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What changed in MFA FINANCIAL, INC.'s 10-K — 2022 vs 2023

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

+332 added−424 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-24)

Top changes in MFA FINANCIAL, INC.'s 2023 10-K

332 paragraphs added · 424 removed · 279 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

24 edited+4 added−31 removed32 unchanged
Biggest changeFINANCING STRATEGY Our financing strategy is designed to increase the size of our investment portfolio by borrowing against a substantial portion of the market value of the assets in our portfolio. We use loan securitizations, term warehouse facilities and shorter term repurchase agreements to finance our holdings of residential mortgage assets. Our financing strategy shifted significantly during 2020 and 2021.
Biggest changeWe use loan securitizations, term warehouse facilities and shorter term repurchase agreements to finance our holdings of residential mortgage assets. Going forward, in connection with our current and any future investment in residential whole loans, we expect that our financing strategy will continue to include loan securitization and other forms of structured financing, subject to market conditions.
We also own residential real estate (or REO), which is typically acquired as a result of the foreclosure or other liquidation of delinquent whole loans in connection with our loan investment activities. • Residential mortgage securities, including Agency MBS, Non-Agency MBS, CRT securities and MSR-related assets, which include term notes backed directly or indirectly by MSRs.
We also own real estate (or REO), which is typically acquired as a result of the foreclosure or other liquidation of delinquent whole loans in connection with our loan investment activities. • Residential mortgage securities, including Agency MBS, Non-Agency MBS, CRT securities and MSR-related assets, which include term notes backed directly or indirectly by MSRs.
Our Purchased Performing Loan portfolio includes: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the properties (“Transitional loans”); (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans”), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans”); and (v) previously originated loans secured by residential real estate that is generally owner occupied (“Seasoned performing loans”).
Our Purchased Performing Loan portfolio includes: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the properties (“Transitional loans”); (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans”), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans”); and (v) previously originated loans secured by residential real estate that is generally owner occupied (“Seasoned performing loans”).
We believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to continue to increase the economic and compliance costs for participants in the mortgage and securitization industries, including us. On October 19, 2022, a three-judge panel of the Fifth Circuit Court of Appeals issued an opinion in Community Financial Services Association of America, Ltd., et al. v.
We believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to continue to increase the economic and compliance costs for participants in the mortgage and securitization industries, including us. On October 19, 2022, a three-judge panel of the Fifth Circuit Court of Appeals issued an opinion in Community Financial Services Association of America, et al. v.
Through our wholly-owned subsidiary, Lima One Capital, LLC (or Lima One), a leading nationwide originator and servicer of business purpose loans (or BPLs), which we acquired on July 1, 2021, we also originate and service BPLs for real estate investors.
Through our wholly-owned subsidiary, Lima One Capital, LLC (or Lima One), a leading nationwide originator and servicer of business purpose loans (or BPLs), which we acquired on July 1, 2021, we originate and service BPLs for real estate investors.
Section 3(c)(5)(C) excludes from the definition of “investment company” entities that are primarily engaged in, among other things, “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” Many companies that 3 Table of Contents engage in the business of acquiring mortgages and mortgage-related instruments seek to rely on existing interpretations of the SEC Staff with respect to Section 3(c)(5)(C) so as not to be deemed an investment company for the purpose of regulation under the Investment Company Act.
Section 3(c)(5)(C) excludes from the definition of “investment company” entities that are primarily engaged in, among other things, “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” Many companies that engage in the business of acquiring mortgages and mortgage-related instruments seek to rely on existing interpretations of the SEC Staff with respect to Section 3(c)(5)(C) so as not to be deemed an investment company for the purpose of regulation under the Investment Company Act.
Although the Fifth Circuit’s decision applies only to the disputed regulation in that case, it may call into question the CFPB’s authority and other rules promulgated during CFPB’s self-funding structure.
Although the Fifth Circuit’s decision applies only to the disputed regulation in that case, it may call into question the Bureau’s authority and other rules promulgated during CFPB’s self-funding structure.
We acquire and hold our non-business purpose loans and certain of our Transitional loans and Single-family rental loans through certain trusts that are consolidated on our balance sheet for financial reporting purposes. In addition, during 2022, we continued to manage our Purchased Non-performing residential whole loan and Purchased Credit Deteriorated Loan portfolios.
We acquire and hold our non-business purpose loans and certain of our Transitional loans and Single-family rental loans through certain trusts that are consolidated on our balance sheet for financial reporting purposes. In addition, during 2023, we continued to manage our Purchased Non-performing residential whole loan and Purchased Credit Deteriorated Loan portfolios.
As a result, we are unable to fully predict at this time how the Dodd-Frank Act, as well as other laws or regulations that may be adopted in the future, will affect our business, results of operations and financial condition, or the environment for repurchase financing and other forms of borrowing, the investing environment for Agency MBS, Non-Agency MBS and/or residential mortgage loans, the securitization industry, Swaps and other derivatives.
As a result, we are unable to fully predict at this time how the Dodd-Frank Act, as well as other laws or regulations that may be adopted in the future, will affect our business, results of operations and financial condition, or the environment for repurchase financing and other forms of borrowing, the investing environment for Agency MBS, Non-Agency MBS and/or residential mortgage loans, the securitization industry, interest rate swap agreements (or Swaps) and other derivatives.
Residential Whole Loans During 2022, we continued to acquire residential whole loans, primarily Purchased Performing Loans, with approximately two-thirds of acquisitions reflecting loans originated by Lima One.
Residential Whole Loans During 2023, we continued to acquire residential whole loans, primarily Purchased Performing Loans, with approximately two-thirds of acquisitions reflecting loans originated by Lima One.
At the end of 2022, residential whole loan investments comprised approximately 83% of our assets and 69% of our allocated net equity. During 2023, assuming economic conditions continue to support markets for residential mortgage assets, we expect to continue pursuing investment opportunities primarily focused on residential whole loans as market opportunities arise.
At the end of 2023, residential whole loan investments comprised approximately 84% of our assets and 67% of our allocated net equity. During 2024, assuming economic conditions continue to support markets for residential mortgage assets, we expect to continue pursuing investment opportunities primarily focused on residential whole loans as market opportunities arise.
During 2022 we acquired more than $3.1 billion of residential whole loans. This includes $2.0 billion of loans originated by our wholly-owned subsidiary, Lima One, which has funded more than $2.7 billion of loans since July 2021, when we fully acquired Lima One.
During 2023 we acquired approximately $3.0 billion of residential whole loans. This includes $2.1 billion of loans originated by our wholly-owned subsidiary, Lima One, which has funded more than $4.9 billion of loans since July 2021, when we fully acquired Lima One.
The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets. EMPLOYEES/HUMAN CAPITAL MANAGEMENT At December 31, 2022, we had approximately 349 full-time employees, including 284 employees working in our Lima One subsidiary.
The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets. 2 Table of Contents EMPLOYEES/HUMAN CAPITAL MANAGEMENT At December 31, 2023, we had approximately 377 full-time employees, including 317 employees working in our Lima One subsidiary.
At December 31, 2022, our total investment-related assets were comprised of the following: $7.5 billion, or 92%, of residential whole loans (compared to $7.9 billion, or 93%, at December 31, 2021); $333.4 million, or 4%, of residential 1 Table of Contents mortgage securities (compared to $256.7 million, or 3%, at December 31, 2021); and $315.0 million, or 4%, of remaining investment-related assets, comprised primarily of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables (compared to $369.8 million, or 4% at December 31, 2021).
At December 31, 2023, our total investment-related assets were comprised of the following: $9.0 billion, or approximately 90%, of residential whole loans (compared to $7.5 billion, or 92%, at December 31, 2022); $746.1 million, or 7%, of residential mortgage securities (compared to $333.4 million, or 4%, at December 31, 2022); and $327.1 million, or 3%, of remaining 1 Table of Contents investment-related assets, comprised primarily of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables (compared to $315.0 million, or 4% at December 31, 2022).
The final rule also incorporates 4 Table of Contents the stress capital buffer determination from the ERCF into the capital planning process.
The final rule also incorporates the stress capital buffer determination from the ERCF into the capital planning process.
On October 27, 2021, FHFA announced that it is seeking comment on a proposed rulemaking that would introduce additional public disclosure requirements for the Enterprise Regulatory Capital Framework (or ERCF) for Fannie Mae and Freddie Mac.
In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in general. On October 27, 2021, FHFA announced that it is seeking comment on a proposed rulemaking that would introduce additional public disclosure requirements for the Enterprise Regulatory Capital Framework (or ERCF) for Fannie Mae and Freddie Mac.
Consumer Financial Protection Bureau, et al., concluding that the CFPB’s funding structure violates the Appropriations Clause of the U.S. Constitution. As a result, the Court vacated the payday lending rule that was the subject of challenge. The CFPB may seek a rehearing en banc and/or appeal to the U.S. Supreme Court.
Consumer Financial Protection Bureau, et al., concluding that the CFPB’s funding structure unconstitutionally violates the Appropriations Clause of the U.S. Constitution. As a result, the Court vacated the payday lending rule that was the subject of challenge.
It is unclear yet what impact the Fifth Circuit’s ruling may have on the mortgage lending markets but it may give rise to uncertainty, particularly in those markets in the Fifth Circuit. Any such uncertainty could adversely impact the cash flow on mortgage loans.
Law Offices of Crystal Moroney that CFPB’s funding structure is constitutional. It is unclear yet what impact these rulings may have on the mortgage lending markets but they may give rise to uncertainty, particularly in those markets in the Fifth Circuit. Any such uncertainty could adversely impact the cash flow on mortgage loans.
To date the SEC has not taken or otherwise announced any further action in connection with the concept release. In conjunction with our legal department, we closely monitor our compliance with Section 3(c)(5)(C) within our risk management program. (For additional discussion of the SEC’s concept release and its potential impact on us, please see Part I, Item 1A.
To date the SEC has not taken or otherwise announced any further action in connection with the concept release. In conjunction with our legal department, we closely monitor our compliance with Section 3(c)(5)(C) 3 Table of Contents within our risk management program.
We addressed these challenges by prioritizing liquidity and active portfolio management, including increasing our use of interest rate swap agreements (or Swaps) to hedge exposure to higher interest rates and using loan securitizations to generate securitized debt to replace floating rate recourse mark-to-market financing with fixed rate non-recourse, non-mark-to-market financing.
We addressed these challenges by prioritizing liquidity, prudently hedging our exposure to interest rates, and using loan securitizations to replace floating rate recourse mark-to-market financing with fixed rate non-recourse, non-mark-to-market financing.
Going forward, in connection with our current and any future investment in residential whole loans, we expect that our financing strategy will continue to include loan securitization and other forms of structured financing, subject to market conditions. 2 Table of Contents COMPETITION We believe that our principal competitors in the business of acquiring and holding residential mortgage assets of the types in which we invest are financial institutions, such as banks, specialty finance companies, insurance companies, institutional investors, including mutual funds and pension funds, hedge funds and other mortgage REITs.
COMPETITION We believe that our principal competitors in the business of acquiring and holding residential mortgage assets of the types in which we invest are financial institutions, such as banks, specialty finance companies, insurance companies, institutional investors, including mutual funds and pension funds, hedge funds and other mortgage REITs.
In late 2022, we opportunistically invested in Agency MBS, bringing our total portfolio of securities to $333.4 million. Going forward, we may continue to invest selectively in a range of residential mortgage securities as market opportunities arise.
During 2023 we opportunistically added $456.7 million of Agency MBS. Going forward, we may continue to invest selectively in a range of residential mortgage securities as market opportunities arise. FINANCING STRATEGY Our financing strategy is designed to increase the size of our investment portfolio by borrowing against a substantial portion of the market value of the assets in our portfolio.
A combination of strong loan portfolio performance, and the efforts of our asset management team, has resulted in a continued reduction in the balances of REO property held during 2022.
A combination of strong loan portfolio performance, and the efforts of our asset management team, has resulted in a continued reduction in the balances of REO property held during 2023. Securities, at Fair Value We invested in residential mortgage securities, including Agency MBS, Non-Agency MBS, CRT securities and MSR-related assets, which include term notes backed directly or indirectly by MSRs.
While continued interest rate volatility and generally wider spreads on securitized mortgage assets pressured mortgage loan pricing, we believe that our portfolio and risk management measures partially mitigated the impact of the interest rate environment. We were incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998.
Despite the continued interest rate volatility, we believe the successful execution of our strategy allowed us to add to our target asset classes at attractive yields and deliver positive returns in challenging conditions. We were incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998.
Removed
We are an internally-managed real estate investment trust (or REIT). 2022 was extremely challenging for fixed income investors, and exceptionally so for mortgage investors, including us, and was characterized by higher interest rates across the yield curve as well as wider mortgage and credit spreads.
Added
We are an internally-managed real estate investment trust (or REIT). 2023 was another challenging year for fixed income, as investors faced significant volatility as markets balanced aggressive monetary policy tightening, inflationary pressures, and increasing geopolitical uncertainty along with resilient macroeconomic data, the probability of a recession, and expectations regarding the timing of a potential monetary policy shift.
Removed
Securities, at Fair Value Prior to the onset of the COVID-19 pandemic, we owned significantly higher balances of residential mortgage securities (primarily investments in Agency MBS, Non-Agency MBS, CRT securities and MSR-Related assets). During 2020, we sold our Agency and Legacy Non-Agency MBS portfolios and significantly reduced our other securities holdings.
Added
On February 27, 2023, the Supreme Court granted the government's petition to review the Fifth Circuit's decision in Community Financial, and the Supreme Court held oral arguments in this matter in October 2023. On March 23, 2023, the Second Circuit Court of Appeals declined to follow Community Financial, concluding in Consumer Financial Protection Bureau v.
Removed
In particular, in response to the turmoil in the financial markets resulting from the conditions created by the COVID-19 pandemic, we sought to implement more durable forms of borrowing, including warehouse lines with non-mark-to-market collateral terms.
Added
(For additional discussion of the SEC’s concept release and its potential impact on us, please see Part I, Item 1A.
Removed
In addition, since the second half of 2020, we have executed numerous programmatic securitization transactions for our residential whole loans, involving Non-QM, business purpose, Agency eligible investor, Purchased Credit Deteriorated, Seasoned performing and Purchased Non-performing loan collateral.
Added
This final rule was effective August 2, 2022. 4 Table of Contents AVAILABLE INFORMATION We maintain a website at www.mfafinancial.com.
Removed
The securitization transactions lengthened the term of funding for these assets, generated additional liquidity and generally replaces floating rate financing with fixed rate financing. In addition, securitized debt financing is non-recourse and does not include mark-to-market collateral provisions.
Removed
On March 27, 2019, then President Trump issued a memorandum on federal housing finance reform that directed the Secretary of the Treasury to develop a plan for administrative and legislative reforms as soon as practicable to achieve the following housing reform goals: 1) ending the conservatorships of the Government-sponsored enterprises (or GSEs) upon the completion of specified reforms; 2) facilitating competition in the housing finance market; 3) establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and 4) providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market.
Removed
On September 5, 2019, in response to then President Trump’s memorandum, the U.S. Department of the Treasury released a plan, developed in conjunction with the FHFA, the Department of Housing and Urban Development, and other government agencies, which includes legislative and administrative reforms to achieve each of these reform goals.
Removed
At this point, it remains unclear whether any of these legislative or regulatory reforms will be enacted or implemented. On June 23, 2021, the United States Supreme Court concluded that the structure of the FHFA (which insulated its director from removal by the President) was unconstitutional and remanded the case for further proceedings.
Removed
Subsequent to the Supreme Court’s ruling, President Biden dismissed the FHFA director and appointed an acting replacement, raising further questions as to whether any of these legislative or regulatory reforms discussed above will be enacted or implemented.
Removed
The prospects for passage of any of these plans are uncertain, and the change in FHFA leadership underscores the potential for change to Fannie Mae and Freddie Mac.
Removed
In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in general. The recent change of FHFA Leadership raises further uncertainties about whether, and if so on what timeline, the Biden administration will address the conservatorships of the GSEs and any such comprehensive housing reform.
Removed
This final rule was effective August 2, 2022, and the first capital plan for each of Fannie Mae and Freddie Mac must be submitted by them not later than May 20, 2023. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) was signed into law.
Removed
Among the provisions in this wide-ranging law are protections for homeowners experiencing financial difficulties due to COVID-19, including forbearance provisions and procedures. Borrowers with federally backed mortgage loans, regardless of delinquency status, may request loan forbearance for a six-month period, with the option to extend forbearance for another six-month period if necessary.
Removed
Although the initial deadline to request forbearance on federally backed loans was set to expire under the CARES Act on December 31, 2020, the FHFA and CFPB have announced extensions for several measures to align COVID-19 mortgage relief policies across the federal government, including additional three-month extensions of COVID-19 forbearance or payment deferral options for certain borrowers.
Removed
Federally backed mortgage loans are loans secured by first- or subordinate-liens on 1-4 family residential real property, including individual units of condominiums and cooperatives, which are insured or guaranteed pursuant to certain government housing programs, such as by the Federal Housing Administration (or FHA), or U.S. Department of Agriculture, or are purchased or securitized by Fannie Mae or Freddie Mac.
Removed
The CARES Act also included a temporary 60-day foreclosure moratorium that applies to federally backed mortgage loans, which lasted until July 24, 2020.
Removed
However, the foreclosure moratorium was extended several times to July 31, 2021 and the forbearance enrollment window was extended through September 30, 2021 by Department of Housing and Urban Development, Department of Veterans Affairs, the Department of Agriculture and FHFA, which includes mortgages backed by Fannie Mae and Freddie Mac.
Removed
Although the federal foreclosure moratorium expired on July 31, 2021, various states and local jurisdictions also imposed foreclosure moratoriums, some of which continued to be in effect after the federal moratorium expired.
Removed
In February 2022, FHA issued a mortgagee letter clarifying the extension of deadlines for the first legal action and reasonable diligence time frame for FHA-insured single family mortgages and home equity conversion mortgages (or HECM) as the later of (i) 180 days from expiration of the foreclosure moratorium for FHA-insured Single Family Mortgages and (ii) the expiration of the borrower’s COVID-19 forbearance of the HECM COVID-19 extension period.
Removed
Some of those extended deadlines may adversely affect cash flow on mortgage loans. In December 2020, the Consolidated Appropriations Act, 2021 was signed into law, which is an omnibus spending bill that included a second COVID-19 stimulus bill (or Second Stimulus).
Removed
In addition to providing stimulus checks for individuals and families, the Second Stimulus provides for, among other things, (i) an extension of federal unemployment insurance benefits, (ii) funding to help individuals connect remotely during the pandemic, (iii) tax credits for companies offering paid sick leave and (iv) funding for vaccine distribution and development.
Removed
As further described below, the Second Stimulus provided an additional $25 billion in tax-free rental assistance and an executive order by President Biden extended the temporary eviction moratorium promulgated by the Centers for Disease Control and Prevention (or CDC) (described below) through March 31, 2021.
