching or exceeding 98% of their respective maximum claim amount.
In addition, Longbridge opportunistically acquires, in the secondary market, HECM loans that have been mandatorily repurchased from HMBS pools ("HECM Buyout Loans") by other HECM servicers upon the outstanding principal balance of such loans reaching 98% of their respective maximum claim amount.
In making these determinations we use both qualitative and quantitative analyses involving a significant amount of judgment, taking into consideration factors such as which interests in the VIE create or absorb variability, the contractual terms related to such interests, other transactions or agreements with the entity, key decision makers and their impact on the VIE’s economic performance, and related party relationships.
In making these determinations we use both qualitative and quantitative analyses involving a significant amount of judgment, taking into consideration factors such as which interests in the VIE create or absorb variability, the contractual terms related to such 98 Table of Contents interests, other transactions or agreements with the entity, key decision makers and their impact on the VIE’s economic performance, and related party relationships.
Treasury securities), which are components of realized and/or unrealized gains (losses) on financial derivatives, net, realized and/or unrealized gains (losses) on securities and loans, net, interest income, and interest expense on the Consolidated Statement of Operations. (4) Represents the effect of replacing mortgage loan interest income (net of securitization debt expense) with interest income of the retained tranches.
Treasury securities), which are components of realized and/or unrealized gains (losses) on financial derivatives, net, realized and/or unrealized gains (losses) on securities and loans, net, interest income, and interest expense on the Consolidated Statement of Operations. (5) Represents the effect of replacing mortgage loan interest income (net of securitization debt expense) with interest income of the retained tranches.
In this case, the reference entity can be an individual MBS or an index of several MBS, such as an ABX, PrimeX, or CMBX index. Payments from the protection seller to the protection buyer typically occur if a credit event takes place.
In this case, the reference entity can be an individual MBS or an index of several MBS, such as a CMBX index. Payments from the protection seller to the protection buyer typically occur if a credit event takes place.
Investment Portfolio For the year ended December 31, 2024, other income (loss) was $28.6 million, consisting primarily of net realized and unrealized gains of $33.7 million on our securities and loans, $31.6 million on our financial derivatives, and $8.3 million of Other, net.
For the year ended December 31, 2024, other income (loss) was $28.6 million, consisting primarily of net realized and unrealized gains of $33.7 million on our securities and loans, $31.6 million on our financial derivatives, and $8.3 million of Other, net.
The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter. Non-capitalized transaction costs include expenses, generally professional fees, incurred in connection with the acquisition of an investment or issuance of long-term debt.
The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cash flows and prepayments, and can vary significantly from quarter to quarter. Non-capitalized transaction costs include expenses, generally professional fees, incurred in connection with the acquisition of an investment or issuance of long-term debt.
Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for further information. 94 Table of Contents VIEs : We evaluate each of our investments and other contractual arrangements to determine whether our interest constitutes a variable interest in a VIE, and if so whether we are the primary beneficiary of such VIE.
Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for further information. VIEs : We evaluate each of our investments and other contractual arrangements to determine whether our interest constitutes a variable interest in a VIE, and if so whether we are the primary beneficiary of such VIE.
Net realized and unrealized gains of $31.6 million on our financial derivatives were primarily related to net realized and unrealized gains on our interest rate swaps and net short TBA positions driven by higher interest rates during much of the year (with the exception of the third quarter, where declining interest rates drove net losses for the period).
Net realized and unrealized gains of $31.6 million on our financial derivatives were primarily related to net realized and unrealized gains on our interest rate swaps and net short TBA positions driven by higher interest rates during much 108 Table of Contents of the year (with the exception of the third quarter, where declining interest rates drove net losses for the period).
In addition to our borrowings under repos, we have entered into various other types of transactions to finance certain of our investments, including non-QM loans and REO, European residential mortgage loans, commercial mortgage loans, consumer loans and ABS backed by consumer loans, reverse mortgage loans, and Reverse MSRs; such transactions are accounted for as secured borrowings.
In addition to our borrowings under repos, we have entered into various other types of transactions to finance certain of our investments, including residential and commercial mortgage loans and REO, consumer loans and ABS backed by consumer loans, reverse mortgage loans, and Reverse MSRs; such transactions are accounted for as secured borrowings.
