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What changed in TPG Mortgage Investment Trust, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TPG Mortgage Investment Trust, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+553 added−448 removedSource: 10-K (2024-03-11) vs 10-K (2023-02-27)

Top changes in TPG Mortgage Investment Trust, Inc.'s 2023 10-K

553 paragraphs added · 448 removed · 343 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

45 edited+26 added−3 removed38 unchanged
Biggest changeNon-Agency Residential Mortgage-Backed Securities ("RMBS") (3) • Non-Agency RMBS represent fixed- and floating-rate RMBS issued by entities other than U.S. GSEs or agencies of the U.S. government. The mortgage loan collateral consists of either Non-Agency Loans or Agency-Eligible Loans.
Biggest changeAlthough these loans are underwritten in accordance with GSE guidelines and can be delivered to Fannie Mae and Freddie Mac, the Company includes these loans within its Non-Agency securitizations. Non-Agency RMBS (2) • Non-Agency Residential Mortgage-Backed Securities ("RMBS") represent fixed- and floating-rate RMBS issued by entities other than U.S. GSEs or agencies of the U.S. government.
Angelo Gordon also offers its full-time employees access to robust health and wellness programs, including: • Health insurance, paid time off and leave programs • Bright Horizons back-up care program • 401(k) plan • Physical activity subsidy and access to wellness platforms • Employee assistance program Diversity & Inclusion Angelo Gordon promotes a diverse and inclusive culture where all voices are welcomed and heard, embracing the individual differences, life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities and talent of its employees.
TPG Angelo Gordon also offers its full-time employees access to robust health and wellness programs, including: • Health insurance, paid time off and leave programs • Bright Horizons back-up care program • 401(k) plan • Physical activity subsidy and access to wellness platforms • Employee assistance program Diversity & Inclusion TPG Angelo Gordon promotes a diverse and inclusive culture where all voices are welcomed and heard, embracing the individual differences, life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities and talent of its employees.
Angelo Gordon supports diverse recruitment, opportunity and retention through its active partnerships with diverse recruitment organizations and diversity and inclusion-focused initiatives, including: • Girls Who Invest • Seizing Every Opportunity (SEO) • Toigo In addition, Angelo Gordon’s diversity focuses include practices and policies on recruitment and selection, professional development and training, promotions, and the ongoing development of a work environment built on the premise of gender and diversity equity, formally outlined in Angelo Gordon’s anti-discrimination and anti-harassment policies.
TPG Angelo Gordon supports diverse recruitment, opportunity and retention through its active partnerships with diverse recruitment organizations and diversity and inclusion-focused initiatives, including: • Girls Who Invest • Seizing Every Opportunity (SEO) • Toigo In addition, TPG Angelo Gordon’s diversity focuses include practices and policies on recruitment and selection, professional development and training, promotions, and the ongoing development of a work environment built on the premise of gender and diversity equity, formally outlined in TPG Angelo Gordon’s anti-discrimination and anti-harassment policies.
Consistent with Angelo Gordon’s fiduciary duty to all of its clients, it may give priority in the allocation of investment opportunities to certain clients to the extent necessary to meet regulatory requirements, client guidelines and/or contractual obligations. Angelo Gordon or our Manager may determine that an investment opportunity is appropriate for a particular account, but not for another.
Consistent with TPG Angelo Gordon’s fiduciary duty to all of its clients, it may give priority in the allocation of investment opportunities to certain clients to the extent necessary to meet regulatory requirements, client guidelines and/or contractual obligations. TPG Angelo Gordon or our Manager may determine that an investment opportunity is appropriate for a particular account, but not for another.
In addition, Angelo Gordon's commitment to strong corporate governance includes embracing opportunities to reduce its environmental impact. Available information Our principal executive offices are located at 245 Park Avenue, 26th Floor, New York, New York 10167. Our telephone number is (212) 692-2000. Our website can be found at www.agmit.com.
In addition, TPG Angelo Gordon's commitment to strong corporate governance includes embracing opportunities to reduce its environmental impact. Available information Our principal executive offices are located at 245 Park Avenue, 26th Floor, New York, New York 10167. Our telephone number is (212) 692-2000. Our website can be found at www.agmit.com.
We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities.
We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("TPG Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities.
We believe this approach generates more attractive long-term returns than an approach that either attempts to hedge away a majority of the interest rate or credit risk in the portfolio at the time of acquisition, on the one end of the risk spectrum, or a highly speculative approach that does not attempt to hedge any of the interest rate or credit risk in the portfolio, on the other end of the risk spectrum. • Strategic approach to increased risk.
We believe this approach generates more attractive long-term returns than an approach that either attempts to hedge away a majority of the interest rate or credit risk in the portfolio 8 at the time of acquisition, on the one end of the risk spectrum, or a highly speculative approach that does not attempt to hedge any of the interest rate or credit risk in the portfolio, on the other end of the risk spectrum. • Strategic approach to increased risk.
An increase in the competition for sources of financing could adversely affect the availability and cost of financing. We have access to our Manager’s professionals and their industry expertise, which we believe provides us with a competitive advantage. These professionals help us assess investment risks and determine appropriate pricing for certain potential investments.
An increase in the competition for sources of financing could adversely affect the availability and cost of financing. 10 We have access to our Manager’s professionals and their industry expertise, which we believe provides us with a competitive advantage. These professionals help us assess investment risks and determine appropriate pricing for certain potential investments.
In addition, our Manager may be precluded from transacting in particular investments in certain situations, including but not limited to situations where Angelo Gordon or its affiliates may have a prior contractual commitment with other accounts or clients or as to which Angelo Gordon or any of its affiliates possesses material, non-public information.
In addition, our Manager may be precluded from transacting in particular investments in certain situations, including but not limited to situations where TPG Angelo Gordon or its affiliates may have a prior contractual commitment with other accounts or clients or as to which TPG Angelo Gordon or any of its affiliates possesses material, non-public information.
Angelo Gordon is a registered investment adviser under the Investment Advisers Act of 1940, as amended. Through our relationship with our Manager, we benefit from the expertise and relationships that Angelo Gordon has established which provides us with resources to generate attractive risk-adjusted returns for our stockholders.
TPG Angelo Gordon is a registered investment adviser under the Investment Advisers Act of 1940, as amended. Through our relationship with our Manager, we benefit from the expertise and relationships that TPG Angelo Gordon has established which provides us with resources to generate attractive risk-adjusted returns for our stockholders.
All of our officers, and our dedicated or partially dedicated personnel, are employees of Angelo Gordon or its affiliates. We are highly dependent upon Angelo Gordon’s employees and, in turn, Angelo Gordon’s ability to create a respectful and inclusive firm culture to attract and retain the necessary talent to provide services to our company and its assets.
All of our officers, and our dedicated or partially dedicated personnel, are employees of TPG Angelo Gordon or its affiliates. We are highly dependent upon TPG Angelo Gordon’s employees and, in turn, TPG Angelo Gordon’s ability to create a respectful and inclusive firm culture to attract and retain the necessary talent to provide services to our company and its assets.
Our Manager is at all times subject to the supervision and oversight of our Board of Directors and has only such functions and authority as our Board of Directors delegates to it. Our Manager has delegated to Angelo Gordon the overall responsibility with respect to our Manager’s day-to-day duties and obligations arising under our management agreement.
Our Manager is at all times subject to the supervision and oversight of our Board of Directors and has only such functions and authority as our Board of Directors delegates to it. Our Manager has delegated to TPG Angelo Gordon the overall responsibility with respect to our Manager’s day-to-day duties and obligations arising under our management agreement.
Angelo Gordon’s philanthropy and community engagement is driven by the diverse interests and perspectives of its employees. Recently, Angelo Gordon launched a philanthropic platform, AG Gives, creating a new path for employees to contribute to their communities through volunteerism, charitable giving, and education.
TPG Angelo Gordon’s philanthropy and community engagement is driven by the diverse interests and perspectives of its employees. Recently, TPG Angelo Gordon launched a philanthropic platform, AG Gives, creating a new path for employees to contribute to their communities through volunteerism, charitable giving, and education.
Pursuant to the terms of our management agreement, our Manager provides us with our management team, including our officers, along with appropriate support personnel. All of our officers are employees of Angelo Gordon or its affiliates. We do not have any employees.
Pursuant to the terms of our management agreement, our Manager provides us with our management team, including our officers, along with appropriate support personnel. All of our officers are employees of TPG Angelo Gordon or its affiliates. We do not have any employees.
Allocation policy Consistent with its duties as a registered investment adviser, Angelo Gordon has an investment allocation policy that governs the allocations of investment opportunities among itself and its clients, and this investment allocation policy also applies to our Manager and us.
Allocation policy Consistent with its duties as a registered investment adviser, TPG Angelo Gordon has an investment allocation policy that governs the allocations of investment opportunities among itself and its clients, and this investment allocation policy also applies to our Manager and us.
Angelo Gordon does not tolerate any conduct that denigrates or shows hostility toward an individual because of a characteristic protected by law, is personally offensive, impairs morale or adversely impacts the work environment.
TPG Angelo Gordon does not tolerate any conduct that denigrates or shows hostility toward an individual because of a characteristic protected by law, is personally offensive, impairs morale or adversely impacts the work environment.
As the investment programs of the various entities and accounts managed by Angelo Gordon change and develop over time, additional issues and considerations may affect Angelo Gordon’s allocation policy and its expectations with respect to the allocation of investment opportunities.
As the investment programs of the various entities and accounts managed by TPG Angelo Gordon change and develop over time, additional issues and considerations may affect TPG Angelo Gordon’s allocation policy and its expectations with respect to the allocation of investment opportunities.
We make available free of charge, through the SEC filings section of our website, access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as are filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as our proxy statements with respect to our annual meetings of stockholders, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC").
We make available free of charge, through the SEC filings section of our website, access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as are filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as our proxy statements with respect to our annual meetings of stockholders, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
In addition, Angelo Gordon or its employees may invest in opportunities declined by our Manager for us. The investment allocation policy may be amended by Angelo Gordon at any time without our consent.
In addition, TPG Angelo Gordon or its employees may invest in opportunities declined by our Manager for us. The investment allocation policy may be amended by TPG Angelo Gordon at any time without our consent.
We may change our strategy and policies without a vote of our stockholders. Our financing and hedging strategy We use leverage to increase potential returns to our stockholders and to fund the acquisition of our investment portfolio.
We may change our strategy and policies without a vote of our stockholders. 7 Our financing and hedging strategy We use leverage to increase potential returns to our stockholders and to fund the acquisition of our investment portfolio.
Angelo Gordon also fosters a more inclusive culture through a variety of other diversity and inclusion initiatives, including: • corporate training • special events • community outreach • corporate philanthropy Further, our Board of Directors is committed to seeking highly qualified individuals from minority groups (including gender and ethnically/racially diverse groups) to include in the pool from which board nominees are selected.
TPG Angelo Gordon also fosters a more inclusive culture through a variety of other diversity and inclusion initiatives, including: • corporate training 11 • special events • community outreach • corporate philanthropy Further, our Board of Directors is committed to seeking highly qualified individuals from minority groups (including gender and ethnically/racially diverse groups) to include in the pool from which board nominees are selected.
Angelo Gordon considers the following factors, among others, when assigning investment opportunities among us and its other clients: • Capital available for new investments; • Existing ownership and target position size; • Investment objective or strategies; • Risk or investment concentration parameters; • Supply or demand for an investment at a given price level; • Cash availability and liquidity requirements; • Regulatory restrictions; • Minimum investment size; • Relative size or "buying power;" • Regulatory and tax considerations, including the impact on our status under the Investment Company Act and REIT status; and • Such other factors as may be relevant to a particular transaction.
TPG Angelo Gordon considers the following factors, among others, when assigning investment opportunities among us and its other clients: • Capital available for new investments; • Existing ownership and target position size; • Investment objective or strategies; • Risk or investment concentration parameters; • Supply or demand for an investment at a given price level; • Cash availability and liquidity requirements; • Regulatory restrictions; • Minimum investment size; • Relative size or "buying power;" • Regulatory and tax considerations, including the impact on our status under the Investment Company Act and REIT status; and • Such other factors that may be relevant to a particular transaction.
To the extent that we fail to comply with the covenants contained in these financing arrangements or are otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement. As of December 31, 2022, we are in compliance with all of our financial covenants.
To the extent that we fail to comply with the covenants contained in these financing arrangements or are otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement. As of December 31, 2023, we are in compliance with all of our financial covenants.
Our investment policies include the following guidelines, among others: • No investment shall be made that would cause us to fail to qualify as a REIT for federal income tax purposes; • No investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act; and 7 • Our investments will be in our target assets.
Our investment policies include the following guidelines, among others: • No investment shall be made that would cause us to fail to qualify as a REIT for federal income tax purposes; • No investment shall be made that would cause us to be regulated as an investment company under the Investment Company Act; and • Our investments will primarily be in our target assets.
To the extent permitted by law, Angelo Gordon is permitted to bunch or aggregate orders or to elect not to bunch or aggregate orders for a particular client account with orders for other accounts, notwithstanding that the effect of such bunching, aggregation or lack thereof may operate to the disadvantage of some clients.
To the extent permitted by law, TPG Angelo Gordon is permitted to bunch or aggregate orders or to 9 elect not to bunch or aggregate orders for a particular client account with orders for other accounts, notwithstanding that the effect of such bunching, aggregation or lack thereof may operate to the disadvantage of some clients.
As of the date of this report, one-third of the members of our Board of Directors are female. Community Involvement and Philanthropy Angelo Gordon has a long history of supporting its employees’ dedication of time, resources and passion in having a positive impact on the communities in which they live and work.
As of the date of this report, three of the eight members of our Board of Directors are female. Community Involvement and Philanthropy TPG Angelo Gordon has a long history of supporting its employees’ dedication of time, resources and passion in having a positive impact on the communities in which they live and work.
(1) Loans held directly are included in the "Securitized residential mortgage loans, at fair value," the "Residential mortgage loans, at fair value," and the "Residential mortgage loans held for sale, at fair value" line items on our consolidated balance sheets.
(1) These investments are included in the "Securitized residential mortgage loans, at fair value," "Residential mortgage loans, at fair value," and "Residential mortgage loans held for sale, at fair value" line items on the consolidated balance sheets.
As of December 31, 2022, Angelo Gordon had over 650 employees. 9 Recruiting and Employee Retention In order to attract, retain, and support talented employees, Angelo Gordon strives to offer competitive compensation and benefits, partner with diverse recruitment organizations, participate in industry-oriented, Diversity and Inclusion focused initiatives (as described further below), and provide employees with ample opportunity to give back to the communities they work in and around.
Recruiting and Employee Retention In order to attract, retain, and support talented employees, TPG Angelo Gordon strives to offer competitive compensation and benefits, partner with diverse recruitment organizations, participate in industry-oriented, Diversity and Inclusion focused initiatives (as described further below), and provide employees with ample opportunity to give back to the communities they work in and around.
For example: • 2/3 of our Board members are independent and our Board has an independent, Non-Executive Chair. • 33% of our Board members are female. • We are committed to Board refreshment (4 year average director tenure). • Shares received as director compensation are subject to a lock-up for the duration of such director's tenure. • Established common stock ownership minimums, with a policy prohibiting pledging or hedging. 10 • We do not have a classified board and we hold annual elections of directors. • Adopted Corporate Governance Guidelines & Code of Business Conduct and Ethics. • Our Board and each committee conduct self-assessments annually. • Our Board committees are comprised solely of independent directors. • Regular meetings of independent directors without management and with independent auditors.