Removed
On September 1, 2020, the CDC issued an order effective September 4, 2020 through December 31, 2020 temporarily halting residential evictions to prevent the further spread of COVID-19.
Removed
The Second Stimulus extended the order to January 31, 2021 and on January 20, 2021, Present Joseph Biden signed an executive order that, among other things, further extended the temporary eviction moratorium promulgated by the CDC through March 31, 2021.
Removed
The CDC order was further extended through July 31, 2021, and on August 3, 2021, it was further extended through October 3, 2021, to those U.S. counties experiencing substantial and high spread of the COVID-19 as of such date (which includes a significant majority of the counties in the United States). However, on August 26, 2021, the U.S.
Removed
Supreme Court declared the order unconstitutional, and so it is no longer in effect. The Court’s ruling does not affect or preclude state and local jurisdictions from issuing orders stopping or limiting evictions and foreclosures in an effort to lessen the financial burden created by COVID-19 in their jurisdictions.
Removed
Any such limitations could adversely impact the cash flow on mortgage loans. 5 Table of Contents On July 30, 2021, FHFA announced that Fannie Mae and Freddie Mac are extending the moratorium on single-family real estate owned (REO) evictions until September 30, 2021.
Removed
The Biden Administration may pass additional stimulus bills, foreclosure relief measures and may reinstate foreclosure and eviction moratoriums that may continue to adversely impact the cash flow on mortgage loans. On June 28, 2021, the CFPB Issued a Final Rule amending Regulation X under the Real Estate Settlement Procedures Act to provide additional foreclosure protections to borrowers.
Removed
The Final Rule became effective August 31, 2021 and applies to mortgage loans secured by real property that is a borrower’s principal residence.
Removed
Among other things, the servicing rule bars new foreclosure filings until after December 31, 2021, unless certain criteria are met or an exception applies; requires servicers to engage in early intervention efforts for certain borrowers; permits certain streamlined loan modification options for borrowers with COVID-19-related hardships; and imposes specific requirements for servicers of borrowers currently in short-term payment forbearance programs that were offered based on incomplete loss mitigation applications.
Removed
These mortgage servicing rules and any similar regulations passed by CFPB in the future could adversely impact the cash flow on mortgage loans. AVAILABLE INFORMATION We maintain a website at www.mfafinancial.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+15 added−56 removed393 unchanged
Biggest changeDividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.” Qualified dividend income payable to U.S. investors that are individuals, trusts, and estates is subject to the reduced maximum tax rate applicable to long-term capital gains. Dividends paid by REITs, however, are generally not eligible for the reduced qualified dividend rates.
Biggest changeIf we did not meet one or more of the REIT asset tests, then we could potentially either lose our REIT status or be required to pay a tax penalty to the IRS. 30 Table of Contents Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.” Qualified dividend income payable to U.S. investors that are individuals, trusts, and estates is subject to the reduced maximum tax rate applicable to long-term capital gains.
A significant number of the mortgages underlying our residential whole loans and residential mortgage securities are concentrated in certain geographic areas. For example, we have significant exposure in California, Florida, Texas, New York and Georgia.
A significant number of the mortgages underlying our residential whole loans and residential mortgage securities are concentrated in certain geographic areas. For example, we have significant exposure in California, Florida, Texas, Georgia and New York.
Treasury Department, the Federal Housing Administration (FHA), the CFPB, and other agencies have in the past implemented, and may in the future implement, a number of federal programs designed to help homeowners avoid residential mortgage loan foreclosures, reduce or forgive certain mortgage payments, or otherwise mitigate losses for homeowners.
Treasury Department, the Federal Housing Administration (or FHA), the CFPB, and other agencies have in the past implemented, and may in the future implement, a number of federal programs designed to help homeowners avoid residential mortgage loan foreclosures, reduce or forgive certain mortgage payments, or otherwise mitigate losses for homeowners.
Credit and Other Risks Related to Our Investments • We may change our investment strategy, operating policies and/or asset allocations without stockholder consent. • Our investments in residential mortgage and other assets involve credit risk. • Our investments are subject to changes in credit spreads and other risks. • A significant portion of our residential whole loans and residential mortgage securities are secured by properties in a small number of geographic areas and may be disproportionately affected by adverse climate changes or other adverse events specific to those markets. • We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties. • The due diligence we undertake on potential investments may be limited and/or not reveal all of the risks associated with such investments and may not reveal other weaknesses in such assets. 6 Table of Contents • We have experienced and may experience in the future increased volatility in our U.S. generally accepted accounting principles (or GAAP) results of operations. • We have experienced, and may in the future experience, declines in the market value of certain of our investments securities resulting in our recording impairments and other losses. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Valuations of some of our assets are subject to inherent uncertainty, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed. • Our investments in residential whole loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated, as well as from unfavorable changes in the related geographic regions. • Our investments in residential whole loans subject us to servicing-related risks, including foreclosure and liquidation. • The expanding body of federal, state and local regulations and investigations of originators and servicers may increase costs of compliance and the risks of noncompliance. • Our ability to sell REO on terms acceptable to us or at all may be limited. • Our investments in MSR-related assets expose us to additional risks. • Our investments in mortgage loan originators expose us to additional risks.
Credit and Other Risks Related to Our Investments • We may change our investment strategy, operating policies and/or asset allocations without stockholder consent. • Our investments in residential mortgage (including BPLs), residential mortgage securities, commercial mortgage loans and other assets involve credit risk. • Our investments are subject to changes in credit spreads and other risks. • A significant portion of our residential whole loans and residential mortgage securities are secured by properties in a small number of geographic areas and may be disproportionately affected by adverse climate changes or other adverse events specific to those markets. • We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties. • The due diligence we undertake on potential investments may be limited and/or not reveal all of the risks associated with such investments and may not reveal other weaknesses in such assets. • We have experienced and may experience in the future increased volatility in our U.S. generally accepted accounting principles (or GAAP) results of operations. • We have experienced, and may in the future experience, declines in the market value of certain of our investments securities resulting in our recording impairments and other losses. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Valuations of some of our assets are subject to inherent uncertainty, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed. • Our investments in residential whole loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • We may be adversely affected by risks affecting borrowers or the asset or property types in which our investments may be concentrated, as well as from unfavorable changes in the related geographic regions. • Our investments in residential whole loans subject us to servicing-related risks, including foreclosure and liquidation. • The expanding body of federal, state and local regulations and investigations of originators and servicers may increase costs of compliance and the risks of noncompliance. • Our ability to sell REO on terms acceptable to us or at all may be limited. 5 Table of Contents • Our investments in MSR-related assets expose us to additional risks. • Our investments in mortgage loan originators expose us to additional risks.
Even if we are not liable for such losses, any breach of these systems could expose us to material costs in notifying affected individuals and providing credit monitoring services to them, as well as regulatory fines or penalties.
Even if we are not liable for such losses, any breach of these systems could expose us to material costs in notifying affected individuals and providing credit monitoring or other services to them, as well as regulatory fines or penalties.
In addition, the current presidential administration may focus supervision and enforcement tools more aggressively on residential mortgage lenders and servicers, which could result in increased regulatory scrutiny and potentially increased penalties assessed for determinations of non-compliance with applicable requirements. 24 Table of Contents Although we do not directly service residential mortgage loans (except for business purpose loans originated and serviced by Lima One), we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential whole loans.
In addition, the current presidential administration may focus supervision and enforcement tools more aggressively on residential mortgage lenders and servicers, which could result in increased regulatory scrutiny and potentially increased penalties assessed for determinations of non-compliance with applicable requirements. 21 Table of Contents Although we do not directly service residential mortgage loans (except for business purpose loans originated and serviced by Lima One), we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential whole loans.
Any transfer of shares of our capital stock or other event that, if effective, would (a) violate the ownership limit, (b) cause us to 34 Table of Contents become “closely held” under Section 856(h) of the Code or (c) would cause our equity stock to be owned by fewer than 100 persons, will be void as to that number of shares of capital stock in excess of the ownership limit, causing us to be “closely held” or which would otherwise be owned by the transferee, respectively, and the intended transferee will acquire no rights in such shares.
Any transfer of shares of our capital stock or other event that, if effective, would (a) violate the ownership limit, (b) cause us to become “closely held” under Section 856(h) of the Code or (c) would cause our equity stock to be owned by fewer than 100 persons, will be void as to that number of shares of capital stock in excess of the ownership limit, causing us to be “closely held” or which would otherwise be owned by the transferee, respectively, and the intended transferee will acquire no rights in 31 Table of Contents such shares.
For example, if we are to qualify as a REIT, annually at least 75% of our gross income must come from, among other sources, interest on obligations secured by mortgages on real property or interests in real property, gain from the disposition of real property, including mortgages or interests in real property (other than sales or dispositions of real property, including mortgages on real property, or securities that are treated as mortgages on real property, that we hold primarily for sale to customers in the ordinary course of a trade or business (i.e., prohibited transactions)), dividends or other distributions on, and gains from the disposition of shares in other REITs, commitment fees received for agreements to make real estate loans and certain temporary investment income.
For example, if we are to qualify as a REIT, annually at least 75% of our gross income must come from, among other sources, interest on obligations secured by mortgages on real property or interests in real property, gain from the disposition of real property, including mortgages or interests in real property (other than sales or dispositions of real property, including mortgages on real property, or securities 25 Table of Contents that are treated as mortgages on real property, that we hold primarily for sale to customers in the ordinary course of a trade or business (i.e., prohibited transactions)), dividends or other distributions on, and gains from the disposition of shares in other REITs, commitment fees received for agreements to make real estate loans and certain temporary investment income.
Under our investment policy, we may invest in residential whole loans, residential mortgage securities, MSR-related assets and other investment assets that may be considered to be lower credit quality. In general, these investments are more exposed to credit risk than Agency MBS because the former are not guaranteed as to principal or interest by the U.S.
Under our investment policy, we may invest in residential whole loans, residential mortgage securities, MSR-related assets, commercial mortgage bridge loans and other investment assets that may be considered to be lower credit quality. In general, these investments are more exposed to credit risk than Agency MBS because the former are not guaranteed as to principal or interest by the U.S.
Accordingly, defaults in the payment of principal and/or interest on our residential whole loans, residential mortgage securities, MSR-related assets and other investment assets of less-than-high credit quality could result in our incurring losses of income from, and/or losses in market value relating to, these assets, which could materially adversely affect our results of operations.
Accordingly, defaults in the payment of principal and/or interest on our residential whole loans, residential mortgage securities, MSR-related assets, commercial mortgage bridge loans and other investment assets of less-than-high credit quality could result in our incurring losses of income from, and/or losses in market value relating to, these assets, which could materially adversely affect our results of operations.
Also, as a result of this competition, desirable investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives. 37 Table of Contents Item 1B.
Also, as a result of this competition, desirable investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives. 33 Table of Contents Item 1B.
Additionally, dealers may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability arising out of any inaccuracy or incompleteness in valuations. 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.
Additionally, dealers may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability arising out of any inaccuracy or incompleteness in valuations. Depending on the complexity and liquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another.
These business purpose loans include short-term loans that are collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the property for a profit (Transitional loans), as well as long-term mortgage loans made to investors who intend to rent such properties to generate income.
These business purpose loans include short-term loans that are collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the property for a profit (Transitional loans), as well as long-term mortgage loans made to investors who intend to rent such properties to generate income.
Our servers and systems, and those of our service providers, may be vulnerable to computer malware, break-ins, denial-of-service attacks, and similar disruptions from unauthorized tampering with our computer systems, which could result in someone obtaining unauthorized access to borrowers’ data or our data, including other confidential business information.
Our servers and systems, and those of our service providers, may be vulnerable to computer malware, break-ins, denial-of-service attacks, and similar disruptions from unauthorized access to our computer systems, which could result in someone obtaining unauthorized access to borrowers’ data or our data, including other confidential business information.
To the extent that we generate such non-cash taxable income or have limitations on our deductions in a taxable year, we may have to borrow funds on unfavorable terms, sell investments at 29 Table of Contents disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions or make a taxable distribution of our stock to make distributions sufficient to maintain our qualification as a REIT or avoid corporate income tax in a particular year.
To the extent that we generate such non-cash taxable income or have limitations on our deductions in a taxable year, we may have to borrow funds on unfavorable terms, sell investments at disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions or make a taxable distribution of our stock to make distributions sufficient to maintain our qualification as a REIT or avoid corporate income tax in a particular year.
Our risks associated with the insolvency or bankruptcy of a lender maybe more pronounced during periods of significant volatility in the market conditions for mortgages and mortgage-related assets as well as the broader financial markets. 17 Table of Contents An increase in our borrowing costs relative to the interest we receive on our investments may materially adversely affect our profitability.
Our risks associated with the insolvency or bankruptcy of a lender maybe more pronounced during periods of significant volatility in the market conditions for mortgages and mortgage-related assets as well as the broader financial markets. An increase in our borrowing costs relative to the interest we receive on our investments may materially adversely affect our profitability.
Our failure to obtain and maintain required licenses may expose us to penalties or other claims and may affect our ability to acquire an adequate and desirable supply of mortgage loans to conduct our securitization program and, as a result, could harm our business. 25 Table of Contents Maintaining our exemption from registration under the Investment Company Act imposes significant limits on our operations.
Our failure to obtain and maintain required licenses may expose us to penalties or other claims and may affect our ability to acquire an adequate and desirable supply of mortgage loans to conduct our securitization program and, as a result, could harm our business. Maintaining our exemption from registration under the Investment Company Act imposes significant limits on our operations.
In order to maintain our qualification as a REIT, we must comply with a number of requirements under U.S. federal tax law, including that we distribute at least 90% of our REIT taxable income within the timeframe permitted under the Code, 31 Table of Contents which is calculated generally before the dividends paid deduction and excluding net capital gain.
In order to maintain our qualification as a REIT, we must comply with a number of requirements under U.S. federal tax law, including that we distribute at least 90% of our REIT taxable income within the timeframe permitted under the Code, which is calculated generally before the dividends paid deduction and excluding net capital gain.
These loan modification programs, future legislative or regulatory actions, including possible amendments to the bankruptcy laws, that result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may materially adversely affect the value of, and the returns on, these assets.
These loan modification programs, future legislative or regulatory actions, including possible 10 Table of Contents amendments to the bankruptcy laws, that result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may materially adversely affect the value of, and the returns on, these assets.
An RPL could become a NPL, which could reduce our earnings. Our investments in residential whole loans may require us to work with our 11 Table of Contents designated third-party mortgage loan servicers to the extent that they engage in workout negotiations or a restructuring with a borrower and/or the possibility of foreclosure. These processes may be lengthy and expensive.
An RPL could become a NPL, which could reduce our earnings. Our investments in residential whole loans may require us to work with our designated third-party mortgage loan servicers to the extent that they engage in workout negotiations or a restructuring with a borrower and/or the possibility of foreclosure. These processes may be lengthy and expensive.
Forced sales, particularly under adverse market conditions, 16 Table of Contents may result in lower sales prices than ordinary market sales made in the normal course of business. If our residential mortgage investments were liquidated at prices below our amortized cost (i.e., the cost basis) of such assets, we would incur losses, which could adversely affect our earnings.
Forced sales, particularly under adverse market conditions, may result in lower sales prices than ordinary market sales made in the normal course of business. If our residential mortgage investments were liquidated at prices below our amortized cost (i.e., the cost basis) of such assets, we would incur losses, which could adversely affect our earnings.
These alternatives could increase our costs or reduce our stockholders’ equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our common stock. Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
These alternatives could increase our costs or reduce our stockholders’ equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our common stock. 26 Table of Contents Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
If 32 Table of Contents we collect less on the debt instrument than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions. Some of the debt instruments that we acquire may have been issued with original issue discount.
If we collect less on the debt instrument than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions. Some of the debt instruments that we acquire may have been issued with original issue discount.
Our investments in residential whole loans, residential mortgage securities and MSR-related assets involve credit risk, which could materially adversely affect our results of operations. Investors in residential mortgage assets assume the risk that the underlying borrowers may default on their obligations to make full and timely payments of principal and interest.
Our investments in residential whole loans (including BPLs), residential mortgage securities, MSR-related assets and commercial mortgage loans involve credit risk, which could materially adversely affect our results of operations. Investors in residential and commercial mortgage assets assume the risk that the underlying borrowers may default on their obligations to make full and timely payments of principal and interest.
Since a portion of our borrowings to finance longer-term residential mortgage investments are under short-term repurchase agreements, our ability to achieve our investment objectives depends on our ability to borrow funds in sufficient amounts and on acceptable terms, and on our ability to renew or replace maturing borrowings on a continuous basis.
Since a portion of our borrowings to finance longer-term residential mortgage investments are under short-term repurchase agreements, our ability to achieve our investment objectives depends on our ability to borrow funds in sufficient amounts and on 14 Table of Contents acceptable terms, and on our ability to renew or replace maturing borrowings on a continuous basis.
Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. We may enter into hedging instruments that could expose us to contingent liabilities in the future, which could materially adversely affect our results of operations.
Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. 24 Table of Contents We may enter into hedging instruments that could expose us to contingent liabilities in the future, which could materially adversely affect our results of operations.
This could, in turn, have a material adverse effect on our credit loss experience on residential mortgage investments in the affected market if higher-than-expected rates of default and/or higher-than-expected loss severities on our investments in residential whole loans and residential mortgage securities were to occur.
This could, in turn, have a material adverse effect on our credit loss experience on residential mortgage investments in the affected market if higher-than-expected rates of 8 Table of Contents default and/or higher-than-expected loss severities on our investments in residential whole loans and residential mortgage securities were to occur.
Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other liens; the loans’ compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien.
Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other 17 Table of Contents liens; the loans’ compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien.
In addition, under the anti-predatory lending laws 22 Table of Contents of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower.
In addition, under the anti-predatory lending laws of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower.
The mortgage servicing business is subject to extensive regulation by federal, state and local governmental authorities and is subject to various laws and judicial and administrative decisions imposing requirements and restrictions and increased compliance costs on a substantial portion of their operations.
The mortgage servicing business is subject to extensive regulation by federal, state and local governmental authorities and is subject to various laws and judicial and administrative decisions imposing requirements and 11 Table of Contents restrictions and increased compliance costs on a substantial portion of their operations.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Because our decision to issue securities in 32 Table of Contents any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
As a result, the timing and amount of impairments recognized in earnings constitute material estimates that are susceptible to significant change. Our investments in MSR-related assets expose us to additional risks.
As a result, the timing and amount of impairments recognized in earnings constitute material estimates that are susceptible to significant change. 12 Table of Contents Our investments in MSR-related assets expose us to additional risks.
Our exposure to defaults by counterparties may be more pronounced during periods of significant volatility in the market conditions for mortgages and mortgage-related assets as well as the broader financial markets.