We 113 Table of Contents received proceeds from HMBS-related obligations of $1.45 billion and used $1.00 billion for principal payments on HMBS-related obligations. We received proceeds from the issuance of common stock, net of underwriters' discounts, commissions, and offering costs paid, of $99.3 million and contributions from non-controlling interests of $12.9 million.
We received proceeds from HMBS-related obligations of $1.45 billion and used $1.00 billion for principal payments on HMBS-related obligations. We received proceeds from the issuance of common stock, net of underwriters' discounts, commissions, and offering costs paid, of $99.3 million and contributions from non-controlling interests of $12.9 million.
We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy. 90 Table of Contents The following table summarizes the prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended December 31, 2024, September 30, 2024, June 30, 2024, March 31, 2024, and December 31, 2023.
We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy. 94 Table of Contents The following table summarizes the prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended December 31, 2025, September 30, 2025, June 30, 2025, March 31, 2025, and December 31, 2024.
Dollars to be received by us at the maturity of the forward contract. The following table summarizes our financial derivatives portfolio (1)(2) as of December 31, 2023.
Dollars to be received by us at the maturity of the forward contract. The following table summarizes our financial derivatives portfolio (1)(2) as of December 31, 2024.
Treasury securities and sovereign bonds to hedge the risk of rising interest rates and foreign currency risk. Typically, we hold a net short position in TBAs.
Treasury securities and sovereign bonds to hedge the risk of rising interest rates and foreign currency risk. We frequently hold a net short position in TBAs.
Bridge loans are often secured by properties in transition, where the borrower is in the process of either re-developing or stabilizing operations at the property. 80 Table of Contents We also acquire seasoned commercial mortgage bridge loans, as well as longer-term commercial mortgage loans.
Bridge loans are often secured by properties in transition, where the borrower is in the process of either re-developing or stabilizing operations at the property. We also acquire seasoned commercial mortgage bridge loans, as well as longer-term commercial mortgage loans.
These funds, which do not represent assets or liabilities of the Company are maintained in segregated accounts at Longbridge, and accordingly, are not reflected on the Consolidated Balance Sheet. At December 31, 2024, we have not entered into any repurchase agreements for which delivery of the borrowed funds is not scheduled until after period end.
These funds, which do not represent assets or liabilities of ours, are maintained in segregated accounts at Longbridge, and accordingly, are not reflected on the Consolidated Balance Sheet. At December 31, 2025, we have not entered into any repurchase agreements for which delivery of the borrowed funds is not scheduled until after period end.
Some of our CLOs include retained tranches from CLO securitizations for which we participated in the accumulation of the underlying assets. CMBS We acquire CMBS, which are securities collateralized by mortgage loans on commercial properties.
Some of our CLOs include retained tranches from CLO securitizations for which we participated in the accumulation of the underlying assets. 83 Table of Contents CMBS We acquire CMBS, which are securities collateralized by mortgage loans on commercial properties.
As of December 31, 2024, we have authorization to repurchase an additional $45.1 million of common stock under the Common Share Repurchase Program.
As of December 31, 2025, we have authorization to repurchase an additional $45.1 million of common stock under the Common Share Repurchase Program.
The following table summarizes our aggregate secured borrowings, including repos and Total other secured borrowings, for the years ended December 31, 2024 and 2023.
The following table summarizes our aggregate secured borrowings, including repos and Total other secured borrowings, for the years ended December 31, 2025 and 2024.
The table below summarizes the components of interest expense in the Longbridge segment for the years ended December 31, 2024 and 2023.
The table below summarizes the components of interest expense in the Longbridge segment for the years ended December 31, 2025 and 2024.
Our commercial mortgage loans may be fixed or floating rate and will generally have maturities ranging from one to ten years. We typically originate and acquire first-lien loans but may also originate and acquire subordinated loans. As of December 31, 2024, all of our commercial mortgage loans were first-lien loans.
Our commercial mortgage loans may be fixed or floating rate and will generally have maturities ranging from one to two years. We typically originate and acquire first-lien loans but may also originate and acquire subordinated loans. As of December 31, 2025, all of our commercial mortgage loans were first-lien loans.
For the years ended December 31, 2024, 2023, and 2022, we recognized a Catch-Up Amortization Adjustment of $(0.6) million, $(0.1) million, and $4.1 million, respectively. The Catch-up Amortization Adjustment is reflected as an increase (decrease) to Interest income on the Consolidated Statement of Operations.
