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What changed in Cherry Hill Mortgage Investment Corp's 10-K — 2023 vs 2024

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

+285 added−378 removedSource: 10-K (2025-03-06) vs 10-K (2024-03-07)

Top changes in Cherry Hill Mortgage Investment Corp's 2024 10-K

285 paragraphs added · 378 removed · 211 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

21 edited+13 added−20 removed46 unchanged
Biggest changeWe expect that most of our assets will be held in wholly-owned or majority-owned subsidiaries of our Operating Partnership and that most of these subsidiaries will rely on the exception from the definitions of investment company provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities that, among other requirements, are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate”.
Biggest changeWe also believe that neither we nor our Operating Partnership is considered an investment company under Section 3(a)(1)(C) of the Investment Company Act because neither we nor our Operating Partnership meets the 40% test under that subsection. 12 Table of Contents We expect that most of our assets will be held in wholly-owned or majority-owned subsidiaries of our Operating Partnership and that most of these subsidiaries will rely on the exception from the definitions of investment company provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities that, among other requirements, are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” Section 3(c)(5)(C), as interpreted by the staff of the SEC, generally requires an entity to invest at least 55% of its assets in certain “qualifying real estate interests”, and at least 80% of its assets in qualifying real estate interests plus “real estate-related assets” (with no more than 20% comprised of miscellaneous assets).
Our Strategy Our strategy, which may change due to the availability and terms of capital and as market conditions warrant, involves: • allocating a substantial portion of our equity capital to the acquisition of Servicing Related Assets; • the creation of intercompany Excess MSRs from MSRs acquired by our mortgage servicing subsidiary, Aurora; • acquiring RMBS on a leveraged basis; and • opportunistically mitigating our prepayment and interest rate and, to a lesser extent, credit risk by using a variety of hedging instruments and, where applicable and available, recapture agreements. 9 Table of Contents Servicing Related Asset Strategy.
Our Strategy Our strategy, which may change due to the availability and terms of capital and as market conditions warrant, involves: • allocating a substantial portion of our equity capital to the acquisition of Servicing Related Assets; • the creation of intercompany Excess MSRs from MSRs acquired by our mortgage servicing subsidiary, Aurora; • acquiring RMBS on a leveraged basis; and • opportunistically mitigating our prepayment and interest rate and, to a lesser extent, credit risk by using a variety of hedging instruments and, where applicable and available, recapture agreements. 8 Table of Contents Servicing Related Asset Strategy.
Consolidated Financial Statements and Supplementary Data—Note 2—Basis of Presentation and Significant Accounting Policies—Derivatives and Hedging Activities”. 12 Table of Contents Policies with Respect to Certain Other Activities If our board of directors determines that additional funding is required, we may raise such funds through additional offerings of equity or debt securities, the retention of cash flow and other funds from debt financing, or a combination of these methods.
Consolidated Financial Statements and Supplementary Data—Note 2—Basis of Presentation and Significant Accounting Policies—Derivatives and Hedging Activities”. 10 Table of Contents Policies with Respect to Certain Other Activities If our board of directors determines that additional funding is required, we may raise such funds through additional offerings of equity or debt securities, the retention of cash flow and other funds from debt financing, or a combination of these methods.
We have entered into repurchase agreements with 35 counterparties as of December 31, 2023. From time to time, we expect to negotiate and enter into additional master repurchase agreements with other counterparties that could produce opportunities to acquire certain RMBS that may not be available from our existing counterparties. See “Item 7.
We have entered into repurchase agreements with 35 counterparties as of December 31, 2024. From time to time, we expect to negotiate and enter into additional master repurchase agreements with other counterparties that could produce opportunities to acquire certain RMBS that may not be available from our existing counterparties. See “Item 7.
There can be no assurance that climate change and severe weather will not have a material adverse effect on our financial performance. 13 Table of Contents Our Tax Status We have elected to be taxed as a REIT under the Code.
There can be no assurance that climate change and severe weather will not have a material adverse effect on our financial performance. 11 Table of Contents Our Tax Status We have elected to be taxed as a REIT under the Code.
We also attempt to mitigate duration and basis risk arising from our RMBS portfolio. The hedging instruments that we currently use include interest rate swaps, TBAs, swaptions and Treasury futures. We may also use financial futures, options, interest rate cap agreements, and forward sales.
We also attempt to mitigate duration and basis risk arising from our RMBS portfolio. The hedging instruments that we currently use include interest rate swaps, TBAs, swaptions and U.S. Treasury futures. We may also use financial futures, options, interest rate cap agreements, and forward sales.
See “Item 8. Consolidated Financial Statements and Supplementary Data—Note 12—Notes Payable”. We may utilize other types of borrowings in the future, including corporate debt, securitization, or other more complex financing structures. Additionally, we may take advantage of available borrowings, if any, under new programs established by the U.S. Government to finance our assets.
See “Item 8. Consolidated Financial Statements and Supplementary Data—Note 12—Notes Payable.” We may utilize other types of borrowings in the future, including corporate debt, securitization, or other more complex financing structures. Additionally, we may take advantage of available borrowings, if any, under new programs established by the U.S. Government to finance our assets.
Government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test”. Excluded from the term “investment securities”, among other things, are U.S.
Government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” Excluded from the term “investment securities”, among other things, are U.S.
Aurora has two separate MSR financing facilities: (i) the Freddie Mac MSR Revolver, which is revolving credit facility for up to $100.0 million that is secured by all Freddie Mac MSRs owned by Aurora; and (ii) the Fannie Mae MSR Revolving Facility, which is a revolving credit facility for up to $150.0 million, that is secured by all Fannie Mae MSRs owned by Aurora.
Aurora has two separate MSR financing facilities: (i) the Freddie Mac MSR Revolver, which is revolving credit facility for up to $100.0 million that is secured by all Freddie Mac MSRs owned by Aurora (the “Freddie Mac MSR Revolver”); and (ii) the Fannie Mae MSR Revolving Facility, which is a revolving credit facility for up to $150.0 million, that is secured by all Fannie Mae MSRs owned by Aurora (the “Fannie Mac MSR Revolving Facility”).
Item 1. Business Cherry Hill Mortgage Investment Corporation is a publicly traded residential real estate finance company focused on acquiring, investing in and managing residential mortgage assets in the United States. We were incorporated in Maryland on October 31, 2012, and we commenced operations on October 9, 2013, following the completion of our initial public offering (“IPO”).
Item 1. Business Cherry Hill Mortgage Investment Corporation is a fully integrated, internally managed residential real estate finance company focused on acquiring, investing in and managing residential mortgage assets in the United States. We were incorporated in Maryland on October 31, 2012, and we commenced operations on October 9, 2013, following the completion of our initial public offering (“IPO”).
Competition We compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities for investment opportunities in general. See “Item 1A. Risk Factors—We operate in a highly competitive market”.
Competition We compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities for investment opportunities in general. See “Item 1A.
To qualify as a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. We currently expect to distribute substantially all of our REIT taxable income to our stockholders.
We operate so as to continue to qualify to be taxed as a REIT under the Code. To qualify as a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain.
Non-Agency RMBS are subject to risk of default, among other risks, and could result in greater losses. 10 Table of Contents Our overall strategy, and each category of assets within that strategy, is adaptable to changing market environments, subject to compliance with the asset, income and other tests and conditions that we must satisfy to maintain our qualification as a REIT and maintain an exception to the definitions of an “investment company” under the Investment Company Act (or otherwise not fall within those definitions).
Our overall strategy, and each category of assets within that strategy, is adaptable to changing market environments, subject to compliance with the asset, income and other tests and conditions that we must satisfy to maintain our qualification as a REIT and maintain an exception to the definitions of an “investment company” under the Investment Company Act (or otherwise not fall within those definitions).
The SEC maintains a website that contains these reports at www.sec.gov . Corporate Information Our principal executive offices are located at 1451 Route 34, Suite 303, Farmingdale, New Jersey 07727. Our telephone number is (877) 870-7005. 15 Table of Contents
The SEC maintains a website that contains these reports at www.sec.gov . Corporate Information Our principal executive offices are located at 4000 Route 66, Suite 310, Tinton Falls, New Jersey 07753. Our telephone number is (877) 870-7005. 13 Table of Contents
We will be subject to income tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. CHMI Solutions, Inc. (“Solutions”), which is our TRS, and, Aurora Financial Group, Inc.
We currently expect to distribute substantially all of our REIT taxable income to our stockholders. We will be subject to income tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. CHMI Solutions, Inc.
For purposes of the exception provided by Section 3(c)(5)(C), we classify investments and other assets based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate related asset. 14 Table of Contents However, certain subsidiaries might rely on Section 3(c)(7) of the Investment Company Act and, therefore, our Operating Partnership’s interest in each of these subsidiaries would constitute an “investment security” for purposes of determining whether our Operating Partnership passes the 40% test.
For purposes of the exception provided by Section 3(c)(5)(C), we classify investments and other assets based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate related asset.
We operate our business through the following segments: (i) investments in RMBS; (ii) investments in Servicing Related Assets; and (iii) “All Other.” For information regarding the segments in which we operate, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 3—Segment Reporting”.
Subject to market conditions, we may also invest in other cash flowing residential mortgage assets. We operate our business through the following segments: (i) investments in RMBS and (ii) investments in Servicing Related Assets. For information regarding the segments in which we operate, see “Item 8.
(“Aurora”), which is our licensed mortgage servicing subsidiary and a wholly owned subsidiary of Solutions, are subject to regular corporate U.S. federal, state and local income taxes on their taxable income. Our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term, primarily through dividend distributions and secondarily through capital appreciation.
(“Solutions”), which is our TRS, and, Aurora Financial Group, Inc. (“Aurora”), which is our licensed mortgage servicing subsidiary and a wholly owned subsidiary of Solutions, are subject to regular corporate U.S. federal, state and local income taxes on their taxable income.
As a result, our acquisition and management decisions will depend on prevailing market conditions, and our targeted asset classes and strategy may vary over time in response to market conditions and may be limited by such compliance. Our Manager We are externally managed by our Manager.
As a result, our acquisition and management decisions will depend on prevailing market conditions, and our targeted asset classes and strategy may vary over time in response to market conditions and may be limited by such compliance. 9 Table of Contents Our senior management team, comprised of Jay Lown, our President and Chief Executive Officer, Julian Evans, our Chief Investment Officer, Michael Hutchby, our Chief Financial Officer, Treasurer and Secretary, and our MSR portfolio manager, makes the determinations as to the percentage of assets that are invested in each of our targeted asset classes.
Our Manager makes the determinations as to the percentage of assets that are invested in each of our targeted asset classes, consistent with our investment guidelines. Our Manager’s acquisition decisions depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments.
Our senior management team’s acquisition decisions depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. In addition, our investment strategy may be changed from time to time by our board of directors without the approval of our stockholders.
Changes to our investment guidelines may include, without limitation, modification or expansion of the types of assets which we may acquire. 11 Table of Contents Our board of directors receives a report of our investments each quarter in conjunction with our board’s review of our quarterly results.
Changes to our investment strategy may include, without limitation, modification or expansion of the types of assets which we may acquire for our investment portfolio.
Removed
We are externally managed by Cherry Hill Mortgage Management, LLC, an SEC-registered investment adviser established by Stanley Middleman. Our Manager is a party to a services agreement (the “Services Agreement”) with Freedom Mortgage Corporation (“Freedom Mortgage”) (in such capacity, the “Services Provider”), which is owned and controlled by Mr. Middleman.
Added
Our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term, primarily through dividend distributions and secondarily through capital appreciation. We attempt to attain this objective by selectively constructing and actively managing a portfolio of Servicing Related Assets and RMBS.
Removed
Our Manager is owned by a “blind trust” for the benefit of Mr. Middleman. We operate so as to continue to qualify to be taxed as a REIT under the Code.
Added
Consolidated Financial Statements and Supplementary Data—Note 3—Segment Reporting.” Prior to November 14, 2024, we were externally managed and advised by Cherry Hill Mortgage Management, LLC which was responsible for our investment strategies and decisions and our day-to-day operations, subject to the supervision and oversight of our board of directors.
Removed
We attempt to attain this objective by selectively constructing and actively managing a portfolio of Servicing Related Assets and RMBS. Subject to market conditions, we may also invest in other cash flowing residential mortgage assets.
Added
Effective as of November 14, 2024, we completed an “Internalization Event” within the meaning of the management agreement with CHMM by, among other things, directly hiring the senior management team and other personnel who had historically provided services to us through CHMM.
Removed
With the exception of Aurora, our licensed mortgage servicing subsidiary, which has three leased employees, we have no employees. We have entered into a management agreement with our Manager, pursuant to which our Manager is responsible for our investment strategies and decisions and our day-to-day operations, subject to the supervision and oversight of our board of directors.
Added
Upon consummation of the Internalization Event, the management agreement terminated in accordance with its terms without payment of a termination fee and we ceased being externally managed (the “Internalization”). As a result of the Internalization, we began operating as a fully integrated, internally managed company.
Removed
Our Manager is a Delaware limited liability company originally established by Mr. Middleman. The Manager is party to the Services Agreement with the Services Provider. The sole member of the Manager is a blind trust for the benefit of Mr. Middleman.
Added
Non-Agency RMBS are subject to risk of default, among other risks, and could result in greater losses.
Removed
We rely on our Manager to provide or obtain on our behalf the personnel and services necessary for us to conduct our business. For additional information regarding the management agreement with our Manager, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Management Agreement”.
Added
Risk Factors—We operate in a highly competitive market.” Human Capital Resources On November 14, 2024, we completed the Internalization and we began operating as a fully integrated, internally managed company.
Removed
The principal office and place of business of our Manager is 1451 Route 34, Suite 303, Farmingdale, New Jersey 07727, and the telephone number of our Manager’s executive offices is (877) 870-7005. Our Manager has a Risk Committee that monitors our investment policies, portfolio holdings, financing and hedging strategies and compliance with our investment guidelines.
Added
Prior to November 14, 2024, we were externally managed by CHMM, and, with the exception of Aurora, our licensed mortgage servicing subsidiary, which had three leased employees, we had no employees. As of December 31, 2024 we had 12 full-time employees.
Removed
Our Manager’s Risk Committee is made up of personnel provided to the Company through our Manager and those personnel are as follows: Mr. Lown, our President and Chief Executive Officer; Mr. Evans, our Chief Investment Officer; Mr. Hutchby, our Chief Financial Officer, Treasurer and Secretary; and our MSR portfolio manager.
Added
We maintained management continuity and team expertise by directly hiring the senior management team and other personnel who had historically provided services to us through CHMM. We believe our team is the key to our success and we proactively review human capital best practices to continually enhance our performance and company culture.
Removed
Our Manager is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and is subject to the regulatory oversight of the SEC.
Added
We strive to create a workplace environment where employees thrive both professionally and personally. Our primary goal in human capital management is to attract, develop and retain talent by providing competitive wages and benefits and investing in professional development and well being.
Removed
Our Investment Guidelines The investment guidelines for our assets and borrowings are as follows: • No investment will be made if it causes us to fail to qualify as a REIT under the Code. • No investment will be made if it causes us to be regulated as an investment company under the Investment Company Act. • We will not enter into principal transactions or split price executions with Freedom Mortgage or any of its affiliates unless such transaction is otherwise in accordance with our investment guidelines and the management agreement between us and our Manager and the terms of such transaction are at least as favorable to us as to Freedom Mortgage or its affiliate. • Any proposed material investment that is outside our targeted asset classes must be approved by at least a majority of our independent directors.
Added
Employee compensation packages are designed to align employee and stockholder interests and to provide incentives to attract, retain and motivate talented employees. We are committed to continuously evaluating and ensuring the competitiveness of our benefits offerings to meet the needs of our employees and their families.
Removed
In addition, our investment guidelines may be changed from time to time by our board of directors without the approval of our stockholders.
Added
Our employees are provided, among others, with the following benefits: medical insurance, dental insurance, 401(k) plan with company match incentive and Health Savings Account. We invest in professional training and development, to further enhance employees capabilities and personal development. Since the Internalization, we began focusing our efforts on ensuring that our policies and plans align with our goals.
Removed
The nominating and corporate governance committee of our board of directors, which is comprised solely of our independent directors, will review the material terms of any transaction between us and Freedom Mortgage or its affiliates, including the pricing terms, to determine if the terms of those transactions are fair and reasonable.