Our 15 Table of Contents exposure to defaults by counterparties may be more pronounced during periods of significant volatility in the market conditions for mortgages and mortgage-related assets as well as the broader financial markets.
In addition, concerns over actual or anticipated low economic growth rates, higher levels of 21 Table of Contents unemployment or uncertainty regarding future U.S. monetary policy may contribute to increased interest rate volatility.
In addition, concerns over actual or anticipated low economic growth rates, higher levels of unemployment or uncertainty regarding future U.S. monetary policy may contribute to increased interest rate volatility.
This safe harbor, if it applied to us, would help us comply with the REIT asset tests following the acquisition of distressed debt if the value of the real property 33 Table of Contents securing the loan were to subsequently decline.
This safe harbor, if it applied to us, would help us comply with the REIT asset tests following the acquisition of distressed debt if the value of the real property securing the loan were to subsequently decline.
In particular, the economic, financial and related impacts of events like the COVID-19 pandemic have been and will continue to be very difficult to model (including their impact on the housing and mortgage markets), as such events may be unprecedented in modern history and therefore subject to unique variables, assumptions and inputs, making historical data used in models less reliable.
In particular, the economic, financial and related impacts of certain types of events (e.g., the COVID-19 pandemic) have been and will continue to be very difficult to model (including their impact on the housing and mortgage markets), as such events may be unprecedented in modern history and therefore subject to unique variables, assumptions and inputs, making historical data used in models less reliable.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or networks or systems of, among other third-parties, our lenders and servicers) or any failure to maintain performance, reliability and security of our technical infrastructure.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cybersecurity incidents or security breaches of our networks or systems (or networks or systems of, among other third-parties, our lenders and servicers) or any failure to maintain performance, reliability and security of our technical infrastructure.
We have not established a minimum dividend payment level for our common stock and our ability to pay dividends may be negatively impacted by adverse changes in our operating results. Therefore, our dividend payment level may fluctuate significantly, and, under some circumstances, we may not pay dividends at all.
We have not established a minimum dividend payment level for our common stock and our ability to pay dividends may be 28 Table of Contents negatively impacted by adverse changes in our operating results. Therefore, our dividend payment level may fluctuate significantly, and, under some circumstances, we may not pay dividends at all.
As of December 31, 2022, we had approximately $97.9 million of investments in financial instruments whose cash flows are considered to be largely dependent on underlying MSRs that either directly or indirectly act as collateral for the investment.
As of December 31, 2023, we had approximately $79.9 million of investments in financial instruments whose cash flows are considered to be largely dependent on underlying MSRs that either directly or indirectly act as collateral for the investment.
We believe that we currently meet all of the REIT requirements and intend to continue to 28 Table of Contents qualify as a REIT under the provisions of the Code. Many of the REIT requirements, however, are highly technical and complex.
We believe that we currently meet all of the REIT requirements and intend to continue to qualify as a REIT under the provisions of the Code. Many of the REIT requirements, however, are highly technical and complex.
Risks Related to Our Taxation as a REIT and the Taxation of Our Assets • If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability. 7 Table of Contents • If our foreign TRS is subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to pay its creditors and distribute to us. • Our use of TRSs may cause us to fail to qualify as a REIT. • We have not established a minimum dividend payment level. • Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements. • The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT. • Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. • We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. • The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests. • Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.” Risks Related to Our Corporate Structure • Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the Company. • Future offerings of debt securities and equity securities may adversely affect the market price of our common stock.
Risks Related to Our Taxation as a REIT and the Taxation of Our Assets • If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability. • If our foreign TRS is subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to pay its creditors and distribute to us. • Our use of TRSs may cause us to fail to qualify as a REIT. • We have not established a minimum dividend payment level. • Our reported GAAP net income may differ from the amount of REIT taxable income and dividend distribution requirements. • The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT. • Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. • We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. • The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests. • Dividends paid by REITs do not qualify for the reduced tax rates available for “qualified dividend income.” Risks Related to Our Corporate Structure • Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the Company. • Future offerings of debt securities and equity securities may adversely affect the market price of our common stock. 6 Table of Contents Other Business Risks • We are dependent on our executive officers and other key personnel for our success. • We operate in a highly competitive market for investment opportunities.
We expect that our investment portfolio in residential whole loans will continue to increase during 2023. As an investor in residential whole loans, we are subject to the risk that the underlying borrowers may default or have defaulted on their obligations to make full and timely payments of principal and interest.
We expect that our investment portfolio in residential whole loans will 7 Table of Contents continue to increase during 2024. As an investor in residential whole loans, we are subject to the risk that the underlying borrowers may default or have defaulted on their obligations to make full and timely payments of principal and interest.
However, there may be impediments to executing a refinancing strategy for NPLs and RPLs. For example, during 2020, many mortgage lenders adjusted their loan programs and underwriting standards, which reduced the availability of mortgage credit to certain borrowers. This resulted in reduced availability of financing alternatives for borrowers seeking to refinance their mortgage loans.
However, there may be impediments to executing a refinancing strategy for NPLs and RPLs. For example, many mortgage lenders have from time to time adjusted their loan programs and underwriting standards, which reduced the availability of mortgage credit to certain borrowers. This resulted in reduced availability of financing alternatives for borrowers seeking to refinance their mortgage loans.
Accordingly, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the loan.
Accordingly, we bear the risk of loss of principal and non-payment of interest and fees to 13 Table of Contents the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the loan.
A change in our investment strategy may increase our exposure to various risks, including but not limited to: interest rate 8 Table of Contents risk, credit risk, default risk, liquidity risk, financing risk, legal or regulatory risk, and/or real estate market fluctuations.
A change in our investment strategy may increase our exposure to various risks, including but not limited to: interest rate risk, credit risk, default risk, liquidity risk, financing risk, legal or regulatory risk, and/or real estate market fluctuations.
If these or other MSR-related risks come to fruition, the value of our MSR-related assets could decline significantly. Our investments in mortgage loan originators expose us to additional risks. As of December 31, 2022, we had approximately $28.3 million of non-controlling investments in certain loan originators from whom we acquire mortgage loans for investment on a periodic basis.
If these or other MSR-related risks come to fruition, the value of our MSR-related assets could decline significantly. Our investments in mortgage loan originators expose us to additional risks. As of December 31, 2023, we had approximately $19.8 million of non-controlling investments in certain loan originators from whom we acquire mortgage loans for investment on a periodic basis.
For example, due to regulations arising from the COVID-19 pandemic, the CDC issued a federal moratorium against evictions in September 2020, which limited foreclosure and eviction remedies until it was struck down by the Supreme Court in August 2021.
For example, due to regulations arising from the COVID-19 pandemic, the Centers for Disease Control and Prevention (or CDC) issued a federal moratorium against evictions in September 2020, which limited foreclosure and eviction remedies until it was struck down by the Supreme Court in August 2021.
We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future projected payments due on such debt instruments will be made.
We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future 29 Table of Contents projected payments due on such debt instruments will be made.
Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period.
Furthermore, because the techniques used to obtain unauthorized access to, or to compromise, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience cybersecurity incidents that may remain undetected for an extended period.
In addition, we may be limited in our ability to make certain investments and these limitations could result in us holding assets we might wish to sell or selling assets we might wish to hold.
In 23 Table of Contents addition, we may be limited in our ability to make certain investments and these limitations could result in us holding assets we might wish to sell or selling assets we might wish to hold.
Cybersecurity Risks Maintaining cybersecurity and data security is important to our business and a breach of our cybersecurity or data security could result in serious harm to our reputation and have a material adverse impact on our business and financial results.
Cybersecurity Risks Maintaining cybersecurity and data security is important to our business and a cybersecurity incident could result in serious harm to our reputation and have a material adverse impact on our business and financial results.
These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity. We are dependent on information systems and their failure (including in connection with cyber-attacks) could significantly disrupt our business.
These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity. 18 Table of Contents We are dependent on information systems and their failure (including in connection with cybersecurity incidents) could significantly disrupt our business.
We may be liable for losses suffered by individuals whose identities are stolen as a result of a breach of the security of the systems that we or third-parties and service providers of ours store this information on, and any such liability could be material.
We may be liable for losses suffered by individuals whose personal information is compromised as a result of a breach of the security of the systems that we or third-parties and service providers of ours store this information on, and any such liability could be material.
Interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related hedged instrument; • the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the party owing money in the hedging transaction may default on its obligation to pay. 27 Table of Contents We primarily use Swaps to hedge against future increases in interest rates on our financing agreements.
Interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related hedged instrument; • the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the party owing money in the hedging transaction may default on its obligation to pay.
Interest rates increased significantly in 2022 and may continue increasing in 2023. As such, we could experience a decrease in net income or incur a net loss during these periods, which may negatively impact our distributions to stockholders. The impact of inflation may adversely affect our financial performance.
Interest rates increased significantly in 2022 and 2023 and may continue to remain high in 2024. As such, we could experience a decrease in net income or incur a net loss during these periods, which may negatively impact our distributions to stockholders. 16 Table of Contents The impact of inflation may adversely affect our financial performance.
In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
In the event models and data prove to be incorrect, 9 Table of Contents misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
Any failure or interruption of our systems or cyber-attacks or security breaches of our networks or systems could cause delays or other problems in our securities trading activities, which could have a material adverse effect on operating results, the market price of our common stock and other securities and our ability to pay dividends to our stockholders.
Any failure or interruption of our systems or cybersecurity incidents could cause delays or other problems in our securities trading activities, which could have a material adverse effect on operating results, the market price of our common stock and other securities and our ability to pay dividends to our stockholders.
For example, during the initial stages of the COVID-19 pandemic and related market dislocations, we experienced significantly higher margin calls and lender demanded higher “haircuts” (i.e., the difference between the value of the collateral and the amount lent to the borrower) with respect to our repurchase agreements.
For example, during past market dislocations, we experienced significantly higher margin calls and lender demanded higher “haircuts” (i.e., the difference between the value of the collateral and the amount lent to the borrower) with respect to our repurchase agreements.
When we acquire or originate real estate mortgage loans, we come into possession of borrower non-public personal information that an identity thief could utilize in engaging in fraudulent activity or theft.
When we acquire or originate real estate mortgage loans, we come into possession of borrower non-public personal information that a threat actor could utilize in engaging in fraudulent activity or theft.
While we have security measures in place to protect this information and prevent security breaches, these security measures may be compromised as a result of third-party action, including intentional misconduct by computer hackers, cyber-attacks, "phishing" attacks, service provider or vendor error, or malfeasance or other intentional or unintentional acts by third parties and bad actors, including third-party service providers.
The security measures we have implemented to protect personal information and prevent cybersecurity incidents may be compromised as a result of third-party action, including intentional misconduct by computer hackers, cyber-attacks, "phishing" attacks, service provider or vendor error, or malfeasance or other intentional or unintentional acts by third parties and bad actors, including third-party service providers.
Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S.
Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. 22 Table of Contents Government securities and cash items) on an unconsolidated basis (i.e., the 40% Test).
We use securitization financing for certain of our residential whole loan investments. In such structures, our financing sources typically have only a claim against the special purpose vehicle which we sponsor rather than a general claim against us.
Reliance on certain types of financing structures expose us to risks, which could result in losses to us. We use securitization financing for certain of our residential whole loan investments. In such structures, our financing sources typically have only a claim against the special purpose vehicle which we sponsor rather than a general claim against us.
Computer malware, viruses, hacking and phishing and cyber-attacks have become more prevalent in our industry and may occur on our systems in the future. Additionally, due to the transition to remote working environments as a result of the COVID-19 pandemic, there is an elevated risk of such events occurring.
Computer malware, viruses, hacking and phishing and cybersecurity incidents have become more prevalent in our industry and may occur on our systems in the future. Additionally, due to the overall transition to remote working environments, there is an elevated risk of such events occurring.
Treasury and the Federal Reserve may be held to maturity and, based on mortgage market conditions, adjustments may be made to these portfolios. This flexibility may adversely affect the pricing and availability of Agency MBS during the remaining term of these portfolios.
Subject to specified investment guidelines, the portfolios of Agency MBS purchased through the programs established by the U.S. Treasury and the Federal Reserve may be held to maturity and, based on mortgage market conditions, adjustments may be made to these portfolios. This flexibility may adversely affect the pricing and availability of Agency MBS during the remaining term of these portfolios.
Such a borrower’s ability to repay its loan may be adversely impacted by numerous factors, including negative local or more general economic conditions and, in the case of Transitional loans, the borrower’s ability to complete the rehabilitation successfully, on budget and on time. 14 Table of Contents In addition, in the case of mortgage loans secured by rental properties, if tenants who rent their residence from a business purpose loan borrower are unable to make rental payments, are unwilling to make rental payments, or a waiver of the requirement to make rental payments on a timely basis, or at all, is available under the terms of any applicable forbearance or waiver agreement or program (which rental payment forbearance or waiver program may be available as a result of a government-sponsored or government-imposed program or under any such agreement or program a landlord may otherwise offer to tenants), then the value of business purpose loans we own will likely be impaired, potentially materially.
In addition, in the case of mortgage loans secured by rental properties, if tenants who rent their residence from a business purpose loan borrower are unable to make rental payments, are unwilling to make rental payments, or a waiver of the requirement to make rental payments on a timely basis, or at all, is available under the terms of any applicable forbearance or waiver agreement or program (which rental payment forbearance or waiver program may be available as a result of a government-sponsored or government-imposed program or under any such agreement or program a landlord may otherwise offer to tenants), then the value of business purpose loans we own will likely be impaired, potentially materially.
The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the MBS market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. The Dodd-Frank Act also imposes significant regulatory restrictions on the origination and servicing of residential mortgage loans.
The Dodd-Frank Act also seeks to reform 19 Table of Contents the asset-backed securitization market (including the MBS market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements.
For financial statement reporting purposes, we generally establish a portion of the purchase discount on Non-Agency MBS as a Credit Reserve. This Credit Reserve is generally not accreted into income for financial statement reporting purposes. For tax purposes, however, we are not permitted to anticipate, or establish a reserve for, credit losses prior to their occurrence.
This Credit Reserve is generally not accreted into income for financial statement reporting purposes. For tax purposes, however, we are not permitted to anticipate, 27 Table of Contents or establish a reserve for, credit losses prior to their occurrence.
A loan is eligible to become a Seasoned QM if it is a first-lien, fixed rate loans that meets certain performance requirements over a seasoning period of 36 months, is held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, complies with general restrictions on product features and points and fees, and meets certain underwriting requirements.
For example, effective March 1, 2021, the General QM Final Rule provided certain changes to the definition of general qualified mortgage loans and the Seasoned QM Final Rule creates a new category of a qualified mortgage, referred to as a “Seasoned QM” loan is eligible to become a Seasoned QM if it is a first-lien, fixed rate loan that meets certain performance requirements over a seasoning period of 36 months, is held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, complies with general restrictions on product features and points and fees, and meets certain underwriting requirements.
As a result, any such computer malware, viruses, hacking, phishing and cyber-attacks may negatively affect our operations. Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally Market conditions for mortgages and mortgage-related assets as well as the broader financial markets may materially adversely affect the value of the assets in which we invest.
Risks Associated with Adverse Developments in the Mortgage Finance and Credit Markets and Financial Markets Generally Market conditions for mortgages and mortgage-related assets as well as the broader financial markets may materially adversely affect the value of the assets in which we invest.
At December 31, 2022, we had greater than 5% stockholders’ equity at risk to the following financing agreement counterparties: Barclay’s Bank (approximately 15.6%), Wells Fargo (approximately 11.8%) and Credit Suisse (approximately 9.7%).
At December 31, 2023, we had greater than 5% stockholders’ equity at risk to the following financing agreement counterparties: Wells Fargo (approximately 14.9%), Barclay’s Bank (approximately 8.9%) and Churchill (approximately 8.0%).
Upon liquidation, holders of our debt securities and shares of preferred stock, if any, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock.
Upon liquidation, holders of our debt securities and shares of preferred stock, if any, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both.
In certain circumstances, we may be required to expend 13 Table of Contents cash to correct defects, pay expenses or to make improvements before a property can be sold, and we cannot assure that we will have cash available to make these payments.
In certain circumstances, we may be required to expend cash to correct defects, pay expenses or to make improvements before a property can be sold, and we cannot assure that we will have cash available to make these payments. As a result, our ownership of REOs could materially and adversely affect our liquidity and results of operations.
We may generate taxable income that differs from our GAAP income on our Non-Agency MBS and residential whole loan investments purchased at a discount to par value, which may result in significant timing variances in the recognition of income and losses. 30 Table of Contents We have acquired and intend to continue to acquire Non-Agency MBS and residential whole loans at prices that reflect significant market discounts on their unpaid principal balances.
We may generate taxable income that differs from our GAAP income on our Non-Agency MBS and residential whole loan investments purchased at a discount to par value, which may result in significant timing variances in the recognition of income and losses.
(See the Risk Factor captioned “Regulatory Risk and Risks Related to the Investment Company Act of 1940 - Our business is subject to extensive regulation”.) In light of the current regulatory environment, such exposure could be significant even though we might have contractual claims against our servicers for any failure to service the loans to the required standard. 12 Table of Contents Weak or deteriorating economic conditions may result in liquidity pressures on servicers and other third-party vendors that we rely upon.
(See the Risk Factor captioned “Regulatory Risk and Risks Related to the Investment Company Act of 1940 - Our business is subject to extensive regulation.”) In light of the current regulatory environment, such exposure could be significant even though we might have contractual claims against our servicers for any failure to service the loans to the required standard.
Security breaches could also significantly damage our reputation with existing and prospective loan sellers, borrowers, and third parties with whom we do business. Any publicized security problems affecting our businesses and/or those of such third parties may negatively impact the market perception of our products and discourage market participants from doing business with us.
Any publicized security problems affecting our businesses and/or those of such third parties may negatively impact the market perception of our products and discourage market participants from doing business with us.
Should a Swap counterparty be unable to make required payments pursuant to such Swap, the hedged liability would cease to be hedged for the remaining term of the Swap. In addition, we may be at risk for any collateral held by a hedging counterparty to a Swap, should such counterparty become insolvent or file for bankruptcy.
In addition, we may be at risk for any collateral held by a hedging counterparty to a Swap, should such counterparty become insolvent or file for bankruptcy.
For a detailed discussion of the impact of interest rates, see “Interest Rate Risk” included under Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K. The discontinuation of LIBOR may affect our financial results.
For a detailed discussion of the impact of interest rates, see “Interest Rate Risk” included under Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K. Certain of our current lenders require, and future lenders may require, that we enter into restrictive covenants relating to our operations.
Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. We are a holding company and conduct our real estate business primarily through wholly-owned subsidiaries.
Excluded from the term “investment securities,” among other things, are U.S. Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
Additional equity 35 Table of Contents offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Preferred stock could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock.
Preferred stock could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock.