For the years ended December 31, 2025, 2024, and 2023, we recognized a Catch-Up Amortization Adjustment of $0.9 million, $(0.6) million, and $(0.1) million, respectively. The Catch-up Amortization Adjustment is reflected as an increase (decrease) to Interest income on the Consolidated Statement of Operations.
In setting our dividends, our Board of Directors considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Directors may deem relevant from time to time. 106 Table of Contents The following table reconciles, for the years ended December 31, 2024 and 2023 our Adjusted Distributable Earnings by segment to the line on our Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S.
In setting our dividends, our Board of Directors considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Directors may deem relevant from time to time. 110 Table of Contents The following tables reconcile, for the years ended December 31, 2025 and 2024 our Adjusted Distributable Earnings by segment to the line on our Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S.
We also have acquired, and may acquire in the future, European RMBS, including retained tranches from European RMBS securitizations in which we have participated. 81 Table of Contents Residential Mortgage Loans Our residential mortgage loans include newly originated non-QM loans, residential transition loans, as well as legacy residential NPLs and RPLs.
We also have acquired, and may acquire in the future, European RMBS, including retained tranches from European RMBS securitizations in which we have participated. Residential Mortgage Loans Our residential mortgage loans include newly originated non-QM loans, residential transition loans, as well as legacy residential NPLs and RPLs.
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements for a description of relevant recent accounting pronouncements, if any. 95 Table of Contents Financial Condition The following table summarizes the fair value of our consolidated portfolio of investments (1) as of December 31, 2024 and 2023.
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements for a description of relevant recent accounting pronouncements, if any. 99 Table of Contents Financial Condition The following table summarizes the fair value of our consolidated portfolio of investments (1) as of December 31, 2025 and 2024.
As of December 31, 2024 and 2023, we had a net short notional TBA position of $13.1 million and $57.9 million, respectively. For a more detailed discussion of our investment portfolio, see "— Trends and Recent Market Developments—Portfolio Overview and Outlook " above.
As of December 31, 2025 and 2024, we had a net short notional TBA position of $238.9 million and $13.1 million, respectively. For a more detailed discussion of our investment portfolio, see "— Trends and Recent Market Developments—Portfolio Overview and Outlook " above.
As of December 31, 2024, outstanding indebtedness under repos was $238.1 million for Agency RMBS, $2.1 billion for credit portfolio assets, $30.4 million of reverse mortgage loans, and $227.3 million for U.S. Treasury securities. As of December 31, 2023 indebtedness outstanding on our repos was approximately $3.0 billion.
As of December 31, 2024, outstanding indebtedness under repos was $238.1 million for Agency RMBS, $2.1 billion for credit portfolio assets, $30.4 million on reverse mortgage loans, and $227.3 million for U.S. Treasury securities.
Our investments in securities, loans, MSRs, Forward MSR-related investments, unconsolidated entities, loan commitments, financial derivatives, and real estate owned included in total assets were $15.5 billion and $14.3 billion as of December 31, 2024 and December 31, 2023, respectively.
Our investments in securities, loans, MSRs, Forward MSR-related investments, unconsolidated entities, loan commitments, financial derivatives, and real estate owned included in total assets were $18.3 billion and $15.5 billion as of December 31, 2025 and 2024, respectively.
Amount at risk as of December 31, 2024 and 2023, does not include approximately $3.2 million and $(0.6) million, respectively, of net accrued interest receivable (payable), which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.
Amount at risk as of December 31, 2025 and 2024, does not include approximately $0.4 million and $3.2 million, respectively, of net accrued interest receivable (payable), which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.
Longbridge has a fiduciary responsibility related to escrow balances held in trust for borrowers' draws and other custodial funds due to servicing customers; as of December 31, 2024 the amount held in such accounts was $92.6 million.
Longbridge has a fiduciary responsibility related to escrow balances held in trust for borrowers' draws and other custodial funds due to servicing customers; as of December 31, 2025 the amount held in such accounts was $88.6 million.
We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. We held cash and cash equivalents of approximately $192.4 million and $228.9 million as of December 31, 2024 and 2023, respectively.