Added
We believe that every individual on our team brings a unique perspective and experience that contributes to our success and seek to have a well-rounded, inclusive workplace that reflects the communities in which we live and conduct our business and our stockholders. Environmental Considerations Our environmental strategy is based on simplicity and transparency.
Removed
Human Capital Resources We are externally managed and rely on our Manager to provide the personnel necessary to conduct our investment operations. As of the date of this Annual Report, there are 12 individuals who work in our business.
Added
However, certain subsidiaries might rely on Section 3(c)(7) of the Investment Company Act and, therefore, our Operating Partnership’s interest in each of these subsidiaries would constitute an “investment security” for purposes of determining whether our Operating Partnership passes the 40% test.
Removed
The salary and benefits of three of those individuals are paid by Freedom Mortgage and we reimburse Freedom Mortgage for the cost of those salaries and benefits on a monthly basis. These individuals were hired specifically to manage the operations of Aurora, our licensed mortgage servicing subsidiary.
Removed
In addition, we reimburse our Manager for the cost of the salary and benefits paid by our Manager to our Chief Financial Officer on a quarterly basis. Prior to January 1, 2022, we also reimbursed our Manager for the cost of the salary and benefits paid by our Manager to our General Counsel on a quarterly basis.
Removed
Although the management fee we pay to our Manager pursuant to the terms of the management agreement with our Manager is not tied to or calculated based on the salaries and benefits of the other individuals who provide services to us, we believe our Manager uses the base management fee it receives from us for that purpose, among others.
Removed
We believe our external management structure imposes some constraints on our ability to use any particular measures or objectives in managing our workforce. The cash compensation of all but three members of our work force is not controlled by us.
Removed
As a result, we have relied on equity compensation in the form of long-term incentive plan units, which are a special category of limited partnership interests in the Operating Partnership, to incentivize and retain our personnel. Environmental Considerations Our environmental strategy is based on simplicity and transparency.
Removed
We also believe that neither we nor our Operating Partnership is considered an investment company under Section 3(a)(1)(C) of the Investment Company Act because neither we nor our Operating Partnership meets the 40% test under that subsection.
Removed
Section 3(c)(5)(C), as interpreted by the staff of the SEC, generally requires an entity to invest at least 55% of its assets in certain “qualifying real estate interests”, and at least 80% of its assets in qualifying real estate interests plus “real estate-related assets” (with no more than 20% comprised of miscellaneous assets).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

59 edited+33 added−126 removed220 unchanged
Biggest changeRisks Related to Our Organizational Structure Maintenance of certain exceptions from (or otherwise not falling within) the definitions of “investment company” under the Investment Company Act imposes significant limitations on our operations.
Biggest changeWhile we would dispute and intend to vigorously defend against any claims made by CHMM that we breached the terms of the management agreement, it is possible that the results of any potential litigation with CHMM could adversely affect our business, results of operations, and our financial condition. 24 Table of Contents Risks Related to Our Organizational Structure Maintenance of certain exceptions from (or otherwise not falling within) the definitions of “investment company” under the Investment Company Act imposes significant limitations on our operations.
We compete with a number of entities when acquiring our targeted assets, including other mortgage REITs, financial companies, public and private funds, commercial and investment banks and residential and commercial finance companies. We may also compete with the U.S. Federal Reserve and the U.S. Treasury to the extent they purchase assets in our targeted asset classes.
We compete with a number of entities when acquiring our targeted assets, including other mortgage REITs, financial companies, public and private funds, commercial and investment banks and residential and commercial finance companies. We may also compete with the Federal Reserve and the U.S. Treasury to the extent they purchase assets in our targeted asset classes.
Actions taken by the Federal Reserve, including decisions relating to changes in its federal funds rate target or the size and composition of its balance sheet (such as the purchase or sale of MBS), could have a material and adverse impact on the value of our assets, our cost of funds, the amount of our net interest income and our earnings available for distribution and the market price of our securities.
Actions taken by the Federal Reserve, including decisions relating to changes in its federal funds rate target or the size and composition of its balance sheet (such as the purchase or sale of MBS), could have a material and adverse impact on the value of our assets, our cost of funds, the amount of our net interest income and our earnings available for distribution (“EAD”) and the market price of our securities.
Under current Maryland law, our present and former directors and officers will not have any liability to us or our stockholders for money damages other than liability resulting from: • actual receipt of an improper benefit or profit in money, property or services; or • active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action. 30 Table of Contents In addition, our charter authorizes us to indemnify our present and former directors and officers for actions taken by them in those and other capacities to the maximum extent permitted by Maryland law, and our bylaws require us to indemnify our present and former directors and officers, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us as a director or officer in those and other capacities.
Under current Maryland law, our present and former directors and officers will not have any liability to us or our stockholders for money damages other than liability resulting from: • actual receipt of an improper benefit or profit in money, property or services; or • active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action. 26 Table of Contents In addition, our charter authorizes us to indemnify our present and former directors and officers for actions taken by them in those and other capacities to the maximum extent permitted by Maryland law, and our bylaws require us to indemnify our present and former directors and officers, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us as a director or officer in those and other capacities.
Delinquency rates have a significant impact on the value of our Servicing Related Assets. An increase in delinquencies on the mortgage loans underlying the Servicing Related Assets will generally result in lower revenue because, typically, servicers will only collect servicing fees from GSEs or mortgage owners for performing loans.
Delinquency rates have a significant impact on the value of our Servicing Related Assets. An increase in delinquencies on the mortgage loans underlying the Servicing Related Assets will generally result in lower net revenue because, typically, servicers will only collect servicing fees from GSEs or mortgage owners for performing loans.
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations, or disruption to our trading activities or damage our reputation, which could have a material adverse effect on our financial results and negatively affect the market price of our securities and our ability to make distributions to stockholders. 21 Table of Contents The resources required to protect our information technology and infrastructure, and to comply with the laws and regulations related to data and privacy protection, are subject to uncertainty.
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations, or disruption to our trading activities or damage our reputation, which could have a material adverse effect on our financial results and negatively affect the market price of our securities and our ability to make distributions to stockholders. 19 Table of Contents The resources required to protect our information technology and infrastructure, and to comply with the laws and regulations related to data and privacy protection, are subject to uncertainty.
Our failure to qualify as a REIT would cause us to be subject to U.S. federal income tax (and any applicable state and local taxes) on all of our income and decrease profitability and cash available for distribution to our stockholders. 23 Table of Contents Our use of repurchase transactions gives our lenders greater rights in the event that we file for bankruptcy, which may make it difficult for us to recover our collateral in the event of a bankruptcy filing.
Our failure to qualify as a REIT would cause us to be subject to U.S. federal income tax (and any applicable state and local taxes) on all of our income and decrease profitability and cash available for distribution to our stockholders. 21 Table of Contents Our use of repurchase transactions gives our lenders greater rights in the event that we file for bankruptcy, which may make it difficult for us to recover our collateral in the event of a bankruptcy filing.
To the extent we do not utilize derivatives to hedge against changes in the fair value of our Servicing Related Assets, our balance sheet, results of operations and cash flows would be susceptible to significant volatility due to changes in the fair value of, or cash flows from, those assets as interest rates change. 18 Table of Contents If delinquencies on mortgage loans increase, the value of our Servicing Related Assets may decline significantly.
To the extent we do not utilize derivatives to hedge against changes in the fair value of our Servicing Related Assets, our balance sheet, results of operations and cash flows would be susceptible to significant volatility due to changes in the fair value of, or cash flows from, those assets as interest rates change. 16 Table of Contents If delinquencies on mortgage loans increase, the value of our Servicing Related Assets may decline significantly.
Although we generally are not required to maintain any particular minimum or maximum target debt-to-equity leverage ratio with respect to our RMBS assets, the amount of leverage we may employ for this asset class will depend upon the availability of particular types of financing and our Manager’s assessment of the credit, liquidity, price volatility, financing counterparty risk and other factors.
Although we generally are not required to maintain any particular minimum or maximum target debt-to-equity leverage ratio with respect to our RMBS assets, the amount of leverage we may employ for this asset class will depend upon the availability of particular types of financing and our management’s assessment of the credit, liquidity, price volatility, financing counterparty risk and other factors.
Decisions to employ additional leverage in executing our RMBS investment strategies could increase the risk inherent in our RMBS acquisition strategy. 22 Table of Contents Although we do not have a targeted debt-to-equity ratio for our RMBS, we are subject to margin calls as a result of our repo financing activity.
Decisions to employ additional leverage in executing our RMBS investment strategies could increase the risk inherent in our RMBS acquisition strategy. 20 Table of Contents Although we do not have a targeted debt-to-equity ratio for our RMBS, we are subject to margin calls as a result of our repo financing activity.
Our board of directors approves our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other strategies without a vote of our stockholders. 29 Table of Contents Certain provisions of Maryland law could inhibit a change in our control.
Our board of directors approves our major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other strategies without a vote of our stockholders. 25 Table of Contents Certain provisions of Maryland law could inhibit a change in our control.
Our ownership of and relationship with Solutions, Aurora and any future TRSs that we form 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. A REIT may own up to 100% of the stock of one or more TRSs.
Our ownership of and relationship with our TRSs (and any future TRSs that we may form) 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. A REIT may own up to 100% of the stock of one or more TRSs.
Changes in the GSEs decisions as to when to repurchase delinquent loans can materially impact prepayment rates. 19 Table of Contents Interest rate mismatches between our assets and any borrowings used to fund purchases of our assets may reduce our income during periods of changing interest rates.
Changes in the GSEs decisions as to when to repurchase delinquent loans can materially impact prepayment rates. 17 Table of Contents Interest rate mismatches between our assets and any borrowings used to fund purchases of our assets may reduce our income during periods of changing interest rates.
Further, the REIT rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Our ownership limitation may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their common stock.
Further, the REIT rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. 31 Table of Contents Our ownership limitation may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their common stock.
We will declare and make distributions to our stockholders only to the extent approved by our board of directors. 25 Table of Contents We face possible risks associated with the effects of climate change and severe weather.
We will declare and make distributions to our stockholders only to the extent approved by our board of directors. 23 Table of Contents We face possible risks associated with the effects of climate change and severe weather.
Downward adjustments or “mark-to-market losses” would reduce our total stockholders’ equity; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and 24 Table of Contents • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
Downward adjustments or “mark-to-market losses” would reduce our total stockholders’ equity; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
If we failed one of those tests, we would either be required to pay a penalty tax, which could be material, to maintain REIT status, or we would fail to qualify as a REIT. The failure of RMBS subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT.
If we failed one of those tests, we would either be required to pay a penalty tax, which could be material, to maintain REIT status, or we would fail to qualify as a REIT. 30 Table of Contents The failure of RMBS subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT.
Unless our failure to qualify as a REIT was subject to relief under U.S. federal tax laws, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. 38 Table of Contents Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
Unless our failure to qualify as a REIT was subject to relief under U.S. federal tax laws, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
In addition, some of our distributions may include a return of capital, which would reduce the amount of capital available to operate our business. 32 Table of Contents Distributions that we make to our stockholders will generally be taxable to our stockholders as ordinary income.
In addition, some of our distributions may include a return of capital, which would reduce the amount of capital available to operate our business. Distributions that we make to our stockholders will generally be taxable to our stockholders as ordinary income.
Fannie Mae and Freddie Mac will generally purchase mortgages that are 120 days or more delinquent from mortgage-backed securities trusts when the cost of guaranteed payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in their portfolios.
Fannie Mae and Freddie Mac will generally purchase mortgages that are 120 days or more delinquent from MBS trusts when the cost of guaranteed payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in their portfolios.
Our Manager has discretion, without the need for further approval by our board of directors, to change the amount of leverage we utilize for our RMBS.
Our management has discretion, without the need for further approval by our board of directors, to change the amount of leverage we utilize for our RMBS.
Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments.
Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. 22 Table of Contents We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments.
Our Manager relies on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio. These models are based on assumptions and actual results may differ significantly from the modeled expectations. Our Manager relies on analytical models and information and data, including models, information and data supplied by third parties.
We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio. These models are based on assumptions and actual results may differ significantly from the modeled expectations. We rely on analytical models and information and data, including models, information and data supplied by third parties.
Subject to maintaining our qualification as a REIT and applicable exceptions from the definition of “investment company” under the Investment Company Act (as applicable) and satisfying the criteria for no-action relief from the CFTC’s commodity pool operator registration rules, we pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates.
Subject to maintaining our qualification as a REIT and applicable exceptions from the definition of “investment company” under the Investment Company Act (as applicable) and satisfying the criteria for an exemption from the CFTC’s commodity pool operator registration rules, we pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates.
We cannot predict the effect, if any, of future sales of our common stock or securities convertible into our common stock, or the availability of shares of our common stock for future sales, on the value of our common stock.
We cannot predict the effect, if any, of future sales of our common stock or securities convertible into or exercisable as exchangeable for our common stock, or the availability of shares of our common stock for future sales, on the value of our common stock.
All valuation models rely on correct market data inputs. If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect. However, even if market data is input correctly, “model prices” will often differ substantially from market prices, especially for securities with complex characteristics or whose values are particularly sensitive to various factors.
If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect. However, even if market data is input correctly, “model prices” will often differ substantially from market prices, especially for securities with complex characteristics or whose values are particularly sensitive to various factors.
Taking into account the time value of money, this acceleration of U.S. federal income tax liabilities may reduce a stockholder’s after-tax return on his or her investment to an amount less than the after-tax return on an investment with an identical before-tax rate of return that did not generate phantom income. Liquidation of our assets may jeopardize our REIT qualification.
Taking into account the time value of money, this acceleration of U.S. federal income tax liabilities may reduce a stockholder’s after-tax return on his or her investment to an amount less than the after-tax return on an investment with an identical before-tax rate of return that did not generate phantom income.
In addition, the predictive models used by our Manager on our behalf may differ substantially from those models used by other market participants, with the result that valuations based on these predictive models may be substantially higher or lower for certain assets than actual market prices.
In addition, the predictive models we use may differ substantially from those models used by other market participants, with the result that valuations based on these predictive models may be substantially higher or lower for certain assets than actual market prices.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or depressions), such models must employ greater degrees of extrapolation, and are therefore more speculative and of more limited reliability.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or depressions), such models must employ greater degrees of extrapolation, and are therefore more speculative and of more limited reliability. 18 Table of Contents All valuation models rely on correct market data inputs.
If such representations and warranties are inaccurate, we may be obligated to repurchase certain mortgage loans or indemnify the applicable investor for any losses suffered as a result of the origination or prior servicing of the mortgage loans.
If such representations and warranties are inaccurate, we may be obligated to repurchase certain mortgage loans or indemnify the applicable investor for any losses suffered as a result of the origination or prior servicing of the mortgage loans. As such, the applicable investor will have direct recourse to us for such origination and/or prior servicing issues.
We cannot predict the impact future actions by the U.S. Federal Reserve (“Federal Reserve”) will have on our business, and any such actions may negatively impact us.
We cannot predict the impact future actions by the Federal Reserve will have on our business, and any such actions may negatively impact us.
Unfavorable ESG ratings may lead to increased negative sentiment toward us or the assets in which we invest and to the diversion of investments more in line with environmental sustainability, which could have a negative impact on our access to and costs of capital.
Unfavorable ESG ratings may lead to increased negative sentiment toward us or the assets in which we invest and to the diversion of investments more in line with environmental sustainability, which could have a negative impact on our access to and costs of capital. Our risk management policies and procedures may not be effective.
Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include: • the uncertainty and economic impact of global pandemics, including the COVID-19 pandemic and the resulting impact on market liquidity, the value of assets and availability of financing; • actual or anticipated variations in our quarterly operating results; • increases in market interest rates that lead purchasers of our common stock to demand a higher yield or to seek alternative investments; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key personnel; 31 Table of Contents • actions by stockholders; • speculation in the press or investment community; • general market, economic and political conditions and the impact of these conditions on the global credit markets; • the operating performance of other similar companies; • changes in accounting principles; and • passage of legislation, changes in monetary policy or other regulatory developments that adversely affect us or our industry.
Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include: • the uncertainty and economic impact of global pandemics, and the resulting impact on market liquidity, the value of assets and availability of financing; • actual or anticipated variations in our quarterly operating results; • increases in market interest rates that lead purchasers of our common stock to demand a higher yield or to seek alternative investments; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key personnel; • actions by stockholders; • speculation in the press or investment community; • general market, economic and political conditions and the impact of these conditions on the global credit markets; • the operating performance of other similar companies; • changes in accounting principles; and • passage of legislation, changes in monetary policy or other regulatory developments that adversely affect us or our industry. 27 Table of Contents Future sales of our common stock or securities convertible into or exercisable as exchangeable for our common stock could cause the market value of our common stock to decline and could result in dilution of your shares.
Item 1A. Risk Factors The Company’s business and operations are subject to a number of risks and uncertainties, the occurrence of which could adversely affect its business, financial condition, results of operations and ability to make distributions to stockholders and could cause the value of the Company’s capital stock to decline. Please refer to the section entitled “Forward-Looking Information”.
Item 1A. Risk Factors The Company’s business and operations are subject to a number of risks and uncertainties, the occurrence of which could adversely affect its business, financial condition, results of operations and ability to make distributions to stockholders and could cause the value of the Company’s capital stock to decline.
Sales of substantial amounts of shares of our common stock or securities convertible into our common stock could cause the market price of our common stock to decrease significantly.
Sales of substantial amounts of shares of our common stock or securities convertible into or exercisable as exchangeable for our common stock could cause the market price of our common stock to decrease significantly.
More recently, at the beginning of the COVID-19 pandemic, the repo financing market experienced a severe liquidity issue resulting in the infusion of additional liquidity by the U.S. Federal Reserve. Similar market disruptions and liquidity issues in the future would increase our financing costs and reduce our liquidity.
For example, at the beginning of the COVID-19 pandemic in 2020, the repo financing market experienced a severe liquidity issue resulting in the infusion of additional liquidity by the Federal Reserve. Similar market disruptions and liquidity issues in the future would increase our financing costs and reduce our liquidity.
As a result, values of our target assets have experienced volatility. Deterioration of the mortgage market and investor perception of the risks associated with RMBS and other residential mortgage assets that we acquire could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Deterioration of the mortgage market and investor perception of the risks associated with RMBS and other residential mortgage assets that we acquire could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
We could also be materially and adversely affected if a mortgage servicer is unable to adequately service the underlying mortgage loans due to the following reasons, among others: • its failure to comply with applicable laws and regulations; • its failure to perform its loss mitigation obligations; • a downgrade in its servicer rating; 16 Table of Contents • its failure to perform adequately in its external audits; • a failure in or poor performance of its operational systems or infrastructure; • a data breach and other cybersecurity incidents impacting a mortgage servicer; • regulatory or legal scrutiny, enforcement proceedings, consent orders or similar actions regarding any aspect of its operations, including, but not limited to, servicing practices and foreclosure processes lengthening foreclosure timelines; or • the transfer of servicing to another party.
We could also be materially and adversely affected if a mortgage servicer is unable to adequately service the underlying mortgage loans due to the following reasons, among others: • its failure to comply with applicable laws and regulations; • its failure to perform its loss mitigation obligations; • a downgrade in its servicer rating; • its failure to perform adequately in its external audits; • a failure in or poor performance of its operational systems or infrastructure; • a data breach and other cybersecurity incidents impacting a mortgage servicer; • regulatory or legal scrutiny, enforcement proceedings, consent orders or similar actions regarding any aspect of its operations, including, but not limited to, servicing practices and foreclosure processes lengthening foreclosure timelines; or • the transfer of servicing to another party. 14 Table of Contents MSRs are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on the mortgage servicer’s business.
Risks Related to Our Business We may not be able to continue to generate sufficient revenue to make or sustain distributions to our stockholders. We cannot assure you that we will be able to continue to generate sufficient returns to pay our operating expenses and make satisfactory distributions to our stockholders.
Please refer to the section entitled “Forward-Looking Information.” Risks Related to Our Business We may not be able to continue to generate sufficient revenue to make or sustain distributions to our stockholders. We cannot assure you that we will be able to continue to generate sufficient returns to pay our operating expenses and make satisfactory distributions to our stockholders.
If the IRS were to successfully challenge the opinion of counsel, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs. 40 Table of Contents Complying with REIT requirements may limit our ability to hedge effectively.
If the IRS were to successfully challenge the opinion of counsel, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.
In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than the sum of: • 85% of our REIT ordinary income for that year; • 95% of our REIT capital gain net income for that year; and • any undistributed taxable income from prior years.
In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than the sum of: • 85% of our REIT ordinary income for that year; • 95% of our REIT capital gain net income for that year; and • any undistributed taxable income from prior years. 29 Table of Contents We intend to distribute our taxable income to our stockholders in a manner intended to satisfy the 90% distribution requirement and to avoid both corporate income tax and the 4% nondeductible excise tax.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our stock. 41 Table of Contents We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our stock.
A return of capital is not taxable, but has the effect of reducing the tax basis of a stockholder’s investment in our common stock.
A return of capital is not taxable, but has the effect of reducing the tax basis of a stockholder’s investment in our common stock. 28 Table of Contents Risks Related to U.S.
In addition, the implementation of more restrictive or operationally intensive guidance may increase the costs associated with owning and managing MSRs as well as our ability to finance MSRs. We may be subject to representation and warranty risk in our capacity as an owner of MSRs and our sales of MSRs and other assets.
In addition, the implementation of more restrictive or operationally intensive guidance may increase the costs associated with owning and managing MSRs as well as our ability to finance MSRs.
As such, the applicable investor will have direct recourse to us for such origination and/or prior servicing issues. 17 Table of Contents In connection with sales of our MSRs and other assets from time to time, we may have been or may be required to make representations and warranties to the purchasers of the assets regarding certain characteristics of those assets.
In connection with sales of our MSRs and other assets from time to time, we may have been or may be required to make representations and warranties to the purchasers of the assets regarding certain characteristics of those assets.
Similarly, any hedging activities that are based on faulty models and data may prove to be unsuccessful. 20 Table of Contents Some models, such as prepayment models or mortgage default models, may be predictive in nature. The use of predictive models has inherent risks. For example, such models may incorrectly forecast future behavior, leading to potential losses.
Some models, such as prepayment models or mortgage default models, may be predictive in nature. The use of predictive models has inherent risks. For example, such models may incorrectly forecast future behavior, leading to potential losses.
We expect these factors and others that are beyond our control to continue having an impact on the valuation process for certain of our assets.
As a result, the valuation of such assets was unpredictable, and the disparity of valuations provided to by third-party dealers widened. We expect these factors and others that are beyond our control to continue having an impact on the valuation process for certain of our assets.
Certain of our subsidiaries rely on the exception provided by Section 3(c)(5)(C) under the Investment Company Act which is designed for entities primarily engaged in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate”.
Certain of our subsidiaries rely on the exception provided by Section 3(c)(5)(C) under the Investment Company Act which is designed for entities primarily engaged in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exception generally requires that at least 55% of the entity’s assets consist of qualifying real estate interests and at least 80% of the entity’s assets consist of qualifying real estate interests or real estate-related assets (with no more than 20% in miscellaneous assets).
At any time, the U.S. federal income tax laws or regulations governing REITs or the taxation of REIT stockholders or the administrative interpretations of those laws or regulations may be amended.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. At any time, the U.S. federal income tax laws or regulations governing REITs or the taxation of REIT stockholders or the administrative interpretations of those laws or regulations may be amended.
Our taxable income may substantially exceed our net income as determined based on GAAP, because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income.
However, there is no requirement that TRSs distribute their after-tax net income to their parent REIT or its stockholders. Our taxable income may substantially exceed our net income as determined based on GAAP, because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income.
To assist us in qualifying as a REIT, among other purposes, our charter generally limits, unless waived by our board of directors, the beneficial or constructive ownership of any class of our stock by any person, other than Mr.
To assist us in qualifying as a REIT, among other purposes, our charter generally limits, unless waived by our board of directors, the beneficial or constructive ownership of any class of our stock by any person, other than any excepted holder with an excepted holder limit (each as defined in our charter), to no more than 9.0% in value or the number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our stock.
Any hedging income earned by a TRS would be subject to U.S. federal, state and local income tax at regular corporate rates. This could increase the cost of our hedging activities or expose us to greater risks associated with interest rate changes or other changes than we would otherwise want to bear.
This could increase the cost of our hedging activities or expose us to greater risks associated with interest rate changes or other changes than we would otherwise want to bear.
If in the future we choose to pay dividends in our own stock, our stockholders may be required to pay tax in excess of the cash that they receive. 39 Table of Contents Despite qualification as a REIT, we may face other tax liabilities that reduce our cash flows.
We have paid dividends in our own stock in the past and may pay dividends in our own stock in the future. If in the future we choose to pay dividends in our own stock, our stockholders may be required to pay tax in excess of the cash that they receive.
The REIT provisions of the Code substantially limit our ability to hedge. Our aggregate gross income from non-qualifying hedges, fees, and certain other non-qualifying sources cannot exceed 5% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through a TRS.
Complying with REIT requirements may limit our ability to hedge effectively. The REIT provisions of the Code substantially limit our ability to hedge. Our aggregate gross income from non-qualifying hedges, fees, and certain other non-qualifying sources cannot exceed 5% of our annual gross income.
These models and data may be used to value assets or potential asset acquisitions and dispositions and to conduct our asset management activities. If these models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon could expose us to potential risks.
These models and data may be used to value assets or potential asset acquisitions and dispositions and to conduct our asset management activities.
Certain commercial banks, investment banks and insurance companies incurred extensive losses from exposure to the residential mortgage market as a result of these difficulties and conditions. These factors have impacted investor perception of the risk associated with RMBS, other real estate-related securities and various other asset classes in which we may invest.
These factors have impacted investor perception of the risk associated with RMBS, other real estate-related securities and various other asset classes in which we may invest. As a result, values of our target assets have experienced volatility.
Depending on the complexity and illiquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another.
Depending on the complexity and illiquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another. In the past, the valuation process for certain of our assets was particularly difficult due to market events resulting from the COVID-19 pandemic.
In addition, models are only as accurate as the assumptions that go into building the models. Our Manager’s use of models and data on our behalf may induce it to purchase certain assets at prices that are too high, sell certain other assets at prices that are too low or miss favorable opportunities altogether.
Our use of models and data may induce us to purchase certain assets at prices that are too high, sell certain other assets at prices that are too low or miss favorable opportunities altogether. Similarly, any hedging activities that are based on faulty models and data may prove to be unsuccessful.
Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets and the economy in general. In particular, the residential mortgage market in the United States has experienced a variety of difficulties and changed economic conditions, including defaults, credit losses and liquidity concerns.
Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets and the economy in general.
Removed
MSRs are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on the mortgage servicer’s business.
Added
In past years, concerns about global pandemics, unemployment, the availability and cost of credit, rising government debt levels, inflation, energy costs, global supply chain disruptions, climate change, global economic lethargy, warfare, geopolitical unrest across various regions worldwide, European sovereign debt issues, U.S. budget debates, federal government shutdowns, international trade disputes and the imposition of sanctions or new or increased tariffs have from time to time contributed to increased volatility and uncertainty in the economy and financial markets.
Removed
In the past, the valuation process for certain of our assets has been particularly difficult due to market events resulting from the COVID-19 pandemic, the valuation of such assets was unpredictable, and the disparity of valuations provided to by third-party dealers has widened.
Added
Adverse developments with respect to any of these factors may have an impact on new demand for homes and on homeowners’ ability to make their mortgage payments, which may compress home ownership rates and weigh heavily on future home price performance. There is a strong correlation between home price growth rates (or losses) and mortgage loan delinquencies.
Removed
Risks Related to Our Relationship with our Manager We are dependent on our Manager and certain key personnel that are provided to us through our Manager and may not find a suitable replacement if our Manager terminates or elects not to renew the management agreement or such key personnel are no longer available to us.
Added
Any stagnation in or deterioration of the residential mortgage or real estate markets may limit our ability to acquire our target assets on attractive terms or cause us to experience losses related to our assets.
Removed
We do not have any employees of our own other than three leased employees of our licensed mortgage servicing subsidiary, Aurora. We are completely reliant on our Manager, which has significant discretion as to the implementation of our operating policies and execution of our business strategies and risk management practices.
Added
In particular, the residential mortgage market in the United States has experienced a variety of difficulties and changed economic conditions, including defaults, credit losses and liquidity concerns. Certain commercial banks, investment banks and insurance companies incurred extensive losses from exposure to the residential mortgage market as a result of these difficulties and conditions.
Removed
The departure of any of our senior officers could have a material adverse effect on our ability to achieve our objectives. We can offer no assurance that our Manager will remain our manager or that we will continue to have access to our senior management.
Added
It is not possible to predict the scope and nature of the actions that the U.S. government could ultimately take with respect to the GSEs, including in light of recent changes in administration and executive offices of the U.S. government. 15 Table of Contents We may be subject to representation and warranty risk in our capacity as an owner of MSRs and our sales of MSRs and other assets.
Removed
We are subject to the risk that our Manager may terminate or elect not to renew the management agreement or that we may deem it necessary to terminate or elect not to renew the management agreement or that our Manager may prevent certain individuals from performing services for us and that no suitable replacement will be found to manage us.
Added
If these models and data prove to be incorrect, misleading or incomplete, or if the models are poorly designed, implemented, managed or misused, including in the choice of relevant historical data or assumptions, any decisions made in reliance thereon could expose us to potential risks.
Removed
If our management agreement is terminated or not renewed and no suitable replacement is found to manage us or we are unable to find a suitable replacement on a timely basis, we may not be able to continue to execute our business strategy.
Added
We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations. We operate in a highly regulated environment and are subject to the rules, regulations, approvals, licensing, reporting and examination requirements of various federal, state and local authorities.
Removed
No assurances 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.
Added
Any change in applicable federal, state or local laws, rules and regulations, including as a result of executive orders, or the interpretation or enforcement thereof, could have a substantial impact on our assets, operating expenses, business strategies and results of operations.
Removed
The failure of any of the key personnel provided to us through our Manager to service our business with the requisite time and dedication could materially and adversely affect our ability to execute our business strategy. 26 Table of Contents The management fee payable to our Manager is payable regardless of the performance of our portfolio, which may reduce our Manager’s incentive to devote the time and effort to seeking profitable opportunities for our portfolio.
Added
Our inability or failure to comply with the rules, regulations or reporting requirements, to obtain or maintain approvals and licenses applicable to our businesses, or to satisfy annual or periodic examinations may impact our ability to do business and expose us to fines, penalties or other claims and, as a result, could harm our business.
Removed
We pay our Manager a management fee, which may be substantial, based on our stockholders’ equity (as defined in the management agreement) regardless of the performance of our portfolio. The management fee takes into account the net issuance proceeds of both common and preferred stock offerings, as well as issuances of equity securities by our Operating Partnership.
Added
We have established and maintain various risk management policies and procedures designed to identify, monitor and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk and liquidity risk, as well as operational, information security and compliance risks related to our business, assets and liabilities.
Removed
Our Manager’s entitlement to non-performance-based compensation might reduce its incentive to devote the time and effort of its professionals to seeking profitable opportunities for our portfolio, which could result in a lower performance of our portfolio and materially adversely affect our business, financial condition and results of operations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

3 edited+4 added−1 removed10 unchanged
Biggest changeTo help facilitate Company-wide compliance with the plan, the Company, as well as its subservicers, provide ongoing training to the appropriate employees. 42 Table of Contents The CFO is responsible for ensuring that the board of directors comprehends the Company’s risk profile and receives periodic updates on the program and its policies. Our current CFO is Michael Hutchby. Mr.
Biggest changeAt the senior executive level, the CFO is entrusted with the day-to-day oversight of the program’s development, implementation, and maintenance. To help facilitate Company-wide compliance with the plan, the Company, as well as its subservicers, provide ongoing training to the appropriate employees. Our board of directors is responsible for understanding the primary risks to our business.
Risk Factors – Risks Related to Our Business – We are highly dependent on information systems and third parties, and systems failures or cybersecurity incidents could disrupt our business”.
Risk Factors – Risks Related to Our Business – We are highly dependent on information systems and third parties, and systems failures or cybersecurity incidents could disrupt our business.”
Hutchby has a B.A. in Economics from The Johns Hopkins University and an M.B.A. from the Stern School of Business at New York University. Mr. Hutchby was appointed the Company's CFO, Treasurer and Secretary in June 2019 and previously served as the Company's Controller from October 2013 to June 2019.