We have further developed and enhanced our cybersecurity systems and processes that are intended to protect this type of data and information; however, they may not be effective in preventing unauthorized access in the future. While past unauthorized access has been immaterial to our business and financial results, there can be no assurance of a similar result in the future.
In the past, we have experienced unauthorized access to certain data and information. Our cybersecurity systems and processes that are intended to protect this type of data and information; however, they may not be effective in preventing unauthorized access in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAt December 31, 2022, we expect our future rent expense, exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes, to range between approximately $5.0 million and $6.0 million per year. Item 3. Legal Proceedings.
Biggest changeAt December 31, 2023, we expect our future rent expense, for all lease commitments, exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes, to range between approximately $5.0 million and $6.1 million per year. Item 3. Legal Proceedings.
There are no material legal proceedings to which we are a party or to which any of our assets are subject. Item 4. Mine Safety Disclosures Not applicable. 38 Table of Contents PART II
There are no material legal proceedings to which we are a party or to which any of our assets are subject. Item 4. Mine Safety Disclosures Not applicable. 35 Table of Contents PART II
Item 2. Properties. Office Leases Our primary lease commitment relates to our corporate headquarters. For the year ended December 31, 2022, we recorded an expense of approximately $5.0 million in connection with this lease.
Item 2. Properties. Office Leases Our primary lease commitment relates to our corporate headquarters. For the year ended December 31, 2023, we recorded an expense of approximately $5.2 million in c onnection with this lease.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+1 added−7 removed13 unchanged
Biggest changeAlthough we may borrow funds to make distributions, cash for such distributions has generally been, and is expected to continue to be, largely generated from our results of our operations. 39 Table of Contents The table below provides details of dividends on our common stock declared during the years 2022 and 2021: Year Declaration Date Record Date Payment Date Dividend Per Share 2022 December 14, 2022 December 30, 2022 January 31, 2023 $0.350 (1) September 13, 2022 September 30, 2022 October 31, 2022 0.440 June 15, 2022 June 30, 2022 July 29, 2022 0.440 March 11, 2022 March 22, 2022 April 29, 2022 0.440 (2) 2021 December 14, 2021 December 31, 2021 January 31, 2022 $0.440 (3)(4) September 15, 2021 September 30, 2021 October 29, 2021 0.400 (3) June 15, 2021 June 30, 2021 July 30, 2021 0.400 (3) March 12, 2021 March 31, 2021 April 30, 2021 0.300 (3) (1) At December 31, 2022, we had accrued dividends and dividend equivalents payable of $35.8 million related to the common stock dividend declared on December 14, 2022.
Biggest changeAlthough we may borrow funds to make distributions, cash for such distributions has generally been, and is expected to continue to be, largely generated from our results of our operations. 36 Table of Contents The table below provides details of dividends on our common stock declared during the years 2023 and 2022: Year Declaration Date Record Date Payment Date Dividend Per Share 2023 December 13, 2023 December 29, 2023 January 31, 2024 $0.350 (1) September 20, 2023 October 2, 2023 October 31, 2023 0.350 June 15, 2023 June 30, 2023 July 31, 2023 0.350 March 10, 2023 March 31, 2023 April 28, 2023 0.350 2022 December 14, 2022 December 30, 2022 January 31, 2023 $0.350 (2) September 13, 2022 September 30, 2022 October 31, 2022 0.440 June 15, 2022 June 30, 2022 July 29, 2022 0.440 March 11, 2022 March 22, 2022 April 29, 2022 0.440 (3) (1) At December 31, 2023, we had accrued dividends and dividend equivalents payable of $35.8 million related to the common stock dividend declared on December 13, 2023.
(2) The $0.44 per share dividend declared on March 11, 2022, has been adjusted to reflect our one-for-four reverse stock split effected on April 4, 2022 (the “Reverse Stock Split”); the amount actually paid in respect of such dividend was $0.11 per share, which was based on the pre-split number of shares held by stockholders at the record date for such dividend (March 22, 2022).
(3) The $0.44 per share dividend declared on March 11, 2022, has been adjusted to reflect our one-for-four reverse stock split effected on April 4, 2022 (the “Reverse Stock Split”); the amount actually paid in respect of such dividend was $0.11 per share, which was based on the pre-split number of shares held by stockholders at the record date for such dividend (March 22, 2022).
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the New York Stock Exchange, under the symbol “MFA”. Our Series B Preferred Stock and Series C Preferred Stock are also listed on the NYSE, under the symbols “MFA/PB” and “MFA/PC”, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the New York Stock Exchange, under the symbol “MFA.” Our Series B Preferred Stock and Series C Preferred Stock are also listed on the NYSE, under the symbols “MFA/PB” and “MFA/PC,” respectively.
Holders As of February 15, 2023, we had 351 registered holders of our common stock. Such information was obtained through our registrar and transfer agent, based on the results of a broker search. Dividends No dividends may be paid on our common stock unless full cumulative dividends have been paid on our preferred stock.
Holders As of February 15, 2024, we had 401 registered holders of our common stock. Such information was obtained through our registrar and transfer agent, based on the results of a broker search. Dividends No dividends may be paid on our common stock unless full cumulative dividends have been paid on our preferred stock.
For the year ended December 31, 2020, the portion of our common stock dividends paid during the year deemed to be a return of capital was $0.20 per share of common stock.
For the year ended December 31, 2023, the portion of our common stock dividends paid during the year deemed to be a return of capital was $0.4108 per share of common stock.
We have paid full cumulative dividends on our preferred stock on a quarterly basis through December 31, 2022. We have historically declared cash dividends on our common stock on a quarterly basis. During 2022 and 2021, we declared total cash dividends to holders of our common stock of $171.4 million ($1.670 per share) and $169.3 million ($1.540 per share), respectively.
We have paid full cumulative dividends on our preferred stock on a quarterly basis through December 31, 2023. We have historically declared cash dividends on our common stock on a quarterly basis. During 2023 and 2022, we declared total cash dividends to holders of our common stock of $142.7 million ($1.400 per share) and $171.4 million ($1.670 per share), respectively.
During the years ended 2022 and 2021, we issued 80,027 and 107,925 shares of common stock through the DRSPP generating net proceeds of approximately $1.2 million and $1.9 million, respectively.
During the years ended 2023 and 2022, we issued 6,666 and 80,027 shares of common stock through the DRSPP generating net proceeds of approximately $74,000 and $1.2 million, respectively.
Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan In September 2003, we initiated a Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (or the DRSPP) to provide existing stockholders and new investors with a convenient and economical way to purchase shares of our common stock.
Upon expiration of the repurchase authorization on December 31, 2023, approximately $202.5 million remained unused under our stock repurchase program. 37 Table of Contents Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan In September 2003, we initiated a Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (or the DRSPP) to provide existing stockholders and new investors with a convenient and economical way to purchase shares of our common stock.
This dividend will be subject to taxation for the recipient in 2023. For more information see our 2022 Dividend Tax Information on our website.
A portion of this dividend was considered taxable income to the recipient in 2023. For more information see our 2023 Dividend Tax Information on our website.
(4) At December 31, 2021, we had accrued dividends and dividend equivalents payable of $47.8 million related to the common stock dividend declared on December 14, 2021. This dividend was considered taxable income to the recipient in 2022. For more information see our 2021 Dividend Tax Information on our website.
This dividend will be treated as a dividend paid in 2024 to the extent of the Company’s earnings and profits in 2024. (2) At December 31, 2022, we had accrued dividends and dividend equivalents payable of $35.8 million related to the common stock dividend declared on December 14, 2022.
Removed
(3) The $0.44, $0.40, $0.40 and $0.30 per share dividend amounts for the three months ended December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively, have been adjusted to reflect the Reverse Stock Split; the dividends actually paid in respect of such dividends were $0.11, $0.10, $0.10 and $0.075 per share, respectively, which were based on the pre-split number of shares held by stockholders at the record dates for such dividends (December 31, 2021, September 30, 2021, June 30, 2021, and March 31, 2021, respectively).
Added
We did not repurchase any shares of our common stock during the year ended December 31, 2023.
Removed
During the year ended December 31, 2022, we repurchased 6,476,746 shares of our common stock through the stock repurchase program at an average cost of $15.80 per share and a total cost of approximately $102.1 million, net of fees and commissions paid to the sales agent of approximately $161,000.
Removed
As of December 31, 2022, we were permitted to purchase an additional $202.5 million of our common stock under our stock repurchase program.
Removed
We engaged in no share repurchase activity during the fourth quarter of 2022 pursuant to the stock repurchase program nor did we withhold any restricted shares (under the terms of grants under our Equity Compensation Plan (or Equity Plan)) to 40 Table of Contents offset tax withholding obligations that occur upon the vesting and release of restricted stock awards and/or restricted stock units (or RSUs).
Removed
At-the-Market Offering Program On August 16, 2019, we entered into a three-year distribution agreement under the terms of which we had the ability to offer and sell shares of our common stock having an aggregate gross sales price of up to $400.0 million (or the ATM Shares), from time to time, through various sales agents, pursuant to an at-the-market equity offering program (or the ATM Program).
Removed
Sales of the ATM Shares, if any, were made in negotiated transactions or by transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415 under the 1933 Act, including sales made directly on the NYSE or sales made to or through a market maker other than an exchange.
Removed
The sales agents were entitled to compensation of up to two percent of the gross sales price per share for any shares of common stock sold under the distribution agreement. During the years ended December 31, 2022 and 2021, we did not sell any shares of common stock through the ATM Program and the ATM Program expired in August, 2022.

Item 6. [Reserved]

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

110 edited+29 added−36 removed87 unchanged
Biggest changeDistributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. 57 Table of Contents The following table provides a reconciliation of our GAAP net (loss)/income used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below: Quarter Ended (In Thousands, Except Per Share Amounts) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 GAAP Net income/(loss) used in the calculation of basic EPS $ (1,647) $ (63,410) $ (108,760) $ (91,266) $ 35,734 $ 123,858 $ 58,290 $ 77,029 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 68,828 291,818 218,181 287,935 42,564 (20,494) (6,226) (32,088) Securities held at fair value 383 (1,549) 1,459 2,934 364 (494) (1,374) (100) Interest rate swaps 12,725 (108,917) (31,767) (80,753) (71) — — — Securitized debt held at fair value (44,988) (100,767) (84,348) (62,855) (6,137) (857) 232 (7,629) Investments in loan origination partners 8,526 2,031 39,162 780 (23,956) (48,933) — — Expense items: Amortization of intangible assets 1,300 1,300 3,300 3,300 3,300 3,300 — — Equity based compensation 2,480 2,673 3,540 2,645 2,306 2,306 2,744 1,688 Securitization-related transaction costs 1,744 5,014 6,399 3,233 5,178 — — 2 Total adjustments 50,998 91,603 155,926 157,219 23,548 (65,172) (4,624) (38,127) Distributable earnings $ 49,351 $ 28,193 $ 47,166 $ 65,953 $ 59,282 $ 58,686 $ 53,666 $ 38,902 GAAP (loss)/earnings per basic common share $ (0.02) $ (0.62) $ (1.06) $ (0.86) $ 0.33 $ 1.12 $ 0.53 $ 0.68 Distributable earnings per basic common share $ 0.48 $ 0.28 $ 0.46 $ 0.62 $ 0.54 $ 0.53 $ 0.49 $ 0.34 Weighted average common shares for basic earnings per share 101,800 101,795 102,515 106,568 109,468 110,222 110,383 112,784 Selected Financial Ratios (using Distributable earnings) The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) December 31, 2022 2.10 % 11.34 % 0.73 September 30, 2022 1.19 6.79 1.57 June 30, 2022 1.99 9.60 0.96 March 31, 2022 2.82 11.90 0.71 December 31, 2021 2.76 10.46 0.81 September 30, 2021 3.13 10.34 0.75 June 30, 2021 3.17 9.80 0.82 March 31, 2021 2.29 7.46 0.88 (1) Reflects annualized Distributable earnings divided by average total assets.
Biggest changeDistributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. 54 Table of Contents The following table provides a reconciliation of our GAAP net income/(loss) used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below: Quarter Ended (In Thousands, Except Per Share Amounts) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 GAAP Net income/(loss) used in the calculation of basic EPS $ 81,527 $ (64,657) $ (34,146) $ 64,565 $ (1,647) $ (63,410) $ (108,760) $ (91,266) Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value (224,272) 132,894 130,703 (129,174) 68,828 291,818 218,181 287,935 Securities held at fair value (21,371) 13,439 3,698 (2,931) 383 (1,549) 1,459 2,934 Residential whole loans and securities at carrying value 332 — — — — — — — Interest rate swaps 97,400 (9,433) (37,018) 40,747 12,725 (108,917) (31,767) (80,753) Securitized debt held at fair value 108,693 (40,229) (30,908) 48,846 (44,988) (100,767) (84,348) (62,855) Investments in loan origination partners 254 722 872 — 8,526 2,031 39,162 780 Expense items: Amortization of intangible assets 800 800 1,300 1,300 1,300 1,300 3,300 3,300 Equity based compensation 3,635 4,447 3,932 3,020 2,480 2,673 3,540 2,645 Securitization-related transaction costs 2,702 3,217 2,071 4,602 1,744 5,014 6,399 3,233 Total adjustments (31,827) 105,857 74,650 (33,590) 50,998 91,603 155,926 157,219 Distributable earnings $ 49,700 $ 41,200 $ 40,504 $ 30,975 $ 49,351 $ 28,193 $ 47,166 $ 65,953 GAAP earnings/(loss) per basic common share $ 0.80 $ (0.64) $ (0.34) $ 0.63 $ (0.02) $ (0.62) $ (1.06) $ (0.86) Distributable earnings per basic common share $ 0.49 $ 0.40 $ 0.40 $ 0.30 $ 0.48 $ 0.28 $ 0.46 $ 0.62 Weighted average common shares for basic earnings per share 102,266 102,255 102,186 102,155 101,800 101,795 102,515 106,568 Selected Financial Ratios (using Distributable earnings) The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) December 31, 2023 2.23 % 12.29 % 0.71 September 30, 2023 1.98 10.36 0.88 June 30, 2023 2.06 9.81 0.88 March 31, 2023 1.69 7.76 1.17 December 31, 2022 2.45 11.34 0.73 September 30, 2022 1.53 6.79 1.57 June 30, 2022 1.99 9.60 0.96 March 31, 2022 2.82 11.90 0.71 (1) Reflects annualized Distributable earnings divided by average total assets.
With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to increase; (ii) the value of certain of our residential mortgage assets and securitized debt to decline; (iii) coupons on our adjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging 42 Table of Contents instruments, if any, to increase.
With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to increase; (ii) the value of certain of our residential mortgage assets and securitized debt to decline; (iii) coupons on our adjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging 39 Table of Contents instruments, if any, to increase.
We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2022, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement.
We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2023, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement.
Item 6. [Reserved] 41 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our financial statements and accompanying notes included in Item 8 of this Annual Report on Form 10-K.
Item 6. [Reserved] 38 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our financial statements and accompanying notes included in Item 8 of this Annual Report on Form 10-K.
Management believes the policies which more significantly rely on estimates and judgments to be as follows: 60 Table of Contents Fair Value Measurements - Residential Whole Loans GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy.
Management believes the policies which more significantly rely on estimates and judgments to be as follows: 57 Table of Contents Fair Value Measurements - Residential Whole Loans GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy.
For example: a) while our REIT uses fair value accounting for GAAP in some instances, it generally is not used for purposes of determining taxable income; b) impairments generally are not recognized by us for income tax purposes until the asset is written-off or sold; c) capital losses may only be recognized by us to the extent of its capital gains; capital losses in excess of capital gains generally are carried over 47 Table of Contents by us for potential offset against future capital gains; and d) tax hedge gains and losses resulting from the termination of interest rate swaps by us generally are amortized over the remaining term of the swap.
For example: a) while our REIT uses fair value accounting for GAAP in some instances, it generally is not used for purposes of determining taxable income; b) impairments generally are not recognized by us for income tax purposes until the asset is written-off or sold; c) capital losses may only be recognized by us to the extent of its capital gains; capital losses in excess of capital gains generally are carried over 44 Table of Contents by us for potential offset against future capital gains; and d) tax hedge gains and losses resulting from the termination of Swaps by us generally are amortized over the remaining term of the Swap.
We are subject to various financial covenants under our financing agreements, which include minimum liquidity and net worth requirements, net worth decline limitations and maximum debt-to-equity ratios. We were in compliance with all financial covenants as of December 31, 2022.
We are subject to various financial covenants under our financing agreements, which include minimum liquidity and net worth requirements, net worth decline limitations and maximum debt-to-equity ratios. We were in compliance with all financial covenants as of December 31, 2023.
For the quarters ended December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity. (3) Reflects dividends declared per share of common stock divided by earnings per share.
For the quarters ended September 30, 2023, June 30, 2023, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity. (3) Reflects dividends declared per share of common stock divided by earnings per share.
Our remaining investment-related assets, which represent approximately 3% of our total assets at December 31, 2022, were primarily comprised of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables.
Our remaining investment-related assets, which represent approximately 3% of our total assets at December 31, 2023, were primarily comprised of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables.
Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (or Non-QM loans), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the properties (or Transitional loans), which are comprised of Residential transitional loans and Multi-family transitional loans), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (or Single-family rental loans), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) re-performing loans on which a borrower was previously delinquent but has resumed repaying (or RPLs) and NPLs.
Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (or Non-QM loans), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the properties (or Transitional loans), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (or Single-family rental loans), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) loans on which a borrower was previously delinquent but has resumed repaying (or RPLs) and loans on which the borrower continues to be more than 60 days delinquent with respect to payment (non-performing loans or NPLs).
For a discussion related to our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7.
For a discussion related to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7.
We address margin call requests in accordance with the required terms specified in the applicable agreement and such requests are typically satisfied by posting additional cash or collateral on the same business day. We review margin calls 62 Table of Contents made by counterparties and assess them for reasonableness by comparing the counterparty valuation against our valuation determination.
We address margin call requests in accordance with the required terms specified in the applicable agreement and such requests are typically satisfied by posting additional cash or collateral on the same business day. We review margin calls made by counterparties and assess them for reasonableness by comparing the counterparty valuation against our valuation determination.
As of December 31, 2022, we had $2.2 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $4.6 billion of total unpaid principal balance related to asset-backed financing agreements that do not include mark-to-market collateral provisions.
As of December 31, 2023, we had $2.4 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $6.1 billion of total unpaid principal balance related to asset-backed financing agreements that do not include mark-to-market collateral provisions.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2021, which was filed with the SEC on February 23, 2022, and is available on the SEC’s website at www.sec.gov and on our website at www.mfafinancial.com.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2022, which was filed with the SEC on February 24, 2023, and is available on the SEC’s website at www.sec.gov and on our website at www.mfafinancial.com.
When we believe that a margin call is unnecessary because our assessment of collateral value differs from the counterparty valuation, we typically hold discussions with the counterparty and are able to resolve the matter.