For example: • 3/4 of our Board members are independent and our Board has an independent, Non-Executive Chair. ◦ In connection with the WMC acquisition closing, we appointed two independent board members from the WMC board of directors, increasing the size of our Board to eight members. • 38% of our Board members are female. • We are committed to Board refreshment (3.9 year average director tenure). • Shares received as director compensation are subject to a lock-up for the duration of such director's tenure. • Established common stock ownership minimums, with a policy prohibiting pledging or hedging. • We do not have a classified board and we hold annual elections of directors. • Adopted Corporate Governance Guidelines & Code of Business Conduct and Ethics. • Our Board and each committee conduct self-assessments annually. • Our Board committees are comprised solely of independent directors. • Regular meetings of independent directors without management and with independent auditors.
As of December 31, 2022, our investment portfolio consisted of the following: Asset Class Description Target Assets Non-Agency Loans (1)(2) • Non-Agency Loans are loans that do not conform to the underwriting guidelines of a government-sponsored enterprise ("GSE"). Non-Agency Loans consist of Qualified mortgage loans ("QM Loans") and Non-Qualified mortgage loans ("Non-QM Loans").
As of December 31, 2023, our investment portfolio consisted of the following Residential Investments and Agency RMBS: Asset Class Description Residential Investments Non-Agency Loans (1) • Non-Agency Loans are loans that do not conform to the underwriting guidelines of a government-sponsored enterprise ("GSE"). Non-Agency Loans consist of Qualified mortgage loans ("QM Loans") and Non-Qualified mortgage loans ("Non-QM Loans").
When acquiring residential mortgage loans and other assets, we finance our investments using repurchase agreements or similar financing arrangements, which we refer to collectively as "financing arrangements." Upon accumulating a targeted amount of residential mortgage loans, we finance these assets utilizing long-term, non-recourse, non-mark-to-market securitizations as market conditions permit. 6 Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date.
When acquiring residential mortgage loans and other assets, we finance our investments using repurchase agreements or similar financing arrangements, which we refer to collectively as "financing arrangements." Upon accumulating a targeted amount of residential mortgage loans, we finance these assets utilizing long-term, non-recourse, non-mark-to-market securitizations as market conditions permit.
We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Code.
We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Code. Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio.
Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates. Our investment portfolio (which excludes our ownership in Arc Home) includes Residential Investments and Agency RMBS.
Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates.
Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, we utilize derivative instruments in an effort to hedge certain interest rate risk associated with the financing of our investment portfolio.
We continue to evaluate potential opportunities to address the remaining portion of the Legacy WMC Convertible Notes. Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, we utilize derivative instruments in an effort to hedge certain interest rate risk associated with the financing of our investment portfolio.
Pursuant to this policy, Angelo Gordon and our Manager allocate investment opportunities among its clients in a manner which is fair and equitable over time and does not favor one client or group of clients. Investment opportunities in our target assets may be allocated among us and Angelo Gordon funds and accounts that are eligible to purchase such target assets.
Pursuant to this policy, TPG Angelo Gordon and our Manager allocate investment opportunities among its clients in a manner which is fair and equitable over time and does not favor one client or group of clients.
ITEM 1. BUSINESS Our company AG Mortgage Investment Trust, Inc. (the "Company," "we," "us," and "our") is a residential mortgage REIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S. mortgage market. Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation.
ITEM 1. BUSINESS Our company AG Mortgage Investment Trust, Inc. (the "Company," "MITT," "we," "us," and "our") is a residential mortgage REIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S. mortgage market.
This strategic advantage has enabled us to grow our investment portfolio and remain active in the securitization markets, utilizing Angelo Gordon's proprietary securitization platform to deliver non-agency investments to a diverse mix of investors. Our strategies Our investment strategy We rely on the experience of our Manager’s personnel to direct our investments.
This strategic advantage has enabled us to grow our investment portfolio and remain active in the securitization markets, utilizing TPG Angelo Gordon's proprietary securitization platform to deliver non-agency investments to a diverse mix of investors. WMC Acquisition On December 6, 2023, (the "Closing Date") we completed our acquisition of WMC.
Agency RMBS (3) • Agency RMBS represent interests in pools of residential mortgage loans guaranteed by a GSE such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government such as Ginnie Mae.
Re- and Non-Performing Loans (1) • Performing, re-performing, and non-performing loans are residential mortgage loans collateralized by a first lien mortgaged property. Agency RMBS (2) • Agency RMBS represent interests in pools of residential mortgage loans guaranteed by a GSE such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government such as Ginnie Mae.
Our Manager’s investment philosophy is based on a rigorous and disciplined approach to credit analysis and is focused on fundamental in-depth research.
Our strategies Our investment strategy We rely on the experience of our Manager’s personnel to direct our investments. Our Manager’s investment philosophy is based on a rigorous and disciplined approach to credit analysis and is focused on fundamental in-depth research.
Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio. 8 As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act. Our Manager and Angelo Gordon We are externally managed by AG REIT Management, LLC (our "Manager"), a subsidiary of Angelo Gordon.
We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act.
We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the housing market. We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 44.6% interest, and through other third-party origination partners.
We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 44.6% interest, and through other third-party origination partners.
The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset. Haircuts may change as our financing arrangements mature or roll and are sensitive to governmental regulations.
Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset.
Currently, our Residential Investments primarily consist of newly originated Non-Agency Loans and Agency-Eligible Loans, which we refer to as our target assets. In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets.
In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets.
(3) Non-Agency RMBS, as well as Agency RMBS, are included in the "Real estate securities, at fair value" line item on our consolidated balance sheets 5 Our primary sources of income are net interest income from our investment portfolio, changes in the fair value of our investments, and income from our investment in Arc Home.
(2) These investments are included in the "Real estate securities, at fair value" line item on the consolidated balance sheets. 5 In addition, our investment portfolio includes commercial loans, commercial-mortgage backed securities ("CMBS") and other securities (collectively, the "Legacy WMC Commercial Investments") that were acquired in the WMC acquisition.
Removed
Other Residential Mortgage Related Assets Re/Non-Performing Loans (1)(2) • Performing, re-performing, and non-performing loans are residential mortgage loans collateralized by a first lien mortgaged property. Land Related Financing (2) • First mortgage loans originated to third-party land developers and home builders for purposes of the acquisition and horizontal development of land.
Added
Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation. We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the housing market.
Removed
(2) Investments held through our unconsolidated affiliates are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.
Added
In December 2023, we acquired Western Asset Mortgage Capital Corporation ("WMC"), an externally managed mortgage REIT that focused on investing in, financing and managing a portfolio of residential mortgage loans, real estate related securities, and commercial real estate loans. Through this acquisition, we increased our investment portfolio by $1.2 billion, which primarily consisted of Securitized Non-Agency Loans.
Removed
This includes certain retained tranches from unconsolidated Non-QM securitizations held indirectly through our investment in Mortgage Acquisition Trust I LLC ("MATT"), certain retained tranches from unconsolidated Re/Non-Performing Loan securitizations which we hold alongside other private funds under the management of Angelo Gordon, and Land Related Financing.
Added
For more information, refer to the "WMC Acquisition" section below. Our investment portfolio (which excludes our ownership in Arc Home) primarily includes Residential Investments and Agency RMBS. Currently, our Residential Investments primarily consist of newly originated Non-Agency Loans and Agency-Eligible Loans, which we refer to as our target assets.
Added
The Legacy WMC commercial loans primarily include first lien commercial mortgage loan participations and are included in the "Commercial loans, at fair value" line item on the consolidated balance sheets.
Added
The Legacy WMC CMBS primarily include fixed-rate and floating-rate CMBS, secured by, or evidencing an ownership interest in, a single commercial mortgage loan or a pool of commercial mortgage loans, and are included in the "Real estate securities, at fair value" line item on the consolidated balance sheets.
Added
We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments. Our primary sources of income are net interest income from our investment portfolio, changes in the fair value of our investments or hedge portfolio, and income from our investment in Arc Home.
Added
Our Manager and TPG Angelo Gordon We are externally managed by AG REIT Management, LLC, a Delaware limited liability company (the "Manager"), a wholly-owned subsidiary of TPG Angelo Gordon, a diversified credit and real estate investing platform within TPG Inc. ("TPG"). TPG (Nasdaq: TPG) is a leading global alternative asset management firm.
Added
On November 1, 2023, TPG completed the previously announced acquisition of TPG Angelo Gordon (the "TPG Transaction"), pursuant to which TPG Angelo Gordon, including our Manager, became indirect subsidiaries of TPG. Pursuant to the management agreement with our Manager, the closing of the TPG Transaction resulted in an assignment of the management agreement.
Added
The independent directors of our Board of Directors unanimously consented to such assignment on July 31, 2023 in advance of the TPG Transaction closing. There were no changes to the management agreement in connection with the TPG Transaction and the assignment of the management agreement became effective upon the closing of the TPG Transaction.
Added
On the Closing Date, WMC merged with and into AGMIT Merger Sub, LLC, a Delaware limited liability company and our wholly owned subsidiary ("Merger Sub"), with Merger Sub continuing as the surviving company (the "Merger").
Added
As contemplated by the Agreement and Plan of Merger, dated as of August 8, 2023 (the “Merger Agreement”), the certificate of merger was filed with the Secretary of State of the State of Delaware, and the Merger was effective at 8:15 a.m., Eastern Time, on the Closing Date (the "Effective Time"). 6 Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each outstanding share of WMC common stock, par value $0.01 per share (“WMC Common Stock”), was converted into the right to receive the following (the “Per Share Merger Consideration”): (i) from us, 1.498 shares of our common stock; and (ii) from our Manager, a cash amount equal to $0.92 (the “Per Share Additional Manager Consideration”).
Added
No fractional shares of our common stock were issued in the Merger, and the value of any fractional interests to which a former holder of WMC Common Stock was otherwise entitled was paid in cash.
Added
In addition, on August 8, 2023, we and our Manager entered into an amendment (the “MITT Management Agreement Amendment”) to our existing management agreement, pursuant to which (i) the base management fee will be reduced by $0.6 million for the first four quarters following the Effective Time, beginning with the fiscal quarter in which the Effective Time occurs (i.e., resulting in an aggregate $2.4 million waiver of base management fees), and (ii) our Manager will waive its right to seek reimbursement from us for any expenses otherwise reimbursable by us under the management agreement in an amount equal to approximately $1.3 million, which is the excess of $7.0 million over the aggregate Per Share Additional Manager Consideration paid by our Manager to the holders of WMC Common Stock under the Merger Agreement.
Added
Additionally, each outstanding share of WMC’s restricted common stock and each WMC restricted stock unit (each, a “WMC Equity Award”) vested in full immediately prior to the Effective Time and, as of the Effective Time, was considered outstanding for all purposes of the Merger Agreement, including the right to receive the Per Share Merger Consideration, except that WMC Equity Awards granted to certain members of the WMC board of directors at WMC’s 2023 annual stockholders’ meeting (collectively, the “2023 WMC Director Awards”) were treated as follows: (i) for M.
Added
Quateman, who were appointed to the our board of directors as of the Effective Time, the 2023 WMC Director Awards were equitably adjusted effective as of the Effective Time into awards relating to shares of our common stock that have the same value, vesting terms and other terms and conditions as applied to the corresponding WMC restricted stock units immediately prior to the Effective Time and (ii) for the other members of the WMC board of directors, the 2023 WMC Director Awards accelerated and vested pro-rata effective as of immediately prior to the Effective Time based on a fraction, the numerator of which was 166 (the number of days between the grant date and the Closing Date) and the denominator of which was 365, and the remaining unvested portion of such 2023 WMC Director Awards was cancelled without any consideration.
Added
The issuance of shares of our common stock to the former stockholders of WMC was registered under the Securities Act, pursuant to a registration statement on Form S-4 (File No. 333-274319), as amended, filed by MITT with the Securities and Exchange Commission (the “SEC”) and declared effective on September 29, 2023 (the “Registration Statement”).
Added
The joint proxy statement/prospectus included in the Registration Statement contains additional information about the Merger, the Merger Agreement and the transactions contemplated thereby.
Added
Pursuant to the Merger Agreement, approximately 9.2 million shares of our common stock were issued in connection with the Merger to former WMC common stockholders, and former WMC common stockholders owned approximately 31% of the common equity of MITT as the combined company following the consummation of the Merger.
Added
Haircuts may change as our financing arrangements mature or roll and are sensitive to governmental regulations.
Added
In connection with the WMC acquisition, one of our subsidiaries assumed, and the Company guaranteed, $86.25 million aggregate principal amount of senior unsecured indebtedness, represented by WMC's 6.75% Convertible Senior Notes due 2024 (the "Legacy WMC Convertible Notes").
Added
The Legacy WMC Convertible Notes can be redeemed at our option on or after June 15, 2024, and mature on September 15, 2024.
Added
In January 2024, we issued an aggregate of $34.5 million in 9.500% Senior Notes due 2029 and, as of the date of this Annual Report, we have used approximately $7.1 million of the proceeds from such issuance to repurchase a portion of the Legacy WMC Convertible Notes.
Added
Investment opportunities in our target assets may be allocated among us and TPG Angelo Gordon funds and accounts that are eligible to purchase such target assets.
Added
The following is a description of human capital resources at TPG Angelo Gordon. On November 1, 2023, TPG completed the previously announced TPG Transaction, pursuant to which TPG Angelo Gordon, including our Manager, became indirect subsidiaries of TPG.
Added
TPG is a leading global alternative asset management firm, founded in San Francisco in 1992, with $222 billion of asset under management (as of December 31, 2023) and investment and operational teams around the world. TPG invests across a broadly diversified set of strategies, including private equity, impact, credit, real estate and market solutions.
Added
As a result of the acquisition, TPG Angelo Gordon operates its business as a new platform within TPG. For additional information regarding TPG and its human capital resources, see TPG's public filings with the SEC. TPG Angelo Gordon As of December 31, 2023, TPG Angelo Gordon had over 650 employees.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

154 edited+67 added−49 removed413 unchanged
Biggest changeRisks Related to Financing Activities • Our business strategy involves the use of leverage, and we may become overleveraged or not achieve what we believe is optimal leverage, which may materially adversely affect our liquidity, results of operations or financial condition. • The securitization process expose us to risks, which could result in losses to us. • Our financing arrangements contain restrictive operating covenants. • If a counterparty to our repurchase transaction defaults on its obligation to resell or return the underlying security back to us at the end of the transaction term, we may lose money on such financing arrangement. • Our rights under our repurchase agreements may be subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders under the financing arrangements, which may allow our lenders to repudiate our financing arrangements. • Pursuant to the terms of borrowings under our financing arrangements, we are subject to margin calls that could result in defaults or force us to sell assets under adverse market conditions or through foreclosure. • The Federal Reserve's actions and statements regarding monetary policy and the management of its balance sheet can affect the fixed income and mortgage finance markets in ways that could adversely affect our future business and financial results and the value of, and returns on, real estate-related investments and other assets we own or may acquire. • The replacement of LIBOR with SOFR-based rates or other alternative reference rates may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.