Our current CFO is Michael Hutchby. Mr. Hutchby has a B.A. in Economics from The Johns Hopkins University and an M.B.A. from the Stern School of Business at New York University. Mr. Hutchby was appointed the Company’s CFO, Treasurer and Secretary in June 2019 and previously served as the Company’s Controller from October 2013 to June 2019.
Removed
At the senior executive level, the Chief Financial Officer (“CFO”) is entrusted with the day-to-day oversight of the program’s development, implementation, and maintenance.
Added
The board is also tasked with developing and advancing our cybersecurity strategy, as well as evaluating the adequacy of our programs and policies. The CFO is responsible for ensuring that the board of directors comprehends the Company’s cybersecurity risk profile and receives updates on the program and its policies on a quarterly basis or as necessary.
Added
The MIT, an external consultant to the Company, brings over 25 years of IT experience in the private financial sector, with a strong focus on cybersecurity. He has implemented core IT policies, including Information Security and Incident Response, and directed cybersecurity training and testing at the Company.
Added
The MIT has also managed cloud infrastructure on Amazon Web Services and integrated automation within trade order management systems. His expertise extends to managing IT for live trading environments and ensuring regulatory compliance. The MIT holds an MA from the State University of New York at Binghamton and a BA from Luther College.
Added
Additionally, the Company engages a third-party provider to manage key functions, including identity access management, network security, user and email administration, data governance, threat management, and endpoint security.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business. As of December 31, 2023, the Company is not aware of any material legal or regulatory claims or proceedings.
Biggest changeItem 3. Legal Proceedings From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business. As of December 31, 2024, the Company is not aware of any material legal or regulatory claims or proceedings.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+0 added−0 removed19 unchanged
Biggest changeThe following table presents information with respect to the Company’s equity compensation plans as of December 31, 2023: Equity Incentive Plan Information As of December 31, 2023 Number of Securities Issued or to be Issued Upon Exercise Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans Equity compensation Plans Approved By Shareholders 2,788,165 LTIP-OP Units 552,097 Forfeited LTIP-OP Units (5,832 ) Converted LTIP-OP Units (44,795 ) Redeemed LTIP-OP Units (9,054 ) Shares of Common Stock 220,256 Forfeited Shares of Common Stock (3,155 ) Equity Compensation Plans Not Approved By Shareholders - LTIP-OP Units are a special class of partnership interest in the Operating Partnership.
Biggest changeThe following table presents information with respect to the Company’s equity compensation plans as of December 31, 2024: Equity Incentive Plan Information As of December 31, 2024 Number of Securities Issued or to be Issued Upon Exercise Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans Equity compensation Plans Approved By Shareholders 2,434,072 Issued LTIP-OP Units 663,492 Forfeited/Redeemed LTIP-OP Units (8,492 ) Converted LTIP-OP Units (44,795 ) Issued Shares of Common Stock 283,672 Forfeited Shares of Common Stock (3,155 ) Withheld Shares of Common Stock (3,229 ) Issued Restricted Stock Units 181,942 Forfeited Restricted Stock Units - Settled Restricted Stock Units - Withheld Restricted Stock Units - Equity Compensation Plans Not Approved By Shareholders - LTIP-OP Units are a special class of partnership interest in the Operating Partnership.
BMI Mortgage REITs Index comprised the following companies: AFC Gamma Inc., AG Mortgage Investment Trust, Inc., AGNC Investment Corp., Angel Oak Mortgage, Inc., Apollo Commercial Real Estate Finance, Inc., Arbor Realty Trust, Inc., Ares Commercial RE Corporation, Arlington Asset Invt Corp., ARMOUR Residential REIT, Inc., Blackstone Mortgage Trust, Inc., BrightSpire Capital, Inc., Broadmark Realty Capital Inc., Chimera Investment Corporation, Claros Mortgage Trust, Inc., Dynex Capital, Inc., Ellington Financial Inc., Ellington Residential Mortgage REIT, Franklin BSP Realty Trust, Inc., Granite Point Mortgage Trust, Inc., Great Ajax Corp., Hannon Armstrong Sustainable Infrastructure Capital, Inc., Invesco Mortgage Capital Inc., KKR Real Estate Finance Trust Inc., Ladder Capital Corp, Lument Finance Trust, Inc., MFA Financial, Inc., New York Mortgage Trust, Inc., NexPoint Real Estate Finance, Inc., Orchid Island Capital, Inc., PennyMac Mortgage Investment Trust, Ready Capital Corporation, Redwood Trust, Inc., Rithm Capital Corp., Sachem Capital Corp., Seven Hills Realty Trust, Starwood Property Trust, Inc., TPG RE Finance Trust, Inc, and Western Asset Mortgage Capital Corporation. 46 Table of Contents Securities Authorized For Issuance Under Equity Compensation Plans During 2013, the board of directors approved and the Company adopted the Cherry Hill Mortgage Investment Corporation 2013 Equity Incentive Plan (the “2013 Plan”).
BMI Mortgage REITs Index comprised the following companies: AFC Gamma Inc., AG Mortgage Investment Trust, Inc., AGNC Investment Corp., Angel Oak Mortgage, Inc., Apollo Commercial Real Estate Finance, Inc., Arbor Realty Trust, Inc., Ares Commercial RE Corporation, Arlington Asset Invt Corp., ARMOUR Residential REIT, Inc., Blackstone Mortgage Trust, Inc., BrightSpire Capital, Inc., Broadmark Realty Capital Inc., Chimera Investment Corporation, Claros Mortgage Trust, Inc., Dynex Capital, Inc., Ellington Financial Inc., Ellington Residential Mortgage REIT, Franklin BSP Realty Trust, Inc., Granite Point Mortgage Trust, Inc., Great Ajax Corp., Hannon Armstrong Sustainable Infrastructure Capital, Inc., Invesco Mortgage Capital Inc., KKR Real Estate Finance Trust Inc., Ladder Capital Corp, Lument Finance Trust, Inc., MFA Financial, Inc., New York Mortgage Trust, Inc., NexPoint Real Estate Finance, Inc., Orchid Island Capital, Inc., PennyMac Mortgage Investment Trust, Ready Capital Corporation, Redwood Trust, Inc., Rithm Capital Corp., Sachem Capital Corp., Seven Hills Realty Trust, Starwood Property Trust, Inc., TPG RE Finance Trust, Inc, and Western Asset Mortgage Capital Corporation. 36 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans During 2013, the board of directors approved, and the Company adopted, the Cherry Hill Mortgage Investment Corporation 2013 Equity Incentive Plan (the “2013 Plan”).
No assurance can be given that we will be able to make any other distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time. 44 Table of Contents We make distributions based on a number of factors, including an estimate of taxable earnings.
No assurance can be given that we will be able to make any other distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time. 34 Table of Contents We make distributions based on a number of factors, including an estimate of taxable earnings.
Holders As of March 7, 2024, we had six holders of record of our common stock. The six 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 from our registrar and transfer agent.
Holders As of March 6, 2025, we had six holders of record of our common stock. The six 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 from our registrar and transfer agent.
BMI Mortgage REITs Index, a peer group index, from December 31, 2018 to December 31, 2023. The graph assumes that $100 was invested on December 31, 2017 in our common stock, the S&P 500 Index, the Russell 2000 Index and the S&P U.S. BMI Mortgage REITs Index and that all dividends were reinvested without the payment of any commissions.
BMI Mortgage REITs Index, a peer group index, from December 31, 2019, to December 31, 2024. The graph assumes that $100 was invested on December 31, 2019, in our common stock, the S&P 500 Index, the Russell 2000 Index and the S&P U.S. BMI Mortgage REITs Index and that all dividends were reinvested without the payment of any commissions.
The following table sets forth the dividends declared on our common stock during each calendar quarter for 2023 and 2022: Declaration Date Record Date Payment Date Amount per Share 2023 Fourth Quarter 12/8/2023 12/29/2023 1/31/2024 $ 0.15 Third Quarter 9/14/2023 9/29/2023 10/31/2023 $ 0.15 Second Quarter 6/15/2023 6/30/2023 7/31/2023 $ 0.15 First Quarter 3/16/2023 3/31/2023 4/25/2023 $ 0.27 2022 Fourth Quarter 12/16/2022 12/30/2022 1/31/2023 $ 0.27 Third Quarter 9/15/2022 9/30/2022 10/25/2022 $ 0.27 Second Quarter 6/17/2022 6/30/2022 7/26/2022 $ 0.27 First Quarter 3/11/2022 3/31/2022 4/26/2022 $ 0.27 45 Table of Contents Stockholder Return Performance The following graph is a comparison of the cumulative total stockholder return on our common stock, the S&P 500 Index, the Russell 2000 Index and the S&P U.S.
The following table sets forth the dividends declared on our common stock during each calendar quarter for 2024 and 2023: Declaration Date Record Date Payment Date Amount per Share 2024 Fourth Quarter 12/12/2024 12/31/2024 1/31/2025 $ 0.15 Third Quarter 9/13/2024 9/30/2024 10/31/2024 $ 0.15 Second Quarter 6/13/2024 6/28/2024 7/31/2024 $ 0.15 First Quarter 3/14/2024 3/28/2024 4/30/2024 $ 0.15 2023 Fourth Quarter 12/8/2023 12/29/2023 1/31/2024 $ 0.15 Third Quarter 9/14/2023 9/29/2023 10/31/2023 $ 0.15 Second Quarter 6/15/2023 6/30/2023 7/31/2023 $ 0.15 First Quarter 3/16/2023 3/31/2023 4/25/2023 $ 0.27 35 Table of Contents Stockholder Return Performance The following graph is a comparison of the cumulative total stockholder return on our common stock, the S&P 500 Index, the Russell 2000 Index and the S&P U.S.
Our ability to make distributions to our stockholders will depend upon the performance of our investment portfolio, and, in turn, upon our Manager’s management of our business. Distributions will be made quarterly in cash to the extent that cash is available for distribution.
Our ability to make distributions to our stockholders will depend upon the performance of our investment portfolio, and, in turn, upon the management of our business by our senior management team. Distributions will be made quarterly in cash to the extent that cash is available for distribution.
There can be no assurance that the performance of our common stock will continue in line with the same or similar trends depicted in the graph below: December 31, 2019 December 31, 2020 December 31, 2021 December 30, 2022 December 29, 2023 Cherry Hill Mortgage Investment Corporation $ 93.27 $ 67.61 $ 68.70 $ 57.29 $ 46.48 Russel 2000 $ 125.52 $ 150.58 $ 172.90 $ 137.56 $ 160.85 S&P U.S.
There can be no assurance that the performance of our common stock will continue in line with the same or similar trends depicted in the graph below: Year Ended December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 Cherry Hill Mortgage Investment Corporation $ 72.48 $ 73.65 $ 61.42 $ 49.84 $ 38.94 Russel 2000 $ 119.96 $ 137.74 $ 109.59 $ 128.14 $ 142.93 S&P U.S.
BMI Mortgage REITs (A) $ 119.61 $ 94.68 $ 108.65 $ 80.83 $ 93.30 S&P 500 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 Source: S&P Capital IQ Pro (A) In addition to the Company, as of December 31, 2023, the S&P U.S.
BMI Mortgage REITs (A) $ 79.16 $ 90.84 $ 67.58 $ 78.00 $ 78.44 S&P 500 $ 118.40 $ 152.39 $ 124.79 $ 157.59 $ 197.02 Source: S&P Capital IQ Pro (A) In addition to the Company, as of December 31, 2024, the S&P U.S.

Item 7. Management's Discussion & Analysis

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

103 edited+21 added−18 removed92 unchanged
Biggest changeInterest paid in accordance with repurchase transactions is recorded in interest expense on the consolidated statements of income (loss). 54 Table of Contents Results of Operations Presented below is a comparison of the Company’s results of operations for the periods indicated (dollars in thousands): Results of Operations Year Ended December 31, 2023 2022 Income Interest income $ 49,985 $ 29,642 Interest expense 51,642 17,563 Net interest income (expense) (1,657 ) 12,079 Servicing fee income 53,427 53,430 Servicing costs 11,248 11,837 Net servicing income 42,179 41,593 Other income (loss) Realized loss on RMBS, net (36,315 ) (99,694 ) Realized gain on derivatives, net 33,821 1,363 Realized gain on acquired assets, net 23 12 Unrealized gain on RMBS, measured at fair value through earnings, net 9,755 - Unrealized gain (loss) on derivatives, net (43,071 ) 61,864 Unrealized gain (loss) on investments in Servicing Related Assets (25,937 ) 22,976 Total Income (Loss) (21,202 ) 40,193 Expenses General and administrative expense 6,900 6,305 Management fee to affiliate 6,830 6,629 Total Expenses 13,730 12,934 Income (Loss) Before Income Taxes (34,932 ) 27,259 Provision for corporate business taxes 523 5,070 Net Income (Loss) (35,455 ) 22,189 Net (income) loss allocated to noncontrolling interests in Operating Partnership 661 (450 ) Dividends on preferred stock 9,853 9,853 Net Income (Loss) Applicable to Common Stockholders $ (44,647 ) $ 11,886 55 Table of Contents Presented below is summary financial data on our segments together with the data for the Company as a whole, for the periods indicated (dollars in thousands): Segment Summary Data Servicing Related Assets RMBS All Other Total Income Statement Year Ended December 31, 2023 Interest income $ - $ 49,985 $ - $ 49,985 Interest expense 1,572 50,070 - 51,642 Net interest expense (1,572 ) (85 ) - (1,657 ) Servicing fee income 53,427 - - 53,427 Servicing costs 11,248 - - 11,248 Net servicing income 42,179 - - 42,179 Other expense (29,443 ) (32,281 ) - (61,724 ) Other operating expenses (2,231 ) (664 ) (10,835 ) (13,730 ) Provision for corporate business taxes (523 ) - - (523 ) Net Income (Loss) $ 8,410 $ (33,030 ) $ (10,835 ) $ (35,455 ) Year Ended December 31, 2022 Interest income $ - $ 29,642 $ - $ 29,642 Interest expense 3,837 13,726 - 17,563 Net interest income (expense) (3,837 ) 15,916 - 12,079 Servicing fee income 53,430 - - 53,430 Servicing costs 11,837 - - 11,837 Net servicing income 41,593 - - 41,593 Other income (expense) (26,655 ) 13,176 - (13,479 ) Other operating expenses (2,099 ) (692 ) (10,143 ) (12,934 ) Provision for corporate business taxes (5,070 ) - - (5,070 ) Net Income (Loss) $ 3,932 $ 28,400 $ (10,143 ) $ 22,189 Servicing Related Assets RMBS All Other Total Balance Sheet December 31, 2023 Investments $ 253,629 $ 1,012,130 $ - $ 1,265,759 Other assets 33,785 39,939 53,509 127,233 Total assets 287,414 1,052,069 53,509 1,392,992 Debt 169,314 903,489 - 1,072,803 Other liabilities 4,240 47,990 9,584 61,814 Total liabilities 173,554 951,479 9,584 1,134,617 Net Assets $ 113,860 $ 100,590 $ 43,925 $ 258,375 December 31, 2022 Investments $ 279,739 $ 931,431 $ - $ 1,211,170 Other assets 32,849 106,885 57,921 197,655 Total assets 312,588 1,038,316 57,921 1,408,825 Debt 183,888 825,962 - 1,009,850 Other liabilities 29,047 92,875 11,537 133,459 Total liabilities 212,935 918,837 11,537 1,143,309 Net Assets $ 99,653 $ 119,479 $ 46,384 $ 265,516 56 Table of Contents Interest Income Interest income for the year ended December 31, 2023 was $50.0 million as compared to $29.6 million for the year ended December 31, 2022.