We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. We held cash and cash equivalents of approximately $201.9 million and $192.4 million as of December 31, 2025 and 2024, respectively.
As of December 31, 2024, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with seven counterparties of approximately $9.4 million. We also had $57.6 million of initial margin for cleared over-the-counter, or "OTC," derivatives posted to central clearinghouses as of that date.
As of December 31, 2024, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with seven counterparties of approximately $9.4 million. We also had $57.6 million of initial margin for cleared OTC derivatives posted to central clearinghouses as of that date.
(3) Notional represents the maximum number of shares available to be purchased upon exercise. (4) Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of December 31, 2024, a total of 19 long and 821 short U.S. Treasury futures contracts were held. (5) Short notional value represents U.S.
(3) Notional represents the maximum number of shares available to be purchased upon exercise. (4) Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of December 31, 2025, a total of 19 long and 2,323 short U.S. Treasury futures contracts were held. (5) Short notional value represents U.S.
If we were to include as a component of our cost of funds the actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would decrease to 4.30% and 3.95% for the years ended December 31, 2024 and 2023, respectively.
If we were to include as a component of our cost of funds the actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would decrease to 4.17% and 4.30% for the years ended December 31, 2025 and 2024, respectively.
Additionally, as of December 31, 2024, as an HMBS issuer, we had HMBS-related obligations of $9.2 billion collateralized by $9.2 billion of HMBS assets and as of December 31, 2023, we had HMBS-related obligations of $8.4 billion collateralized by $8.5 billion of HMBS assets; HMBS assets include HECM loans as well as REO and claims and other receivables.
Additionally, as of December 31, 2025, as an HMBS issuer, we had HMBS-related obligations of $10.4 billion collateralized by $10.5 billion of HMBS assets and as of December 31, 2024, we had HMBS-related obligations of $9.2 billion collateralized by $9.2 billion of HMBS assets; HMBS assets include HECM loans as well as REO and claims and other receivables.
Income Tax Expense (Benefit) Corporate/Other Income tax expense (benefit) was $0.6 million for the year ended December 31, 2024, as compared to $0.5 million for the year ended December 31, 2023. Earnings (Losses) from Investments in Unconsolidated Entities Investment Portfolio We have elected the fair value option for our equity investments in unconsolidated entities.
Income Tax Expense (Benefit) Corporate/Other Income tax expense (benefit) was $3.8 million for the year ended December 31, 2025, as compared to $0.6 million for the year ended December 31, 2024. Earnings (Losses) from Investments in Unconsolidated Entities Investment Portfolio We have elected the fair value option for our equity investments in unconsolidated entities.
Excluding the Catch-up Amortization Adjustment, our net interest margin, defined as the average yield on our portfolio of yield-bearing targeted assets less the average cost of funds on our secured borrowings (including actual and accrued periodic payments on interest rate swaps as described above), was 2.73% and 2.40% for the years ended December 31, 2024 and 2023, respectively.
Excluding the Catch-up Amortization Adjustment, our net interest margin, defined as the average yield on our portfolio of yield-bearing assets less the average cost of funds on our secured borrowings (including actual and accrued periodic payments on interest rate swaps as described above), was 3.18% and 2.73% for the years ended December 31, 2025 and 2024, respectively.
Additionally, as of December 31, 2024, we had HMBS-related obligations of $9.2 billion collateralized by $9.2 billion of HMBS assets, and as of December 31, 2023, we had HMBS-related obligations of $8.4 billion collateralized by $8.5 billion of HMBS assets, which include HECM loans as well as REO and claims and other receivables.
Additionally, as of December 31, 2025, we had HMBS-related obligations of $10.4 billion collateralized by $10.5 billion of HMBS assets, and as of December 31, 2024, we had HMBS-related obligations of $9.2 billion collateralized by $9.2 billion of HMBS assets, which include HECM loans as well as REO and claims and other receivables.
We have commenced an "at-the-market" offering for our Series A Preferred Stock and Series B Preferred Stock, or the "Preferred ATM Program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series A Preferred Stock") and/or 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series B Preferred Stock") from time to time.
We have commenced an "at-the-market" offering for our Series A Preferred Stock and Series B Preferred Stock (the 114 Table of Contents "Preferred ATM Program"), in connection with which we have entered into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series A Preferred Stock") and/or 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series B Preferred Stock") from time to time.