Biggest changeGovernment Programs • The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between these agencies and the U.S. government, may adversely affect our business. 13 Risks Related to Financing Activities • We have a material amount of corporate indebtedness, which could have significant effects on our business. • Our business strategy involves the use of leverage, and we may become overleveraged or not achieve what we believe is optimal leverage, which may materially adversely affect our liquidity, results of operations or financial condition. • The securitization process expose us to risks, which could result in losses to us. • Our financing arrangements contain restrictive operating covenants. • If a counterparty to our repurchase transaction defaults on its obligation to resell or return the underlying security back to us at the end of the transaction term, we may lose money on such financing arrangement. • Our rights under our repurchase agreements may be subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders under the financing arrangements, which may allow our lenders to repudiate our financing arrangements. • Pursuant to the terms of borrowings under our financing arrangements, we are subject to margin calls that could result in defaults or force us to sell assets under adverse market conditions or through foreclosure. • The Federal Reserve's actions and statements regarding monetary policy and the management of its balance sheet can affect the fixed income and mortgage finance markets in ways that could adversely affect our future business and financial results and the value of, and returns on, real estate-related investments and other assets we own or may acquire.
We anticipate that our investments in Non-Agency RMBS will be concentrated in lower-rated and unrated securities in which we are exposed to the first loss on the residential mortgage loans held by the securitization vehicle, which will subject to us to the most concentrated credit risk associated with the underlying residential mortgage loans.
We anticipate that our investments in Non-Agency RMBS will be concentrated in lower-rated and unrated securities in which we are exposed to the first loss on the residential mortgage loans held by the securitization vehicle, which will subject us to the most concentrated credit risk associated with the underlying residential mortgage loans.
Specific factors that may have a significant effect on the market price of our common stock include, among others, the following: • Our actual or anticipated financial condition, performance, and prospects and those of our competitors. • The market for similar securities issued by other REITs and other competitors of ours. • Changes in the manner that investors and securities analysts who provide research to the marketplace on us analyze the value of our common stock. • Changes in recommendations or in estimated financial results published by securities analysts who provide research to the marketplace on us, our competitors, or our industry. • General economic and financial market conditions, including, among other things, actual and projected interest rates, prepayments, and credit performance and the markets for the types of assets we hold or invest in. • Changes in our dividend policy. • Proposals to significantly change the manner in which financial markets, financial institutions, and related industries, or financial products are regulated under applicable law, or the enactment of such proposals into law or regulation. • Reactions to public announcements by us. • Sales of common stock by us, our Manager, members of our management team or significant stockholders. • Other events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large financial institutions or other significant corporations (whether due to fraud or other factors), terrorist attacks, natural or man-made disasters, the outbreak of pandemic or epidemic disease, or threatened or actual armed conflicts.
Specific factors that may have a significant effect on the market price of our common stock include, among others, the following: • Our actual or anticipated financial condition, performance, and prospects and those of our competitors. • The market for similar securities issued by other REITs and other competitors of ours. • Changes in the manner that investors and securities analysts who provide research to the marketplace on us analyze the value of our common stock. • Changes in recommendations or in estimated financial results published by securities analysts who provide research to the marketplace on us, our competitors, or our industry. 48 • General economic and financial market conditions, including, among other things, actual and projected interest rates, prepayments, and credit performance and the markets for the types of assets we hold or invest in. • Changes in our dividend policy. • Proposals to significantly change the manner in which financial markets, financial institutions, and related industries, or financial products are regulated under applicable law, or the enactment of such proposals into law or regulation. • Reactions to public announcements by us. • Sales of common stock by us, our Manager, members of our management team or significant stockholders. • Other events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large financial institutions or other significant corporations (whether due to fraud or other factors), terrorist attacks, natural or man-made disasters, the outbreak of pandemic or epidemic disease, or threatened or actual armed conflicts.
Certain provisions of the Maryland General Corporation Law, or the MGCL, may have the effect of inhibiting a third-party from making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then prevailing market price of such shares. 42 • We are subject to the "business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of the voting power of our then outstanding voting shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding voting shares) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, imposes special stockholder voting requirements to approve these combinations unless the consideration being received by common stockholders satisfies certain conditions.
Certain provisions of the Maryland General Corporation Law, or the MGCL, may have the effect of inhibiting a third-party from making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then prevailing market price of such shares. • We are subject to the "business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of the voting power of our then outstanding voting shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding voting shares) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, imposes special stockholder voting requirements to approve these combinations unless the consideration being received by common stockholders satisfies certain conditions.
Risks Related to Taxation • Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders. 12 • The failure of assets subject to repurchase agreements to be treated as owned by us for U.S. federal income tax purposes could adversely affect our ability to qualify as a REIT. • Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. • Uncertainty exists with respect to the treatment of TBAs for purposes of the REIT asset and income tests. • New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. • Complying with the REIT requirements may limit our ability to hedge effectively. • The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes. • There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR.
Risks Related to Taxation • Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders. • The failure of assets subject to repurchase agreements to be treated as owned by us for U.S. federal income tax purposes could adversely affect our ability to qualify as a REIT. • Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax. • Uncertainty exists with respect to the treatment of TBAs for purposes of the REIT asset and income tests. • New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. • Complying with the REIT requirements may limit our ability to hedge effectively. • The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes. • There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR.
The result of these incidents may include disrupted operations, delays or other problems in our securities trading activities, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our investor relationships and reputation, any or all of which could have a material adverse effect on our results of operations and cash flows and negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
The result of these incidents may include disrupted operations, delays or other problems in our securities trading activities, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our investor relationships and reputation, any or all of which could have a material adverse effect on 22 our results of operations and cash flows and negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
Moreover, if our only feasible alternative were to make a taxable distribution of our shares to comply with the REIT 38 distribution requirements for any taxable year and the value of our shares was not sufficient at such time to make a distribution to our stockholders in an amount at least equal to the minimum amount required to comply with such REIT distribution requirements, we would generally fail to qualify as a REIT for such taxable year and would be precluded from being taxed as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.
Moreover, if our only feasible alternative were to make a taxable distribution of our shares to comply with the REIT distribution requirements for any taxable year and the value of our shares was not sufficient at such time to make a distribution to our stockholders in an amount at least equal to the minimum amount required to comply with such REIT distribution requirements, we would generally fail to qualify as a REIT for such taxable year and would be precluded from being taxed as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.
If the Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to regular U.S. federal, state and local corporate income tax, (ii) our interest in such Subsidiary REIT would cease to be a qualifying asset for purposes of the REIT asset tests, and (iii) it is possible that we would fail certain of the REIT asset tests, in which event we also would fail to 37 qualify as a REIT unless we could avail ourselves of certain relief provisions.
If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to regular U.S. federal, state and local corporate income tax, (ii) our interest in such Subsidiary REIT would cease to be a qualifying asset for purposes of the REIT asset tests, and (iii) it is possible that we would fail certain of the REIT asset tests, in which event we also would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.
The acquisition of mortgage loans entails us, the Manager and third-party service providers coming into possession of borrower non-public personal information, and we may be liable for losses suffered by individuals whose personal information is stolen as a result of a breach of the security of the systems on which we, our Manager or third-party service providers of ours store this information, or as a result of other mismanagement of such information, and any such liability could be material.
The acquisition of mortgage loans entails us, the Manager and third-party service providers coming into possession of borrower non-public personal information, and we may be liable for losses suffered by individuals whose personal information is stolen or compromised as a result of a breach of the security of the systems on which we, our Manager or third-party service providers of ours store this information, or as a result of other mismanagement of such information, and any such liability could be material.
Risks Related to our Management and our Relationships with our Manager and its Affiliates • We are dependent upon our Manager, its affiliates and their key personnel and may not find a suitable replacement if the management agreement with our Manager is terminated or such key personnel are no longer available to us, which would materially and adversely affect us. • The management agreement was not negotiated on an arm’s length basis and the terms, including the fees payable to our Manager, may not be as favorable to us as if the agreement was negotiated with unaffiliated third-parties. • Our governance and operational structure could result in conflicts of interest. • We may enter into transactions to purchase or sell investments with entities or accounts managed by our Manager or its affiliates. • Our Manager's fee structure may not create proper incentives or may induce our Manager and its affiliates to make riskier or more speculative investments, which increase the risk of our portfolio. • Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our investments. • Termination of our management agreement would be costly and, in certain cases, not permitted.
Risks Related to our Management and our Relationships with our Manager and its Affiliates • We are dependent upon our Manager, its affiliates and their key personnel and may not find a suitable replacement if the management agreement with our Manager is terminated or such key personnel are no longer available to us, which would materially and adversely affect us. • The management agreement was not negotiated on an arm’s length basis and the terms, including the fees payable to our Manager, may not be as favorable to us as if the agreement was negotiated with unaffiliated third-parties. • Our governance and operational structure could result in conflicts of interest. • We may enter into transactions to purchase or sell investments with entities or accounts managed by our Manager or its affiliates. • Our Manager's fee structure may not create proper incentives or may induce our Manager and its affiliates to make riskier or more speculative investments, which increase the risk of our portfolio. • Our Manager will not be liable to us for any acts or omissions performed in accordance with our management agreement. • Termination of our management agreement would be costly and, in certain cases, not permitted.
These concerns have also resulted in increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to 20 control, assess, and report.
These concerns have also resulted in increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess, and report.
Further, when there are turbulent conditions in the real estate industry, distress in the credit markets or other times when we will need focused support and assistance from our Manager, the attention of our Manager’s personnel and executive officers and the resources of Angelo Gordon will also be required by the other funds and accounts managed by our Manager and its affiliates, placing our Manager’s resources in high demand.
Further, when there are turbulent conditions in the real estate industry, distress in the credit markets or other times when we will need focused support and assistance from our Manager, the attention of our Manager’s personnel and executive officers and the resources of TPG Angelo Gordon will also be required by the other funds and accounts managed by our Manager and its affiliates, placing our Manager’s resources in high demand.
In executing securitization transactions, we rely on third-party service providers, including custodians, rating agencies, servicers, and due diligence firms, to support the 13 completion of such transactions in a timely and efficient manner. These third-party service providers may not have sufficient resources to dedicate the appropriate time and attention needed for securitization transactions conducted by us and our competitors.
In executing securitization transactions, we rely on third-party service providers, including custodians, rating agencies, servicers, and due diligence firms, to support the completion of such transactions in a timely and efficient manner. These third-party service providers may not have sufficient resources to dedicate the appropriate time and attention needed for securitization transactions conducted by us and our competitors.
These risks may be more pronounced during times of market volatility and negative economic conditions, such as those being experienced currently. 15 We engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks. A significant part of our business and growth strategy is to engage in securitization transactions to finance newly-acquired residential mortgage loans.
These risks may be more pronounced during times of market volatility and negative economic conditions, such as those being experienced currently. We engage in securitization transactions relating to residential mortgage loans which exposes us to potentially material risks. A significant part of our business and growth strategy is to engage in securitization transactions to finance newly-acquired residential mortgage loans.
If a third-party servicer fails to perform its duties under the securitization documents or its contractual duties to us, this may result in a material increase in delinquencies or losses on the RMBS or mortgage loans we own or the MSRs Arc Home owns or in a fine or adverse finding from a regulatory authority if the ownership of loans is tied to the servicing of those loans.
If a third-party servicer fails to perform its duties under the securitization documents or its contractual duties to us, this may result in a material increase in delinquencies or losses on the RMBS or mortgage loans we own or the MSRs Arc Home owns or in a fine or adverse finding from a regulatory authority if the ownership of loans is tied to 23 the servicing of those loans.
To the extent benchmark interest rates rise or the yield curve flattens further as a result of the Federal Reserve’s policy actions or statements, one of the immediate potential impacts on our business would be a reduction in the overall value of the pool of mortgage loans that we own and the overall value of the pipeline of mortgage loans that we have identified for origination or purchase.
To the extent benchmark interest rates continue to rise or the yield curve flattens further as a result of the Federal Reserve’s policy actions or statements, one of the immediate potential impacts on our business would be a reduction in the overall value of the pool of mortgage loans that we own and the overall value of the pipeline of mortgage loans that we have identified for origination or purchase.
Under rules implemented by the CFTC, companies that utilize swaps as part of their business model, including many mortgage REITs, may be deemed to fall within the statutory definition of Commodity Pool Operator, or CPO, and, absent relief from the CFTC’s Division of Swap Dealer and Intermediary Oversight, may be required to register with the CFTC as a CPO.
Under rules implemented by the CFTC, companies that utilize swaps as part of their business model, including many mortgage REITs, may be deemed to fall within the statutory definition of Commodity Pool Operator, or CPO, 45 and, absent relief from the CFTC’s Division of Swap Dealer and Intermediary Oversight, may be required to register with the CFTC as a CPO.
Our investment portfolio is primarily comprised of residential mortgage loans and RMBS. An investment in such assets will generally decline in value if interest rates increase, particularly long-term interest rates. Declines in market value may ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders.
Our investment portfolio is primarily comprised of residential mortgage loans and RMBS. An investment in such assets will generally decline in value if interest rates increase, particularly long-term interest rates. Declines in market value may 20 ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders.
The subsequent disposition or sale of such impacted assets could further affect our future losses or gains, as they are based on the 14 difference between the sale price received and adjusted amortized cost of such assets at the time of sale. These risks may be more pronounced for investments with significant credit risk, as discussed above.
The subsequent disposition or sale of such impacted assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. These risks may be more pronounced for investments with significant credit risk, as discussed above.
The extent of such liquidity pressures in the future is not known at this time and is subject to continual change. 22 Arc Home is highly dependent upon programs administered by the GSEs, and changes in the GSEs’ servicing or origination guidelines or overall operations could have a material adverse effect on Arc Home’s business.
The extent of such liquidity pressures in the future is not known at this time and is subject to continual change. Arc Home is highly dependent upon programs administered by the GSEs, and changes in the GSEs’ servicing or origination guidelines or overall operations could have a material adverse effect on Arc Home’s business.
The "safe harbor" under the ATR Rules applies to a covered transaction that meets the definition of "qualified mortgage" and is not a "higher-priced covered transaction." For any covered transaction that meets the definition of a "qualified mortgage" and is not a "higher-priced covered transaction," the creditor or assignee will be deemed to have complied with the ability-to-repay requirement and, accordingly, will be conclusively presumed to have made a good faith and reasonable determination of the consumer’s ability to 24 repay.
The "safe harbor" under the ATR Rules applies to a covered transaction that meets the definition of "qualified mortgage" and is not a "higher-priced covered transaction." For any covered transaction that meets the definition of a "qualified mortgage" and is not a "higher-priced covered transaction," the creditor or assignee will be deemed to have complied with the ability-to-repay requirement and, accordingly, will be conclusively presumed to have made a good faith and reasonable determination of the consumer’s ability to repay.
Furthermore, our Manager may use complex strategies and transactions that may be costly, difficult or impossible to unwind by the time they are reviewed by our Board of Directors. 35 Our Manager's fee structure may not create proper incentives or may induce our Manager and its affiliates to make riskier or more speculative investments, which increase the risk of our portfolio.
Furthermore, our Manager may use complex strategies and transactions that may be costly, difficult or impossible to unwind by the time they are reviewed by our Board of Directors. Our Manager's fee structure may not create proper incentives or may induce our Manager and its affiliates to make riskier or more speculative investments, which increase the risk of our portfolio.
If we are unable to obtain sufficient short-term financing or our assets are insufficient to meet the collateral requirements, then we may be compelled to liquidate particular assets at an inopportune time and at distressed sale prices. These conditions could adversely impact our business. Valuations of our investments may at times be unavailable or unreliable.
If we are unable to obtain sufficient short-term financing or our assets are insufficient to meet the collateral requirements, then we may be compelled to liquidate particular assets at an inopportune time and at distressed sale prices. These conditions could adversely impact our business. 19 Valuations of our investments may at times be unavailable or unreliable.