When we believe that a margin call is unnecessary because our assessment of collateral value differs from the counterparty valuation, we typically hold discussions with the counterparty and attempt to resolve the matter.
At December 31, 2022, we had a total of $3.9 billion of residential whole loans and securities and $16.0 million of restricted cash pledged to our financing counterparties. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements.
At December 31, 2023, we had a total of $3.9 billion of residential whole loans and securities and $19.0 million of restricted cash pledged to our financing counterparties. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements.
Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income. 48 Table of Contents Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income. 45 Table of Contents Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Further, we believe the discounted purchase prices paid on Purchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that, as we expect on most such investments, we receive less than 100% of the par value of these investments.
Further, we believe the discounted purchase prices paid on Purchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that we receive less than 100% of the par value of these investments.
(9) Net interest margin reflects net interest income (including net swap expense) divided by average interest-earning assets. 52 Table of Contents Rate/Volume Analysis The following table presents the extent to which changes in interest rates (yield/cost) and changes in the volume (average balance) of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated.
(8) Net interest margin reflects net interest income (including net swap income or expense) divided by average interest-earning assets. 49 Table of Contents Rate/Volume Analysis The following table presents the extent to which changes in interest rates (yield/cost) and changes in the volume (average balance) of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated.
At December 31, 2022 and 2021, we had REO with an aggregate carrying value of $130.6 million and $156.2 million, respectively, which is included in Other assets on our consolidated balance sheets.
At December 31, 2023 and 2022, we had REO with an aggregate carrying value of $110.2 million and $130.6 million, respectively, which is included in Other assets on our consolidated balance sheets.
Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $15.55 as of December 31, 2022, a decrease from $20.58 as of December 31, 2021.
Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $14.57 as of December 31, 2023, a decrease from $15.55 as of December 31, 2022.
(6) Represents the sum of our borrowings under financing agreements (excluding securitized debt) and payable for unsettled purchases divided by stockholders’ equity.
(6) Represents the sum of our borrowings under financing agreements (excluding securitized and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity.
Other non-repurchase agreement financing arrangements also contain provisions governing collateral maintenance. At December 31, 2022, we had unused financing capacity of approximately $1.2 billion across our financing arrangements for all collateral types.
Other non-repurchase agreement financing arrangements also contain provisions governing collateral maintenance. At December 31, 2023, we had unused financing capacity of approximately $2.4 billion across our financing arrangements for all collateral types.
As a result, the income recognized from securitization and re-securitization transactions may differ for tax and GAAP purposes. Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS) We estimate that for 2022, our net TRS taxable loss will be $171.5 million.
As a result, the income recognized from securitization and re-securitization transactions may differ for tax and GAAP purposes. Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS) We estimate that for 2023, our net TRS taxable loss will be $24.3 million.
The changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “Interest Income” and “Interest Expense.” For 2022, our net interest spread and margin (including the impact of swaps) were 1.74% and 2.52%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.79% and 3.57%, respectively, for 2021.
The changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “Interest Income” and “Interest Expense.” For 2023, our net interest spread and margin (including the impact of swaps) were 2.05% and 2.90%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 1.74% and 2.52%, respectively, for 2022.
Provision for Credit Losses on Residential Whole Loans Held at Carrying Value For 2022, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $2.6 million compared to a reversal of provision of $44.9 million for 2021.
Provision for Credit Losses on Residential Whole Loans Held at Carrying Value For 2023, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $8.9 million compared to a reversal of provision of $2.6 million for 2022.
We held $1.8 billion and $2.6 billion of residential whole loans, at carrying value, at December 31, 2022 and 2021, respectively, which represented 19.7% and 28.5% of our total assets at those dates, respectively.
We held $1.5 billion and $1.8 billion of residential whole loans, at carrying value, at December 31, 2023 and 2022, respectively, which represented 14.2% and 19.7% of our total assets at those dates, respectively.
All of our Purchased Non-performing Loans and certain of our Purchased Performing Loans are measured at fair value as a result of the election of the fair value option at acquisition. Included in earnings in Other income, net are net losses on these loans of $866.8 million for the year ended December 31, 2022.
All of our Purchased Non-performing Loans and certain of our Purchased Performing Loans are measured at fair value as a result of the election of the fair value option at acquisition. Included in earnings in Other Income/(Loss), net are net losses on these loans of $89.9 million for the year ended December 31, 2023.
Residential whole loans, at fair value recorded valuation changes of ($866.8) million, $16.2 million and $16.4 million during the years ended December 31, 2022, 2021, and 2020, respectively.
Residential whole loans, at fair value recorded valuation changes of $89.9 million, $866.8 million and $16.2 million during the years ended December 31, 2023, 2022, and 2021, respectively.
In addition, in the current year period we recorded a Provision for Credit Losses on Other Assets of $28.6 million, reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.
The prior year period also included a Provision for Credit Losses on Other Assets of $28.6 million, reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero. No such provision was recorded in the current year period.
We held $5.7 billion and $5.3 billion of residential whole loans, at fair value, at December 31, 2022 and 2021, respectively, which represented 62.9% and 58.0% of our total assets at those dates, respectively.
We held $7.5 billion and $5.7 billion of residential whole loans, at fair value, at December 31, 2023 and 2022, respectively, which represented 69.7% and 62.9% of our total assets at those dates, respectively.
Residential whole loans, at carrying value experienced net fair value changes of ($223.7) million, ($20.4) million and ($8.5) million during the years ended December 31, 2022, 2021, and 2020, respectively.
Residential whole loans, at carrying value experienced net fair value changes of $34.6 million, ($223.7) million and ($20.4) million during the years ended December 31, 2023, 2022, and 2021, respectively.
Allowances for credit losses on our residential whole loans, at carrying value recorded at December 31, 2022, 2021, and 2020 were $35.3 million, $39.4 million and $86.8 million, respectively.
Allowances for credit losses on our residential whole loans, at carrying value recorded at December 31, 2023, 2022, and 2021 were $20.5 million, $35.3 million and $39.4 million, respectively.
Positive swap carry results when income from the receive leg of a swap is greater than the expense on the pay leg. Negative swap carry results when income from the receive leg is less than the expense on the pay leg.
Negative swap carry results when income from the receive leg is less than the expense on the pay leg.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements include the accounts of all of our subsidiaries. The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements, giving due consideration to materiality. Actual results could differ from these estimates.
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements, giving due consideration to materiality. Actual results could differ from these estimates.
On December 14, 2022, we declared our fourth quarter 2021 dividend on our common stock of $0.35 per share; on January 31, 2023, we paid this dividend, which totaled approximately $35.8 million, including dividend equivalents of approximately $138,000.
On December 13, 2023, we declared our fourth quarter 2023 dividend on our common stock of $0.35 per share; on January 31, 2024, we paid this dividend, which totaled approximately $35.8 million, including dividend equivalents of approximately $119,000.
The decrease in the net yield on our securities portfolio primarily reflects higher accretion income recognized in 2021 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020; and the redemption of a Non-Agency MBS that had been previously purchased at a discount.
The decrease in the net yield on our securities portfolio primarily reflects higher accretion income recognized in 2022 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020.
At December 31, 2022, our debt-to-equity multiple was 3.5 times compared to 2.5 times at December 31, 2021. Our recourse leverage multiple at December 31, 2022 was 1.8 times compared to 1.5 times at December 31, 2021.
At December 31, 2023, our debt-to-equity multiple was 4.5 times compared to 3.5 times at December 31, 2022. Our recourse leverage multiple at December 31, 2023 was 1.7 times compared to 1.8 times at December 31, 2022.
For the quarters ended December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income available to common stock and participating securities divided by average total assets. (2) Reflects annualized net income divided by average total stockholders’ equity.
For the quarters ended September 30, 2023, June 30, 2023, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total assets. (2) Reflects annualized net income divided by average total stockholders’ equity.
(2) Reflects annualized net interest income (including net swap expense) divided by average interest-earning assets. 53 Table of Contents The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented: Quarter Ended December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Purchased Performing Loans Net Yield (1) 5.04 % 4.75 % 4.20 % 4.18 % 4.12 % 4.56 % 4.45 % 4.41 % Cost of Funding (2) 3.70 % 3.60 % 3.28 % 2.74 % 2.24 % 2.14 % 2.09 % 2.46 % Net Interest Spread 1.34 % 1.15 % 0.92 % 1.44 % 1.88 % 2.42 % 2.36 % 1.95 % Purchased Credit Deteriorated Loans Net Yield (1) 6.59 % 6.49 % 6.85 % 6.79 % 7.15 % 7.08 % 7.17 % 5.00 % Cost of Funding (2) 2.13 % 2.72 % 3.17 % 2.88 % 2.32 % 2.18 % 2.39 % 2.86 % Net Interest Spread 4.46 % 3.77 % 3.68 % 3.91 % 4.83 % 4.90 % 4.78 % 2.14 % Purchased Non-Performing Loans Net Yield (1) 11.15 % 9.84 % 9.40 % 9.82 % 9.83 % 8.81 % 7.98 % 7.13 % Cost of Funding (2) 3.01 % 2.86 % 3.34 % 3.09 % 2.53 % 2.43 % 2.71 % 3.41 % Net Interest Spread 8.14 % 6.98 % 6.06 % 6.73 % 7.30 % 6.38 % 5.27 % 3.72 % Total Residential Whole Loans Net Yield (1) 5.62 % 5.30 % 4.85 % 4.94 % 5.08 % 5.52 % 5.48 % 5.03 % Cost of Funding (2) 3.56 % 3.49 % 3.28 % 2.79 % 2.28 % 2.20 % 2.25 % 2.70 % Net Interest Spread 2.06 % 1.81 % 1.57 % 2.15 % 2.80 % 3.32 % 3.23 % 2.33 % (1) Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans.
(2) Reflects annualized net interest income (including net swap income or expense) divided by average interest-earning assets. 50 Table of Contents The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented: Quarter Ended December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Purchased Performing Loans Net Yield (1) 6.22 % 6.06 % 5.66 % 5.38 % 5.04 % 4.75 % 4.20 % 4.18 % Cost of Funding (2) 4.43 % 4.23 % 3.97 % 3.95 % 3.70 % 3.60 % 3.28 % 2.74 % Net Interest Spread 1.79 % 1.83 % 1.69 % 1.43 % 1.34 % 1.15 % 0.92 % 1.44 % Purchased Credit Deteriorated Loans Net Yield (1) 6.49 % 6.63 % 7.09 % 6.13 % 6.59 % 6.49 % 6.85 % 6.79 % Cost of Funding (2) 2.68 % 2.43 % 1.98 % 2.23 % 2.13 % 2.72 % 3.17 % 2.88 % Net Interest Spread 3.81 % 4.20 % 5.11 % 3.90 % 4.46 % 3.77 % 3.68 % 3.91 % Purchased Non-Performing Loans Net Yield (1) 9.65 % 9.59 % 10.11 % 8.46 % 11.15 % 9.84 % 9.40 % 9.82 % Cost of Funding (2) 3.63 % 3.65 % 3.53 % 3.53 % 3.01 % 2.86 % 3.34 % 3.09 % Net Interest Spread 6.02 % 5.94 % 6.58 % 4.93 % 8.14 % 6.98 % 6.06 % 6.73 % Total Residential Whole Loans Net Yield (1) 6.47 % 6.34 % 6.10 % 5.68 % 5.62 % 5.30 % 4.85 % 4.94 % Cost of Funding (2) 4.29 % 4.10 % 3.83 % 3.82 % 3.56 % 3.49 % 3.28 % 2.79 % Net Interest Spread 2.18 % 2.24 % 2.27 % 1.86 % 2.06 % 1.81 % 1.57 % 2.15 % (1) Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans.
Operating and Other Expense during 2022 also includes $42.9 million of loan servicing and other related operating expenses related to our residential whole loan activities.
Operating and Other Expense during 2023 also includes $34.1 million of loan servicing and other related operating expenses related to our residential whole loan activities.
During 2022, we paid $184.0 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $32.9 million on our preferred stock.
During 2023, we paid $143.1 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $32.9 million on our preferred stock.
At December 31, 2021, we had borrowings under asset-backed financing agreements of $3.5 billion, of which $3.3 billion were secured by residential whole loans, $159.1 million were secured by securities and $23.0 million were secured by REO. In addition, at December 31, 2021, we had securitized debt of $2.7 billion in connection with our loan securitization transactions.
At December 31, 2023, we had borrowings under asset-backed financing agreements of $3.6 billion, of which $2.9 billion were secured by residential whole loans, $622.6 million were secured by securities and $25.2 million were secured by REO. In addition, at December 31, 2023, we had securitized debt of $4.8 billion in connection with our loan securitization transactions.
In addition, Other expenses for 2022 and 2021 also includes $9.2 million and $6.6 million, respectively, of amortization related to intangible assets recognized as part of the purchase accounting for the Lima One acquisition. 56 Table of Contents Selected Financial Ratios The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) Total Average Stockholders’ Equity to Total Average Assets (4) Leverage Multiple (5) Recourse Leverage Multiple (6) December 31, 2022 (0.02) % 1.32 % — 21.59 % 3.5 1.8 September 30, 2022 (0.66) (2.57) — 22.53 3.6 1.7 June 30, 2022 (1.14) (4.35) — 24.33 3.3 1.8 March 31, 2022 (0.97) (3.33) — 26.63 3.1 1.9 December 31, 2021 1.67 6.84 1.38 30.00 2.5 1.5 September 30, 2021 6.64 20.48 0.36 34.55 2.2 1.4 June 30, 2021 3.46 10.57 0.77 37.28 1.8 1.0 March 31, 2021 4.55 13.54 0.44 37.21 1.6 1.0 (1) Reflects annualized net income available to common stock and participating securities divided by average total assets.
In addition, Other expenses for 2023 and 2022 also includes $4.2 million and $9.2 million, respectively, of amortization related to intangible assets recognized as part of the purchase accounting for the Lima One acquisition. 53 Table of Contents Selected Financial Ratios The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) Total Average Stockholders’ Equity to Total Average Assets (4) Leverage Multiple (5) Recourse Leverage Multiple (6) December 31, 2023 3.46 % 19.04 % 0.44 18.16 % 4.5 1.7 September 30, 2023 (0.56) (2.96) — 19.10 4.3 2.0 June 30, 2023 (0.27) (1.31) — 20.99 3.9 1.9 March 31, 2023 3.14 14.40 0.56 21.81 3.5 1.6 December 31, 2022 0.29 1.32 — 21.59 3.5 1.8 September 30, 2022 (0.58) (2.57) — 22.53 3.6 1.7 June 30, 2022 (1.06) (4.35) — 24.33 3.3 1.8 March 31, 2022 (0.89) (3.33) — 26.63 3.1 1.9 (1) Reflects annualized net income divided by average total assets.
Further, we earned an additional $10.1 million from our investments in other interest earning assets and cash during 2022 as compared to the prior year period. 51 Table of Contents Analysis of Net Interest Income The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2022 and 2021 .
Net interest income for 2023 also includes approximately $13.1 million of additional interest income from other interest earning assets and cash compared to the prior year period. 48 Table of Contents Analysis of Net Interest Income The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2023 and 2022 .
For the quarter ended December 31, 2021, this increased the overall funding cost by 5 basis points for our Residential whole loans, 5 basis points for our Purchased Performing Loans, 9 basis points for our Purchased Credit Deteriorated Loans, and 2 basis points for our Purchased Non-Performing Loans. 54 Table of Contents The following table presents the components of the net interest spread earned on our residential mortgage securities and MSR-related assets for the quarterly periods presented: Securities, at fair value Quarter Ended Net Yield (1)(2) Cost of Funding (3) Net Interest Rate Spread December 31, 2022 30.33 % 5.47 % 24.86 % September 30, 2022 11.06 3.94 7.12 June 30, 2022 10.09 2.54 7.55 March 31, 2022 10.13 1.72 8.41 December 31, 2021 26.28 1.50 24.78 September 30, 2021 18.78 1.61 17.17 June 30, 2021 24.57 1.81 22.76 March 31, 2021 22.25 2.02 20.23 (1) Reflects annualized interest income divided by average amortized cost.
For the quarter ended March 31, 2022, this increased the overall funding cost by 35 basis points for our Residential whole loans, 33 basis points for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basis points for our Purchased Non-Performing Loans. 51 Table of Contents The following table presents the components of the net interest spread earned on our Securities for the quarterly periods presented: Securities, at fair value Quarter Ended Net Yield (1)(2) Cost of Funding (3) Net Interest Rate Spread December 31, 2023 7.20 % 3.75 % 3.45 % September 30, 2023 7.38 3.92 3.46 June 30, 2023 7.67 4.29 3.38 March 31, 2023 8.76 4.52 4.24 December 31, 2022 30.33 5.47 24.86 September 30, 2022 11.06 3.94 7.12 June 30, 2022 10.09 2.54 7.55 March 31, 2022 10.13 1.72 8.41 (1) Reflects annualized interest income divided by average amortized cost.
Cost of funding shown in the table above for the quarterly periods ended December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021 include the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps.
Cost of funding shown in the table above for the quarterly periods ended December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023 includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value.
Excluding this accretion, the yield reported would have been 11.38%. (4) Includes average interest-earning cash, cash equivalents and restricted cash. (5) Collateralized financing agreements include the following: mark-to-market asset based financing and non-mark-to-market asset based financing. For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K.
(3) Includes average interest-earning cash, cash equivalents and restricted cash. (4) Collateralized financing agreements include the following: mark-to-market asset based financing and non-mark-to-market asset based financing. For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K. (5) Includes both securitized debt, at carrying value and securitized debt, at fair value.
Our GAAP book value per common share was $14.87 as of December 31, 2022. Book value per common share decreased from $19.12 as of December 31, 2021.
Book value per common share decreased from $14.87 as of December 31, 2022.
(3) Includes $334.2 million of cash and cash equivalents, $159.9 million of restricted cash, and $28.3 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.
(3) Includes $318.0 million of cash and cash equivalents, $170.2 million of restricted cash, and $19.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.
Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required.
In connection with our repurchase agreement financings and Swaps, we routinely receive margin calls/reverse margin calls from our counterparties and make margin calls to our counterparties. Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required.
For 2022, net interest income includes lower net interest income for our Securities, at fair value portfolio of approximately $29.4 million compared to 2021, primarily due to higher accretion income recognized in the prior year period due to the impact of the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and the redemption of a Non-Agency MBS that had been previously purchased at a discount and the lower average amount invested in these assets.
In addition, net interest income for 2023 includes lower net interest income for our Securities, at fair value portfolio of approximately $8.5 million compared to 2022, primarily due higher accretion income recognized in the prior year period due to the impact of the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and higher financing agreement borrowings in 2023, partially offset by higher amounts invested in the portfolio due to Agency MBS purchases during 2023.