Biggest changeInterest paid in accordance with repurchase transactions is recorded in interest expense on the consolidated statements of income (loss). 45 Table of Contents Results of Operations Presented below is a comparison of the Company’s results of operations for the periods indicated (dollars in thousands): Results of Operations Year Ended December 31, 2024 2023 Income Interest income $ 55,798 $ 49,985 Interest expense 55,769 51,642 Net interest income (expense) 29 (1,657 ) Servicing fee income 48,527 53,427 Servicing costs 12,418 11,248 Net servicing income 36,109 42,179 Other income (loss) Realized loss on RMBS, net (6,595 ) (36,315 ) Realized gain on investments in MSRs, net 504 - Realized gain on derivatives, net 21,322 33,821 Realized gain on acquired assets, net 2 23 Unrealized gain (loss) on RMBS, measured at fair value through earnings, net (19,445 ) 9,755 Unrealized gain (loss) on derivatives, net 9,809 (43,071 ) Unrealized loss on investments in Servicing Related Assets (7,160 ) (25,937 ) Total Income (Loss) 34,575 (21,202 ) Expenses General and administrative expense 10,654 6,434 Compensation and benefits 1,572 466 Management fee to affiliate 6,037 6,830 Total Expenses 18,263 13,730 Income (Loss) Before Income Taxes 16,312 (34,932 ) Provision for corporate business taxes 4,102 523 Net Income (Loss) 12,210 (35,455 ) Net (income) loss allocated to noncontrolling interests in Operating Partnership (240 ) 661 Dividends on preferred stock (9,969 ) (9,853 ) Gain on repurchase and retirement of preferred stock 78 - Net Income (Loss) Applicable to Common Stockholders $ 2,079 $ (44,647 ) 46 Table of Contents Presented below is summary financial data on our segments together with the data for the Company as a whole, for the periods indicated (dollars in thousands): Segment Summary Data Servicing Related Assets RMBS All Other Total Income Statement Year Ended December 31, 2024 Interest income $ 5 $ 55,793 $ - $ 55,798 Interest expense 1,404 54,365 - 55,769 Net interest income (expense) (1,399 ) 1,428 - 29 Servicing fee income 48,527 - - 48,527 Servicing costs 12,418 - - 12,418 Net servicing income 36,109 - - 36,109 Other income (expense) (A) (8,117 ) 6,554 - (1,563 ) Other operating expenses (B) (3,910 ) (1,141 ) (13,212 ) (18,263 ) Provision for corporate business taxes (4,102 ) - - (4,102 ) Net other comprehensive income (loss) - (4,725 ) - (4,725 ) Comprehensive income (loss) $ 18,581 $ 2,116 $ (13,212 ) $ 7,485 Year Ended December 31, 2023 Interest income $ - $ 49,985 $ - $ 49,985 Interest expense 1,572 50,070 - 51,642 Net interest expense (1,572 ) (85 ) - (1,657 ) Servicing fee income 53,427 - - 53,427 Servicing costs 11,248 - - 11,248 Net servicing income 42,179 - - 42,179 Other expense (A) (29,443 ) (32,281 ) - (61,724 ) Other operating expenses (B) (3,004 ) (664 ) (10,062 ) (13,730 ) Provision for corporate business taxes (523 ) - - (523 ) Net other comprehensive income (loss) - 26,559 - 26,559 Comprehensive income (loss) $ 7,637 $ (6,471 ) $ (10,062 ) $ (8,896 ) (A) Included in other income (expense) are realized and unrealized gains (losses) on Servicing Related Assets, RMBS and derivatives.
During the years ended December 31, 2023 and December 31, 2022, the Company did not issue and sell any shares of Series A Preferred Stock pursuant to the Preferred Series A ATM Program. The Company terminated the Preferred Series A ATM Program effective as of January 29, 2024.
During the years ended December 31, 2024 and December 31, 2023, the Company did not issue and sell any shares of Series A Preferred Stock pursuant to the Preferred Series A ATM Program. The Company terminated the Preferred Series A ATM Program effective as of January 29, 2024.
Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 under the Exchange Act. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules.
Shares of preferred stock may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 under the Exchange Act. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules.
The Company classifies these valuations as Level 3 in the fair value hierarchy. For additional information on our fair value methodology, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 9. Fair Value”. Revenue Recognition on Investments in MSRs Mortgage servicing fee income represents revenue earned from the ownership of MSRs.
The Company classifies these valuations as Level 3 in the fair value hierarchy. For additional information on our fair value methodology, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 9. Fair Value.” Revenue Recognition on Investments in MSRs Mortgage servicing fee income represents revenue earned from the ownership of MSRs.
In October 2023, Aurora and QRS III entered into an amendment to the Fannie Mae MSR Revolving Facility that extended the revolving period for an additional 24 months. Amounts borrowed bear interest at a weighted average borrowing rate of 7.8%.
In October 2023, Aurora and QRS III entered into an amendment to the Fannie Mae MSR Revolving Facility that extended the revolving period for an additional 24 months. Amounts borrowed bear interest at a weighted average borrowing rate of 7.9%.
In September 2019, the Company initiated a share repurchase program that allows for the repurchase of up to an aggregate of $10.0 million of its common stock. As of December 31, 2023, approximately $4.7 million was remaining under the share repurchase program.
In September 2019, the Company initiated a share repurchase program that allows for the repurchase of up to an aggregate of $10.0 million of its common stock. As of December 31, 2024, approximately $4.7 million was remaining under the share repurchase program.
As of December 31, 2023, our exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity.
As of December 31, 2024, our exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity.
For information on our assessment of the realizability of deferred tax assets, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 15. Income Taxes”. We assess our tax positions for all open tax years and determine if we have any material unrecognized liabilities in accordance with ASC 740.
For information on our assessment of the realizability of deferred tax assets, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 15. Income Taxes.” We assess our tax positions for all open tax years and determine if we have any material unrecognized liabilities in accordance with ASC 740.
Consolidated Financial Statements and Supplementary Data—Note 2. Basis of Presentation and Significant Accounting Policies”. Investments in MSRs We have elected the fair value option to record our investments in MSRs in order to provide users of our consolidated financial statements with better information regarding the effects of prepayment risk and other market factors on the MSRs.
Consolidated Financial Statements and Supplementary Data—Note 2. Basis of Presentation and Significant Accounting Policies.” Investments in MSRs We have elected the fair value option to record our investments in MSRs in order to provide users of our consolidated financial statements with better information regarding the effects of prepayment risk and other market factors on the MSRs.
Nevertheless, unanticipated credit losses could occur which could adversely impact our operating results. Critical Accounting Policies and Use of Estimates Our financial statements are prepared in accordance with US GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties.
Nevertheless, unanticipated credit losses could occur which could adversely impact our operating results. 43 Table of Contents Critical Accounting Policies and Use of Estimates Our financial statements are prepared in accordance with US GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties.
One of the other subservicing agreements is with RoundPoint Mortgage Servicing Corporation (“RoundPoint”). Freedom Mortgage acquired RoundPoint and it became a wholly-owned subsidiary of Freedom Mortgage in August 2020. On September 30, 2023, RoundPoint ceased being a wholly owned subsidiary of Freedom Mortgage when it was acquired by Matrix Financial Services Corporation.
One of the other subservicing agreements is with RoundPoint Mortgage Servicing Corporation (“RoundPoint”). Freedom Mortgage acquired RoundPoint and it became a wholly-owned subsidiary of Freedom Mortgage in August 2020. On September 30, 2023, RoundPoint ceased being a wholly owned subsidiary of Freedom Mortgage when it was acquired by an unaffiliated entity, Matrix Financial Services Corporation.
Alternatively, we may elect the fair value option of accounting for securities pursuant to ASC 825, Financial Instruments. Prior to January 1, 2023, we designated all our investments in RMBS as available-for-sale. On January 1, 2023, we began electing the fair value option of accounting for all RMBS acquired after such date.
Alternatively, we may elect the fair value option of accounting for securities pursuant to ASC 825, Financial Instruments. Prior to January 1, 2023, we designated all our investments in RMBS as available-for-sale. On January 1, 2023, we elected the fair value option of accounting for all RMBS acquired after such date.
Regardless, we cannot predict the impact future actions by the Federal Reserve will have on our business, and any such actions may negatively impact us. 52 Table of Contents Effects of Spreads on our Assets The spread between the yield on our assets and our funding costs affects the performance of our business.
Regardless, we cannot predict the impact future actions by the Federal Reserve will have on our business, and any such actions may negatively impact us. Effects of Spreads on our Assets The spread between the yield on our assets and our funding costs affects the performance of our business.
During the period where RoundPoint was a wholly-owned subsidiary of Freedom Mortgage, RoundPoint outsourced such recapture services to Freedom Mortgage on RoundPoint’s behalf. Inflation Substantially all of our assets and liabilities are financial in nature.
During the period where RoundPoint was a wholly-owned subsidiary of Freedom Mortgage, RoundPoint outsourced such recapture services to Freedom Mortgage on RoundPoint’s behalf. 59 Table of Contents Inflation Substantially all of our assets and liabilities are financial in nature.
The price at which the security is sold generally represents the market value of the security less a discount or “haircut.” The weighted average haircut on our repurchase debt at December 31, 2023 was approximately 4.3%.
The price at which the security is sold generally represents the market value of the security less a discount or “haircut.” The weighted average haircut on our repurchase debt at December 31, 2024 was approximately 4.4%.
We record these liabilities to the extent we deem them more-likely-than-not to be incurred. We record interest and penalties related to income taxes within the provision for income taxes in the consolidated statements of income (loss). We have not incurred any interest or penalties.
We record these liabilities to the extent we deem them more-likely-than-not to be incurred. We record interest and penalties related to income taxes within the provision for income taxes in the consolidated statements of income (loss).
Our ability to make distributions to our stockholders will depend upon the performance of our investment portfolio, and, in turn, upon our Manager’s management of our business. Distributions will be made quarterly in cash to the extent that cash is available for distribution.
Our ability to make distributions to our stockholders will depend upon the performance of our investment portfolio, and, in turn, upon the management of our business by our management team. Distributions will be made quarterly in cash to the extent that cash is available for distribution.
The management fee is an amount equal to 1.5% per annum of our stockholders’ equity, adjusted as set forth in the Management Agreement, and calculated and payable quarterly in arrears.
The management fee was an amount equal to 1.5% per annum of stockholders’ equity, adjusted as set forth in the Management Agreement, and calculated and payable quarterly in arrears.
All of our investments in RMBS are reported at their fair value . At the time of purchase, ASC 320, Investments – Debt and Equity Securities requires us to designate a security as held-to-maturity, available-for-sale or trading, depending on our ability to hold such security to maturity.
Risk Factors – Risks Related to Our Business” All of our investments in RMBS are reported at their fair value . At the time of purchase, ASC 320, Investments – Debt and Equity Securities requires us to designate a security as held-to-maturity, available-for-sale or trading, depending on our ability to hold such security to maturity.
Earnings available for distribution (“EAD”) is a non-GAAP financial measure that we define as GAAP net income (loss), excluding realized gain (loss) on RMBS, unrealized gain (loss) on RMBS measured at fair value through earnings, realized and unrealized gain (loss) on derivatives, realized gain (loss) on acquired assets, realized and unrealized gain (loss) on investments in MSRs (net of any estimated MSR amortization) and any tax expense (benefit) on realized and unrealized gain (loss) on MSRs.
EAD is a non-GAAP financial measure that we define as GAAP net income (loss), excluding realized gain (loss) on RMBS, unrealized gain (loss) on RMBS measured at fair value through earnings, realized and unrealized gain (loss) on derivatives, realized gain (loss) on acquired assets, realized and unrealized gain (loss) on investments in MSRs (net of any estimated MSR amortization) and any tax expense (benefit) on realized and unrealized gain (loss) on MSRs.
Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or by any combination of such methods.
Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act, or by any combination of such methods.
All currency amounts are presented in thousands, except per share amounts or as otherwise noted. General We are a public residential real estate finance company focused on acquiring, investing in and managing residential mortgage assets in the United States.
All currency amounts are presented in thousands, except per share amounts or as otherwise noted. General We are a fully integrated, internally managed residential real estate finance company focused on acquiring, investing in and managing residential mortgage assets in the United States.
Those values may be affected by events or headlines that are outside of our control, such as events impacting the U.S. or global economy generally or the U.S. residential market specifically, and events or headlines impacting the parties with which we do business. See “Item 1A. Risk Factors – Risks Related to Our Business”.
Those values may be affected by events or headlines that are outside of our control, such as events impacting the U.S. or global economy generally or the U.S. residential market specifically, and events or headlines impacting the parties with which we do business. See “Item 1A.
During the years ended December 31, 2023 and December 31, 2022, the Company did not repurchase any common stock pursuant to the repurchase program. In December 2023, the Company initiated a Preferred Stock repurchase program that allows for the repurchase of up to an aggregate of $50.0 million of its Preferred Stock.
During the years ended December 31, 2024, and December 31, 2023, the Company did not repurchase any common stock pursuant to the repurchase program. 39 Table of Contents In December 2023, the Company initiated a preferred stock repurchase program that allows for the repurchase of up to an aggregate of $50.0 million of its shares of Preferred Stock.
Factors Impacting our Operating Results Our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts.
See “Factors Impacting our Operating Results.” 40 Table of Contents Factors Impacting our Operating Results Our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts.
The Company has an at-the-market offering program for its common stock (the “Common Stock ATM Program”) pursuant to which it may offer and sell through one or more sales agents, up to $100.0 million in shares of its common stock at prices prevailing at the time, subject to volume and other regulatory limitations.
Equity and Earnings per Common Share—Common and Preferred Stock..” The Company has an at-the-market offering program for its common stock (the “Common Stock ATM Program”) pursuant to which it may offer and sell through one or more sales agents, up to $150.0 million in shares of its common stock at prices prevailing at the time, subject to volume and other regulatory limitations.
With respect to our business operations, increases in interest rates, in general, may over time cause: • the interest expense associated with our borrowings to increase; • the value of our assets to fluctuate; • the coupons on any adjustable-rate and hybrid RMBS we may own to reset, although on a delayed basis, to higher interest rates; • prepayments on our RMBS to slow, thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts; and • an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy.
Transactions with Related Parties” for information regarding Aurora’s recapture agreements. 42 Table of Contents With respect to our business operations, increases in interest rates, in general, may over time cause: • the interest expense associated with our borrowings to increase; • the value of our assets to fluctuate; • the coupons on any adjustable-rate and hybrid RMBS we may own to reset, although on a delayed basis, to higher interest rates; • prepayments on our RMBS to slow, thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts; and • an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy.
The impact on our operating results of future actions by the Federal Reserve that change market interest rates is discussed further below. See “Factors Impacting our Operating Results ” .
The impact on our operating results of future actions by the Federal Reserve that change market interest rates is discussed further below.
In October 2021, Aurora and QRS III entered into a loan and security agreement (the “Fannie Mae MSR Revolving Facility”), pursuant to which Aurora and QRS III pledged their respective rights in all existing and future MSRs for loans owned or securitized by Fannie Mae to secure borrowings outstanding from time to time.
In October 2021, Aurora and QRS III entered into the Fannie Mae MSR Revolving Facility, pursuant to which Aurora and QRS III pledged their respective rights in all existing and future MSRs for loans owned or securitized by Fannie Mae to secure borrowings outstanding from time to time.
The following table summarizes the net interest spread of our RMBS portfolio as of the dates indicated: Net Interest Spread December 31, 2023 December 31, 2022 Weighted Average Asset Yield 5.33 % 4.44 % Weighted Average Interest Expense (A) 1.51 % 0.67 % Net Interest Spread 3.82 % 3.77 % (A) Weighted average interest expense includes the benefits of related swaps. 61 Table of Contents Liquidity and Capital Resources Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments and other general business needs.
The following table summarizes the net interest spread of our RMBS portfolio as of the dates indicated: Net Interest Spread December 31, 2024 December 31, 2023 Weighted Average Asset Yield 4.93 % 5.33 % Weighted Average Interest Expense (A) 2.03 % 1.51 % Net Interest Spread 2.90 % 3.82 % (A) Weighted average interest expense includes the benefits of related swaps. 53 Table of Contents Liquidity and Capital Resources Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments and other general business needs.
Our operating cash flow differs from our net income due primarily to: (i) accretion of discount or premium on our RMBS, (ii) unrealized gains or losses on our RMBS and Servicing Related Assets, and (iii) impairment on our securities, if any. 62 Table of Contents Repurchase Agreements As of December 31, 2023, we had repurchase agreements with 35 counterparties and approximately $903.5 million of outstanding repurchase agreement borrowings from 14 of those counterparties, which were used to finance RMBS.
Our operating cash flow differs from our net income due primarily to: (i) accretion of discount or premium on our RMBS, (ii) unrealized gains or losses on our RMBS and Servicing Related Assets, and (iii) impairment on our securities, if any. 54 Table of Contents Repurchase Agreements As of December 31, 2024, we had repurchase agreements with 35 counterparties and approximately $1,077.3 million of outstanding repurchase agreement borrowings from 12 of those counterparties, which were used to finance RMBS.