We may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain our ongoing relationship with our Manager. Our governance and operational structure could result in conflicts of interest. Our Manager is managed by Angelo Gordon, whose interests may not always be aligned with ours or our Manager’s.
We may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain our ongoing relationship with our Manager. Our governance and operational structure could result in conflicts of interest. Our Manager is managed by TPG Angelo Gordon, whose interests may not always be aligned with ours or our Manager’s.
For example, we rely on the mortgage servicers who service the mortgage loans we purchase as well as the loans underlying our RMBS to, among other things, collect principal and interest payments on such loans and perform loss mitigation services, such as forbearance, workouts, modifications, foreclosures, short sales and sales of foreclosed property. 21 Servicer quality .
For example, we rely on the mortgage servicers who service the mortgage loans we purchase as well as the loans underlying our RMBS to, among other things, collect principal and interest payments on such loans and perform loss mitigation services, such as forbearance, workouts, modifications, foreclosures, short sales and sales of foreclosed property. Servicer quality .
Similar modification programs are also offered by several large non-GSE financial institutions. 28 HAMP, HARP and other loss mitigation programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans (through forbearance and/or forgiveness) and/or the rate of interest payable on the loans, or to extend the payment terms of the loans.
Similar modification programs are also offered by several large non-GSE financial institutions. HAMP, HARP and other loss mitigation programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans (through forbearance and/or forgiveness) and/or the rate of interest payable on the loans, or to extend the payment terms of the loans.
The management agreement was not negotiated on an arm’s length basis and the terms, including the fees payable to our Manager, may not be as favorable to us as if the agreement was negotiated with unaffiliated third-parties. All of our officers and our non-independent directors are employees of Angelo Gordon or its affiliates.
The management agreement was not negotiated on an arm’s length basis and the terms, including the fees payable to our Manager, may not be as favorable to us as if the agreement was negotiated with unaffiliated third-parties. All of our officers and our non-independent directors are employees of TPG Angelo Gordon or its affiliates.
See "— Risks Related to our Management and our Relationships with our Manager and its Affiliates — Our governance and operational structure could result in conflicts of interest." for further information. 17 In addition to existing companies, other companies may be organized in the future for similar purposes, including companies focused on purchasing mortgage assets.
See "— Risks Related to our Management and our Relationships with our Manager and its Affiliates — Our governance and operational structure could result in conflicts of interest." for further information. In addition to existing companies, other companies may be organized in the future for similar purposes, including companies focused on purchasing mortgage assets.
Pursuant to our management agreement, our Manager is obligated to supply us with our senior management team, and the members of that team may have conflicts in allocating their time and services between us and other entities or accounts managed by our Manager and its affiliates, now or in the future, including other Angelo Gordon funds.
Pursuant to our management agreement, our Manager is obligated to supply us with our senior management team, and the members of that team may have conflicts in allocating their time and services between us and other entities or accounts managed by our Manager and its affiliates, now or in the future, including other TPG Angelo Gordon funds.
Upon any such termination without cause, the management agreement provides that we will pay our Manager a termination fee equal to three times the average annual base management fee earned by our Manager during the 24-month period prior to termination, calculated as of the end of the most recently completed fiscal 36 quarter.
Upon any such termination without cause, the management agreement provides that we will pay our Manager a termination fee equal to three times the average annual base management fee earned by our Manager during the 24-month period prior to termination, calculated as of the end of the most recently completed fiscal quarter.
However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code. We may find it difficult or impossible to meet distribution requirements in certain circumstances.
However, differences in timing between the recognition of taxable income and the actual 41 receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code. We may find it difficult or impossible to meet distribution requirements in certain circumstances.
In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation, and in certain circumstances, the ability of our TRSs to deduct net business interest expenses generally may be limited.
In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation, and in certain circumstances, the ability of 42 our TRSs to deduct net business interest expenses generally may be limited.
Such recourse may be limited due to a variety of factors, including the absence of a 30 representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof. In certain instances, we rely on the seller to directly make representations and warranties regarding loans in a securitization.
Such recourse may be limited due to a variety of factors, including the absence of a representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof. In certain instances, we rely on the seller to directly make representations and warranties regarding loans in a securitization.
Furthermore, since 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 the ability of these historical models accurately to reflect future periods. All valuation models rely on correct market data inputs.
Furthermore, since predictive models are usually constructed based on historical data supplied by third- 18 parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data and the ability of these historical models accurately to reflect future periods. All valuation models rely on correct market data inputs.
Conversely, in periods of rising interest rates, prepayments on investments, where contractually permitted, generally decrease, in which case we would not have the prepayment proceeds available to invest in comparable assets at higher yields and our cost to finance such assets would likely increase.
Conversely, in periods of rising interest rates, prepayments on investments, where contractually 27 permitted, generally decrease, in which case we would not have the prepayment proceeds available to invest in comparable assets at higher yields and our cost to finance such assets would likely increase.
While we would generally intend to retain a portion of the interests issued under such securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations may increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default.
While we generally intend to retain a portion of the interests issued under such securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations may increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default.
Angelo Gordon and its affiliates may at certain times simultaneously seek to purchase or sell the same or similar investments for clients or for themselves. Likewise, our Manager may on our behalf purchase or sell an investment in which another Angelo Gordon client or affiliate is already invested or has co-invested.
TPG Angelo Gordon and its affiliates may at certain times simultaneously seek to purchase or sell the same or similar investments for clients or for themselves. Likewise, our Manager may on our behalf purchase or sell an investment in which another TPG Angelo Gordon client or affiliate is already invested or has co-invested.
In particular, the sustainability of our earnings and our cash flows will depend on numerous factors, including our level of business and investment activity, our access to debt and equity financing, the returns we earn, the amount and timing of credit losses, 43 prepayments, the expense of running our business, and other factors, including the risk factors described herein.
In particular, the sustainability of our earnings and our cash flows will depend on numerous factors, including our level of business and investment activity, our access to debt and equity financing, the returns we earn, the amount and timing of credit losses, prepayments, the expense of running our business, and other factors, including the risk factors described herein.
Accordingly, we are completely reliant upon, and our success depends exclusively on, our Manager’s personnel, services, resources, facilities, relationships and contacts. No assurance can be given that our Manager will act in our best interests with respect to the allocation of personnel, services and resources to our business.
Accordingly, we are completely reliant upon, and our 36 success depends exclusively on, our Manager’s personnel, services, resources, facilities, relationships and contacts. No assurance can be given that our Manager will act in our best interests with respect to the allocation of personnel, services and resources to our business.
Although we believe that we have structured our operations and investments to comply with existing legal and regulatory requirements and interpretations, changes in regulatory and legal requirements, including changes in their interpretation and enforcement by lawmakers and regulators, could materially and adversely affect our business and our financial condition, liquidity, and results of operations.
Although we believe that we have structured our 25 operations and investments to comply with existing legal and regulatory requirements and interpretations, changes in regulatory and legal requirements, including changes in their interpretation and enforcement by lawmakers and regulators, could materially and adversely affect our business and our financial condition, liquidity, and results of operations.
The terms we receive on such financings are influenced by the demand for similar funding by our competitors, including other REITs, specialty finance companies and other financial entities. Many of our competitors are significantly larger than us, have greater financial resources and significantly 29 larger balance sheets than we do.
The terms we receive on such financings are influenced by the demand for similar funding by our competitors, including other REITs, specialty finance companies and other financial entities. Many of our competitors are significantly larger than us, have greater financial resources and significantly larger balance sheets than we do.
We believe that we are not an investment company as defined in Section 3(a)(1)(A) or 3(a)(1)(C). 41 The operations of many of our wholly-owned or majority-owned subsidiaries are generally conducted so that they are exempted from investment company status in reliance upon Section 3(c)(5)(C) of the Investment Company Act.
We believe that we are not an investment company as defined in Section 3(a)(1)(A) or 3(a)(1)(C). The operations of many of our wholly-owned or majority-owned subsidiaries are generally conducted so that they are exempted from investment company status in reliance upon Section 3(c)(5)(C) of the Investment Company Act.
Employees of our Manager and its affiliates may also invest in other entities managed by other Angelo Gordon entities which are eligible to purchase target assets. See Part I, Item 1 "Business - Investment Policies" for additional information related to target assets.
Employees of our Manager and its affiliates may also invest in other entities managed by other TPG Angelo Gordon entities which are eligible to purchase target assets. See Part I, Item 1 "Business - Investment Policies" for additional information related to target assets.
A change in our investment strategies and policies and target asset classes may increase our exposure to interest rate risk, default risk and real estate market fluctuations, which could adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
A change in our investment strategies and 38 policies and target asset classes may increase our exposure to interest rate risk, default risk and real estate market fluctuations, which could adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
While we believe that the Subsidiary REIT has qualified as a REIT under the Code, we have joined the Subsidiary REIT in filing a "protective" TRS election under Section 856(l) of the Code. We cannot assure you that such "protective" TRS election would be effective to avoid adverse consequences to us.
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. We cannot assure you that each such "protective" TRS election would be effective to avoid adverse consequences to us.
As such, the terms may not be as favorable to us as they otherwise might have been. Risks Related to Taxation Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders.
As such, the terms may not be as favorable to us as they otherwise might have been. 40 Risks Related to Taxation Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders.
Foreclosures are involuntary prepayments resulting in a reduction in unpaid principal balance. This may result in higher amortization expense and declines in the value of Arc Home’s MSRs. 23 Adverse economic conditions could also negatively impact Arc Home's lending businesses.
Foreclosures are involuntary prepayments resulting in a reduction in unpaid principal balance. This may result in higher amortization expense and declines in the value of Arc Home’s MSRs. Adverse economic conditions could also negatively impact Arc Home's lending businesses.
The employees of Angelo Gordon that devote time to managing our business may have conflicting interests between us and Angelo Gordon when managing our business. Angelo Gordon may decide to sell or transfer an equity interest in the Manager, which could increase the potential conflicts.
The employees of TPG Angelo Gordon that devote time to managing our business may have conflicting interests between us and TPG Angelo Gordon when managing our business. TPG Angelo Gordon may decide to sell or transfer an equity interest in the Manager, which could increase the potential conflicts.
Angelo Gordon or our Manager and their respective employees may make investment decisions for us that may be different from those undertaken for their personal accounts or on behalf of other clients (including the timing and nature of the action taken).
TPG Angelo Gordon or our Manager and their respective employees may make investment decisions for us that may be different from those undertaken for their personal accounts or on behalf of other clients (including the timing and nature of the action taken).
Furthermore, with respect to certain non-U.S. stockholders, we or the applicable withholding agent may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in 44 common stock.
Furthermore, with respect to certain non-U.S. stockholders, we or the applicable withholding agent may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock.
If Arc Home is unable to originate loans in one or more jurisdictions as a result of regulatory issues or otherwise, it may result in fewer investment opportunities for us or in opportunities that are less geographically diversified.
If Arc Home is unable to originate loans in one or more jurisdictions as a result of regulatory issues or otherwise, it may 24 result in fewer investment opportunities for us or in opportunities that are less geographically diversified.
Our Manager and Angelo Gordon and their respective employees also may have ongoing relationships with the obligors of investments or the clients’ counterparties and they or their clients may own equity or other securities or obligations issued by such parties.
Our Manager and TPG Angelo Gordon and their respective employees also may have ongoing relationships with the obligors of investments or the clients’ counterparties and they or their clients may own equity or other securities or obligations issued by such parties.
Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower, and the priority and enforceability of the lien will significantly impact the value of such mortgage loan. In the event of a foreclosure, we may assume direct ownership of the underlying real estate.
Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower, and the priority and enforceability of the lien 16 will significantly impact the value of such mortgage loan. In the event of a foreclosure, we may assume direct ownership of the underlying real estate.
Section 3(c)(5)(C) exempts from the definition of "investment company" entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” The staff of the SEC generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" (the “55% test”) and at least another 25% in additional qualifying assets or in "real estate-related" assets (the “80% test”) (with no more than 20% comprised of miscellaneous assets).
Section 3(c)(5)(C) exempts from the definition of "investment company" entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” The staff of the SEC generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" (the “55% test”) and at least another 25% in additional qualifying assets or in "real estate-related" assets (the “25% test”) (with no more than 20% comprised of miscellaneous assets).
In accordance with our management agreement, we are externally managed and advised by our Manager, and all of our officers are employees of Angelo Gordon or its affiliates. We have no separate facilities, and we have no employees.
In accordance with our management agreement, we are externally managed and advised by our Manager, and all of our officers are employees of TPG Angelo Gordon or its affiliates. We have no separate facilities, and we have no employees.
Therefore, in order to avoid the prohibited transactions tax, we may choose to engage in certain sales of loans through a TRS and not at the REIT level, and may limit the structures we utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us. 40 The share ownership limits applicable to us that are imposed by the Code for REITs, and our charter may restrict our business combination opportunities.
Therefore, in order to avoid the prohibited transactions tax, we may choose to engage in certain sales of loans through a TRS and not at the REIT level, and may limit the structures we utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us. 43 The share ownership limits applicable to us that are imposed by the Code for REITs and our charter may restrict our business combination opportunities.
Certain financing agreements may contain cross-default and cross-acceleration provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
Certain financing agreements may contain cross-default and 34 cross-acceleration provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
We engaged the Asset Manager, an affiliate of the Manager and direct subsidiary of Angelo Gordon, as the asset manager for certain of our non-agency loans, agency loans, residential mortgage loans and Re/Non-Performing Loans.
We engaged the Asset Manager, an affiliate of the Manager and direct subsidiary of TPG Angelo Gordon, as the asset manager for certain of our non-agency loans, agency loans, residential mortgage loans and Re/Non-Performing Loans.
Also, we may not pledge our interest in any Required Credit Risk as collateral for any financing unless such financing is full recourse to us.
Also, we may not pledge our interest in any Required 17 Credit Risk as collateral for any financing unless such financing is full recourse to us.
Such transactions may differ across Angelo Gordon clients or affiliates. These instances may result in conflicts of interest, which may adversely affect our operations.
Such transactions may differ across TPG Angelo Gordon clients or affiliates. These instances may result in conflicts of interest, which may adversely affect our operations.
As a result, interest rate fluctuations can cause significant losses, reductions in income, and could materially and adversely affect us. 19 In addition, in periods of rising interest rates, such as what we are currently experiencing, there is generally reduced demand for mortgage loans due to the higher cost of borrowing.
As a result, interest rate fluctuations can cause significant losses, reductions in income, and could materially and adversely affect us. In addition, in periods of higher interest rates, such as what we are currently experiencing, there is generally reduced demand for mortgage loans due to the higher cost of borrowing.
Either of these outcomes could negatively affect the value of shares of our stock and our ability to make distributions to our stockholders. If we were required to register with the CFTC as a Commodity Pool Operator, it could materially adversely affect our business, financial condition and results of operations. Under the Dodd-Frank Act, the U.S.
Any of these outcomes could negatively affect the value of shares of our stock and our ability to make distributions to our stockholders. If we were required to register with the CFTC as a Commodity Pool Operator, it could materially adversely affect our business, financial condition and results of operations. Under the Dodd-Frank Act, the U.S.
To the extent such other investment vehicles acquire or divest of the same target assets as us, the scope of opportunities otherwise available to us may be adversely affected and/or reduced. We have broad investment guidelines, and we have co-invested and may co-invest with Angelo Gordon funds in a variety of investments.