In the case of most fixed-rate reverse mortgage loans, the borrower must draw the loan proceeds up front in one lump sum, while many adjustable-rate mortgage loans provide the borrower with a line of credit that can be drawn over time.
Reverse mortgage loans can have either fixed interest rates or adjustable interest rates. In the case of most fixed-rate reverse mortgage loans, the borrower must draw the loan proceeds up front in one lump sum, while many adjustable-rate mortgage loans provide the borrower with a line of credit that can be drawn over time.
It is expected that amounts due upon maturity of our repos will be funded primarily through the roll/re-initiation of repos and, if we are unable or unwilling to roll/re-initiate our repos, through free cash and proceeds from the sale of securities.
It is expected that amounts due upon maturity of our repos will be funded primarily through the roll/re-initiation of repos and, if we are unable or unwilling to roll/re-initiate our repos, through free cash and proceeds from the sale or securitization of assets being financed.
As of December 31, 2024 and 2023, we had outstanding borrowings related to such transactions in the amount of $2.2 billion and $1.7 billion, respectively, which is reflected under the captions "Other secured borrowings" and "Other secured borrowings, at fair value" on the Consolidated Balance Sheet.
As of December 31, 2025 and 2024, we had outstanding borrowings related to such transactions in the amount of $3.2 billion and $2.2 billion, respectively, which is reflected under the captions "Other secured borrowings" and "Other secured borrowings, at fair value" on the Consolidated Balance Sheet.
See Note 14 in the notes to our consolidated financial statements for further information on our other secured borrowings and HMBS-related obligations. As of December 31, 2024 and 2023, we had $297.7 million of outstanding unsecured borrowings.
See Note 14 in the notes to our consolidated financial statements for further information on our other secured borrowings and HMBS-related obligations. As of December 31, 2025 and 2024, we had $662.8 million and $297.7 million, respectively, of outstanding unsecured borrowings.
Stockholders' equity, which excludes the non-controlling interests related to the minority interest in the Operating Partnership as well as the minority interests of our joint venture partners, was $1.570 billion as of December 31, 2024.
Stockholders' equity, which excludes the non-controlling interests related to the minority interest in the Operating Partnership as well as the minority interests of our joint venture partners, was $1.834 billion as of December 31, 2025.
For the year ended December 31, 2024, we issued 7,715,891 shares of common stock under the 2021 Common ATM Program, which provided $99.6 million of net proceeds after approximately $0.8 million of commissions and $0.6 million of offering costs.
During the year ended December 31, 2024, we issued 7,715,891 shares of common stock under the Common ATM Program which provided $99.6 million of net proceeds after $0.8 million of agent commissions and $0.6 million of offering costs.
As of December 31, 2024, our book value per share of common stock, calculated using Total Stockholders' Equity less the aggregate liquidation preference of outstanding preferred stock, was $13.52.
As of December 31, 2025, our book value per share of common stock, calculated using Total Stockholders' Equity less the aggregate liquidation preference of outstanding preferred stock, was $13.16.
Treasury securities for the year ended December 31, 2024. Corporate/Other For the years ended December 31, 2024 and 2023, interest income not allocable to either the investment portfolio segment or the Longbridge segment was $7.0 million and $6.7 million, respectively, primarily related to interest income earned on cash balances and cash collateral held by counterparties.
Corporate/Other For the years ended December 31, 2025 and 2024, interest income not allocable to either the investment portfolio segment or the Longbridge segment was $6.8 million and $7.0 million, respectively, primarily related to interest income earned on cash balances and cash collateral held by counterparties.
As such, we are not materially exposed to any market, credit, liquidity, or financing risk 114 Table of Contents that could arise if we had engaged in such relationships.
As such, we are not materially exposed to any market, credit, liquidity, or financing risk that could arise if we had engaged in such relationships.
Our investments in securities sold short and financial derivatives included in total liabilities were $364.6 million and $216.1 million as of December 31, 2024 and 2023, respectively. As of both December 31, 2024 and 2023, investments in securities sold short consisted principally of short positions in U.S. Treasury securities and sovereign bonds. We primarily use short positions in U.S.