Our Manager is entitled to be reimbursed for an agreed upon portion of the costs of the wages, salary and other benefits with respect to our chief financial officer, and, prior to January 1, 2022, our general counsel, originally based on the percentages of their working time and efforts spent on matters related to the Company.
CHMM was entitled to be reimbursed for an agreed upon portion of the costs of the wages, salary and other benefits with respect to our CFO, and, prior to January 1, 2022, our general counsel, originally based on the percentages of their working time and efforts spent on matters related to the Company.
For the period indicated below, our accumulated other comprehensive income (loss) changed as a result of the indicated gains and losses (dollars in thousands): Accumulated Other Comprehensive Income (Loss) Year Ended December 31, 2023 Accumulated other comprehensive loss, December 31, 2022 $ (29,104 ) Other comprehensive income 26,559 Accumulated other comprehensive loss, December 31, 2023 $ (2,545 ) Year Ended December 31, 2022 Accumulated other comprehensive income, December 31, 2021 $ 7,527 Other comprehensive loss (36,631 ) Accumulated other comprehensive loss, December 31, 2022 $ (29,104 ) Our GAAP equity changes as the values of our RMBS are marked to market each quarter, among other factors.
For the period indicated below, our accumulated other comprehensive income (loss) changed as a result of the indicated gains and losses (dollars in thousands): Accumulated Other Comprehensive Income (Loss) Year Ended December 31, 2024 Accumulated other comprehensive loss, December 31, 2023 $ (2,545 ) Other comprehensive loss (4,725 ) Accumulated other comprehensive loss, December 31, 2024 $ (7,270 ) Year Ended December 31, 2023 Accumulated other comprehensive loss, December 31, 2022 $ (29,104 ) Other comprehensive income 26,559 Accumulated other comprehensive loss, December 31, 2023 $ (2,545 ) 49 Table of Contents Our GAAP equity changes as the values of our RMBS are marked to market each quarter, among other factors.
The $63.4 million decrease in realized loss on RMBS for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was due to a decline in the number of RMBS securities sold during the year ended December 31, 2023.
The $29.7 million decrease in realized loss on RMBS for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was due to a decline in the number of RMBS securities sold during the year ended December 31, 2024.
Realized Loss on RMBS, Net Realized loss on RMBS for the year ended December 31, 2023 was $36.3 million as compared to $99.7 million for the year ended December 31, 2022.
Realized Loss on RMBS, Net Realized loss on RMBS for the year ended December 31, 2024 was $6.6 million as compared to $36.3 million for the year ended December 31, 2023.
Our Manager is responsible for all costs incident to the performance of its duties under the Management Agreement. We believe that our Manager uses the proceeds from its management fee in part to pay the Services Provider for services provided under the Services Agreement. Our officers receive no cash compensation directly from us. Our Manager provides us with our officers.
CHMM was responsible for all costs incident to the performance of its duties under the Management Agreement. We believe that CHMM used the proceeds from its management fee in part to pay the Services Provider for services provided under the Services Agreement. Our officers received no cash compensation directly from us. CHMM provided us with our officers.
Our GAAP loss per share for the year ended December 31, 2023 was $1.70 and our GAAP earnings per share for the year ended December 31, 2022 were $0.60. 65 Table of Contents Contractual Obligations Our contractual obligations as of December 31, 2023 and December 31, 2022 included repurchase agreements, borrowings under our MSR financing arrangements, our Management Agreement with our Manager, and our subservicing agreements.
Our GAAP income per diluted share for the year ended December 31, 2024 was $0.07 and our GAAP loss per diluted share for the year ended December 31, 2023 was $1.70. 57 Table of Contents Contractual Obligations Our contractual obligations as of December 31, 2024 and December 31, 2023 included repurchase agreements, borrowings under our MSR financing arrangements, our Management Agreement with our Manager, and our subservicing agreements.
The servicing fees are based on a contractual percentage of the outstanding principal balance and are recognized as revenue as the related mortgage payments are collected. Corresponding costs to service are charged to expense as incurred.
The servicing fees are based on a contractual percentage of the outstanding principal balance and are recognized as revenue as the related mortgage payments are collected. Corresponding costs to service are charged to expense as incurred. Servicing fee income received and servicing expenses incurred are reported on the consolidated statements of income (loss).
The $105.0 million increase in unrealized loss on derivatives for the year ended December 31, 2023 as compared to December 31, 2022 was primarily due to changes in interest rates and the composition of our derivatives relative to the prior year.
The $52.9 million decrease in unrealized loss on derivatives for the year ended December 31, 2024 as compared to December 31, 2023 was primarily due to changes in interest rates and the composition of our derivatives relative to the prior year.
The following tables set forth certain characteristics of the mortgage loans underlying those MSRs as of the dates indicated (dollars in thousands): MSR Collateral Characteristics As of December 31, 2023 Collateral Characteristics Current Carrying Amount Current Principal Balance WA Coupon (A) WA Servicing Fee (A) WA Maturity (months) (A) WA Loan Age (months) (A) ARMs % (B) MSRs $ 253,629 $ 19,972,994 3.48 % 0.25 % 300 42 0.1 % MSR Total/Weighted Average $ 253,629 $ 19,972,994 3.48 % 0.25 % 300 42 0.1 % As of December 31, 2022 Collateral Characteristics Current Carrying Amount Current Principal Balance WA Coupon (A) WA Servicing Fee (A) WA Maturity (months) (A) WA Loan Age (months) (A) ARMs % (B) MSRs $ 279,739 $ 21,688,353 3.49 % 0.25 % 310 31 0.1 % MSR Total/Weighted Average $ 279,739 $ 21,688,353 3.49 % 0.25 % 310 31 0.1 % (A) Weighted average coupon, servicing fee, maturity and loan age of the underlying residential mortgage loans in the pool are based on the unpaid principal balance.
The following tables set forth certain characteristics of the mortgage loans underlying those MSRs as of the dates indicated (dollars in thousands): MSR Collateral Characteristics As of December 31, 2024 Collateral Characteristics Current arrying Amount Current Principal Balance WA Coupon (A) WA Servicing Fee (A) WA Maturity (months) (A) WA Loan Age (months) (A) ARMs % (B) MSRs $ 233,658 $ 17,304,133 3.50 % 0.25 % 294 53 0.1 % MSR Total/Weighted Average $ 233,658 $ 17,304,133 3.50 % 0.25 % 294 53 0.1 % As of December 31, 2023 Collateral Characteristics Current Carrying Amount Current Principal Balance WA Coupon (A) WA Servicing Fee (A) WA Maturity (months) (A) WA Loan Age (months) (A) ARMs % (B) MSRs $ 253,629 $ 19,972,994 3.48 % 0.25 % 300 42 0.1 % MSR Total/Weighted Average $ 253,629 $ 19,972,994 3.48 % 0.25 % 300 42 0.1 % (A) Weighted average coupon, servicing fee, maturity and loan age of the underlying residential mortgage loans in the pool are based on the unpaid principal balance.
The Preferred Stock repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. During the year ended December 31, 2023, the Company did not repurchase any Preferred Stock pursuant to the repurchase program.
The preferred stock repurchase program does not require the purchase of any minimum number of shares of preferred stock, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice.
The $48.9 million increase in unrealized loss on our investments in Servicing Related Assets for December 31, 2023 as compared to December 31, 2022 was primarily due to changes in valuation inputs or assumptions.
The $18.7 million decrease in unrealized loss on our investments in Servicing Related Assets for December 31, 2024 as compared to December 31, 2023 was primarily due to changes in valuation inputs or assumptions.
We will also be required to pay a termination fee equal to three times the average annual management fee earned by our Manager during the two four-quarter periods ending as of the end of the most recently completed fiscal quarter prior to the effective date of the termination.
In certain circumstances, we were required to pay CHMM a termination fee equal to three times the average annual management fee earned by CHMM during the two four-quarter periods ending as of the end of the most recently completed fiscal quarter prior to the effective date of the termination.
Realized Gain on Derivatives, Net Realized gain on derivatives for the year ended December 31, 2023 was $33.8 million as compared to $1.4 million for the year ended December 31, 2022.
Realized Gain on Derivatives, Net Realized gain on derivatives for the year ended December 31, 2024 was $21.3 million as compared to $33.8 million for the year ended December 31, 2023.
Net Income Allocated to Noncontrolling Interests in Operating Partnership Net income allocated to noncontrolling interests in the Operating Partnership, which are LTIP-OP Units owned by our directors and officers and by certain other individuals who provide services to us through the Manager, represented approximately 1.9% and 2.0% of net income for the years ended December 31, 2023 and December 31, 2022, respectively.
Net Income Allocated to Noncontrolling Interests in Operating Partnership Net income allocated to noncontrolling interests in the Operating Partnership, which are LTIP-OP Units owned by our directors, officers and employees represented approximately 2.0% and 1.9% of net income for the years ended December 31, 2024 and December 31, 2023, respectively.
The Company also has the ability to request up to an additional $5.0 million of borrowings. On April 2, 2019, Aurora and QRS V entered into an amendment that increased the maximum amount of the Freddie Mac MSR Revolver to $100.0 million.
On April 2, 2019, Aurora and QRS V entered into an amendment that increased the maximum amount of the Freddie Mac MSR Revolver to $100.0 million.
The following table reconciles the GAAP measure of net income (loss) to EAD and related per average common share amounts, for the periods indicated (dollars in thousands): Year Ended December 31, 2023 2022 Net Income (Loss) $ (35,455 ) $ 22,189 Realized loss on RMBS, net 36,315 99,694 Realized loss on derivatives, net (A) 4,377 16,051 Realized gain on acquired assets, net (23 ) (12 ) Unrealized gain on RMBS measured at fair value through earnings, net (9,755 ) - Unrealized loss (gain) on derivatives, net 43,071 (61,864 ) Unrealized gain on investments in MSRs, net of estimated MSR amortization (12,593 ) (53,182 ) Tax expense on realized and unrealized gain on MSRs 2,876 9,460 Total EAD: $ 28,813 $ 32,336 EAD attributable to noncontrolling interests in Operating Partnership (537 ) (656 ) Dividends on preferred stock 9,853 9,853 EAD Attributable to Common Stockholders $ 18,423 $ 21,827 EAD Attributable to Common Stockholders, per Diluted Share $ 0.70 $ 1.10 GAAP Net Income (Loss) Per Share of Common Stock, per Diluted Share $ (1.70) $ 0.60 (A) Excludes drop income on TBA dollar rolls of $3.2 million and $6.3 million and interest rate swap periodic interest income of $35.0 million and $11.1 million for the years ended December 31, 2023 and December 31, 2022, respectively. 59 Table of Contents Our Portfolio MSRs Aurora’s MSR portfolio of Fannie Mae and Freddie Mac MSRs have an aggregate UPB of approximately $20.0 billion as of December 31, 2023.
The following table reconciles the GAAP measure of net income (loss) to EAD and related per average common share amounts, for the periods indicated (dollars in thousands): Year Ended December 31, 2024 2023 Net Income (Loss) $ 12,210 $ (35,455 ) Realized loss on RMBS, net 6,595 36,315 Realized loss on derivatives, net (A) 14,687 4,377 Realized gain on investments in MSRs, net (504 ) - Realized gain on acquired assets, net (2 ) (23 ) Unrealized loss (gain) on RMBS measured at fair value through earnings, net 19,445 (9,755 ) Unrealized loss (gain) on derivatives, net (9,809 ) 43,071 Unrealized gain on investments in MSRs, net of estimated MSR amortization (26,796 ) (12,593 ) Tax expense on realized and unrealized gain on MSRs 6,716 2,876 Total EAD: $ 22,542 $ 28,813 EAD attributable to noncontrolling interests in Operating Partnership (442 ) (537 ) Dividends on preferred stock (9,969 ) (9,853 ) EAD Attributable to Common Stockholders $ 12,131 $ 18,423 EAD Attributable to Common Stockholders, per Diluted Share $ 0.40 $ 0.70 GAAP Net Income (Loss) Per Share of Common Stock, per Diluted Share $ 0.07 $ (1.70 ) (A) Excludes drop income on TBA dollar rolls of $2.4 million and $3.2 million and interest rate swap periodic interest income of $33.6 million and $35.0 million for the years ended December 31, 2024 and December 31, 2023, respectively. 51 Table of Contents Our Portfolio MSRs Aurora’s MSR portfolio of Fannie Mae and Freddie Mac MSRs have an aggregate UPB of approximately $17.3 billion as of December 31, 2024.
At December 31, 2023 and December 31, 2022, approximately $106.0 million and $116.0 million, respectively, was outstanding under the Fannie Mae MSR Revolving Facility. 64 Table of Contents Cash Flows Operating and Investing Activities Our operating activities provided cash of approximately $40.7 million and $59.9 million for the years ended December 31, 2023 and December 31, 2022, respectively.
At December 31, 2024 and December 31, 2023, approximately $95.6 million and $106.0 million, respectively, was outstanding under the Fannie Mae MSR Revolving Facility. Cash Flows Operating and Investing Activities Our operating activities used cash of approximately $4.7 million and provided cash of approximately $40.7 million for the years ended December 31, 2024 and December 31, 2023, respectively.
Unrealized Gain (Loss) on Investments in Servicing Related Assets Unrealized loss on our investments in Servicing Related Assets for the year ended December 31, 2023 was $25.9 million as compared to a gain of $23.0 million for the year ended December 31, 2022.
Unrealized Loss on Investments in Servicing Related Assets Unrealized loss on our investments in Servicing Related Assets for the year ended December 31, 2024 was $7.2 million as compared to $25.9 million for the year ended December 31, 2023.
Repurchase Transactions We finance the acquisition of our RMBS for our portfolio through repurchase transactions under master repurchase agreements. Repurchase transactions are treated as collateralized financing transactions and are carried at their contractual amounts as specified in the respective transactions. Accrued interest payable is included in “Accrued expenses and other liabilities” on the consolidated balance sheets.
Repurchase transactions are treated as collateralized financing transactions and are carried at their contractual amounts as specified in the respective transactions. Accrued interest payable is included in “Accrued expenses and other liabilities” on the consolidated balance sheets.
Unrealized Gain on RMBS, Measured at Fair Value through Earnings, Net Unrealized gain on RMBS measured at fair value through earnings for the year ended December 31, 2023 was $9.8 million as compared to $0 for the year ended December 31, 2022.
Treasury futures. Unrealized Gain (Loss) on RMBS, Measured at Fair Value through Earnings, Net Unrealized loss on RMBS measured at fair value through earnings for the year ended December 31, 2024 was $19.4 million as compared to a gain of $9.8 million for the year ended December 31, 2023.
The $595,000 increase in general and administrative expense for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to an increase in professional fees.
The $4.3 million increase in general and administrative expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to an increase in professional fees relating to the Internalization.
General and Administrative Expense General and administrative expense for the year ended December 31, 2023 was $6.9 million as compared to $6.3 million for the year ended December 31, 2022.
General and Administrative Expense General and administrative expense for the year ended December 31, 2024 was $10.7 million as compared to $6.4 million for the year ended December 31, 2023.
The Management Agreement requires the Company and the Manager to terminate the Management Agreement without payment of any termination fee in connection with the consummation of an internalization event (as defined in the Management Agreement). We pay all of our direct operating expenses, except those specifically required to be borne by our Manager under the Management Agreement.
The Management Agreement was terminated without payment of any termination fee in connection with our consummation of an internalization event (as defined in the Management Agreement), effective as of November 14, 2024. We paid all of our direct operating expenses, except those specifically required to be borne by CHMM under the Management Agreement.
MSR Financing As of December 31, 2023, the Company had two separate MSR financing facilities: (i) the Freddie Mac MSR Revolver, which is a revolving credit facility for up to $100.0 million that is secured by all Freddie Mac MSRs owned by Aurora; and (ii) the Fannie Mae MSR Revolving Facility, which is a revolving credit facility for up to $150.0 million, that is secured by all Fannie Mae MSRs owned by Aurora.
The weighted average term to maturity of our borrowings under repurchase agreements as of December 31, 2024 and December 31, 2023 was 18 days and 21 days, respectively. 55 Table of Contents MSR Financing As of December 31, 2024, the Company had two separate MSR financing facilities: (i) the Freddie Mac MSR Revolver, which is a revolving credit facility for up to $100.0 million that is secured by all Freddie Mac MSRs owned by Aurora; and (ii) the Fannie Mae MSR Revolving Facility, which is a revolving credit facility for up to $150.0 million, that is secured by all Fannie Mae MSRs owned by Aurora.