To the extent such other investment vehicles acquire or divest of the same target assets as us, the scope of opportunities otherwise available to us may be adversely affected and/or reduced. 37 We have broad investment guidelines, and we have co-invested and may co-invest with TPG Angelo Gordon funds in a variety of investments.
Risks Related to our Investments • Our investments in non-agency residential mortgage loans, including Non-QM Loans in particular, subject us to legal, regulatory and other risks. • We invest in GSE Non-Owner Occupied Loans, which expose us to an increased risk of loss. • Changes in prepayment rates may adversely affect the return on our investments. • Prepayment rates are difficult to predict, and market conditions may disrupt the historical correlation between interest rate changes and prepayment trends. • Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded. • Our investment in lower rated Non-Agency RMBS resulting from the securitization of our assets or otherwise, exposes us to the first loss on the mortgage assets held by the securitization vehicle.
Risks Related to our Investments • Our investments in non-agency residential mortgage loans, including Non-QM Loans in particular, subject us to legal, regulatory and other risks. • We invest in Agency-Eligible Loans, which expose us to an increased risk of loss. • Changes in prepayment rates may adversely affect the return on our investments. • Prepayment rates are difficult to predict, and market conditions may disrupt the historical correlation between interest rate changes and prepayment trends. • Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded. • Our investment in lower rated Non-Agency RMBS resulting from the securitization of our assets or otherwise, exposes us to the first loss on the mortgage assets held by the securitization vehicle.
As of December 31, 2022, our residential loan portfolio was our predominant asset class, and we expect to continue to seek investment opportunities primarily focused on residential whole loans. We are exposed to significant credit risk primarily through direct investments in residential real estate mortgage loans and the ownership of RMBS.
As of December 31, 2023, our residential loan portfolio was our predominant asset class, and we expect to continue to seek investment opportunities primarily focused on residential whole loans. We are exposed to significant credit risk primarily through direct investments in residential real estate mortgage loans and the ownership of RMBS.
We are subject to Angelo Gordon’s investment allocation policy, which specifically addresses some of the conflicts relating to our investment opportunities.
We are subject to TPG Angelo Gordon’s investment allocation policy, which specifically addresses some of the conflicts relating to our investment opportunities.
Bankruptcy Code and to foreclose on the pledged collateral 31 without delay, impacting our legal title and the right to proceeds.
Bankruptcy Code and to foreclose on the pledged collateral without delay, impacting our legal title and the right to proceeds.
In addition, Angelo Gordon, either for its own accounts or for the accounts of other clients, may hold securities or 34 obligations that are senior to, or have interests different from or adverse to, the securities or obligations that are acquired for us.
In addition, TPG Angelo Gordon, either for its own accounts or for the accounts of other clients, may hold securities or obligations that are senior to, or have interests different from or adverse to, the securities or obligations that are acquired for us.
Our ability to continue to pay quarterly dividends in the future may be adversely affected by a number of factors, including the risk factors described in this report. Further, we may consider paying future dividends, if at all, in shares of common stock, cash, or a combination of shares of common stock and cash.
Our ability to continue to pay quarterly dividends in the future may be adversely affected by a number of factors, including but not limited to, the risk factors described in this report. Further, we may consider paying future dividends, if at all, in shares of common stock, cash, or a combination of shares of common stock and cash.
For instance, as a result of an increase in mortgagors requesting relief in the form of forbearance plans and/or other loss mitigation, servicers and other parties responsible in capital markets securitization transactions for funding advances with respect to delinquent mortgagor payments of principal and interest may begin to experience financial difficulties if mortgagors do not make monthly payments.
For instance, as a result of an increase in mortgagors requesting relief in the form of forbearance plans and/or other loss mitigation or an inability to make payments due to a system shutdown, servicers and other parties responsible in capital markets securitization transactions for funding advances with respect to delinquent mortgagor payments of principal and interest may begin to experience financial difficulties if mortgagors do not make monthly payments.
To the extent that our direct subsidiaries qualify only for either Section 3(c)(1) or 3(c)(7) exemptions from the Investment Company Act, we limit our holdings in those kinds of entities so that, together with other investment securities, we satisfy the 40% test.
To the extent that our direct subsidiaries qualify only for either Section 3(c)(1) or 3(c)(7) exemptions from the Investment Company Act, we limit our holdings in those kinds of entities and in other investment securities so that we satisfy the 40% test.
Although we continuously monitor our and our subsidiaries’ portfolios on an ongoing basis to determine compliance with that test, there can be no assurance that we will be able to maintain the exemptions from registration for us and each of our subsidiaries.
Although we continuously monitor our and our subsidiaries’ portfolios on an ongoing basis to determine compliance with that test, there can be no assurance that we will be able to maintain the exemptions from registration for us and each of our subsidiaries at all times.
As a result, if we invest in second-lien mortgage loans and the borrower defaults, we may lose all or a significant part of our investment. In certain instances, second lien investments may include home equity lines of credit, which may subject us to future funding obligations, which could have an adverse impact on our liquidity. Risks Related to U.S.
As a result, if we invest in second-lien mortgage loans and the borrower defaults, we may lose all or a significant part of our investment. In certain instances, second lien investments may include home equity lines of credit, which may subject us to future funding obligations, which could have an adverse impact on our liquidity.
As conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency ("FHFA") may disaffirm or repudiate (subject to certain limitations for qualified financial contracts) contracts that Freddie Mac or Fannie Mae entered into prior to the FHFA’s appointment as conservator if it determines, in its sole discretion, that performance of the contract is burdensome and that disaffirmation or repudiation of the contract promotes the orderly administration of its affairs.
As conservator of Fannie Mae and Freddie Mac, the FHFA may disaffirm or repudiate (subject to certain limitations for qualified financial contracts) contracts that Freddie Mac or Fannie Mae entered into prior to the FHFA’s appointment as conservator if it determines, in its sole discretion, that performance of the contract is burdensome and that disaffirmation or repudiation of the contract promotes the orderly administration of its affairs.
In connection with our investments in Non-QM Loans, GSE Non-Owner Occupied Loans, residential mortgage loans, and Re/Non-Performing Loans, we engage asset managers to provide advisory, consultation, asset management and other services to help our third-party servicers formulate and implement strategic plans to manage, collect and dispose of loans in a manner that is reasonably expected to maximize the amount of proceeds from each loan.
In connection with our investments in Non-QM Loans, Agency-Eligible Loans, residential mortgage loans, and Re/Non-Performing Loans, we engage asset managers to provide advisory, consultation, asset management and other services to help our third-party servicers formulate and implement strategic plans to manage, collect and dispose of loans in a manner that is reasonably expected to maximize the amount of proceeds from each loan.
If as a result of the COVID-19 pandemic or another pandemic in the future, the financing markets were to experience another period of extreme volatility and illiquidity, we may be forced to sell our mortgage loans, real estate related securities and other assets that secure our repurchase and other financing arrangements on less favorable terms to us than might otherwise be available in a regularly functioning market and such actions could result in deficiency judgments and other claims against us.
If as a result of an outbreak or pandemic, the financing markets were to experience another period of extreme volatility and illiquidity, we may be forced to sell our mortgage loans, real estate related securities and other assets that secure our repurchase facilities and other financing arrangements on less favorable terms to us than might otherwise be available in a regularly functioning market and such actions could result in deficiency judgments and other claims against us.
If we pledge our interest in Required Credit Risk as collateral on financing that is full recourse to us and the lender takes possession of the underlying collateral, we may not be in compliance with the Risk Retention Rules and it is uncertain as to what the consequences may be.
If we pledge our interest in Required Credit Risk as collateral on financing that is full recourse to us, which we generally seek to do, and the lender takes possession of the underlying collateral, we may not be in compliance with the Risk Retention Rules and it is uncertain as to what the consequences may be.
Additionally, the principal and interest payments on Non-Agency RMBS are not guaranteed by any entity, including any government entity or GSE, and therefore are subject to increased risks, including credit risk. Risks Related to U.S.
Additionally, the principal and interest payments on Non-Agency RMBS are not guaranteed by any entity, including any government entity or GSE, and therefore are subject to increased risks, including credit risk.
The risks associated with an economic slowdown or a deterioration of the housing or lending markets are more pronounced due to the conditions created by the COVID-19 pandemic. Any of the foregoing could adversely affect Arc Home’s business, which in turn would have a negative impact on our results. Our business is subject to extensive regulation.
The risks associated with an economic slowdown or a deterioration of the housing or lending markets are more pronounced due to the conditions created by an outbreak of infectious disease or pandemic. Any of the foregoing could adversely affect Arc Home’s business, which in turn would have a negative impact on our results. Our business is subject to extensive regulation.
Risks Related to Financing Activities Our business strategy involves the use of leverage, and we may become overleveraged or not achieve what we believe is optimal leverage, which may materially adversely affect our liquidity, results of operations or financial condition. We use leverage as a strategy to increase the return on our assets.
Our business strategy involves the use of leverage, and we may become overleveraged or not achieve what we believe is optimal leverage, which may materially adversely affect our liquidity, results of operations or financial condition. We use leverage as a strategy to increase the return on our assets.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES As of December 31, 2022, we did not own any real estate or other physical property materially important to our operations. Our principal executive offices are located at 245 Park Avenue, 26th Floor, New York, New York 10167. Our telephone number is (212) 692-2000. 45
Biggest changeITEM 2. PROPERTIES As of December 31, 2023, we did not own any real estate or other physical property materially important to our operations. Our principal executive offices are located at 245 Park Avenue, 26th Floor, New York, New York 10167. Our telephone number is (212) 692-2000.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAs of the date of this report, we are not party to any litigation or legal proceedings, or to our knowledge, any threatened litigation or legal proceedings, which we believe, individually or in the aggregate, would have a material adverse effect on our results of operations or financial condition. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 46 PART II
Biggest changeAs of the date of this report, we are not party to any litigation or legal proceedings, or to our knowledge, any threatened litigation or legal proceedings, which we believe, individually or in the aggregate, would have a material adverse effect on our results of operations or financial condition.
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WMC Merger Litigation Two purported holders of WMC Common Stock filed complaints against WMC and the members of the WMC board of directors in court. The two complaints were each filed in the United States District Court for the District of Delaware and were captioned as follows: Eric Sabatini v.
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Western Asset Mortgage Capital Corporation, et al. , No. 1:23-cv-01151 (filed October 13, 2023) (the “Sabatini Lawsuit”); and Paul Parshall v. Western Asset Mortgage Capital Corporation, et al., No. 1:23-cv-01143 (filed October 12, 2023) (the “Parshall Lawsuit” and together with the Sabatini Lawsuit, the “WMC Stockholder Litigation”).
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In addition to the WMC Stockholder Litigation, ten purported holders of WMC Common Stock and two purported holders of MITT common stock have delivered demand letters alleging deficiencies similar to the WMC Stockholder Litigation in the disclosures in the Registration Statement and/or the joint proxy statement/prospectus, as applicable, in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 thereunder (such letters, the “Demand Letters” and collectively with the WMC Stockholder Litigation, the “Litigation Matters”).
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The Company, as successor to WMC, believes the claims asserted in the Litigation Matters were without merit and expressly denies all allegations in the Litigation Matters, including that any additional disclosure was or is required.
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However, in order to moot certain of plaintiffs’ disclosure claims in the Litigation Matters, avoid the risk of the Litigation Matters delaying or adversely affecting the Merger and minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, WMC and MITT voluntarily made supplemental disclosures to the joint proxy statement/prospectus. 50 Subsequent to the completion of the WMC acquisition, both the Sabatini Lawsuit and the Parshall Lawsuit were voluntarily dismissed without prejudice.
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ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 51 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeYear Ended December 31, 2022 Year Ended December 31, 2021 High Sales Price Low Sales Price High Sales Price Low Sales Price First Quarter $ 10.68 $ 8.48 $ 14.88 $ 8.31 Second Quarter 9.42 6.15 14.85 10.61 Third Quarter 8.39 4.05 13.05 9.81 Fourth Quarter 6.53 3.52 13.49 9.94 Year Ended December 31, 2022 Year Ended December 31, 2021 Declaration Date Record Date Payment Date Cash Dividend Per Share Declaration Date Record Date Payment Date Cash Dividend Per Share 3/18/2022 3/31/2022 4/29/2022 $ 0.21 3/22/2021 4/1/2021 4/30/2021 $ 0.18 6/15/2022 6/30/2022 7/29/2022 0.21 6/15/2021 6/30/2021 7/30/2021 0.21 9/15/2022 9/30/2022 10/31/2022 0.21 9/15/2021 9/30/2021 10/29/2021 0.21 12/19/2022 12/30/2022 1/31/2023 0.18 12/15/2021 12/31/2021 1/31/2022 0.21 Total $ 0.81 Total $ 0.81 Although we intend to continue to declare quarterly dividends, no assurances can be made as to the amount of any future dividend.
Biggest changeYear Ended December 31, 2023 Year Ended December 31, 2022 High Sales Price Low Sales Price High Sales Price Low Sales Price First Quarter $ 7.05 $ 4.96 $ 10.68 $ 8.48 Second Quarter 6.33 4.91 9.42 6.15 Third Quarter 6.89 5.35 8.39 4.05 Fourth Quarter 6.53 4.82 6.53 3.52 Year Ended December 31, 2023 Year Ended December 31, 2022 Declaration Date Record Date Payment Date Cash Dividend Per Share Declaration Date Record Date Payment Date Cash Dividend Per Share 3/15/2023 3/31/2023 4/28/2023 $ 0.18 3/18/2022 3/31/2022 4/29/2022 $ 0.21 6/15/2023 6/30/2023 7/31/2023 0.18 6/15/2022 6/30/2022 7/29/2022 0.21 9/15/2023 9/29/2023 10/31/2023 0.18 9/15/2022 9/30/2022 10/31/2022 0.21 10/24/2023 11/3/2023 11/8/2023 0.08 12/19/2022 12/30/2022 1/31/2023 0.18 11/20/2023 11/30/2023 1/2/2024 0.05 12/15/2023 12/29/2023 1/31/2024 0.05 Total $ 0.72 Total $ 0.81 Although we intend to continue to declare quarterly dividends, no assurances can be made as to the amount of any future dividend.
The 37 holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock. Such information was obtained through our registrar and transfer agent, based on the results of a broker search.
The 45 holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock. Such information was obtained through our registrar and transfer agent, based on the results of a broker search.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market and dividend information Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "MITT." As of February 17, 2023, there were 21,208,757 shares of common stock outstanding and approximately 37 registered holders of our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market and dividend information Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "MITT." As of March 6, 2024, there were 29,452,618 shares of common stock outstanding and approximately 45 registered holders of our common stock.
Two principal factors in determining the amounts of dividends are (i) the requirement of the Code that a real estate investment trust distribute to shareholders at least 90% of its real estate investment trust taxable income and (ii) the amount of our available cash. 47 Repurchase Program On August 3, 2022, the Company’s Board of Directors authorized a stock repurchase program to repurchase up to $15.0 million of the Company's outstanding common stock.
Two principal factors in determining the amounts of dividends are (i) the requirement of the Code that a real estate investment trust distribute to shareholders at least 90% of its real estate investment trust taxable income and (ii) the amount of our available cash.
The following tables set forth, for the periods indicated, the high and low sale price of our common stock as reported on the NYSE and the dividends declared per share of our common stock. All per share amounts below have been adjusted to reflect the one-for-three reverse stock split effected July 22, 2021.
The following tables set forth, for the periods indicated, the high and low sale price of our common stock as reported on the NYSE and the dividends declared per share of our common stock.
Removed
The Board's authorization does not have an expiration date.