Our investments in securities sold short and financial derivatives included in total liabilities were $325.8 million and $364.6 million as of December 31, 2025 and 2024, respectively. As of both December 31, 2025 and 2024, investments in securities sold short consisted principally of short positions in U.S. Treasury securities and sovereign bonds. We primarily use short positions in U.S.
As of both December 31, 2024 and 2023, our outstanding unsecured borrowings were comprised of $210.0 million of 5.875% Senior Notes due April 2027, $34.9 million of 6.75% Senior Notes due March 2025, $37.8 million of 6.00% Senior Notes due August 2026, and $15.0 million of unregistered junior subordinated unsecured debt securities, the "Trust Preferred Debt." The Trust Preferred Debt includes $10.0 million which accrues and requires the payment of interest quarterly at three-month term SOFR plus 3.26% and which matures on October 7, 2033, and $5.0 million which accrues and requires the payment of interest quarterly at three-month term SOFR plus 2.51% and which matures on July 7, 2035.
As of December 31, 2025, our outstanding unsecured borrowings were comprised of $400.0 million of 7.375% Senior Notes due September 2030, $210.0 million of 5.875% Senior Notes due April 2027, $37.8 million of 6.00% Senior Notes due August 2026, and $15.0 million of unregistered junior subordinated unsecured debt securities, the "Trust Preferred Debt." The Trust Preferred Debt includes $10.0 million which accrues and requires the payment of interest quarterly at three-month term SOFR plus 3.26% and which matures on October 7, 2033, and $5.0 million which accrues and requires the payment of interest quarterly at three-month term SOFR plus 2.51% and which matures on July 7, 2035.
For the year ended December 31, 2024, Earnings (losses) from investments in unconsolidated entities of $32.4 million primarily consisted of net realized and unrealized gains on investments in loan originators and on investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates, partially offset by net unrealized losses on investments in unconsolidated entities related to risk retention related vehicles related to non-QM loan securitizations.
For the year ended December 31, 2025, Earnings (losses) from investments in unconsolidated entities of $56.7 million primarily consisted of net realized and unrealized gains on investments in loan originators, investments in unconsolidated entities related to residential mortgage loan securitizations, and investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates. 109 Table of Contents For the year ended December 31, 2024, Earnings (losses) from investments in unconsolidated entities of $32.4 million primarily consisted of net realized and unrealized gains on investments in loan originators and on investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates, partially offset by net unrealized losses on investments in unconsolidated entities related vehicles related to non-QM loan securitizations.
Our recourse debt-to-equity ratio was 2.0:1 as of December 31, 2024 as compared to 2.3:1 as of December 31, 2023. See the discussion in "— Liquidity and Capital Resources " below for further information on our borrowings. Equity As of December 31, 2024, our equity increased by $55.2 million to $1.591 billion from $1.536 billion as of December 31, 2023.
Our recourse debt-to-equity ratio was 1.9:1 as of December 31, 2025 as compared to 2.0:1 as of December 31, 2024. See the discussion in "— Liquidity and Capital Resources " below for further information on our borrowings. Equity As of December 31, 2025, our equity increased by $280.3 million to $1.871 billion from $1.591 billion as of December 31, 2024.
For the year ended December 31, 2024 and 2023, interest income from our Agency RMBS was $22.6 million and $37.0 million, respectively. This period-over-period decrease was due to a significantly smaller Agency portfolio in the current period, partially offset by higher average asset yields for the year ended December 31, 2024.
For the year ended December 31, 2025 and 2024, interest income from our Agency RMBS was $12.3 million and $22.6 million, respectively. This year-over-year decrease was due to a significantly smaller Agency portfolio in the current year, partially offset by higher average asset yields for the year ended December 31, 2025.
Typical supplemental terms and conditions include the addition of or changes to provisions relating to margin calls, net asset value requirements, cross default provisions, certain key person events, changes in corporate structure, and requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction.
Typical supplemental terms and conditions include the addition of or changes to provisions relating to margin calls, net asset value requirements, cross default provisions, certain key person events, changes in corporate structure, and requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction. These provisions may differ for each of our repo lenders.
Credit default swaps, or "CDS," on individual RMBS, on the ABX, CMBX and PrimeX indices and on other mortgage-related indices; and . Other mortgage-related derivatives. Non-Agency RMBS . RMBS backed by prime jumbo, Alt-A, non-QM, manufactured housing, and subprime mortgages; . RMBS backed by fixed rate mortgages, Adjustable rate mortgages, or "ARMs," Option-ARMs, and Hybrid ARMs; .