This included $1.5 billion of Non-QM loans, $707.3 million of Single-family rental loans, $336.1 million of re-performing loans and $251.5 million of Transitional loans. These securitizations provided longer term, non-recourse, non-mark-to-market financing. Subsequent to the fourth quarter, we have completed three additional securitizations totaling $668.2 million, further reducing our use of shorter-term recourse, mark-to-market financing.
This included $1.4 billion of Non-QM loans, $418.6 million of Single-family rental loans, and $376.1 million of Transitional 41 Table of Contents loans. These securitizations provided longer term, non-recourse, non-mark-to-market financing. Subsequent to the fourth quarter, we have completed one additional securitization totaling $192.5 million, further reducing our use of shorter-term recourse, mark-to-market financing.
During 2022, we recognized approximately $441.2 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 5.19%, with Purchased Performing Loans generating an effective yield of 4.56%, Purchased Credit Deteriorated Loans generating an effective yield of 6.69% and Purchased Non-performing Loans generating an effective yield of 10.03%.
During 2023, we recognized approximately $537.9 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.15%, with Purchased Performing Loans generating an effective yield of 5.84%, Purchased Credit Deteriorated Loans generating an effective yield of 6.58% and Purchased Non-performing Loans generating an effective yield of 9.44%.
For the quarter ended March 31, 2022, this increased the overall funding cost by 35 basis points for our Residential whole loans, 33 basis points for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basis points for our Purchased Non-Performing Loans.
For the quarter ended March 31, 2023, this decreased the overall funding cost by 127 basis points for our Residential whole loans, 129 basis points for our Purchased Performing Loans, 171 basis points for our Purchased Credit Deteriorated Loans, and 77 basis points for our Purchased Non-Performing Loans.
At December 31, 2022, the total fair value of these loans is estimated to be approximately $6.2 billion. (2) At December 31, 2022, the total fair value of these loans is estimated to be approximately $468.8 million.
At December 31, 2023, the total fair value of these loans is estimated to be $7.9 billion. (2) At December 31, 2023, the total fair value of these loans is estimated to be $438.7 million.
Cash Flows and Liquidity for the Year Ended December 31, 2022 Our cash, cash equivalents and restricted cash increased by $89.6 million during 2022, reflecting: $1.1 billion used in our investing activities, $850.2 million provided by our financing activities and $366.1 million provided by our operating activities.
Cash Flows and Liquidity for the Year Ended December 31, 2023 Our cash, cash equivalents and restricted cash decreased by $5.9 million during 2023, reflecting: $1.5 billion used in our investing activities, $1.4 billion provided by our financing activities and $108.7 million provided by our operating activities.
The components of Other (Loss)/Income, net for 2022 and 2021 are summarized in the table below: For the Year Ended December 31, (In Thousands) 2022 2021 Net (loss)/gain on residential whole loans measured at fair value through earnings $ (866,762) $ 16,243 Impairment and other net (loss)/gain on securities and other portfolio investments (25,067) 74,496 Net gain on real estate owned 25,379 22,838 Net gain/(loss) on derivatives used for risk management purposes 255,179 1,426 Net gain/(loss) on securitized debt measured at fair value through earnings 290,639 15,027 Lima One - origination, servicing and other fee income 46,745 22,600 Other, net 9,297 12,473 Other (Loss)/Income, net $ (264,590) $ 165,103 Operating and Other Expense During 2022, we had compensation and benefits and other general and administrative expenses of $112.5 million, compared to $85.5 million for 2021.
The components of Other (Loss)/Income, net for 2023 and 2022 are summarized in the table below: For the Year Ended December 31, (In Thousands) 2023 2022 Net gain/(loss) on residential whole loans measured at fair value through earnings $ 89,850 $ (866,762) Impairment and other net gain/(loss) on securities and other portfolio investments 6,225 (25,067) Net gain on real estate owned 9,392 25,379 Net gain/(loss) on derivatives used for risk management purposes 3,761 255,179 Net gain/(loss) on securitized debt measured at fair value through earnings (99,589) 290,639 Lima One - origination, servicing and other fee income 43,384 46,745 Net realized loss on residential whole loans held at carrying value (1,240) — Other, net 11,331 8,623 Other Income/(Loss), net $ 63,114 $ (265,264) Operating and Other Expense During 2023, we had compensation and benefits and other general and administrative expenses of $129.9 million, compared to $111.9 million for 2022.
(See “Interest Rate Risk” included under Item 7A. of this Annual Report on Form 10-K and our Consolidated Statements of Cash Flows, included under Item 8 of this Annual Report on Form 10-K.) 63 Table of Contents The table below presents certain information about our borrowings under asset-backed financing agreements and securitized debt: Asset-backed Financing Agreements Securitized Debt Quarter Ended (1) Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End (In Thousands) December 31, 2022 $ 3,147,303 $ 3,226,651 $ 3,226,651 $ 3,842,757 $ 3,357,590 $ 3,855,013 September 30, 2022 3,351,046 3,229,640 3,411,200 3,643,872 3,832,311 3,832,311 June 30, 2022 3,638,476 3,530,510 3,761,049 3,170,406 3,374,716 3,374,716 March 31, 2022 3,920,895 3,942,343 4,138,377 2,555,241 2,859,061 2,859,061 December 31, 2021 3,313,641 3,501,839 3,501,839 2,302,990 2,650,473 2,650,473 September 30, 2021 2,516,940 3,278,941 3,278,941 2,008,639 2,045,729 2,137,773 June 30, 2021 2,063,852 2,156,598 2,156,598 1,778,909 2,046,381 2,046,381 March 31, 2021 2,632,791 2,221,570 2,443,149 1,535,995 1,548,920 1,602,148 December 31, 2020 2,833,649 2,497,290 2,823,306 1,202,292 1,514,509 1,514,509 September 30, 2020 3,511,453 3,217,678 3,613,968 610,120 837,683 837,683 June 30, 2020 4,736,610 3,692,845 5,024,926 538,245 516,102 541,698 March 31, 2020 9,233,808 7,768,180 9,486,555 558,007 533,733 594,458 (1) The information presented in the table above excludes $230.0 million of Convertible Senior Notes issued in June 2019 and $100.0 million of Senior Notes issued in April 2012.
(See “Interest Rate Risk” included under Item 7A. of this Annual Report on Form 10-K and our Consolidated Statements of Cash Flows, included under Item 8 of this Annual Report on Form 10-K.) 60 Table of Contents The table below presents certain information about our borrowings under asset-backed financing agreements and securitized debt: Asset-backed Financing Agreements Securitized Debt Quarter Ended (1) Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End (In Thousands) December 31, 2023 $ 3,682,792 $ 3,576,952 $ 3,717,477 $ 4,438,548 $ 4,750,805 $ 4,750,805 September 30, 2023 3,574,547 3,486,440 3,766,848 4,014,161 4,332,936 4,332,936 June 30, 2023 3,148,269 3,370,327 3,370,327 3,924,422 3,969,274 4,043,482 March 31, 2023 3,145,555 3,042,802 3,189,587 3,680,042 3,830,309 3,838,654 December 31, 2022 3,147,303 3,226,651 3,226,651 3,842,757 3,357,590 3,855,013 September 30, 2022 3,351,046 3,229,640 3,411,200 3,643,872 3,832,311 3,832,311 June 30, 2022 3,638,476 3,530,510 3,761,049 3,170,406 3,374,716 3,374,716 March 31, 2022 3,920,895 3,942,343 4,138,377 2,555,241 2,859,061 2,859,061 December 31, 2021 3,313,641 3,501,839 3,501,839 2,302,990 2,650,473 2,650,473 September 30, 2021 2,516,940 3,278,941 3,278,941 2,008,639 2,045,729 2,137,773 June 30, 2021 2,063,852 2,156,598 2,156,598 1,778,909 2,046,381 2,046,381 March 31, 2021 2,632,791 2,221,570 2,443,149 1,535,995 1,548,920 1,602,148 (1) The information presented in the table above excludes $230.0 million of Convertible Senior Notes issued in June 2019, of which the aggregate principal amount outstanding was $209.6 million at December 31, 2023, and $100.0 million of Senior Notes issued in April 2012.
The following table provides a reconciliation of our GAAP book value per common share to our non-GAAP Economic book value per common share as of the quarterly periods below: Quarter Ended: (In Millions, Except Per Share Amounts) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 GAAP Total Stockholders’ Equity $ 1,988.8 $ 2,033.9 $ 2,146.4 $ 2,349.0 $ 2,542.8 $ 2,601.1 $ 2,526.5 $ 2,542.3 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share 1,513.8 1,558.9 1,671.4 1,874.0 2,067.8 2,126.1 2,051.5 2,067.3 Adjustments: Fair value adjustment to Residential whole loans, at carrying value (70.2) (58.2) 9.5 54.0 153.5 198.8 206.2 203.0 Fair value adjustment to Securitized debt, at carrying value (1) 139.7 109.6 75.4 47.7 4.3 (8.0) (8.9) (3.6) Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) (1) $ 1,583.3 $ 1,610.3 $ 1,756.3 $ 1,975.7 $ 2,225.6 $ 2,316.9 $ 2,248.8 $ 2,266.7 GAAP book value per common share $ 14.87 $ 15.31 $ 16.42 $ 17.84 $ 19.12 $ 19.29 $ 18.62 $ 18.54 Economic book value per common share (1) $ 15.55 $ 15.82 $ 17.25 $ 18.81 $ 20.58 $ 21.02 $ 20.41 $ 20.32 Number of shares of common stock outstanding 101.8 101.8 101.8 105.0 108.1 110.2 110.2 111.5 (1) Economic book value per common share for periods prior to December 31, 2021 have been restated to include the impact of fair value changes in securitized debt held at carrying value.
The following table provides a reconciliation of our GAAP book value per common share to our non-GAAP Economic book value per common share as of the quarterly periods below: Quarter Ended: (In Millions, Except Per Share Amounts) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 GAAP Total Stockholders’ Equity $ 1,899.9 $ 1,848.5 $ 1,944.8 $ 2,018.6 $ 1,988.8 $ 2,033.9 $ 2,146.4 $ 2,349.0 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share 1,424.9 1,373.5 1,469.8 1,543.6 1,513.8 1,558.9 1,671.4 1,874.0 Adjustments: Fair value adjustment to Residential whole loans, at carrying value (35.6) (85.3) (58.3) (33.9) (70.2) (58.2) 9.5 54.0 Fair value adjustment to Securitized debt, at carrying value 95.6 122.5 129.8 122.4 139.7 109.6 75.4 47.7 Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) $ 1,484.9 $ 1,410.7 $ 1,541.3 $ 1,632.1 $ 1,583.3 $ 1,610.3 $ 1,756.3 $ 1,975.7 GAAP book value per common share $ 13.98 $ 13.48 $ 14.42 $ 15.15 $ 14.87 $ 15.31 $ 16.42 $ 17.84 Economic book value per common share (1) $ 14.57 $ 13.84 $ 15.12 $ 16.02 $ 15.55 $ 15.82 $ 17.25 $ 18.81 Number of shares of common stock outstanding 101.9 101.9 101.9 101.9 101.8 101.8 101.8 105.0 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements include the accounts of all of our subsidiaries.
Net interest income also includes higher net interest income from our residential whole loan portfolio of approximately $1.3 million compared to 2021, primarily due to higher amounts invested in these assets partially offset by an increase in our average collateralized financing agreement borrowings and lower yields earned on these assets.
For 2023, net interest income includes lower net interest income from our residential whole loan portfolio of $51.1 million compared to 2022, primarily due to higher rates paid on our financing agreement borrowings partially offset by higher asset yields and higher amounts invested in the loan portfolio.
(3) Reflects dividends declared per share of common stock divided by Distributable earnings per share. 58 Table of Contents Segment Reporting (using Distributable earnings) The following tables present our non-GAAP Distributable earnings by segment for the periods below: (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year ended December 31, 2022 GAAP Net loss used in the calculation of basic EPS $ (88,913) $ (9,665) $ (166,505) $ (265,083) Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 730,028 136,734 — 866,762 Securities held at fair value 3,227 — — 3,227 Interest rate swaps (174,424) (34,288) — (208,712) Securitized debt held at fair value (232,194) (60,764) — (292,958) Investments in loan origination partners — — 50,499 50,499 Expense items: Amortization of intangible assets — 9,200 — 9,200 Equity based compensation — 164 11,174 11,338 Securitization-related transaction costs — — 16,390 16,390 Total adjustments $ 326,637 $ 51,046 $ 78,063 $ 455,746 Distributable earnings $ 237,724 $ 41,381 $ (88,442) $ 190,663 (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year ended December 31, 2021 GAAP Net income/(loss) used in the calculation of basic EPS $ 306,147 $ 20,434 $ (31,630) $ 294,951 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 2,718 (18,962) — (16,244) Securities held at fair value (1,604) — — (1,604) Interest rate swaps (51) (20) — (71) Securitized debt held at fair value (13,958) (433) — (14,391) Investments in loan origination partners — — (72,889) (72,889) Expense items: Amortization of intangible assets — 6,600 — 6,600 Equity based compensation — 71 8,973 9,044 Securitization-related transaction costs — — 5,180 5,180 Total adjustments $ (12,895) $ (12,744) $ (58,736) $ (84,375) Distributable earnings $ 293,252 $ 7,690 $ (90,366) $ 210,576 59 Table of Contents Reconciliation of GAAP Book Value per Common Share to non-GAAP Economic Book Value per Common Share “Economic book value” is a non-GAAP financial measure of our financial position.
(3) Reflects dividends declared per share of common stock divided by Distributable earnings per share. 55 Table of Contents Segment Reporting (using Distributable earnings) The following tables present our non-GAAP Distributable earnings by segment for the periods below: (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year Ended December 31, 2023 GAAP Net income/(loss) used in the calculation of basic EPS $ 130,271 $ 33,453 $ (116,435) $ 47,289 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value (69,486) (20,363) — (89,849) Securities held at fair value (7,165) — — (7,165) Residential whole loans and securities at carrying value 332 — — 332 Interest rate swaps 68,609 23,087 — 91,696 Securitized debt held at fair value 56,032 30,370 — 86,402 Investments in loan origination partners — — 1,848 1,848 Expense items: Amortization of intangible assets — 4,200 — 4,200 Equity based compensation — 521 14,513 15,034 Securitization-related transaction costs 145 — 12,447 12,592 Total adjustments $ 48,467 $ 37,815 $ 28,808 $ 115,090 Distributable earnings $ 178,738 $ 71,268 $ (87,627) $ 162,379 (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year Ended December 31, 2022 GAAP Net income/(loss) used in the calculation of basic EPS $ (88,913) $ (9,665) $ (166,505) $ (265,083) Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 730,028 136,734 — 866,762 Securities held at fair value 3,227 — — 3,227 Interest rate swaps (174,424) (34,288) — (208,712) Securitized debt held at fair value (232,194) (60,764) — (292,958) Investments in loan origination partners — — 50,499 50,499 Expense items: Amortization of intangible assets — 9,200 — 9,200 Equity based compensation — 164 11,174 11,338 Securitization-related transaction costs — — 16,390 16,390 Total adjustments $ 326,637 $ 51,046 $ 78,063 $ 455,746 Distributable earnings $ 237,724 $ 41,381 $ (88,442) $ 190,663 56 Table of Contents Reconciliation of GAAP Book Value per Common Share to non-GAAP Economic Book Value per Common Share “Economic book value” is a non-GAAP financial measure of our financial position.
(4) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements and payable for unsettled transactions noted above as a multiple of net equity allocated. 45 Table of Contents Residential Whole Loans The following table presents the contractual maturities of our residential whole loan portfolios at December 31, 2022.
(4) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements as a multiple of net equity allocated. 42 Table of Contents Residential Whole Loans The following table presents the contractual maturities of our residential whole loan portfolios at December 31, 2023. Amounts presented do not reflect estimates of prepayments or scheduled amortization.
For the Year Ended December 31, 2022 2021 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) Assets: Interest-earning assets (1) : Residential whole loans $ 8,506,728 $ 441,223 5.19 % $ 5,767,655 $ 303,468 5.26 % Securities, at fair value (2)(3) 197,188 28,921 14.67 246,978 56,690 22.95 Cash and cash equivalents (4) 507,798 4,838 0.95 715,529 344 0.05 Other interest-earning assets 63,254 7,437 11.76 20,100 1,800 8.96 Total interest-earning assets 9,274,968 482,419 5.20 6,750,262 362,302 5.37 Liabilities: Interest-bearing liabilities: Collateralized financing agreements (5) $ 3,511,565 $ 139,585 3.98 % $ 2,565,064 $ 67,766 2.64 % Securitized debt (6) 3,456,319 103,498 2.99 1,902,913 36,831 1.94 Convertible Senior Notes 227,097 15,760 6.94 225,768 15,668 6.94 Senior Notes — — — 1,096 120 8.31 Total interest-bearing liabilities 7,194,981 258,843 3.60 4,694,841 120,385 2.56 Net interest income/net interest rate spread (7) 223,576 1.60 241,917 2.81 Impact of net swap carry (8) 10,042 0.14 (669) (0.02) Net interest rate spread (including the impact of Swaps) $ 233,618 1.74 % $ 241,248 2.79 % Net interest-earning assets/net interest margin (9) $ 2,079,987 2.52 % $ 2,055,421 3.57 % (1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses.
For the Year Ended December 31, 2023 2022 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) Assets: Interest-earning assets (1) : Residential whole loans $ 8,740,248 $ 537,883 6.15 % $ 8,506,728 $ 441,223 5.19 % Securities, at fair value (2) 559,434 42,376 7.57 197,188 28,921 14.67 Cash and cash equivalents (3) 465,481 16,311 3.50 507,798 4,838 0.95 Other interest-earning assets 68,959 9,027 13.09 63,254 7,437 11.76 Total interest-earning assets 9,834,122 605,597 6.16 9,274,968 482,419 5.20 Liabilities: Interest-bearing liabilities: Collateralized financing agreements (4) $ 3,389,774 $ 246,598 7.18 % $ 3,511,565 $ 139,585 3.98 % Securitized debt (5) 4,168,322 166,919 4.00 3,456,319 103,498 2.99 Convertible Senior Notes 224,768 15,601 6.94 227,097 15,760 6.94 Total interest-bearing liabilities 7,782,864 429,118 5.47 7,194,981 258,843 3.60 Net interest income/net interest rate spread (6) 176,479 0.69 223,576 1.60 Impact of net swap carry (7) 107,154 1.36 10,042 0.14 Net interest rate spread (including the impact of Swaps) $ 283,633 2.05 % $ 233,618 1.74 % Net interest-earning assets/net interest margin (8) $ 2,051,258 2.90 % $ 2,079,987 2.52 % (1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses.
During 2022, $1.1 billion was used in our investing activities. We utilized $3.2 billion for acquisitions of residential whole loans, loan related investments and capitalized advances. During 2022, we received $1.9 billion of principal payments on residential whole loans and loan related investments and $134.0 million of proceeds on sales of REO.