Added
Repurchase Program On August 3, 2022, our Board of Directors authorized a stock repurchase program (the “2022 Repurchase Program”) to repurchase up to $15.0 million of the our outstanding common stock. The 2022 Repurchase Program does not have an expiration date.
Removed
The following table presents information related to our purchases of common stock pursuant to our stock repurchase program during the quarter ended December 31, 2022: Period (1) Total Number of Shares Purchased Weighted Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value that May Yet Be Purchased Under the Program (2) October 1, 2022 to October 31, 2022 74,187 $ 4.32 74,187 $ 12,340,308 November 1, 2022 to November 30, 2022 348,507 5.59 348,507 10,393,064 December 1, 2022 to December 30, 2022 430,233 5.99 430,233 7,817,003 Total 852,927 $ 5.68 852,927 $ 7,817,003 (1) Based on trade date.
Added
As of December 31, 2023, approximately $1.5 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.
Removed
(2) Includes brokerage commissions and clearing fees. ITEM 6. RESERVED
Added
On May 4, 2023, our Board of Directors authorized a stock repurchase program (the “2023 Repurchase Program”) to repurchase up to $15.0 million of the Company’s outstanding common stock on substantially the same terms as the 2022 Repurchase Program. As of December 31, 2023, the full $15.0 million authorized amount remains available for repurchase under the 2023 Repurchase Program.
Added
See Note 11 of the “Notes to Consolidated Financial Statements” for details on our purchases of common stock pursuant to our stock repurchase programs during year ended December 31, 2023. 52 ITEM 6. RESERVED

Item 7. Management's Discussion & Analysis

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

121 edited+106 added−49 removed89 unchanged
Biggest change(b) Refer to the "Financing activities" section below for an aggregate breakout of leverage. 59 The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2022 and 2021 ($ in thousands): December 31, 2022 December 31, 2021 Instrument Current Face Amortized Cost Unrealized Mark-to-Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Fair Value (1) Residential Investments Residential Mortgage Loans Non-Agency Loans $ 3,003,137 $ 3,059,975 $ (334,066) $ 2,725,909 5.21 % 5.00 % 9.71 $ 1,844,198 Agency-Eligible Loans 1,293,079 1,291,933 (163,618) 1,128,315 4.11 % 4.15 % 9.88 440,837 Re- and Non-Performing Loans 328,640 289,658 (15,285) 274,373 3.68 % 7.49 % 6.28 350,227 MATT Non-QM Loans — — — — — % — % — 11,839 Land Related Financing 10,688 10,688 — 10,688 14.50 % 14.50 % 0.09 16,891 Total Residential Mortgage Loans 4,635,544 4,652,254 (512,969) 4,139,285 4.82 % 4.96 % 9.49 2,663,992 Non-Agency RMBS Non-Agency Securities 14,894 14,693 (4,834) 9,859 4.34 % 4.60 % 12.21 14,600 Agency-Eligible Securities 16,819 10,145 (467) 9,678 3.22 % 8.47 % 14.06 — MATT Non-QM Bonds (4) 350,361 31,933 (866) 31,067 0.99 % 20.30 % 3.63 33,998 Re/Non-Performing Securities 33,809 7,971 (117) 7,854 3.11 % 14.00 % 1.68 9,904 Non-Agency RMBS Interest Only (5) 108,464 2,838 2,220 5,058 0.38 % 34.42 % 4.68 3,395 Total Non-Agency RMBS 524,347 67,580 (4,064) 63,516 1.17 % 16.41 % 4.30 61,897 Total Residential Investments 5,159,891 4,719,834 (517,033) 4,202,801 4.61 % 5.13 % 8.96 2,725,889 Agency RMBS: 30 Year Fixed Rate — — — — — % — % — 495,713 Interest Only 127,356 19,771 (647) 19,124 2.87 % 7.54 % 6.63 — Total Agency RMBS 127,356 19,771 (647) 19,124 2.87 % 7.54 % 6.63 495,713 Total: Investment Portfolio $ 5,287,247 $ 4,739,605 $ (517,680) $ 4,221,925 4.56 % 5.14 % 8.90 $ 3,221,602 Less: Investments in Debt and Equity of Affiliates Residential Mortgage Loans $ 10,688 $ 10,688 $ — $ 10,688 14.50 % 14.50 % 0.09 $ 28,886 Non-Agency RMBS $ 384,170 $ 39,904 $ (983) $ 38,921 1.31 % 19.03 % 3.45 $ 43,140 Total: GAAP Investment Portfolio $ 4,892,389 $ 4,689,013 $ (516,697) $ 4,172,316 4.69 % 4.99 % 9.34 $ 3,149,576 (1) Refer to Note 10 to the "Notes of the Consolidated Financial Statements" for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.
Biggest changeDecember 31, 2023 December 31, 2022 Instrument Current Face Amortized Cost Unrealized Mark-to-Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Fair Value (1) Residential Investments Residential Mortgage Loans Securitized Non-Agency Loans (4) $ 5,599,960 $ 5,567,710 $ (392,541) $ 5,175,169 5.19 % 5.51 % 10.37 $ 3,436,201 Securitized Re- and Non-Performing Loans 217,098 199,633 (16,521) 183,112 3.88 % 6.30 % 6.10 270,945 Non-Agency Loans 92,033 92,868 1,648 94,516 8.10 % 7.29 % 3.14 371,161 Agency-Eligible Loans 212,350 215,885 4,824 220,709 7.94 % 7.28 % 3.37 46,862 Re- and Non-Performing Loans 2,604 974 1,432 2,406 N/A 112.97 % 1.69 3,428 Land Related Financing — — — — — % — % — 10,688 Total Residential Mortgage Loans 6,124,045 6,077,070 (401,158) 5,675,912 5.28 % 5.68 % 9.86 4,139,285 Non-Agency RMBS GCAT Non-Agency RMBS (5) GCAT Non-Agency Securities 43,794 41,513 (8,971) 32,542 4.67 % 5.99 % 10.08 9,859 GCAT Non-Agency RMBS Interest Only (6) N/A 2,541 2,450 4,991 — % 37.74 % 5.21 5,058 MATT Non-QM Securities (6) 4,497 9,906 5,351 15,257 0.34 % 39.76 % 3.64 31,067 Re/Non-Performing Securities (6) 5,516 7,545 24 7,569 0.92 % 14.68 % 1.70 7,854 Total GCAT Non-Agency RMBS 53,807 61,505 (1,146) 60,359 1.01 % 18.24 % 4.42 53,838 Non-Agency Securities 82,390 48,991 2,015 51,006 4.99 % 9.11 % 16.21 9,678 Non-Agency RMBS Interest Only (6) N/A 1,116 (33) 1,083 0.35 % 16.04 % 2.61 — Total Non-Agency RMBS 136,197 111,612 836 112,448 1.50 % 14.08 % 5.48 63,516 Total Residential Investments 6,260,242 6,188,682 (400,322) 5,788,360 5.08 % 5.84 % 9.41 4,202,801 Agency RMBS Interest Only (6) N/A 16,714 (1,020) 15,694 3.74 % 10.20 % 6.54 19,124 Legacy WMC Commercial Investments (7) Commercial Loans 67,204 66,208 95 66,303 9.27 % 9.50 % 1.52 — CMBS 103,458 56,533 (184) 56,349 7.39 % 21.90 % 2.62 — Total Legacy WMC Commercial Investments 170,662 122,741 (89) 122,652 8.13 % 15.20 % 2.18 — Other Securities (8) N/A 1,174 (18) 1,156 N/A 18.16 % 7.33 — Total: Investment Portfolio $ 6,430,904 $ 6,329,311 $ (401,449) $ 5,927,862 5.06 % 6.05 % 9.20 $ 4,221,925 Less: Investments in Debt and Equity of Affiliates Residential Mortgage Loans $ — $ — $ — $ — — % — % — $ 10,688 Non-Agency RMBS $ 10,013 $ 17,451 $ 5,375 $ 22,826 0.43 % 31.44 % 3.47 $ 38,921 Total: GAAP Investment Portfolio $ 6,420,891 $ 6,311,860 $ (406,824) $ 5,905,036 5.19 % 5.95 % 9.69 $ 4,172,316 (1) Refer to Note 10 to the "Notes of the Consolidated Financial Statements" for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.
Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates. Our investment portfolio (which excludes our ownership in Arc Home) includes Residential Investments and Agency RMBS.
Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates. Our investment portfolio (which excludes our ownership in Arc Home) primarily includes Residential Investments and Agency RMBS.
We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain compensation expenses and other expenses relating to legal, accounting, and other services. Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to the Manager.
We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain compensation expenses and other expenses relating to legal, accounting, and other services. Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to our Manager or its affiliates.
The following is a description of our critical accounting estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations: Valuation of financial instruments We have elected the fair value option for the vast majority of our assets and liabilities for which such election is permitted, as provided for under ASC 825, Financial Instruments ("ASC 825").
The following is a description of our critical accounting estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations: 77 Valuation of financial instruments We have elected the fair value option for the vast majority of our assets and liabilities for which such election is permitted, as provided for under ASC 825, Financial Instruments ("ASC 825").
We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities.
We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("TPG Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities.
(2) The earnings/(loss) at AG Arc during the year ended December 31, 2022 were primarily the result of $(5.5) million of losses related to Arc Home's lending and servicing operations, offset by $3.4 million related to changes in the fair value of the MSR portfolio held by Arc Home.
The earnings/(loss) at AG Arc during the year ended December 31, 2022 were primarily the result of $(5.5) million of losses related to Arc Home's lending and servicing operations, offset by $3.4 million related to changes in the fair value of the MSR portfolio held by Arc Home.
Investments in debt and equity of affiliates are accounted for using the equity method of accounting. Certain of our investments in debt and equity of affiliates securitize residential mortgage loans and retain interests in the subordinated tranches of the transferred assets. These retained interests are included in the MATT Non-QM Loans and Re/Non-Performing Loans line items of our investment portfolio.
Investments in debt and equity of affiliates are accounted for using the equity method of accounting. Certain of our investments in debt and equity of affiliates securitize residential mortgage loans and retain interests in the subordinated tranches of the transferred assets. These retained interests are included in the MATT Non-QM Securities and Re/Non-Performing Securities line items of our investment portfolio.
Lenders also issue margin calls as the published current principal balance factors change on the pool 65 of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly. We experience margin calls in the ordinary course of our business.
Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly. We experience margin calls in the ordinary course of our business.
Our risks associated with our involvement with these VIEs are limited to 71 our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller to the securitization entities.
Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller to the securitization entities.
The significant unobservable inputs used in the fair value measurement of our financial instruments are yields, prepayment rates, probability of default, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in 70 isolation would result in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of our financial instruments are yields, prepayment rates, probability of default, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement.
Management views the exclusion described in (iv) above to be consistent with how it calculates EAD on the remainder of its portfolio. Management excludes all deferred taxes because it believes deferred taxes are not 57 representative of current operations.
Management views the exclusion described in (iv) above to be consistent with how it calculates EAD on the remainder of its portfolio. Management excludes all deferred taxes because it believes deferred taxes are not representative of current operations.
Both the 40% Test and the requirements of the Section 3(c)(5)(C) exclusion limit the types of businesses in which we may engage and the types of assets we may hold, as well as the timing of sales and purchases of assets.
Both the 40% Test and the requirements of the Section 3(c)(5)(C) exclusion limit the types of businesses 80 in which we may engage and the types of assets we may hold, as well as the timing of sales and purchases of assets.
On August 3, 2022, our Board of Directors authorized a stock repurchase program (the "2022 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2015 Repurchase Program.
Stock repurchase programs On August 3, 2022, our Board of Directors authorized a stock repurchase program (the "2022 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2015 Repurchase Program.
See Note 11 in the "Notes to Consolidated Financial Statements" for additional details on the shares repurchased under the 2022 Repurchase Program during the year ended December 31, 2022.
See Note 11 in the "Notes to Consolidated Financial Statements" for additional details on the shares repurchased under the 2022 Repurchase Program during the year ended December 31, 2023.
Although our estimates contemplate conditions as of December 31, 2022 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in arriving at those estimates, which could materially affect reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented.
Although our estimates contemplate conditions as of December 31, 2023 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in arriving at those estimates, which could materially affect reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented.
Refer to Note 5 to the "Notes to Consolidated Financial Statements" in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our assets and liabilities accounted for at fair value at December 31, 2022, including the significant inputs used to estimate their fair values and the impact the changes in their fair values had to our financial condition and results of operations.
Refer to Note 5 to the "Notes to Consolidated Financial Statements" in Part II, Item 8 of this Annual Report on Form 10-K, for additional information on our assets and liabilities accounted for at fair value at December 31, 2023, including the significant inputs used to estimate their fair values and the impact the changes in their fair values had to our financial condition and results of operations.
The 2022 Repurchase Program does not have an expiration date and permits us to repurchase its shares through 66 various methods, including open market repurchases, privately negotiated block transactions and Rule 10b5-1 plans. We may repurchase shares of our common stock from time to time in compliance with SEC regulations and other legal requirements.
The 2022 Repurchase Program does not have an expiration date and permits us to repurchase our shares through various methods, including open market repurchases, privately negotiated block transactions and Rule 10b5-1 plans. We may repurchase shares of our common stock from time to time in compliance with SEC regulations and other legal requirements.
Our reimbursement obligation is not subject to any dollar limitation; however, reimbursements are subject to an annual budget process which combines guidelines from the Management Agreement with oversight by our Board of Directors and discussions with our Manager. The below table details the expense reimbursement incurred during the years ended December 31, 2022 and 2021 (in thousands).
Our reimbursement obligation is not subject to any dollar limitation; however, reimbursements are subject to an annual budget process which combines guidelines from the management agreement with oversight by our Board of Directors and discussions with our Manager. The below table details the expense reimbursement incurred during the years ended December 31, 2023 and 2022 (in thousands).
To the extent that we fail to comply with the covenants contained in these financing arrangements or is otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement. As of December 31, 2022, we are in compliance with all of our financial covenants.
To the extent that we fail to comply with the covenants contained in these financing arrangements or is otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement. As of December 31, 2023, we are in compliance with all of our financial covenants.
We define EAD, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on loans, real estate securities, derivatives and other investments, inclusive of our investment in AG Arc, and (b) net realized gains/(losses) on the sale or termination of such instruments, (ii) any transaction related expenses incurred in connection with the acquisition, disposition, or securitization of our investments, (iii) accrued deal-related performance fees payable to third party operators to the extent the primary component of the accrual relates to items that are excluded from EAD, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, and (vi) any gains/(losses) associated with exchange transactions on our common and preferred stock.
We define EAD, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on loans, real estate securities, derivatives and other investments, inclusive of our investment in AG Arc, and (b) net realized gains/(losses) on the sale or termination of such instruments, (ii) any transaction related expenses incurred in connection with the acquisition, disposition, or securitization of our investments as well as transaction related expenses incurred in connection with the WMC acquisition, (iii) accrued deal-related performance fees payable to third party operators to the extent the primary component of the accrual relates to items that are excluded from EAD, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, (vi) any gains/(losses) associated with exchange transactions on our common and preferred stock, and (vii) any bargain purchase gains recognized.
See Notes 2 and 10 to the "Notes to Consolidated Financial 49 Statements" for a discussion of investments in debt and equity of affiliates.
See Notes 2 and 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.
See Notes 2 and 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments i n debt and equity of affiliates. We record TBA purchases and sales on the trade date and present the purchase or receipt net of the corresponding payable or receivable until the settlement date of the transaction.