Credit default swaps ("CDS") on individual RMBS, on the CMBX and on other mortgage-related indices; and . Other mortgage-related derivatives. Non-Agency RMBS . RMBS backed by prime jumbo, Alt-A, non-QM, manufactured housing, and subprime mortgages; . RMBS backed by fixed rate mortgages, Adjustable rate mortgages ("ARMs"), Option-ARMs, and Hybrid ARMs; . RMBS backed by mortgages on single-family-rental properties; .
In addition to our secured borrowings, as of both December 31, 2024 and 2023, we had Unsecured borrowings outstanding of $297.7 million. 98 Table of Contents As of December 31, 2024 and 2023, our debt-to-equity ratio was 8.9:1 and 8.7:1, respectively.
In addition to our secured 102 Table of Contents borrowings, as of December 31, 2025 and 2024, we had Unsecured borrowings outstanding of $662.8 million and $297.7 million, respectively. As of December 31, 2025 and 2024, our debt-to-equity ratio was 9.1:1 and 8.9:1, respectively.
At those times when cash flows from the Company’s operating activities are insufficient to fund its dividend payments, the Company funds such dividend payments through cash flows from its investing and/or financing activities, and in some cases from additional cash on hand. The following paragraphs summarize the Company’s cash flows for the years ended December 31, 2024 and 2023.
At those times when cash flows from our operating activities are insufficient to fund our dividend payments, we fund such dividend payments through cash flows from our investing and/or financing activities, and in some cases from additional cash on hand. The following paragraphs summarize our cash flows for the years ended December 31, 2025 and 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Treasury securities, Eurodollar futures, U.S. Treasury futures, and other instruments. In general, such hedging instruments are used to mitigate the interest rate risk arising from the mismatch between the duration of our financed assets and the duration of the liabilities used to finance such assets.
Treasury securities, U.S. Treasury futures, and other instruments. In general, such hedging instruments are used to mitigate the interest rate risk arising from the mismatch between the duration of our financed assets and the duration of the liabilities used to finance such assets.
The following sensitivity analysis table shows the estimated impact on the value of our portfolio segregated by certain identified categories as of December 31, 2024, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.
The following sensitivity analysis table shows the estimated impact on the value of our portfolio segregated by certain identified categories as of December 31, 2025, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.
Conversely, decreases in prepayment rates on our loans and securities with below-market interest rates may cause the duration of such investments to extend, which may cause us to experience unrealized losses on such investments. Prepayment rates, besides being subject to interest rates and borrower behavior, are also substantially affected by government policy and regulation.
Conversely, decreases in prepayment rates on our loans and securities with below-market interest rates may cause the duration of such investments to extend, which may cause us to experience unrealized losses on such investments. Prepayment rates, besides being subject to interest rates and borrower 120 Table of Contents behavior, are also substantially affected by government policy and regulation.
We are subject to interest rate risk in connection with most of our assets and liabilities. For some securities in our portfolio, the coupon interest rates on, and therefore also the values of, such securities are highly sensitive to interest rate movements, such as inverse floating rate RMBS, 116 Table of Contents which benefit from falling interest rates.
We are subject to interest rate risk in connection with most of our assets and liabilities. For some securities in our portfolio, the coupon interest rates on, and therefore also the values of, such securities are highly sensitive to interest rate movements, such as inverse floating rate RMBS, which benefit from falling interest rates.
In addition, these investments could involve loans to companies that are more likely to experience bankruptcy or similar financial distress, such as companies that are thinly capitalized, employ a high degree of financial leverage, are in 115 Table of Contents highly competitive or risky businesses, are in a start-up phase, or are experiencing losses.
In addition, these investments could involve loans to companies that are more likely to experience bankruptcy or similar financial distress, such as companies that are thinly capitalized, employ a high degree of financial leverage, are in highly competitive or risky businesses, are in a start-up phase, or are experiencing losses.