During 2023, $1.5 billion was used in our investing activities. We utilized $2.9 billion for acquisitions and origination of residential whole loans, loan related investments and capitalized advances and $588.9 million for acquisition of securities.
The decrease was primarily driven by mark-to-market losses in the current year period on our residential whole loans that are measured at fair value through earnings, partially offset by net gains on securitized debt measured at fair value through earnings as well as on derivatives used for risk management purposes.
This increase in net income available to common stock and participating securities primarily reflects higher Other Income/(Loss), net, of $328.4 million, primarily driven by mark-to-market gains in the current period on our residential whole loans that are measured at fair value through earnings, partially offset by lower net gains on derivatives used for risk management purposes and unrealized losses on securitized debt measured at fair value through earnings.
For additional information regarding our residential whole loan portfolios, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. 46 Table of Contents Securities, at Fair Value The following table presents information with respect to our Securities, at fair value at December 31, 2022 and December 31, 2021: (Dollars in Thousands) December 31, 2022 December 31, 2021 MSR-Related Assets Face/Par $ 105,000 $ 154,350 Fair Value 97,898 153,771 Amortized Cost 86,399 121,376 Weighted average yield (1) 14.30 % 10.30 % Weighted average time to maturity 0.8 years 1.7 years CRT Securities Face/Par $ 80,791 $ 99,999 Fair Value 79,214 102,914 Amortized Cost 70,438 86,643 Weighted average yield (1) 9.96 % 10.52 % Weighted average time to maturity 19.0 Years 18.5 years Non-Agency MBS Face/Par 29,858 $ — Fair Value 24,552 — Amortized Cost 24,552 — Weighted average yield (2) N/A — % Weighted average time to maturity 28.8 Years — Agency MBS Face/Par $ 131,165 $ — Fair Value 131,700 — Amortized Cost 132,025 — Weighted average yield (2) N/A — % Weighted average time to maturity 30.0 Years — (1) Weighted average yield is annualized interest income divided by average amortized cost.
For additional information regarding our residential whole loan portfolios, including information about delinquency trends, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. 43 Table of Contents Securities, at Fair Value The following table presents information with respect to our Securities, at fair value at December 31, 2023 and December 31, 2022: (Dollars in Thousands) December 31, 2023 December 31, 2022 Agency MBS Face/Par $ 554,300 $ 131,165 Fair Value 559,144 131,700 Amortized Cost 555,624 132,025 Weighted average yield (2) 5.59 % N/A (1) Weighted average time to maturity 29.3 years 30.0 years Term notes backed by MSR collateral Face/Par $ 85,000 $ 105,000 Fair Value 79,895 97,898 Amortized Cost 74,184 86,399 Weighted average yield (2) 16.96 % 14.30 % Weighted average time to maturity 1.8 years 0.8 years CRT Securities Face/Par $ 79,617 $ 80,791 Fair Value 83,222 79,214 Amortized Cost 68,971 70,438 Weighted average yield (2) 10.30 % 9.96 % Weighted average time to maturity 17.9 years 19.0 years Non-Agency MBS Face/Par $ 28,485 $ 29,858 Fair Value 23,828 24,552 Amortized Cost 23,482 24,552 Weighted average yield (2) 5.84 % N/A (1) Weighted average time to maturity 27.8 years 28.8 years (1) These securities were acquired at the end of the reporting period and, therefore, no interest income was recorded with respect to these securities in 2022.
Margin calls/reverse margin calls are satisfied when we pledge/receive additional collateral in the form of additional assets and/or cash. 64 Table of Contents The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented: Collateral Pledged to Meet Margin Calls Cash and Securities Received for Reverse Margin Calls Net Assets Received/(Pledged) for Margin Activity For the Quarter Ended (1) Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged For Margin Calls (In Thousands) December 31, 2022 $ — $ 12,121 $ 12,121 $ 13,629 $ 1,508 September 30, 2022 — 4,784 4,784 12,291 7,507 June 30, 2022 — 18,985 18,985 — (18,985) March 31, 2022 — 40,834 40,834 346 (40,488) (1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract.
Margin calls/reverse margin calls are satisfied when we pledge/receive additional collateral in the form of additional assets and/or cash. 61 Table of Contents The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented: Collateral Pledged for Margin Cash and Securities Received for Reverse Margin Net Assets Received/(Pledged) for Margin Activity For the Quarter Ended (1) Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged for Margin (In Thousands) December 31, 2023 $ 10,616 $ 4,085 $ 14,701 $ 23,060 $ 8,359 September 30, 2023 35,690 4,363 40,053 34,846 (5,207) June 30, 2023 5,982 2,909 8,891 5,328 (3,563) March 31, 2023 676 2,965 3,641 6,529 2,888 (1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract.
On April 4, 2022, we effected a one-for-four reverse stock split of its issued and outstanding shares of common stock (the “Reverse Stock Split”). Accordingly, all share and per share data included in the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split.
Accordingly, all share and per share data included in the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split. For all periods presented, all share and per share data have been adjusted on a retroactive basis to reflect the effect of the Reverse Stock Split.
An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets.
Premiums paid to purchase loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity. An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets.
Provision for Credit Losses on Other Assets For 2022, we recorded a provision for credit losses on Other Assets of $28.6 million reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.
The prior period reversal primarily reflects run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts. 52 Table of Contents Provision for Credit Losses on Other Assets For 2022, we recorded a provision for credit losses on Other Assets of $28.6 million reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.
These expenses increased compared to 2021 by approximately $12.0 million, or 39.0%, primarily due to higher expenses recognized related to loan securitization activities and higher diligence and other costs associated with acquiring loans, partially offset by lower servicing fees and non-recoverable advances on our REO and Purchased Credit Deteriorated loans.
These expenses decreased compared to 2022 by approximately $8.8 million, or 20.4%, primarily due to lower expenses recognized related to loan securitization activities, lower diligence and other costs associated with acquiring loans, lower servicing fees, and lower expenses on our REO portfolio.
Further, certain of our financing agreements contain terms that allow the lender to make margin calls on us based on changes in the value of the underlying collateral securing the borrowing.
Certain of these arrangements are collateralized directly by our residential mortgage investments or otherwise have recourse to us, while securitized debt financing is non-recourse financing. Further, certain of our financing agreements contain terms that allow the lender to make margin calls on us based on changes in the value of the underlying collateral securing the borrowing.
For the year ended December 31, 2022, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $2.6 million.
The net yield on our Securities, at fair value was 7.57% for 2023, compared to 14.67% for 2022. For the year ended December 31, 2023, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $8.9 million.
The following table presents the activity for our residential mortgage asset portfolio for the year ended December 31, 2022: (In Millions) December 31, 2021 Runoff (1) Acquisitions (2) Other (3) December 31, 2022 Change Residential whole loans and REO $ 8,069 $ (1,910) $ 3,126 $ (1,636) $ 7,649 $ (420) Securities, at fair value 257 (52) 156 (28) 333 76 Totals $ 8,326 $ (1,962) $ 3,282 $ (1,664) $ 7,982 $ (344) (1) Primarily includes principal repayments and sales of REO.
The following table presents the activity for our residential mortgage asset portfolio for the year ended December 31, 2023: (In Millions) December 31, 2022 Runoff (1) Acquisitions (2) Other (3) December 31, 2023 Change Residential whole loans and REO $ 7,649 $ (1,505) $ 2,987 $ 20 $ 9,151 $ 1,502 Securities, at fair value 333 (33) 457 (11) 746 413 Totals $ 7,982 $ (1,538) $ 3,444 $ 9 $ 9,897 $ 1,915 (1) Primarily includes principal repayments and sales of REO.
As of December 31, 2022, we were permitted to purchase an additional $202.5 million of our common stock under the stock repurchase program. In February 2023, our Board authorized a repurchase program for our 6.25% Convertible Senior Notes due 2024 (or the Convertible Senior Notes) under which we may repurchase up to $100 million of our Convertible Senior Notes.
Upon expiration of the repurchase authorization on December 31, 2023, approximately $202.5 million remained unused under our stock repurchase program. In February 2023, our Board authorized a repurchase program for our Convertible Senior Notes pursuant to which we may repurchase up to $100 million of our Convertible Senior Notes.
Information About Our Assets The table below presents certain information about our asset allocation at December 31, 2022: ASSET ALLOCATION (Dollars in Millions) Purchased Performing Loans (1) Purchased Credit Deteriorated Loans (2) Purchased Non-Performing Loans Securities, at fair value Real Estate Owned Other, net (3) Total Fair Value/Carrying Value $ 6,274 $ 449 $ 796 $ 333 $ 131 $ 675 $ 8,658 Receivable/(Payable) for Unsettled Transactions 276 — — (132) — — 144 Financing Agreements with Non-mark-to-market Collateral Provisions (862) (37) (96) — (9) — (1,004) Financing Agreements with Mark-to-market Collateral Provisions (1,893) (89) (113) (112) (16) — (2,223) Securitized Debt (2,758) (249) (334) — (17) — (3,358) Convertible Senior Notes — — — — — (228) (228) Net Equity Allocated $ 1,037 $ 74 $ 253 $ 89 $ 89 $ 447 $ 1,989 Debt/Net Equity Ratio (4) 5.3 x 5.1 x 2.1 x 2.7 x 0.5 x 3.5 x (1) Includes $3.4 billion of Non-QM loans, $1.4 billion of Transitional loans, $1.4 billion of Single-family rental loans, $82.9 million of Seasoned performing loans, and $51.1 million of Agency eligible investor loans.
Information About Our Assets The table below presents certain information about our asset allocation at December 31, 2023: ASSET ALLOCATION (Dollars in Millions) Purchased Performing Loans (1) Purchased Credit Deteriorated Loans (2) Purchased Non-Performing Loans Securities, at fair value Real Estate Owned Other, net (3) Total Fair Value/Carrying Value $ 7,918 $ 418 $ 705 $ 746 $ 110 $ 644 $ 10,541 Receivable/(Payable) for Unsettled Transactions (104) — — — — — (104) Financing Agreements with Non-mark-to-market Collateral Provisions (1,217) — — — — — (1,217) Financing Agreements with Mark-to-market Collateral Provisions (1,348) (144) (220) (623) (25) — (2,360) Securitized Debt (4,234) (234) (272) — (11) — (4,751) Convertible Senior Notes — — — — — (209) (209) Net Equity Allocated $ 1,015 $ 40 $ 213 $ 123 $ 74 $ 435 $ 1,900 Debt/Net Equity Ratio (4) 6.7 x 9.5 x 2.3 x 5.1 x 0.5 x 4.5 x (1) Includes $3.7 billion of Non-QM loans, $2.4 billion of Transitional loans, $1.6 billion of Single-family rental loans, $68.9 million of Seasoned performing loans, and $55.8 million of Agency eligible investor loans.
Interest Income Interest income on our residential whole loans increased by $137.8 million, or 45.4%, for 2022, to $441.2 million compared to $303.5 million for 2021.
Interest Income Interest income on our residential whole loans increased by $96.7 million, or 21.9%, for 2023, to $537.9 million compared to $441.2 million for 2022.
The reversals recorded in both the current and prior periods primarily reflect run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts.
The prior period reversal primarily reflects run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts. Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities.
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 The following table summarizes the changes in our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. 49 Table of Contents Year Ended (In Thousands) December 31, 2022 December 31, 2021 YoY Change Interest Income: Residential whole loans $ 441,223 $ 303,468 $ 137,755 Securities, at fair value 28,921 56,690 (27,769) Other interest-earning assets 7,437 1,800 5,637 Cash and cash equivalent investments 4,838 344 4,494 Interest Income $ 482,419 $ 362,302 $ 120,117 Interest Expense: Asset-backed and other collateralized financing arrangements $ 243,083 $ 104,597 $ 138,486 Other interest expense 15,760 15,788 (28) Interest Expense $ 258,843 $ 120,385 $ 138,458 Net Interest Income $ 223,576 $ 241,917 $ (18,341) Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans $ 2,646 $ 44,863 $ (42,217) Provision for Credit Losses on Other Assets (28,579) — (28,579) Net Interest Income after (Provision)/Reversal of Provision for Credit Losses $ 197,643 $ 286,780 $ (89,137) Other (Loss)/Income, net: Net (loss)/gain on residential whole loans measured at fair value through earnings $ (866,762) $ 16,243 $ (883,005) Impairment and other net (loss)/gain on securities and other portfolio investments (25,067) 74,496 (99,563) Net gain on real estate owned 25,379 22,838 2,541 Net gain/(loss) on derivatives used for risk management purposes 255,179 1,426 253,753 Net gain/(loss) on securitized debt measured at fair value through earnings 290,639 15,027 275,612 Lima One - origination, servicing and other fee income 46,745 22,600 24,145 Other, net $ 9,297 $ 12,473 $ (3,176) Other (Loss)/Income, net $ (264,590) $ 165,103 $ (429,693) Operating and Other Expense: Compensation and benefits $ 76,728 $ 53,817 $ 22,911 Other general and administrative expense 35,812 31,729 4,083 Loan servicing, financing and other related costs 42,894 30,867 12,027 Amortization of intangible assets 9,200 6,600 2,600 Operating and Other Expense $ 164,634 $ 123,013 $ 41,621 Net (Loss)/Income $ (231,581) $ 328,870 $ (560,451) Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ — Net (Loss)/Income Available to Common Stock and Participating Securities $ (264,456) $ 295,995 $ (560,451) Basic (Loss)/Earnings per Common Share $ (2.57) $ 2.66 $ (5.23) Diluted (Loss)/Earnings per Common Share $ (2.57) $ 2.63 $ (5.20) General For 2022, we had a net loss available to our common stock and participating securities of ($264.5) million, or ($2.57) per basic and diluted common share, compared to net income available to common stock and participating securities for 2021 of $296.0 million, or $2.66 per basic common share and $2.63 per diluted common share.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 The following table summarizes the changes in our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. 46 Table of Contents Year Ended (In Thousands) December 31, 2023 December 31, 2022 YoY Change Interest Income: Residential whole loans $ 537,883 $ 441,223 $ 96,660 Securities, at fair value 42,376 28,921 13,455 Other interest-earning assets 9,027 7,437 1,590 Cash and cash equivalent investments 16,311 4,838 11,473 Interest Income $ 605,597 $ 482,419 $ 123,178 Interest Expense: Asset-backed and other collateralized financing arrangements $ 413,517 $ 243,083 $ 170,434 Other interest expense 15,601 15,760 (159) Interest Expense $ 429,118 $ 258,843 $ 170,275 Net Interest Income $ 176,479 $ 223,576 $ (47,097) Reversal of Provision for Credit Losses on Residential Whole Loans $ 8,853 $ 2,646 $ 6,207 Provision for Credit Losses on Other Assets — (28,579) 28,579 Net Interest Income after Provision for Credit Losses $ 185,332 $ 197,643 $ (12,311) Other Income/(Loss), net: Net gain/(loss) on residential whole loans measured at fair value through earnings $ 89,850 $ (866,762) $ 956,612 Impairment and other net gain/(loss) on securities and other portfolio investments 6,225 (25,067) 31,292 Net gain on real estate owned 9,392 25,379 (15,987) Net gain/(loss) on derivatives used for risk management purposes 3,761 255,179 (251,418) Net gain/(loss) on securitized debt measured at fair value through earnings (99,589) 290,639 (390,228) Lima One - origination, servicing and other fee income 43,384 46,745 (3,361) Net realized loss on residential whole loans held at carrying value (1,240) — (1,240) Other, net 11,331 8,623 2,708 Other Income/(Loss), net $ 63,114 $ (265,264) $ 328,378 Operating and Other Expense: Compensation and benefits $ 85,799 $ 76,728 $ 9,071 Other general and administrative expense 44,147 35,138 9,009 Loan servicing, financing and other related costs 34,136 42,894 (8,758) Amortization of intangible assets 4,200 9,200 (5,000) Operating and Other Expense $ 168,282 $ 163,960 $ 4,322 Net Income/(Loss) $ 80,164 $ (231,581) $ 311,745 Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ — Net Income/(Loss) Available to Common Stock and Participating Securities $ 47,289 $ (264,456) $ 311,745 Basic Earnings/(Loss) per Common Share $ 0.46 $ (2.57) $ 3.03 Diluted Earnings/(Loss) per Common Share $ 0.46 $ (2.57) $ 3.03 General For 2023, we had net income available to our common stock and participating securities of $47.3 million, or $0.46 per basic and diluted common share, compared to a net loss available to our common stock and participating securities for 2022 of $(264.5) million, or $(2.57) per basic and diluted common share.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

31 edited+4 added−15 removed34 unchanged
Biggest changeThe following table presents the five largest geographic concentrations by state of our residential whole loan portfolio at December 31, 2022: Property Location Percent of Interest-Bearing Unpaid Principal Balance California 31.5 % Florida 12.0 % Texas 6.0 % New York 4.9 % Georgia 4.9 % Securities MSR-Related Assets Term Notes We have invested in certain term notes that are issued by special purpose vehicles (or SPVs) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.
Biggest changeThe following table presents the five largest geographic concentrations by state of our residential whole loan portfolio at December 31, 2023: Property Location Percent of Interest-Bearing Unpaid Principal Balance California 27.1 % Florida 12.6 % Texas 7.2 % Georgia 5.3 % New York 5.0 % CRT Securities We are exposed to potential credit losses from our investments in CRT securities issued by or sponsored by Fannie Mae and Freddie Mac.
Our financing agreements with mark-to-market collateral provisions require us to pledge additional collateral in the event the market value of the assets pledged decreases, in order maintain the lenders contractually specified collateral cushion, which is measured as the difference between the loan amount and the market value of the asset pledged as collateral.
Our financing agreements with mark-to-market collateral provisions require us to pledge additional collateral in the event the market value of the assets pledged decreases, in order to maintain the lenders contractually specified collateral cushion, which is measured as the difference between the loan amount and the market value of the asset pledged as collateral.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.53), which is the weighted average of (0.61) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (0.37) for our Securities, and zero for our Other assets and cash and cash equivalents.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.53), which is the weighted average of (0.61) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (0.37) for our Securities investments, and zero for our Other assets and cash and cash equivalents.
Certain assumptions have been made in connection with the calculation of the information set forth in the Shock Table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at December 31, 2022 and 2021.
Certain assumptions have been made in connection with the calculation of the information set forth in the Shock Table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at December 31, 2023 and 2022.
Assumptions made with respect to the interest rate sensitive liabilities include anticipated interest rates, collateral requirements as a percent of repurchase agreement financings, and the amounts and terms of borrowing. At December 31, 2022 and 2021, we applied a floor of 0% for all anticipated interest rates included in our assumptions.
Assumptions made with respect to the interest rate sensitive liabilities include anticipated interest rates, collateral requirements as a percent of repurchase agreement financings, and the amounts and terms of borrowing. At December 31, 2023 and 2022, we applied a floor of 0% for all anticipated interest rates included in our assumptions.