See Note 10 to the "Notes to Consolidated Financial Statements" for a discussion of investments i n debt and equity of affiliates. We record TBA purchases and sales on the trade date and present the purchase or receipt net of the corresponding payable or receivable until the settlement date of the transaction.
For additional information on our commitments as of December 31, 2022, refer to Note 12 of the "Notes to Consolidated Financial Statements." We do not expect these commitments, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations.
For additional information on our commitments as of December 31, 2023, refer to Note 12 of the "Notes to Consolidated Financial Statements." We do not expect these commitments, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations.
We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf associated with our investment portfolio. The following table presents a summary of our investment related expenses for the years ended December 31, 2022 and 2021 (in thousands).
We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf associated with our investment portfolio. The following table presents a summary of our investment related expenses for the years ended December 31, 2023 and 2022 (in thousands).
Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements. The below table details the management fees incurred during the years ended December 31, 2022 and 2021 (in thousands).
Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements. The below table details the management fees incurred during the years ended December 31, 2023 and 2022 (in thousands).
The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost, which is the weighted average of the net pay or receive rates on our 56 interest rate swaps.
The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost or benefit, which is the weighted average of the net pay or receive rates on our interest rate swaps.
EAD include the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income/(loss) or any other investment activity that may earn or pay net interest or its economic equivalent.
EAD includes the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income/(loss) or any other investment activity that may earn or pay net interest or its economic equivalent.
Items (i) through (vi) above include any amount related to those items held in affiliated entities. Management considers the transaction related expenses referenced in (ii) above to be similar to realized losses incurred at the acquisition, disposition, or securitization of an asset and does not view them as being part of its core operations.
Items (i) through (vii) above include any amount related to those items held in affiliated entities. Management considers the transaction related expenses referenced in (ii) above 61 to be similar to realized losses incurred at the acquisition, disposition, or securitization of an asset and does not view them as being part of its core operations.
Interest income increased from December 31, 2021 to December 31, 2022 primarily due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period.
Interest income increased from December 31, 2022 to December 31, 2023 primarily due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period.
As further discussed in Note 2 of the "Notes to Consolidated Financial Statements," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS and interest-only securities) and mortgage loans accounted for under ASC 310-10.
As further discussed in Note 2 of the "Notes to Consolidated Financial Statements," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an 78 adjustment of the yield over the remaining life of the investment for securities accounted for under ASC 325-40 and mortgage loans accounted for under ASC 310-10.
Equity distribution agreements We have entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933.
Equity distribution agreements On May 5, 2017, we entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933.
These expenses increased from the year ended December 31, 2021 to the year ended December 31, 2022 primarily due to an increase in our GAAP residential mortgage loan portfolio.
These expenses increased from the year ended December 31, 2022 to the year ended December 31, 2023 primarily due to an increase in our GAAP residential mortgage loan portfolio.
Undistributed taxable income is based on current estimates and is not finalized until we file our annual tax return for that tax year, typically in October of the following year. We did not have any undistributed taxable income as of December 31, 2022.
Undistributed taxable income is based on current estimates and is not finalized until we file our annual 72 tax return for that tax year, typically in October of the following year. We did not have any undistributed taxable income as of December 31, 2023.
The following table presents a summary of our non-investment related expenses for the years ended December 31, 2022 and 2021 (in thousands).
The following table presents a summary of our non-investment related expenses for the years ended December 31, 2023 and 2022 (in thousands).
Repurchase agreements typically have a term of up to one year for loans and a term of 30 to 90 days for securities. Repurchase agreements are generally mark-to-market with respect to margin calls and recourse to us. We had outstanding financing arrangements with six and five counterparties as of December 31, 2022 and 2021, respectively.
Repurchase agreements typically have a term of up to one year for loans and a term of 30 to 90 days for securities. Repurchase agreements are generally mark-to-market with respect to margin calls and recourse to us. We had outstanding financing arrangements with seven and six counterparties as of December 31, 2023 and 2022, respectively.
Refer to Note 7 to the "Notes to Consolidated Financial Statements" for additional detail on TBAs as of December 31, 2022 , if applicable.
Refer to Note 7 to the "Notes to Consolidated Financial Statements" for additional detail on TBAs as of December 31, 2023 , if applicable.
(4) The earnings recognized by AG Arc do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us. Refer to Note 2 to the "Notes to Consolidated Financial Statements" for more information on this accounting policy.
(3) The earnings recognized by AG Arc do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us. Refer to Note 2 and Note 10 to the "Notes to Consolidated Financial Statements" for more information on this accounting policy.
Unfunded commitments See Note 12 of the "Notes to Consolidated Financial Statements" for details on our commitments as of December 31, 2022. 69 Off-balance sheet arrangements Our investments in debt and equity of affiliates primarily consist of loans, real estate securities, and our interest in AG Arc.
Unfunded commitments See Note 12 of the "Notes to Consolidated Financial Statements" for details on our commitments as of December 31, 2023. Off-balance sheet arrangements Our investments in debt and equity of affiliates primarily consist of real estate securities and our interest in AG Arc.
As of December 31, 2022 and 2021, we recorded a reimbursement payable to our Manager or its affiliates of $1.3 million and $2.1 million, respectively. The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" item within the "Other liabilities" line item on the consolidated balance sheets.
As of December 31, 2023 and 2022, we recorded a reimbursement payable to our Manager or its affiliates of $1.5 million and $1.3 million, respectively. The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" line item within the "Other liabilities" line item on the consolidated balance sheets.
As of December 31, 2022, there were no shares or awards issued under the 2021 Manager Plan.
As of December 31, 2023, there were no shares or awards issued under the 2021 Manager Plan.
For additional information related to our significant accounting policies and the recent accounting pronouncements that may impact our results of operations, see Note 2 to the "Notes to Consolidated Financial Statements." We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period.
For additional information related to our significant accounting policies, see Note 2 to the "Notes to Consolidated Financial Statements." We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period.
Critical accounting policies Our most critical accounting policies include (i) Valuation of financial instruments, (ii) Accounting for loans, (iii) Accounting for real estate securities, (iv) Interest income recognition, (v) Financing arrangements, and (vi) Investment consolidation.
Critical accounting policies and estimates Our most critical accounting policies include (i) Valuation of financial instruments, (ii) Accounting for loans, (iii) Accounting for real estate securities, (iv) Interest income recognition, (v) Financing arrangements, (vi) Investment consolidation, and (vii) Accounting for business combinations.
(2) Cash used in investing activities for the year ended December 31, 2022 was primarily attributable to purchases of investments, offset by sales of investments, principal repayments on investments, and the settlement of derivatives.
(2) Cash used in investing activities for the year ended December 31, 2023 was primarily attributable to purchases of investments, offset by sales of investments and principal repayments on investments.
The realized gain during the year ended December 31, 2022 was driven by unwinding pay-fix, receive-variable interest rate swaps which were previously held at unrealized gains as a result of rising interest rates. This was offset by realized losses on sales of Agency RMBS and residential mortgage loans.
The realized gain during the year ended December 31, 2023 was driven by unwinding pay-fix, receive-variable interest rate swaps which were previously held at unrealized gains as a result of rising interest rates. This was offset by realized losses on sales of residential mortgage loans and real estate securities.
Financing activities We use leverage to finance the purchase of our investment portfolio. Our leverage has primarily been in the form of repurchase agreements and similar financing arrangements (which we refer to collectively as financing arrangements), and securitized debt. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date.
Our leverage has primarily been in the form of repurchase agreements and similar financing arrangements (which we refer to collectively as financing arrangements), and securitized debt. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date.
(2) For the year ended December 31, 2022 and 2021, $9.2 million or $0.40 per share and $2.5 million or $0.15 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights, changes in the fair value of corresponding derivatives, and other asset impairments were excluded from EAD, net of deferred tax expense.
(2) For the years ended December 31, 2023 and 2022, $(0.3) million or $(0.01) per share and $9.2 million or $0.40 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights, changes in the fair value of corresponding derivatives, and other asset impairments were excluded from EAD, net of deferred tax expense.
Our assets held through Investments in debt and equity of affiliates are included in the "MATT Non-QM Loans," "Land Related Financing," "MATT Non-QM Bonds," and "Re/Non-Performing Securities" line items above. (2) Equity residuals with a zero coupon rate are excluded from this calculation. (3) Weighted average life is based on projected life.
Our assets held through Investments in debt and equity of affiliates are included in the "Land Related Financing," "MATT Non-QM Securities," and "Re/Non-Performing Securities" line items above. (2) Equity residuals with a zero coupon rate are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities.
Additionally, for the year ended December 31, 2022 and 2021, $(5.6) million or $(0.24) per share and $0.6 million or $0.04 per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.
Additionally, for the years ended December 31, 2023 and 2022, $(1.5) million or $(0.07) per share and $(5.6) million or $(0.24) per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.
December 31, 2022 December 31, 2021 Book value per common share $ 11.39 $ 14.64 Net proceeds of preferred stock less liquidation preference of preferred stock per common share (1) (0.36) (0.32) Adjusted book value per common share $ 11.03 $ 14.32 (1) Book value per common share is calculated using stockholders’ equity less net proceeds of $220.5 million on our issued and outstanding preferred stock as the numerator.
December 31, 2023 December 31, 2022 Book value per common share $ 10.46 $ 11.39 Net proceeds of preferred stock less liquidation preference of preferred stock per common share (1) (0.26) (0.36) Adjusted book value per common share $ 10.20 $ 11.03 (1) Book value per common share is calculated using stockholders’ equity less net proceeds of $220.5 million on our issued and outstanding preferred stock as the numerator.
We define Economic Leverage, a non-GAAP metric, as the sum of: (i) our GAAP leverage, exclusive of any fully non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, net of any restricted cash posted on such financing arrangements, exclusive of any financing utilized through AG Arc, any adjustment related to unsettled trades as described in (2) in the previous sentence, and any non-recourse financing arrangements and (iii) our net TBA position (at cost), if any.
We define Economic Leverage, a non-GAAP metric, as the sum of: (i) our GAAP leverage, exclusive of any fully non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, net of any restricted cash posted on such financing arrangements, exclusive of any financing utilized through AG Arc, any adjustment related to unsettled trades as described in (4) in the previous sentence, and any non-recourse financing arrangements and (iii) our net TBA position (at cost), if any. 71 The calculations in the tables below divide GAAP leverage and Economic Leverage by our GAAP stockholders’ equity to derive our leverage ratios.
(3) Cash provided by financing activities for the year ended December 31, 2022 was primarily attributable to issuance of securitized debt, offset by net repayments of financing arrangements, dividend payments, and common share repurchases.
(3) Cash provided by financing activities for the year ended December 31, 2023 was primarily attributable to the issuance of securitized debt, offset by principal repayments on securitized debt, net repayments of repurchase agreements, dividend payments, and common share repurchases.
Earnings Available for Distribution One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Earnings Available for Distribution ("EAD"), as one of several metrics, to help measure our performance against this objective. EAD replaces our prior presentation of Core Earnings with no changes to the definition.
Earnings Available for Distribution One of our objectives is to generate net income from net interest margin on the portfolio, and management uses EAD, as one of several metrics, to help measure our performance against this objective.
The 2022 Repurchase Program does not obligate us to acquire any particular amount of shares and may be modified or discontinued at any time. As of December 31, 2022, approximately $7.8 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.
The 2022 Repurchase Program does not obligate us to acquire any particular amount of shares and may be modified or discontinued at any time. As of the date of this filing, approximately $1.5 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.
The weighted average cost of our GAAP residential mortgage loan portfolio increased by $2.7 billion from $1.2 billion for the year ended December 31, 2021 to $3.9 billion for the year ended December 31, 2022 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.
The weighted average cost of our GAAP residential mortgage loan portfolio increased by $0.9 billion from $3.9 billion for the year ended December 31, 2022 to $4.8 billion for the year ended December 31, 2023 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.
Year Ended Consolidated statements of operations line item: December 31, 2022 December 31, 2021 Non-investment related expenses (1) $ 4,646 $ 4,322 Investment related expenses 755 1,157 Transaction related expenses 2,757 841 Expense reimbursements to Manager or its affiliates $ 8,158 $ 6,320 (1) For the years ended December 31, 2022 and December 31, 2021, our Manager agreed to waive its right to receive expense reimbursements of $1.5 million and $0.8 million, respectively.
Year Ended Consolidated statements of operations line item: December 31, 2023 December 31, 2022 Non-investment related expenses (1) $ 5,095 $ 4,646 Investment related expenses 467 755 Transaction related expenses 896 2,757 Expense reimbursements to Manager or its affiliates $ 6,458 $ 8,158 (1) For the years ended December 31, 2023 and December 31, 2022, our Manager agreed to waive its right to receive expense reimbursements of $1.7 million million and $1.5 million, respectively.
Our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the available capacity to finance our assets, and anticipated regulatory developments. See the "Financing activities" section below for more detail on our leverage ratio.
Our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the available capacity to finance our assets, and anticipated regulatory developments.
Contractual obligations Management agreement The management agreement, as amended, provides for payment to the Manager of a management fee, an incentive fee, and reimbursements of certain expenses incurred by the Manager or its affiliates on behalf of us.
Contractual obligations Management agreement The management agreement, as amended, provides for payment to the Manager of a management fee, an incentive fee, and reimbursements of certain expenses incurred by the Manager or its affiliates on behalf of us. Pursuant to our management agreement, the closing of the TPG Transaction resulted in an assignment of the management agreement.
Our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans. We finance our acquired loans through various financing lines on a short-term basis and securitize the loans to obtain long-term, non-recourse, non-mark-to-market financing as market conditions permit. We may also invest in Agency RMBS to utilize excess liquidity.
We finance our acquired loans through various financing lines on a short-term basis and securitize the loans to obtain long-term, non-recourse, non-mark-to-market financing as market conditions permit. We may also invest in Agency RMBS to utilize excess liquidity.
For the year ended December 31, 2022 and 2021, we eliminated $6.0 million or $0.26 per share and $5.3 million or $0.33 per share of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount.
For the years ended December 31, 2023 and 2022, we eliminated $1.4 million or $0.07 per share and $6.0 million or $0.26 per share of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount.
Provided that we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
Common Stock Issuance to the Manager Refer to "Contractual obligations–Management agreement" below for more detail related to the Second Management Agreement Amendment. 67 Forward-looking statements regarding liquidity Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operations and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.
Forward-looking statements regarding liquidity Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operating activities, financing activities, and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.
See the "Contractual obligations" section of this Part II, Item 7 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity.
Management fee to affiliate Our management fee is based upon a percentage of our Stockholders’ Equity. See the "Contractual obligations" section of this Part II, Item 7 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity.
Expense Reimbursement Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us.
As of December 31, 2023 and December 31, 2022, no event of termination of the management agreement had occurred. Expense Reimbursement Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us.
Currently, our Residential Investments primarily consist of newly originated Non-Agency Loans and Agency-Eligible Loans, which we refer to as our target assets. In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets. We were incorporated in Maryland on March 1, 2011 and commenced operations in July 2011.
Currently, our Residential Investments primarily consist of newly originated Non-Agency Loans and Agency-Eligible Loans, which we refer to as our target assets. In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets.
(3) Refer to the table below for a breakout of changes in earnings from AG Arc. 55 The below table further disaggregates our "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).
(3) Refer to the table below for additional detail on the earnings/(loss) generated from our investment in AG Arc. 60 The below table further disaggregates our "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).