See "Management's Discussion and Analysis of Financial Condition and 117 Table of Contents Results of Operations—Special Note Regarding Forward-Looking Statements." Liquidity Risk To fund our assets we may use a variety of debt alternatives in addition to equity capital that present us with liquidity risks.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Special Note Regarding Forward-Looking Statements." Liquidity Risk To fund our assets we may use a variety of debt alternatives in addition to equity capital that present us with liquidity risks.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk The primary components of our market risk at December 31, 2024 are related to credit risk, prepayment risk, and interest rate risk.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk The primary components of our market risk at December 31, 2025 are related to credit risk, prepayment risk, and interest rate risk.
We seek to mitigate these risks by monitoring the capital markets to inform our decisions on the amount, timing, and terms of capital we raise. 118 Table of Contents
We seek to mitigate these risks by monitoring the capital markets to inform our decisions on the amount, timing, and terms of capital we raise. 122 Table of Contents
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2024 portfolio estimated above.
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on 121 Table of Contents specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2025 portfolio estimated above.
Many of our consumer loans are unsecured, or are secured by collateral (such as an automobile) that depreciates rapidly; as a result, these loans may be at greater risk of loss than residential real estate loans.
Many of our consumer loans are unsecured, or are secured by collateral (such as an automobile) that depreciates rapidly; as a result, these loans may be at greater risk of loss than residential real estate loans. 119 Table of Contents Our corporate investments, especially our lower-rated or unrated CLO investments, corporate equity, and our investments in loan originators, have significant risk of loss, and our efforts to protect these investments may involve substantial costs and may not be successful.
Treasury Securities and Interest Rate Swaps, Options, and Futures (27,794) (1.75) % (56,408) (3.55) % 26,975 1.70 % 53,130 3.34 % Corporate Securities and Other 154 0.01 % 280 0.02 % (183) (0.01) % (395) (0.02) % Repurchase Agreements, Reverse Repurchase Agreements, and Unsecured Borrowings (2,828) (0.18) % (5,681) (0.36) % 2,803 0.18 % 5,581 0.35 % Total $ 2,216 0.14 % $ (3,018) (0.19) % $ (9,665) (0.61) % $ (26,778) (1.68) % The preceding analysis does not show sensitivity to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated.
Treasury Securities and Interest Rate Swaps, Options, and Futures (38,617) (2.06) % (78,498) (4.2) % 37,354 2.00 % 73,444 3.92 % Corporate Securities and Other (20) — % (73) — % (15) — % (63) — % Repurchase Agreements, Reverse Repurchase Agreements, and Unsecured Borrowings (8,262) (0.44) % (16,347) (0.87) % 8,438 0.45 % 17,051 0.91 % Total $ (2,321) (0.12) % $ (10,311) (0.55) % $ (3,349) (0.18) % $ (12,369) (0.66) % The preceding analysis does not show sensitivity to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated.
(In thousands) Estimated Change for a Decrease in Interest Rates by Estimated Change for an Increase in Interest Rates by 50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points Category of Instruments Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Agency RMBS $ 6,761 0.43 % $ 13,035 0.82 % $ (7,247) (0.46) % $ (14,982) (0.94) % Long TBAs 6,312 0.40 % 11,937 0.75 % (6,998) (0.44) % (14,682) (0.92) % Short TBAs (6,510) (0.41) % (12,132) (0.76) % 7,395 0.46 % 15,677 0.98 % Non-Agency RMBS, CMBS, ABS, Loans, and MSRs 26,121 1.64 % 45,951 2.89 % (32,410) (2.04) % (71,107) (4.47) % U.S.
(In thousands) Estimated Change for a Decrease in Interest Rates by Estimated Change for an Increase in Interest Rates by 50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points Category of Instruments Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Agency RMBS $ 5,200 0.28 % $ 9,858 0.53 % $ (5,743) (0.31) % $ (12,028) (0.64) % Long TBAs 2,854 0.15 % 4,344 0.23 % (4,219) (0.23) % (9,801) (0.52) % Short TBAs (5,755) (0.31) % (9,109) (0.49) % 8,158 0.44 % 18,717 1.00 % Non-Agency RMBS, CMBS, ABS, Loans, and MSRs 42,279 2.26 % 79,514 4.25 % (47,322) (2.53) % (99,689) (5.33) % U.S.
Removed
Our corporate investments, especially our lower-rated or unrated CLO investments, corporate equity, and our investments in loan originators, have significant risk of loss, and our efforts to protect these investments may involve substantial costs and may not be successful.

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