The RMBS repurchase agreements are guaranteed by the Company. The weighted average difference between the market value of the assets and the face amount of available financing for the RMBS repurchase agreements, or the haircut, was 4.3% as of December 31, 2023 and December 31, 2022.
These short-term borrowings were used to finance certain of our investments in RMBS. The RMBS repurchase agreements are guaranteed by the Company. The weighted average difference between the market value of the assets and the face amount of available financing for the RMBS repurchase agreements, or the haircut, was 4.4% as of December 31, 2024 and 4.3% December 31, 2023.
The following table summarizes our contractual obligations for borrowed money as of the dates indicated (dollars in thousands): Contractual Obligations Characteristics As of December 31, 2023 Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Repurchase agreements Borrowings under repurchase agreements $ 903,489 $ - $ - $ - $ 903,489 Interest on repurchase agreement borrowings (A) $ 3,930 $ - $ - $ - $ 3,930 Freddie Mac MSR Revolver Borrowings under Freddie Mac MSR Revolver $ 64,500 $ - $ - $ - $ 64,500 Interest on Freddie Mac MSR Revolver borrowings $ 1,329 $ - $ - $ - $ 1,329 Fannie Mae MSR Revolving Facility Borrowings under Fannie Mae MSR Revolving Facility $ - $ 8,679 $ 97,321 $ - $ 106,000 Interest on Fannie Mae MSR Revolving Facility $ 747 $ - $ - $ - $ 747 As of December 31, 2022 Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Repurchase agreements Borrowings under repurchase agreements $ 825,962 $ - $ - $ - $ 825,962 Interest on repurchase agreement borrowings (A) $ 2,797 $ - $ - $ - $ 2,797 Freddie Mac MSR Revolver Borrowings under Freddie Mac MSR Revolver $ 68,500 $ - $ - $ - $ 68,500 Interest on Freddie Mac MSR Revolver borrowings $ 1,010 $ - $ - $ - $ 1,010 Fannie Mae MSR Revolving Facility Borrowings under Fannie Mae MSR Revolving Facility $ 627 $ 16,406 $ 98,967 $ - $ 116,000 Interest on Fannie Mae MSR Revolving Facility $ 700 $ - $ - $ - $ 700 (A) Interest expense is calculated based on the interest rate in effect at December 31, 2023 and December 31, 2022, respectively, and includes all interest expense incurred through those dates. 66 Table of Contents Management Agreement The Management Agreement with our Manager provides that our Manager is entitled to receive a management fee, the reimbursement of certain expenses and, in certain circumstances, a termination fee.
The following table summarizes our contractual obligations for borrowed money as of the dates indicated (dollars in thousands): Contractual Obligations Characteristics As of December 31, 2024 Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Repurchase agreements Borrowings under repurchase agreements $ 1,077,257 $ - $ - $ - $ 1,077,257 Interest on repurchase agreement borrowings (A) $ 4,112 $ - $ - $ - $ 4,112 Freddie Mac MSR Revolver Borrowings under Freddie Mac MSR Revolver $ 56,500 $ - $ - $ - $ 56,500 Interest on Freddie Mac MSR Revolver borrowings $ 1,098 $ - $ - $ - $ 1,098 Fannie Mae MSR Revolving Facility Borrowings under Fannie Mae MSR Revolving Facility $ 555 $ 14,323 $ 80,722 $ - $ 95,600 Interest on Fannie Mae MSR Revolving Facility $ 603 $ - $ - $ - $ 603 As of December 31, 2023 Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Repurchase agreements Borrowings under repurchase agreements $ 903,489 $ - $ - $ - $ 903,489 Interest on repurchase agreement borrowings (A) $ 3,930 $ - $ - $ - $ 3,930 Freddie Mac MSR Revolver Borrowings under Freddie Mac MSR Revolver $ 64,500 $ - $ - $ - $ 64,500 Interest on Freddie Mac MSR Revolver borrowings $ 1,329 $ - $ - $ - $ 1,329 Fannie Mae MSR Revolving Facility Borrowings under Fannie Mae MSR Revolving Facility $ - $ 8,679 $ 97,321 $ - $ 106,000 Interest on Fannie Mae MSR Revolving Facility $ 747 $ - $ - $ - $ 747 (A) Interest expense is calculated based on the interest rate in effect at December 31, 2024 and December 31, 2023, respectively, and includes all interest expense incurred through those dates. 58 Table of Contents Management Agreement The Management Agreement with CHMM, which was terminated on November 14, 2024, provided that CHMM was entitled to receive a management fee, the reimbursement of certain expenses and, in certain circumstances, a termination fee.
The shares were sold at a weighted average price of $4.87 per share for aggregate gross proceeds of approximately $31.5 million before fees of approximately $631,000. During the year ended December 31, 2022, the Company issued and sold 5,212,841 shares of common stock pursuant to the Common Stock ATM Program.
The shares were sold at a weighted average price of $3.59 per share for aggregate gross proceeds of approximately $5.6 million before fees of approximately $111,000. During the year ended December 31, 2023, the Company issued and sold 6,470,004 shares of common stock under the Common Stock ATM Program.
The $32.4 million increase in realized gain on derivatives for the year ended December 31, 2023 as compared to December 31, 2022 was substantially comprised of an increase of $40.8 million in gains on TBAs and an increase of $23.9 million in interest income on interest rate swaps, offset by an increase of $32.7 million in losses on U.S. treasury futures.
The $12.5 million decrease in realized gain on derivatives for the year ended December 31, 2024 as compared to December 31, 2023 was substantially comprised of an increase of $24.7 million in losses on TBAs and a decrease of $1.4 million in interest income on interest rate swaps, offset by a decrease of $9.2 million in losses on interest rate swaps and a decrease of $4.3 million in losses on U.S.
The shares were sold at a weighted average price of $6.50 per share for aggregate gross proceeds of approximately $33.9 million before fees of approximately $677,000.
The shares were sold at a weighted average price of $4.87 per share for aggregate gross proceeds of approximately $31.5 million before fees of approximately $631,000.
As of December 31, 2023, approximately $4.8 million was remaining pursuant to the Common Stock ATM Program. During the year ended December 31, 2023, the Company issued and sold 6,470,004 shares of common stock under the Common Stock ATM Program.
As of December 31, 2024, approximately $49.2 million was remaining pursuant to the Common Stock ATM Program. During the year ended December 31, 2024, the Company issued and sold 1,544,917 shares of common stock under the Common Stock ATM Program.
As a result, we would have an asset with a lower yield than current investments for a longer period of time. In addition, if we have hedged our interest rate risk, extension may cause the security to be outstanding longer than the related hedge, thereby reducing the protection intended to be provided by the hedge.
In addition, if we have hedged our interest rate risk, extension may cause the security to be outstanding longer than the related hedge, thereby reducing the protection intended to be provided by the hedge.
The $20.4 million increase in interest income for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was due to purchases of new securities, as well as replacing lower yielding securities with higher yielding securities coupled with portfolio positioning, which resulted in a decrease in price premium amortization driven by lower prepayment speeds.
The $5.8 million increase in interest income for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was due to purchases of new securities, as well as replacing lower yielding securities with higher yielding securities coupled with portfolio positioning.
In the past, we have invested in Agency CMOs consisting of interest only securities (“IOs”) as well as non-Agency RMBS and may do so in the future subject to market conditions and availability of capital.
Our RMBS consist solely of Agency RMBS on which the payments of principal and interest are guaranteed by an Agency. In the past, we have invested in Agency CMOs consisting of IOs as well as non-Agency RMBS and may do so in the future subject to market conditions and availability of capital.
Such termination fee will be payable upon termination or non-renewal of the Management Agreement by us without cause or by our Manager if we materially breach the Management Agreement.
Such termination fee was required to be paid upon termination or non-renewal of the Management Agreement by us without cause or by CHMM if we materially breached the Management Agreement.
Set forth below is the positive net spread between the yield on RMBS and our costs of funding those assets at the end of each of the quarters indicated below: Average Net Yield Spread at Period End Quarter Ended Average Asset Yield Average Cost of Funds (A) Average Net Interest Rate Spread December 31, 2023 4.77 % 0.96 % 3.81 % September 30, 2023 4.66 % 0.87 % 3.79 % June 30, 2023 4.49 % 0.53 % 3.96 % March 31, 2023 4.40 % 0.73 % 3.68 % December 31, 2022 4.29 % 0.69 % 3.60 % September 30, 2022 3.90 % 0.77 % 3.13 % June 30, 2022 3.56 % 0.32 % 3.25 % March 31, 2022 2.98 % 0.49 % 2.49 % (A) Average Cost of Funds also includes the benefits of related swaps. 50 Table of Contents Changes in the Market Value of Our Assets We hold our Servicing Related Assets as long-term investments.
Set forth below is the positive net spread between the yield on RMBS and our costs of funding those assets at the end of each of the quarters indicated below: Average Net Yield Spread at Period End Quarter Ended Average Asset Yield Average Cost of Funds (A) Average Net Interest Rate Spread December 31, 2024 4.91 % 1.12 % 3.79 % September 30, 2024 4.93 % 1.00 % 3.92 % June 30, 2024 4.88 % 1.13 % 3.74 % March 31, 2024 4.83 % 1.07 % 3.75 % December 31, 2023 4.77 % 0.96 % 3.81 % September 30, 2023 4.66 % 0.87 % 3.79 % June 30, 2023 4.49 % 0.53 % 3.96 % March 31, 2023 4.40 % 0.73 % 3.68 % (A) Average Cost of Funds also includes the benefits of related swaps.
The following tables provide additional information regarding borrowings under our repurchase agreements (dollars in thousands): Repurchase Agreement Characteristics As of December 31, 2023 RMBS Market Value Repurchase Agreements Weighted Average Rate Less than one month $ 833,443 $ 772,466 5.55 % One to three months 139,778 131,023 5.55 % Total/Weighted Average $ 973,221 $ 903,489 5.55 % As of December 31, 2022 RMBS Market Value Repurchase Agreements Weighted Average Rate Less than one month $ 750,218 $ 715,899 4.39 % One to three months 114,418 110,063 4.53 % Total/Weighted Average $ 864,636 $ 825,962 4.41 % The amount of collateral as of December 31, 2023 and December 31, 2022, including cash, was $984.2 million and $869.0 million, respectively.
The following tables provide additional information regarding borrowings under our repurchase agreements (dollars in thousands): Repurchase Agreement Characteristics As of December 31, 2024 RMBS Market Value Repurchase Agreements Weighted Average Rate Less than one month $ 1,029,996 $ 1,005,685 4.75 % One to three months 73,626 71,572 4.72 % Total/Weighted Average $ 1,103,622 $ 1,077,257 4.75 % As of December 31, 2023 RMBS Market Value Repurchase Agreements Weighted Average Rate Less than one month $ 833,443 $ 772,466 5.55 % One to three months 139,778 131,023 5.55 % Total/Weighted Average $ 973,221 $ 903,489 5.55 % The amount of collateral as of December 31, 2024 and December 31, 2023, including cash, was $1,123.7 million and $984.2 million, respectively.
Servicing fee income received and servicing expenses incurred are reported on the consolidated statements of income (loss). 53 Table of Contents Income Taxes We elected to be taxed as a REIT under the Code commencing with our short taxable year ended December 31, 2013. We expect to continue to qualify to be treated as a REIT.
Income Taxes We elected to be taxed as a REIT under the Code commencing with our short taxable year ended December 31, 2013. We expect to continue to qualify to be treated as a REIT.
Treasury rate and tightening of credit spreads caused a net unrealized gain on our available-for-sale RMBS, which was chiefly driven by the interest and mortgage rate rally that occurred in the fourth quarter of the year and positioning of securities. During the year ended December 31, 2022, increases in the 10 Year U.S.
Treasury rate caused a net unrealized gain on our available-for-sale RMBS, which was chiefly driven by the interest and mortgage rate rally that occurred in the fourth quarter of the year and positioning of securities. Unrealized gain (loss) on available-for-sale RMBS is recorded in accumulated other comprehensive income (loss).
Dividends U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income.
The cash used by our investing activities during the years ended December 31, 2024 and December 31, 2023 primarily resulted from RMBS purchases offset by RMBS sales and principal paydowns of RMBS. 56 Table of Contents Dividends U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income.
Unrealized gains and losses on RMBS classified as available-for-sale are reported in accumulated other comprehensive income, whereas unrealized gains and losses on RMBS for which we elected the fair value option are reported in the consolidated statements of income (loss).
Unrealized gains and losses on RMBS classified as available-for-sale are reported in accumulated other comprehensive income, whereas unrealized gains and losses on RMBS for which we elected the fair value option are reported in the consolidated statements of income (loss). 41 Table of Contents We evaluate the cost basis of our available-for-sale RMBS on a quarterly basis under ASC 326-30, Financial Instruments-Credit Losses: Available-for-Sale Debt Securities.
(B) ARMs % represents the percentage of the total principal balance of the pool that corresponds to ARMs and hybrid ARMs. 60 Table of Contents RMBS The following tables summarize the characteristics of our RMBS portfolio and certain characteristics of the collateral underlying our RMBS as of the dates indicated (dollars in thousands): RMBS Characteristics As of December 31, 2023 Gross Unrealized Weighted Average Asset Type Original Face Value Book Value Gains Losses Carrying Value (A) Number of Securities Rating Coupon Yield (C) Maturity (Years) RMBS, available-for-sale, measured at fair value through OCI Fannie Mae $ 211,773 $ 187,746 $ 2,970 $ (1,607 ) $ 189,109 15 (B) 4.55 % 4.70 % 28 Freddie Mac 262,695 235,260 1,075 (4,865 ) 231,470 19 (B) 4.45 % 4.50 % 28 RMBS, measured at fair value through earnings Fannie Mae 221,965 208,487 4,606 (1,076 ) 212,017 17 (B) 4.78 % 4.94 % 28 Freddie Mac 401,287 373,310 7,515 (1,291 ) 379,534 29 (B) 4.72 % 4.88 % 29 Total/weighted average RMBS $ 1,097,720 $ 1,004,803 $ 16,166 $ (8,839 ) $ 1,012,130 80 4.64 % 4.77 % 28 As of December 31, 2022 Gross Unrealized Weighted Average Asset Type Original Face Value Book Value Gains Losses Carrying Value (A) Number of Securities Rating Coupon Yield (C) Maturity (Years) RMBS, available-for-sale, measured at fair value through OCI Fannie Mae $ 550,740 $ 497,038 $ 2,843 $ (16,484 ) $ 483,397 45 (B) 4.27 % 4.34 % 29 Freddie Mac 500,873 463,380 1,384 (16,730 ) 448,034 38 (B) 4.18 % 4.24 % 29 Total/weighted average RMBS $ 1,051,613 $ 960,418 $ 4,227 $ (33,214 ) $ 931,431 83 4.23 % 4.29 % 29 (A) See “Item 8.
(B) ARMs % represents the percentage of the total principal balance of the pool that corresponds to ARMs and hybrid ARMs. 52 Table of Contents RMBS The following tables summarize the characteristics of our RMBS portfolio and certain characteristics of the collateral underlying our RMBS as of the dates indicated (dollars in thousands): RMBS Characteristics As of December 31, 2024 Gross Unrealized Weighted Average Asset Type Original Face Value Book Value Gains Losses Carrying Value (A) Number of Securities Rating Coupon Yield (C) Maturity (Years) RMBS, available-for-sale, measured at fair value through OCI Fannie Mae $ 160,092 $ 131,441 $ 492 $ (2,282 ) $ 129,651 11 (B) 4.62 % 4.79 % 27 Freddie Mac 157,618 127,839 - (5,362 ) 122,477 12 (B) 4.34 % 4.44 % 27 RMBS, measured at fair value through earnings Fannie Mae 335,927 299,453 1,870 (5,375 ) 295,948 24 (B) 4.81 % 4.94 % 28 Freddie Mac 648,523 580,529 3,134 (9,319 ) 574,344 48 (B) 4.93 % 5.03 % 28 Total/weighted average RMBS $ 1,302,160 $ 1,139,262 $ 5,496 $ (22,338 ) $ 1,122,420 95 4.80 % 4.91 % 28 As of December 31, 2023 Gross Unrealized Weighted Average Asset Type Original Face Value Book Value Gains Losses Carrying Value (A) Number of Securities Rating Coupon Yield (C) Maturity (Years) RMBS, available-for-sale, measured at fair value through OCI Fannie Mae $ 211,773 $ 187,746 $ 2,970 $ (1,607 ) $ 189,109 15 (B) 4.55 % 4.70 % 28 Freddie Mac 262,695 235,260 1,075 (4,865 ) 231,470 19 (B) 4.45 % 4.50 % 28 RMBS, measured at fair value through earnings Fannie Mae 221,965 208,487 4,606 (1,076 ) 212,017 17 (B) 4.78 % 4.94 % 28 Freddie Mac 401,287 373,310 7,515 (1,291 ) 379,534 29 (B) 4.72 % 4.88 % 29 Total/weighted average RMBS $ 1,097,720 $ 1,004,803 $ 16,166 $ (8,839 ) $ 1,012,130 80 4.64 % 4.77 % 28 (A) See “Item 8.