Non-investment related expenses Non-investment related expenses is primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to the Manager.
Non-investment related expenses Non-investment related expenses are primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to our Manager or its affiliates.
We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act. We are externally managed by our Manager, an affiliate of Angelo Gordon, pursuant to a management agreement.
We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act. We are externally managed by our Manager, an affiliate of TPG Angelo Gordon, pursuant to a management agreement. Our Manager has delegated to TPG Angelo Gordon, a diversified credit and real estate investing platform within TPG Inc.
At December 31, 2022, we had $86.7 million of liquidity, which consisted of $84.6 million of cash and $2.1 million of unencumbered Agency RMBS available to support our liquidity needs. Refer to the "Contractual obligations" section of this Part II, Item 7 for additional obligations that could impact our liquidity.
At December 31, 2023, we had $112.3 million of liquidity, which consisted of $111.5 million of cash and $0.8 million of unencumbered Agency RMBS available to support our liquidity needs. Refer to the "Contractual obligations" section of this Part II, Item 7 for additional obligations that could impact our liquidity.
Year Ended December 31, 2022 December 31, 2021 Sales of residential mortgage loans and loans transferred to or sold from Other assets $ (2,958) $ 6,374 Sales of real estate securities (34,504) (6,088) Settlement of derivatives and other instruments 118,851 3,930 Sales of commercial loans — (2,518) Total Net realized gain/(loss) $ 81,389 $ 1,698 53 Net unrealized gain/(loss) The following table presents a summary of Net unrealized gain/(loss) for the years ended December 31, 2022 and 2021 (in thousands).
Year Ended December 31, 2023 December 31, 2022 Sales of residential mortgage loans and loans transferred to or sold from Other assets $ (12,079) $ (2,958) Sales of real estate securities (1,558) (34,504) Settlement of derivatives and other instruments 21,334 118,851 Total Net realized gain/(loss) $ 7,697 $ 81,389 58 Net unrealized gain/(loss) The following table presents a summary of net unrealized gain/(loss) for the years ended December 31, 2023 and 2022 (in thousands).
Book value and Adjusted book value per share The below table details book value and adjusted book value per common share. Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of quarter-end.
Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of year-end.
Results of Operations for the Fiscal Year 2022 and 2021 Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our investments in residential mortgage loans in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose residential mortgage loans are included in our investment portfolio and other unanticipated events in our markets.
Adjusted book value per common share is calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock as the numerator. 56 Results of Operations for the Fiscal Year 2023 and 2022 Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our investments in residential mortgage loans in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose residential mortgage loans are included in our investment portfolio and other unanticipated events in our markets.
Year Ended December 31, 2022 December 31, 2021 Affiliate reimbursement (1) $ 4,646 $ 4,322 Professional Fees 1,993 2,409 D&O insurance 1,236 1,465 Directors' compensation 681 672 Other 736 877 Total Non-investment related expenses $ 9,292 $ 9,745 (1) For the years ended December 31, 2022 and December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $1.5 million and $0.8 million, respectively. 54 Investment related expenses Investment related expenses is primarily comprised of servicing fees, asset management fees, and certain investment related expenses reimbursable to the Manager.
Year Ended December 31, 2023 December 31, 2022 Affiliate reimbursement (1) $ 5,095 $ 4,646 Professional Fees 2,191 1,993 D&O insurance 1,086 1,236 Directors' compensation 745 681 Other 960 736 Total Non-investment related expenses $ 10,077 $ 9,292 (1) For the years ended December 31, 2023 and 2022, the Manager agreed to waive its right to receive expense reimbursements of $1.7 million and $1.5 million, respectively. 59 Investment related expenses Investment related expenses are primarily comprised of servicing fees, asset management fees, and certain investment related expenses reimbursable to the Manager or its affiliates.
Management fee The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum.
The MITT Management Agreement Amendment became effective automatically upon the closing of the Merger. Management fee The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum.
Year Ended December 31, 2022 December 31, 2021 Affiliate reimbursement $ 755 $ 1,157 Servicing fees (1) 4,030 3,188 Residential mortgage loan asset management fees (1) 2,595 1,549 Trustee and bank fees 998 250 Other 820 656 Total Investment related expenses $ 9,198 $ 6,800 (1) We incur servicing fees and asset management fees in connection with our residential mortgage loans.
Year Ended December 31, 2023 December 31, 2022 Affiliate reimbursement $ 467 $ 755 Servicing fees (1) 4,437 4,030 Residential mortgage loan asset management fees (1) 2,655 2,595 Trustee and bank fees (1) 1,644 998 Other 605 820 Total Investment related expenses $ 9,808 $ 9,198 (1) We incur servicing fees, asset management fees, and trustee and bank fees in connection with our residential mortgage loans.
December 31, 2022 December 31, 2021 Increase/(Decrease) Interest rate swap notional value $ 335.0 $ 888.5 $ (553.5) Weighted average receive-variable rate 4.30 % 0.15 % 4.15 % Weighted average pay-fix rate 2.77 % 0.85 % 1.92 % Net realized gain/(loss) The following table presents a summary of Net realized gain/(loss) for the years ended December 31, 2022 and 2021 (in thousands).
December 31, 2023 December 31, 2022 Increase/(Decrease) Interest rate swap notional value $ 503 $ 335 $ 168 Weighted average receive-variable rate 5.38 % 4.30 % 1.08 % Weighted average pay-fix rate 3.65 % 2.77 % 0.88 % Net weighted average (pay)/receive rate 1.73 % 1.53 % 0.20 % Net realized gain/(loss) The following table presents a summary of Net realized gain/(loss) for the years ended December 31, 2023 and 2022 (in thousands).
Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code, relating to, among other things, the sources of our gross income and the composition and values of our assets (which, based on the types of assets we own, can fluctuate rapidly, significantly and unpredictably), our distribution levels and the diversity of ownership of our shares.
Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares.
Year Ended December 31, 2022 December 31, 2021 Increase/(Decrease) Weighted average GAAP financing balance $ 3,655 $ 1,712 $ 1,943 Weighted average financing rate on our GAAP investment portfolio 3.25 % 1.59 % 1.66 % Net interest component of interest rate swaps Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps.
Year Ended December 31, 2023 December 31, 2022 Increase/(Decrease) Weighted average GAAP financing balance $ 4,635 $ 3,655 $ 980 Weighted average financing rate 4.58 % 3.25 % 1.33 % Net interest component of interest rate swaps Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps.
Since inception of the program, we have issued approximately 2.2 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $48.3 million.
For the year ended December 31, 2023, we did not issue any shares of common stock 74 under the Equity Distribution Agreements. Since inception of the program, we have issued approximately 2.2 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $48.3 million.
The following table presents a summary of the weighted average swap notional value for the years ended December 31, 2022 and 2021 ($ in millions).
The following table presents a summary of the weighted average financing balance and the weighted average financing rate for the years ended December 31, 2023 and 2022 ($ in millions).
See Note 3 to the "Notes to Consolidated Financial Statements" for a breakout of geographic concentration of credit risk within loans we include in the "Securitized residential mortgage loans, at fair value" and "Residential mortgage loans, at fair value" line items on our consolidated balance sheets.
(8) Other securities include residual interests in asset-backed securities which have no principal balance. 66 Residential mortgage loans See Note 3 to the "Notes to Consolidated Financial Statements" for information on credit quality and a breakout of geographic concentration of credit risk within loans we include in the "Securitized residential mortgage loans, at fair value," "Residential mortgage loans, at fair value," and "Residential mortgage loans held for sale, at fair value" line items on our consolidated balance sheets.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeChange in Interest Rates (basis points) (1)(2) Change in Fair Value as a Percentage of GAAP Equity (3) Change in Fair Value as a Percentage of Assets (3) Percentage Change in Projected Net Interest Income (4) +75 (6.0) % (0.6) % (2.3) % +50 (4.0) % (0.4) % (1.5) % +25 (2.0) % (0.2) % (0.8) % -25 2.1 % 0.2 % 0.7 % -50 4.3 % 0.5 % 1.5 % -75 6.5 % 0.7 % 2.2 % (1) Includes investments held through affiliated entities that are reported as "Investments in debt and equity of affiliates" on our consolidated balance sheet, but excludes AG Arc.
Biggest changeIn addition, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio as of December 31, 2023, our Manager may from time to time sell any of our investments as a part of the overall management of our investment portfolio. 82 Change in Interest Rates (basis points) (1)(2) Change in Fair Value as a Percentage of GAAP Equity (3) Change in Fair Value as a Percentage of Assets (3) Percentage Change in Projected Net Interest Income (4) 75 (5.0) % (0.4) % 1.3 % 50 (3.4) % (0.3) % 1.0 % 25 (1.7) % (0.1) % 0.6 % (25) 1.7 % 0.1 % (0.6) % (50) 3.5 % 0.3 % (1.1) % (75) 5.4 % 0.5 % (1.5) % (1) Includes investments held through affiliated entities that are reported as "Investments in debt and equity of affiliates" on our consolidated balance sheet, but excludes AG Arc.
Should the fair value of our real estate securities or mortgage loans pledged as collateral decrease (as a result of rising interest rates, changes in prepayment speeds, widening of credit spreads or otherwise), we will likely be subject to margin calls for additional collateral from our financing counterparties.
Should the fair value of our mortgage loans or real estate securities pledged as collateral decrease (as a result of rising interest rates, changes in prepayment speeds, widening of credit spreads or otherwise), we will likely be subject to margin calls for additional collateral from our financing counterparties.
Should the fair value of our real estate securities or mortgage loans decrease materially and suddenly, margin calls will likely increase causing an adverse change to our liquidity position which could result in substantial losses.
Should the fair value of our mortgage loans or real estate securities decrease materially and suddenly, margin calls will likely increase causing an adverse change to our liquidity position which could result in substantial losses.
If prepayments are slower or faster than assumed, the life of the real estate securities or mortgage loans will be longer or shorter than assumed, respectively, which could reduce the effectiveness of our Manager’s hedging strategies and may cause losses on such transactions.
If prepayments are slower or faster than assumed, the life of the real estate securities or 84 mortgage loans will be longer or shorter than assumed, respectively, which could reduce the effectiveness of our Manager’s hedging strategies and may cause losses on such transactions.
Collateral posted to meet initial margin requirements is intended to create a safety buffer to benefit our counterparties if we were to default on our payment obligations under the terms of the swaps and our counterparties were forced to unwind the swap.
Collateral posted to meet initial margin requirements is intended to create a safety buffer to benefit our counterparties if we were to default on our payment obligations under the terms of the swaps and our counterparties 83 were forced to unwind the swap.
(2) Does not include cash investments, which typically have overnight maturities and are not expected to change in value as interest rates change. (3) Changes in fair value as a percentage of GAAP equity and assets are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of December 31, 2022.
(2) Does not include cash investments, which typically have overnight maturities and are not expected to change in value as interest rates change. (3) Changes in fair value as a percentage of GAAP equity and assets are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of December 31, 2023.
This is 73 because fixed-rate coupon assets tend to have significantly more duration, or price sensitivity to changes in interest rates, than floating-rate coupon assets. Fixed-rate assets currently represent a majority of our portfolio. The fair value of our investment portfolio could change at a different rate than the fair value of our liabilities when interest rates change.
This is 81 because fixed-rate coupon assets tend to have significantly more duration, or price sensitivity to changes in interest rates, than floating-rate coupon assets. Fixed-rate assets currently represent a majority of our portfolio. The fair value of our investment portfolio could change at a different rate than the fair value of our liabilities when interest rates change.
(4) Interest income includes trades settled as of December 31, 2022. 74 The information set forth in the interest rate sensitivity table above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
(4) Interest income includes trades settled as of December 31, 2023. The information set forth in the interest rate sensitivity table above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise. 77
We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise. 85
Decreases in property values could cause us to suffer losses and reduce the value of the collateral underlying our RMBS portfolio as well as the potential sale proceeds available to 75 repay our loans in the event of a default.
Decreases in property values could cause us to suffer losses and reduce the value of the collateral underlying our investment portfolio as well as the potential sale proceeds available to repay our loans in the event of a default.
As further discussed in Note 2 of the "Notes to Consolidated Financial Statements," differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS and interest-only securities) and mortgage loans accounted for under ASC 310-10.
Differences between previously estimated cash flows and current actual and anticipated cash flows caused by changes to prepayment or other assumptions are adjusted retrospectively through a "catch up" adjustment for the impact of the cumulative change in the effective yield through the reporting date for securities accounted for under ASC 320-10 (generally, Agency RMBS) or adjusted prospectively through an adjustment of the yield over the remaining life of the investment for investments accounted for under ASC 325-40 (generally, Non-Agency RMBS and interest-only securities) and mortgage loans accounted for under ASC 310-10.
Many of these risks have become particularly heightened due to sustained inflation, rising mortgage rates, the Federal Reserve's monetary policy actions, and the COVID-19 pandemic. Interest rate risk Interest rate risk is highly sensitive to many factors, including governmental monetary, fiscal and tax policies, domestic and international economic and political considerations and other factors beyond our control.
Many of these risks have become particularly heightened due to sustained inflation, rising mortgage rates, the Federal Reserve's monetary policy actions, and market uncertainty from geopolitical risks. Interest rate risk Interest rate risk is highly sensitive to many factors, including governmental monetary, fiscal and tax policies, domestic and international economic and political considerations and other factors beyond our control.
The base interest rate scenario assumes spot and forward interest rates existing as of December 31, 2022. Actual results could differ materially from these estimates. Agency RMBS and GSE Non-Owner Occupied Loan assumptions attempt to predict default and prepayment activity at projected interest rate levels.
The base interest rate scenario assumes spot and forward interest rates existing as of December 31, 2023. Actual results could differ materially from these estimates. Agency RMBS and Agency-Eligible Loan assumptions attempt to predict default and prepayment activity at projected interest rate levels.
(3) Residential Investments are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of December 31, 2022.
(2) Duration does not include our investment in AG Arc LLC. (3) Residential Investments are inclusive of forward purchase commitments to acquire Non-Agency Loans and Agency-Eligible Loans as of December 31, 2023.
Consequently, while we use interest rate swaps and other hedges to protect against moves in interest rates, such instruments will generally not protect our net book value against basis risk. 76 Capital Market Risk We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Consequently, while we use interest rate swaps and other hedges to protect against moves in interest rates, such instruments will generally not protect our net book value against basis risk.
The following chart details information about our duration gap as of December 31, 2022: Duration (1)(2) Years Agency RMBS (0.01) Residential Loans (3) 5.12 Hedges (1.45) Duration Gap 3.66 (1) Duration related to financing arrangements is netted within its respective line items. (2) Duration does not include our investment in AG Arc LLC.
The following chart details information about our duration gap as of December 31, 2023: Duration (1)(2) Years Agency RMBS (0.09) TBA (0.01) Agency RMBS subtotal (0.10) Securitized Residential Mortgage Loans 3.44 Real Estate Securities and Legacy WMC Commercial Loans 0.33 Hedges on securitized products (0.55) Securitized products subtotal 3.22 Residential Mortgage Loans (3) 0.47 Hedges on Residential Mortgage Loans (0.83) Residential Mortgage Loans subtotal (0.36) Legacy WMC Convertible Notes (0.04) Total 2.72 (1) Duration related to financing arrangements is netted within its respective line items.
Removed
In addition, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio as of December 31, 2022, our Manager may from time to time sell any of our investments as a part of the overall management of our investment portfolio.
Added
Capital Market Risk We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.

Other MITN 10-K year-over-year comparisons