We estimate the duration of these residential whole loans using management’s assumptions. 65 Table of Contents The fair value of our Purchased Performing Loans is typically dependent on the value of the underlying real estate collateral, as well as the level of interest rates.
We estimate the duration of these residential whole loans using management’s assumptions. 62 Table of Contents The fair value of our Purchased Performing Loans is typically dependent on the value of the underlying real estate collateral, as well as the level of interest rates.
All changes in income and value are measured as the percentage change from the projected net interest income and portfolio value under the base interest rate scenario at December 31, 2022 and 2021.
All changes in income and value are measured as the percentage change from the projected net interest income and portfolio value under the base interest rate scenario at December 31, 2023 and 2022.
The analysis presented utilizes assumptions and estimates based on management’s judgment and experience. Furthermore, while we generally expect to retain the majority of our assets and the associated interest rate risk to maturity, future purchases and sales of assets could materially change our interest rate risk profile.
The analysis presented 63 Table of Contents utilizes assumptions and estimates based on management’s judgment and experience. Furthermore, while we generally expect to retain the majority of our assets and the associated interest rate risk to maturity, future purchases and sales of assets could materially change our interest rate risk profile.
The Shock Table quantifies the potential changes in net interest income and portfolio value, which includes the value of our derivative and other hedging transactions (if any) and securitized and other fixed rate debt, should interest rates immediately change (i.e., are shocked).
The Shock Table quantifies the potential changes in net interest income and portfolio value, which includes the value of our derivative and other hedging transactions (if any) and securitized and other fixed rate debt, (which are carried at fair value), should interest rates immediately change (i.e., are shocked).
Non-Performing and Purchased Credit Deteriorated Loans are acquired at purchase prices that are generally discounted to the contractual loan balances based on a number of factors, including the impaired credit history of the borrower and the value of the collateral securing the loan.
Non-Performing and Purchased Credit Deteriorated Loans are acquired at purchase prices that are generally discounted to the contractual loan balances based on a number of factors, including the impaired credit history 64 Table of Contents of the borrower and the value of the collateral securing the loan.
Credit risk on Purchased Performing Loans is mitigated through our process to underwrite the loan before it is acquired and/or originated and includes an assessment of the borrower’s financial condition and ability to repay the loan, nature of the collateral and LTV, including after repaired LTV for the majority of our Transitional loans.
Credit risk on Purchased Performing Loans is mitigated through our process to underwrite the loan before it is acquired and/or originated and includes an assessment of the borrower’s financial condition and ability to repay the loan, nature of the collateral and relatively low LTV, including after-repair LTV for the majority of our Transitional loans.
In addition, credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the underlying MSRs be insufficient.
In addition, credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes if cash flows generated by the underlying MSRs are insufficient.
Further, when liquidity tightens, our repurchase agreement counterparties may increase our collateral cushion (or margin) requirements on new financings, including repurchase agreement borrowings that we roll with the same counterparty, reducing our ability to use leverage. At December 31, 2022, we had access to various sources of liquidity, including $334.2 million of cash and cash equivalents.
Further, when liquidity tightens, our repurchase agreement counterparties may increase our collateral cushion (or margin) requirements on new financings, including repurchase agreement borrowings that we roll with the same counterparty, reducing our ability to use leverage. At December 31, 2023, we had access to various sources of liquidity, including $318.0 million of cash and cash equivalents.
Our primary credit risk currently relates to our residential whole loans. Our exposure to credit risk from our credit sensitive investments is discussed in more detail below: Residential Whole Loans We are exposed to credit risk from our investments in residential whole loans.
Our exposure to credit risk from our credit sensitive investments is discussed in more detail below: Residential Whole Loans We are exposed to credit risk from our investments in residential whole loans.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.92), which is the weighted average of (1.09) for our Residential whole loans, 0.14 for our derivative and other hedging transactions and securitized and other fixed rate debt, zero for our Securities investments, and zero for our Other assets and cash and cash equivalents.
Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.49), which is the weighted average of (0.50) for our Residential whole loans, zero for our derivative and other hedging transactions and securitized and other fixed rate debt, (1.08) for our Securities and zero for our Other assets and cash and cash equivalents.
For certain Transitional loans, totaling $223.2 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 70%.
For certain Transitional loans, totaling $551.3 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68%.
(2) Change in estimated net portfolio value includes the effect of our interest rate swaps, securitized debt, and other fixed rate debt.
(2) Change in estimated net portfolio value includes the effect of our interest rate swaps, securitized debt, and other fixed rate debt. (3) Includes the impact of the net carry on our Swaps.
At December 31, 2021, the impact on portfolio value was approximated using estimated net effective duration (i.e., the price sensitivity to changes in interest rates), including the effect of securitized and other fixed rate debt, of 1.32, which is the weighted average of 3.06 for our Residential whole loans, 0.13 for our Securities investments, (3.22) for our derivative and other hedging transactions and securitized and other fixed rate debt, and 0.06 for our Other assets and cash and cash equivalents.
At December 31, 2023, the impact on portfolio value was approximated using estimated net effective duration (i.e., the price sensitivity to changes in interest rates), including the effect of securitized and other fixed rate debt, of 0.91, which is the weighted average of 3.36 for our Residential whole loans, 2.45 for our Securities investments, (2.70) for our derivative and other hedging transactions and securitized and other fixed rate debt, and 0.01 for our Other assets and cash and cash equivalents.
Therefore, increased prepayments on our investments may accelerate the redeployment of our capital to generally lower yielding investments. Similarly, decreased prepayments are generally associated with increasing market interest rates and may slow our ability to redeploy capital to generally higher yielding investments. 71 Table of Contents
Similarly, decreased prepayments are generally associated with increasing market interest rates and may slow our ability to redeploy capital to generally higher yielding investments. 67 Table of Contents
We estimate the duration of our non-performing residential whole loans using management’s assumptions. We use derivative financial instruments, including Swaps, as part of our overall interest rate risk management strategy. Such instruments are used to economically hedge against future interest rate increases on our financing transactions.
We use derivative financial instruments, including Swaps, as part of our overall interest rate risk management strategy. Such instruments are used to economically hedge against future interest rate increases on our financing transactions.
PREPAYMENT RISK Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their aggregate principal balance.
In addition, at December 31, 2023, we had $13.8 million of unencumbered residential whole loans. 66 Table of Contents PREPAYMENT RISK Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their aggregate principal balance.
LIQUIDITY RISK The primary liquidity risk we face arises from financing long-maturity assets with shorter-term borrowings primarily in the form of repurchase agreement financings.
LIQUIDITY RISK The primary liquidity risk we face arises from financing long-maturity assets with shorter-term borrowings primarily in the form of repurchase agreement financings. We pledge residential mortgage assets and cash to secure our financing agreements.
Furthermore, our transaction processing systems are already processing, or have been tested and are capable of processing, SOFR-based instruments. 66 Table of Contents Shock Table The information presented in the following “Shock Table” projects the potential impact of sudden parallel changes in interest rates on our net interest income and portfolio value, including the impact of Swaps and securitized debt and other fixed rate debt, based on the assets in our investment portfolio at December 31, 2022 and 2021.
Shock Table The information presented in the following “Shock Table” projects the potential impact of sudden parallel changes in interest rates on our net interest income and portfolio value, including the impact of Swaps and securitized debt and other fixed rate debt, based on the assets in our investment portfolio at December 31, 2023 and 2022.
December 31, 2022 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Interest Income Percentage Change in Portfolio Value (Dollars in Thousands) +100 Basis Point Increase $ (110,637) 1.53 % (1.27) % + 50 Basis Point Increase $ (49,483) 0.74 % (0.57) % Actual at December 31, 2022 $ — — % — % - 50 Basis Point Decrease $ 37,811 (0.19) % 0.43 % -100 Basis Point Decrease $ 63,950 (1.89) % 0.73 % December 31, 2021 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Interest Income Percentage Change in Portfolio Value (Dollars in Thousands) +100 Basis Point Increase $ (159,216) 1.61 % (1.78) % + 50 Basis Point Increase $ (69,313) 0.79 % (0.77) % Actual at December 31, 2021 $ — — % — % - 50 Basis Point Decrease $ 48,720 (1.99) % 0.54 % -100 Basis Point Decrease $ 76,848 (3.49) % 0.86 % (1) Assets in our portfolio include residential whole loans and REO, securities, other portfolio investments, goodwill, intangibles, receivables, and cash and cash equivalents and restricted cash.
December 31, 2023 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Interest Income (3) Percentage Change in Portfolio Value (Dollars in Thousands) +100 Basis Point Increase $ (124,116) 0.91 % (1.17) % + 50 Basis Point Increase $ (55,474) 0.28 % (0.52) % Actual at December 31, 2023 $ — — % — % - 50 Basis Point Decrease $ 42,307 0.02 % 0.40 % -100 Basis Point Decrease $ 71,446 (1.31) % 0.68 % December 31, 2022 Change in Interest Rates Change in Estimated Net Portfolio Value (1)(2) Percentage Change in Net Interest Income (3) Percentage Change in Portfolio Value (Dollars in Thousands) +100 Basis Point Increase $ (110,637) 1.53 % (1.27) % + 50 Basis Point Increase $ (49,483) 0.74 % (0.57) % Actual at December 31, 2022 $ — — % — % - 50 Basis Point Decrease $ 37,811 (0.19) % 0.43 % -100 Basis Point Decrease $ 63,950 (1.89) % 0.73 % (1) Assets in our portfolio include residential whole loans and REO, securities, other portfolio investments, goodwill, intangibles, receivables, and cash and cash equivalents and restricted cash.
Generally, if prepayments on residential whole loans purchased at significant discounts and not accounted for at fair value are less than anticipated, we expect that the income recognized on these assets will be reduced and impairments and/or credit loss reserves may result. 70 Table of Contents In addition, increased prepayments are generally associated with decreasing market interest rates as borrowers are able to refinance their mortgages at lower rates.
Generally, if prepayments on residential whole loans purchased at significant discounts and not accounted for at fair value are less than anticipated, we expect that the income recognized on these assets will be reduced and impairments and/or credit loss reserves may result.
As a result, because the presence of this floor limits the positive 67 Table of Contents impact of interest rate decrease on our funding costs, hypothetical interest rate shock decreases could cause a decline in the fair value of our financial instruments and our net interest income.
Because the presence of this floor could limit the potential impact of an interest rate decrease in certain rate environments, hypothetical interest rate shock decreases below the assumed floor could cause changes in the fair value of our financial instruments and our net interest income in excess of the amounts assumed.
CRT Securities We are exposed to potential credit losses from our investments in CRT securities issued by or sponsored by Fannie Mae and Freddie Mac. While CRT securities are issued by or sponsored by these GSEs, payment of principal on these securities is not guaranteed.
While CRT securities are issued by or sponsored by these government-sponsored enterprises, payment of principal on these securities is not guaranteed.
When interest rates are shocked, prepayment assumptions are adjusted based on management’s expectations along with the results from the prepayment model. CREDIT RISK We are exposed to credit risk through our credit sensitive residential mortgage investments, in particular residential whole loans and CRT securities and to a lesser extent our investments in MSR-related assets.
When interest rates are shocked, prepayment assumptions are adjusted based on management’s expectations along with the results from the prepayment model.
Our sources of liquidity do not include restricted cash. In addition, at December 31, 2022, we had $38.2 million of unencumbered residential whole loans.
Our sources of liquidity do not include restricted cash.
Our investment process for Purchased Non-performing and Purchased Credit Deteriorated Loans is focused on quantifying and pricing credit risk.
Given the extent of home price appreciation that has occurred since the majority of our Purchased Performing Loans were acquired or originated, we estimate that current LTVs have decreased significantly, further mitigating the risk of material credit losses on this portfolio. Our investment process for Purchased Non-performing and Purchased Credit Deteriorated Loans is focused on quantifying and pricing credit risk.
We assess the credit risk associated with our investments in CRT securities by assessing the current and expected future performance of the associated loan pool. 69 Table of Contents Agency MBS The payment of principal and/or interest we receive on our Agency MBS, which depend directly upon payments on the mortgages underlying such securities, are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
We assess the credit risk associated with our investments in CRT securities by assessing the current and expected future performance of the associated loan pool. 65 Table of Contents Term Notes Backed by MSR Collateral We have invested in certain term notes that are issued by special purpose vehicles (or SPVs) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.
Removed
Additionally, we have entered into short positions in TBA securities to economically hedge interest rate and other market risks arising from our investments in Agency eligible investor loans. The interest rates for certain of our investments and financing agreements are either explicitly or indirectly based on LIBOR.
Added
We estimate the duration of our non-performing residential whole loans using management’s assumptions. We estimate the duration of our Agency MBS using a third-party financial model, which takes into account key characteristics of securities, market data, and assumptions based on management’s view and observed empirical data.
Removed
On March 5, 2021, the United Kingdom Financial Conduct Authority (or FCA) which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.
Added
CREDIT RISK Although we do not believe we are exposed to credit risk in our Agency MBS portfolio, we are exposed to credit risk through our credit sensitive residential mortgage investments, in particular residential whole loans and certain of our securities investments.
Removed
The FCA’s announcement coincided with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (or IBA), indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.
Added
The following table presents certain information about our Residential whole loans at December 31, 2023: Purchased Performing Loans Purchased Credit Deteriorated Loans Purchased Non-Performing Loans Loans with an LTV: Loans with an LTV: Loans with an LTV: (Dollars in Thousands) 80% or Below Above 80% 80% or Below Above 80% 80% or Below Above 80% Total Amortized cost $ 8,009,613 $ 276,804 $ 367,748 $ 61,978 $ 513,147 $ 100,194 $ 9,329,484 Unpaid principal balance (UPB) $ 7,902,317 $ 273,070 $ 421,365 $ 85,463 $ 599,714 $ 173,023 $ 9,454,952 Weighted average coupon (1) 6.9 % 6.2 % 4.9 % 4.7 % 5.2 % 5.1 % 6.0 % Weighted average term to maturity (months) 237 334 261 299 258 311 234 Weighted average LTV (2) 64.2 % 96.2 % 49.8 % 103.5 % 49.2 % 107.5 % 64.7 % Loans 90+ days delinquent (UPB) $ 191,388 $ 47,590 $ 54,174 $ 15,139 $ 136,579 $ 63,643 $ 508,513 (1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category.
Removed
On March 15, 2022, President Biden signed the Adjustable Interest Rate (LIBOR) Act, which transitions certain contracts that use LIBOR to another benchmark once LIBOR is permanently discontinued after June 30, 2023.
Added
In addition, increased prepayments are generally associated with decreasing market interest rates as borrowers are able to refinance their mortgages at lower rates. Therefore, increased prepayments on our investments may accelerate the redeployment of our capital to generally lower yielding investments.
Removed
The Act provides, among other things, that an alternative benchmark based on the Secured Overnight Financing Rate (or SOFR) published by the New York Federal Reserve Bank will automatically apply after the LIBOR replacement date for any contract without provisions for selecting a replacement for LIBOR or identifying a person authorized to select a replacement after LIBOR is permanently discontinued.
Removed
The Act also provides that if the SOFR-based replacement is selected, the selecting person responsible under the contract is not required to obtain the consent of anyone before implementing that replacement.
Removed
The Act further creates a safe harbor by ensuring that the SOFR-based benchmark replacement is by law a commercially reasonable replacement for LIBOR, that the use of that benchmark replacement cannot be deemed a breach of a contract or an impairment of the right of any person to receive payment under that contract, and that no person can be liable for selecting or using that benchmark replacement.
Removed
The Act further authorizes the Board of Governors of the Federal Reserve to promulgate regulations under the statute to designate specific SOFR-based rates that incorporate the statutory spread adjustments as replacement rates for covered LIBOR contracts.
Removed
The Federal Reserve’s final rules provide for the following SOFR-based replacement rates: (i) SOFR compounded in arrears for derivatives, using the same methodology as under the International Swaps and Derivatives Association (or ISDA) protocol, (ii) CME Term SOFR for all covered cash products, except FHFA-regulated entity contracts and (iii) a 30-day compounded SOFR average for certain FHFA-regulated entity contracts.
Removed
We have made substantial progress, and continue to work, with the Trustee companies and/or other entities that are involved in calculating the interest rates for our residential mortgage securities and securitized debt, our loan servicers for our hybrid and floating rate loans, and with the various counterparties to our financing transactions in order to implement the changes required to be made to existing agreements for these transactions in response to the impending termination of the use of LIBOR and to evaluate the impact of the federal legislation, and the Federal Reserve’s rules on our transition away from LIBOR.
Removed
Due to this floor, it is anticipated that any hypothetical interest rate shock decrease would have a limited positive impact on our funding costs; however, because prepayments speeds are unaffected by this floor, it is expected that any increase in our prepayment speeds (occurring as a result of any interest rate shock decrease or otherwise) could result in an acceleration of premium amortization on assets purchased at a premium and discount accretion on assets purchased at a discount and in the reinvestment of principal repayments in lower yielding assets.
Removed
Given the extent of home price appreciation that has occurred since the majority of our Purchased Performing Loans were acquired or originated, we estimate that current LTV’s have decreased significantly, further mitigating the risk of material credit losses on this portfolio. 68 Table of Contents The following table presents certain information about our Residential whole loans at December 31, 2022: Purchased Performing Loans Purchased Credit Deteriorated Loans Purchased Non-Performing Loans Loans with an LTV: Loans with an LTV: Loans with an LTV: (Dollars in Thousands) 80% or Below Above 80% 80% or Below Above 80% 80% or Below Above 80% Total Amortized cost $ 6,629,016 $ 228,336 $ 378,816 $ 91,478 $ 550,159 $ 161,707 $ 8,039,512 Unpaid principal balance (UPB) $ 6,517,527 $ 224,259 $ 432,846 $ 122,061 $ 627,198 $ 257,059 $ 8,180,950 Weighted average coupon (1) 5.8 % 5.5 % 4.7 % 4.6 % 5.1 % 4.9 % 5.6 % Weighted average term to maturity (months) 268 340 266 317 260 320 272 Weighted average LTV (2) 65.0 % 86.7 % 51.2 % 104.9 % 51.0 % 109.0 % 65.6 % Loans 90+ days delinquent (UPB) $ 156,856 $ 10,906 $ 57,127 $ 30,361 $ 191,756 $ 118,279 $ 565,285 (1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category.
Removed
Fannie Mae and Freddie Mac are GSEs, and while their guarantees are not explicitly backed by the full faith and credit of the United States, we do not consider that we are exposed to significant credit risk. Ginnie Mae is part of a U.S.
Removed
Government agency and its guarantees are explicitly backed by the full faith and credit of the United States. Overall, investments in Agency MBS are not considered to be subject to significant credit risk.
Removed
This risk was particularly pronounced during the first quarter of 2020, as conditions created by COVID-19 resulted in us receiving an unusually high number of margin calls, negatively impacting our overall liquidity and ultimately leading us to enter into forbearance agreements. We pledge residential mortgage assets and cash to secure our financing agreements.

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