Our MSRs are carried at their fair value with changes in their fair value recorded in other income (loss) in our consolidated statements of income (loss).
Changes in the Market Value of Our Assets We hold our Servicing Related Assets as long-term investments. Our MSRs are carried at their fair value with changes in their fair value recorded in other income (loss) in our consolidated statements of income (loss).
In addition, lower net interest income resulting from higher rates is expected to be partially offset by lower prepayments which extends the length of cash flows from the MSRs and slows the premium amortization on the RMBS portfolio.
They may also negatively impact our results as we have certain assets and liabilities that are sensitive to changes in interest rates. In addition, lower net interest income resulting from higher rates is partially offset by lower prepayments which extends the length of cash flows from the MSRs and slows the premium amortization on the RMBS portfolio.
Inflation peaked in June of 2022 with consumer prices rising at a rate of 9.0% on a year-over-year basis, but has since declined with consumer prices rising 3.4% on a year-over-year basis in December of 2023.
Inflation peaked in June of 2022 with consumer prices rising at a rate of 9.1% on a year-over-year basis, but has subsequently declined to 2.7% on a year-over-year basis in November of 2024.
Changes in underlying assumptions used in estimating fair value impact the carrying value of the investments in RMBS as well as their yield. For additional information on our assessment of credit-related impairment and our fair value methodology, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 4. Investments in RMBS and Note 9. Fair Value”.
Fair value of our investments in RMBS is determined based upon prices obtained from third-party pricing providers. Changes in underlying assumptions used in estimating fair value impact the carrying value of the investments in RMBS as well as their yield. For additional information on our assessment of credit-related impairment and our fair value methodology, see “Item 8.
The higher interest rates imposed by the Federal Reserve to address inflation may increase our interest expense, which expense may not be fully offset by any resulting increase in our interest income.
If the Federal Reserve decides to tighten monetary policy in the future, it may increase our interest expense, which expense may not be fully offset by any resulting increase in our interest income.
Unrealized gain (loss) on available-for-sale RMBS is recorded in accumulated other comprehensive income (loss). 58 Table of Contents Non-GAAP Financial Measures This Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains analysis and discussion of non-GAAP financial measures, including: • earnings available for distribution; and • earnings available for distribution per average common share.
Non-GAAP Financial Measures This Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains analysis and discussion of non-GAAP financial measures, including: • earnings available for distribution; and • earnings available for distribution per average common share.
Amounts borrowed bear interest at a weighted average borrowing rate of 7.7%. At December 31, 2023 and December 31, 2022, approximately $64.5 million and $68.5 million, respectively, was outstanding under the Freddie Mac MSR Revolver. Fannie Mae MSR Revolving Facility .
At December 31, 2024 and December 31, 2023, approximately $56.5 million and $64.5 million, respectively, was outstanding under the Freddie Mac MSR Revolver. Fannie Mae MSR Revolving Facility .
Servicing Costs Servicing costs for the year ended December 31, 2023 were $11.2 million as compared to $11.8 million for the year ended December 31, 2022. The $589,000 decrease in servicing costs for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to changes in the delinquency profile.
The $4.9 million decrease in servicing fee income for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was due to changes in the size of the portfolio. Servicing Costs Servicing costs for the year ended December 31, 2024 were $12.4 million as compared to $11.2 million for the year ended December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

15 edited+3 added−2 removed13 unchanged
Biggest changeActual economic conditions or implementation of decisions by our Manager may produce results that differ significantly from the estimates and assumptions used in our models. 69 Table of Contents Prepayment Risk; Extension Risk The following tables summarize the estimated change in fair value of our MSRs as of the dates indicated given several parallel shifts in the discount rate, voluntary prepayment rate and servicing cost (dollars in thousands): MSR Fair Value Changes As of December 31, 2023 (20)% (10)% -% 10% 20% Discount Rate Shift in % Estimated FV $ 278,018 $ 265,310 $ 253,629 $ 242,863 $ 232,917 Change in FV $ 24,389 $ 11,682 $ - $ (10,766 ) $ (20,712 ) % Change in FV 10 % 5 % - (4 )% (8 )% Voluntary Prepayment Rate Shift in % Estimated FV $ 265,422 $ 259,981 $ 253,629 $ 246,972 $ 240,306 Change in FV $ 11,793 $ 6,352 $ - $ (6,657 ) $ (13,322 ) % Change in FV 5 % 3 % - (3 )% (5 )% Servicing Cost Shift in % Estimated FV $ 262,597 $ 258,113 $ 253,629 $ 249,144 $ 244,660 Change in FV $ 8,968 $ 4,484 $ - $ (4,484 ) $ (8,968 ) % Change in FV 4 % 2 % - (2 )% (4 )% As of December 31, 2022 (20)% (10)% -% 10% 20% Discount Rate Shift in % Estimated FV $ 305,821 $ 292,241 $ 279,739 $ 268,201 $ 257,526 Change in FV $ 26,082 $ 12,502 $ - $ (11,538 ) $ (22,213 ) % Change in FV 9 % 4 % - (4 )% (8 )% Voluntary Prepayment Rate Shift in % Estimated FV $ 296,237 $ 288,025 $ 279,739 $ 271,707 $ 264,005 Change in FV $ 16,498 $ 8,286 $ - $ (8,032 ) $ (15,734 ) % Change in FV 6 % 3 % - (3 )% (6 )% Servicing Cost Shift in % Estimated FV $ 288,345 $ 284,042 $ 279,739 $ 275,436 $ 271,133 Change in FV $ 8,606 $ 4,303 $ - $ (4,303 ) $ (8,606 ) % Change in FV 3 % 2 % - (2 )% (3 )% 70 Table of Contents The following tables summarize the estimated change in fair value of our RMBS as of the dates indicated given several parallel shifts in interest rates (dollars in thousands): RMBS Fair Value Changes As of December 31, 2023 December 31, 2023 (0.75)% (0.50)% (0.25)% 0.25% 0.50% 0.75% RMBS Portfolio RMBS, net of swaps $ 749,491 Estimated FV $ 753,297 $ 752,391 $ 751,103 $ 747,569 $ 745,369 $ 742,833 Change in FV $ 3,806 $ 2,900 $ 1,612 $ (1,922 ) $ (4,122 ) $ (6,658 ) % Change in FV 0.51 % 0.39 % 0.22 % (0.26 )% (0.55 )% (0.89 )% As of December 31, 2022 December 31, 2022 (0.75)% (0.50)% (0.25)% 0.25% 0.50% 0.75% RMBS Portfolio RMBS, net of swaps $ 785,308 Estimated FV $ 781,962 $ 783,468 $ 784,625 $ 785,583 $ 785,537 $ 785,188 Change in FV $ (3,346 ) $ (1,840 ) $ (683 ) $ 275 $ 229 $ (120 ) % Change in FV (0.43 )% (0.23 )% (0.09 )% 0.04 % 0.03 % (0.02 )% The sensitivity analysis is hypothetical and is presented solely to assist an analysis of the possible effects on the fair value under various scenarios.
Biggest changePrepayment Risk; Extension Risk The following tables summarize the estimated change in fair value of our MSRs as of the dates indicated given several parallel shifts in the discount rate, voluntary prepayment rate and servicing cost (dollars in thousands): MSR Fair Value Changes As of December 31, 2024 (20)% (10)% -% 10% 20% Discount Rate Shift in % Estimated FV $ 257,269 $ 244,952 $ 233,658 $ 223,276 $ 213,708 Change in FV $ 23,611 $ 11,294 $ - $ (10,382 ) $ (19,950 ) % Change in FV 10 % 5 % - (4 )% (9 )% Voluntary Prepayment Rate Shift in % Estimated FV $ 240,653 $ 237,709 $ 233,658 $ 228,942 $ 223,862 Change in FV $ 6,995 $ 4,051 $ - $ (4,716 ) $ (9,796 ) % Change in FV 3 % 2 % - (2 )% (4 )% Servicing Cost Shift in % Estimated FV $ 241,240 $ 237,449 $ 233,658 $ 229,867 $ 226,076 Change in FV $ 7,582 $ 3,791 $ - $ (3,791 ) $ (7,582 ) % Change in FV 3 % 2 % - (2 )% (3 )% As of December 31, 2023 (20)% (10)% -% 10% 20% Discount Rate Shift in % Estimated FV $ 278,018 $ 265,310 $ 253,629 $ 242,863 $ 232,917 Change in FV $ 24,389 $ 11,682 $ - $ (10,766 ) $ (20,712 ) % Change in FV 10 % 5 % - (4 )% (8 )% Voluntary Prepayment Rate Shift in % Estimated FV $ 265,422 $ 259,981 $ 253,629 $ 246,972 $ 240,306 Change in FV $ 11,793 $ 6,352 $ - $ (6,657 ) $ (13,322 ) % Change in FV 5 % 3 % - (3 )% (5 )% Servicing Cost Shift in % Estimated FV $ 262,597 $ 258,113 $ 253,629 $ 249,144 $ 244,660 Change in FV $ 8,968 $ 4,484 $ - $ (4,484 ) $ (8,968 ) % Change in FV 4 % 2 % - (2 )% (4 )% 61 Table of Contents The following tables summarize the estimated change in fair value of our RMBS as of the dates indicated given several parallel shifts in interest rates (dollars in thousands): RMBS Fair Value Changes As of December 31, 2024 December 31, 2024 (0.75)% (0.50)% (0.25)% 0.25% 0.50% 0.75% RMBS Portfolio RMBS, net of swaps $ 800,308 Estimated FV $ 803,881 $ 803,288 $ 802,088 $ 798,050 $ 795,322 $ 792,144 Change in FV $ 3,574 $ 2,980 $ 1,781 $ (2,258 ) $ (4,986 ) $ (8,164 ) % Change in FV 0.45 % 0.37 % 0.22 % (0.28 )% (0.62 )% (1.02 )% As of December 31, 2023 December 31, 2023 (0.75)% (0.50)% (0.25)% 0.25% 0.50% 0.75% RMBS Portfolio RMBS, net of swaps $ 749,491 Estimated FV $ 753,297 $ 752,391 $ 751,103 $ 747,569 $ 745,369 $ 742,833 Change in FV $ 3,806 $ 2,900 $ 1,612 $ (1,922 ) $ (4,122 ) $ (6,658 ) % Change in FV 0.51 % 0.39 % 0.22 % (0.26 )% (0.55 )% (0.89 )% The sensitivity analysis is hypothetical and is presented solely to assist an analysis of the possible effects on the fair value under various scenarios.
Hedging strategies involving the use of derivatives are highly complex and may produce volatile returns. Interest Rate Cap Risk Any adjustable-rate RMBS that we acquire will generally be subject to interest rate caps, which potentially could cause such RMBS to acquire many of the characteristics of fixed-rate securities if interest rates were to rise above the cap levels.
Hedging strategies involving the use of derivatives are highly complex and may produce volatile returns. 60 Table of Contents Interest Rate Cap Risk Any adjustable-rate RMBS that we acquire will generally be subject to interest rate caps, which potentially could cause such RMBS to acquire many of the characteristics of fixed-rate securities if interest rates were to rise above the cap levels.
Our consolidated financial statements are prepared in accordance with GAAP. Our activities and consolidated balance sheets are measured primarily with reference to fair value without considering inflation. 72 Table of Contents
Our consolidated financial statements are prepared in accordance with GAAP. Our activities and consolidated balance sheets are measured primarily with reference to fair value without considering inflation. 63 Table of Contents
Our interest rate swaps and U.S. treasury futures contracts are required to be cleared on an exchange which greatly mitigates, but does not entirely eliminate, counterparty risk. Our investments in Servicing Related Assets are dependent on the applicable mortgage sub-servicer to perform its sub-servicing obligations.
Treasury futures contracts are required to be cleared on an exchange which greatly mitigates, but does not entirely eliminate, counterparty risk. Our investments in Servicing Related Assets are dependent on the applicable mortgage sub-servicer to perform its sub-servicing obligations.
As of December 31, 2023, the Company’s exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity.
As of December 31, 2024, the Company’s exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity. Our interest rate swaps and U.S.
We expect to make use of additional MSR financing, as well as possibly warehouse facilities, securitizations, re-securitizations, and public and private equity and debt issuances in addition to transaction or asset specific funding arrangements.
In general, we finance the acquisition of certain of our assets through financings in the form of repurchase agreements and bank facilities. We expect to make use of additional MSR financing, as well as possibly warehouse facilities, securitizations, re-securitizations, and public and private equity and debt issuances in addition to transaction or asset specific funding arrangements.
This could result in our receipt of less cash income on such assets than we would need to pay the interest cost on our related borrowings. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above under “—Interest Rate Risk”.
This could result in our receipt of less cash income on such assets than we would need to pay the interest cost on our related borrowings.
A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.
The illiquidity of these assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.
Weakness in the financial markets, the residential mortgage markets and the economy generally could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing. 71 Table of Contents Liquidity Risk Our Servicing Related Assets, as well as some of the assets that may in the future comprise our portfolio, are not publicly traded.
Weakness in the financial markets, the residential mortgage markets and the economy generally could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.
These instruments are intended to serve as a hedge against future interest rate or pricing changes on our borrowings. Interest Rate Effect on Net Interest Income Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing and hedging activities.
Interest Rate Effect on Net Interest Income Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing and hedging activities. The costs of our borrowings are generally based on prevailing market interest rates.
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. 68 Table of Contents Interest Rate Risk Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control.
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.
In addition, changes in the fair value based on a 10% variation in an assumption generally may not be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.
In addition, changes in the fair value based on a 10% variation in an assumption generally may not be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. 62 Table of Contents Counterparty Risk When we engage in repurchase transactions, we generally sell securities to lenders (i.e., the repurchase agreement counterparties) and receive cash from the lenders.
In addition, the values of our Servicing Related Assets are highly sensitive to changes in interest rates, historically increasing when rates rise and decreasing when rates decline.
In addition, the values of our Servicing Related Assets are highly sensitive to changes in interest rates, historically increasing when rates rise and decreasing when rates decline. Subject to maintaining our qualification as a REIT, we attempt to mitigate interest rate risk and financing pricing risk through utilization of hedging instruments, primarily interest rate swap agreements and U.S.
Counterparty Risk When we engage in repurchase transactions, we generally sell securities to lenders (i.e., the repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same securities back to us at the end of the term of the transaction.
The lenders are obligated to resell the same securities back to us at the end of the term of the transaction.
Subject to maintaining our qualification as a REIT, we attempt to mitigate interest rate risk and financing pricing risk through utilization of hedging instruments, primarily interest rate swap agreements and U.S. treasury futures, respectively. We may also use financial futures, options, interest rate cap agreements, and forward sales.
Treasury futures, respectively. We may also use financial futures, options, interest rate cap agreements, and forward sales. These instruments are intended to serve as a hedge against future interest rate or pricing changes on our borrowings.
Removed
We are subject to interest rate risk in connection with our assets and our related financing obligations. In general, we finance the acquisition of certain of our assets through financings in the form of repurchase agreements and bank facilities.
Added
Interest Rate Risk Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.
Removed
The costs of our borrowings are generally based on prevailing market interest rates.
Added
To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above under “—Interest Rate Risk.” Actual economic conditions or implementation of decisions by our management team may produce results that differ significantly from the estimates and assumptions used in our models.
Added
Liquidity Risk Our Servicing Related Assets, as well as some of the assets that may in the future comprise our portfolio, are not publicly traded. A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities.

Other CHMI 10-K year-over-year comparisons