MFA FINANCIAL, INC.

Previous wording

These forward-looking statements include information about possible or assumed future results with respect to our business, financial condition, liquidity, results of operations, plans and objectives. Among the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements we make are: general economic developments and trends and the performance of the housing, real estate, mortgage finance, broader financial markets; inflation, increases in interest rates and changes in the market (i.e., fair) value of our residential whole loans, MBS, securitized debt and other assets, as well as changes in the value of our liabilities accounted for at fair value through earnings; the effectiveness of hedging transactions; changes in the prepayment rates on residential mortgage assets, an increase of which could result in a reduction of the yield on certain investments in our portfolio and could require us to reinvest the proceeds received by us as a result of such prepayments in investments with lower coupons, while a decrease in which could result in an increase in the interest rate duration of certain investments in our portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows; credit risks underlying our assets, including changes in the default rates and management’s assumptions regarding default rates and loss severities on the mortgage loans in our residential whole loan portfolio; our ability to borrow to finance our assets and the terms, including the cost, maturity and other terms, of any such borrowings; implementation of or changes in government regulations or programs affecting our business; our estimates regarding taxable income the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by us to accrete the market discount on residential whole loans and the extent of prepayments, realized losses and changes in the composition of our residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and whole loan modifications, foreclosures and liquidations; the timing and amount of distributions to stockholders, which are declared and paid at the discretion of our Board and will depend on, among other things, our taxable income, our financial results and overall financial condition and liquidity, maintenance of our REIT qualification and such other factors as the Board deems relevant; our ability to maintain our qualification as a REIT for federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (or the Investment Company Act), including statements regarding the concept release issued by the SEC relating to interpretive issues under the Investment Company Act wit…

Excerpt shortened here; the source contains the full paragraph.

Current wording

These forward-looking statements include information about possible or assumed future results with respect to our business, financial condition, liquidity, results of operations, plans and objectives. Among the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements that we make are: general economic developments and trends, including the current tensions in international trade, and the performance of the labor, housing, real estate, mortgage finance and broader financial markets; inflation, increases in interest rates and changes in the market (i.e., fair) value of our residential whole loans, MBS, securitized debt and other assets, as well as changes in the value of our liabilities accounted for at fair value through earnings; the effectiveness of hedging transactions; changes in the prepayment rates on residential mortgage assets, an increase of which could result in a reduction of the yield on certain investments in our portfolio and could require us to reinvest the proceeds received by us as a result of such prepayments in investments with lower coupons, while a decrease in which could result in an increase in the interest rate duration of certain investments in our portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows; credit risks underlying our assets, including changes in the default rates and management’s assumptions regarding default rates and loss severities on the mortgage loans in our residential whole loan portfolio; our ability to borrow to finance our assets and the terms, including the cost, maturity and other terms, of any such borrowings; implementation of or changes in government regulations or programs affecting our business (including as a result of the current U.S. Presidential administration); our estimates regarding taxable income the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by us to accrete the market discount on residential whole loans and the extent of prepayments, realized losses and changes in the composition of our residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and whole loan modifications, foreclosures and liquidations; the timing and amount of distributions to stockholders, which are declared and paid at the discretion of our Board and will depend on, among other things, our taxable income, our financial results and overall financial condition and liquidity, maintenance of our REIT qualification and such other factors as the Board deems relevant; our ability to maintain our qualification as a REIT for federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (or the “Investment Company…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

At September 30, 2024, we had total assets of approximately $11.2 billion, of which $9.0 billion, or 81%, represented residential whole loans. Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans,” which are included in “Other loans”). In addition, at September 30, 2024, we had approximately $1.1 billion or 10% of total assets invested in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.

Current wording

At March 31, 2025, we had total assets of approximately $11.5 billion, of which $8.8 billion, or 76%, represented residential whole loans. Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, with Single-family transitional loans, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans,” which are included in “Other loans”). In addition, at March 31, 2025, we had approximately $1.8 billion or 16% of total assets invested in investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.

Previous wording

The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, liabilities and hedges that are accounted for at fair value through earnings, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate and mortgage sector, and the credit performance of our credit sensitive residential mortgage assets. Changes in these factors, or uncertainty in the market regarding the potential for changes in these factors, can result in significant changes in the value and/or performance of our investment portfolio. Further, our GAAP results may be impacted by market volatility, resulting in changes in market values of certain financial instruments for which changes in fair value are recorded in net income each period, including certain residential whole loans, securitized debt and Swaps. Our net interest income varies primarily as a result of changes in interest rates, the slope of the yield curve (i.e., the differential between long-term and short-term interest rates), borrowing costs (i.e., our interest expense), the level of loan delinquencies, which may result in changes in the amount of non-accrual loans, and prepayment speeds, the behavior of which involves various risks and uncertainties. Interest rates and conditional prepayment rates (or CPRs) (which is an annualized measure of the amount of unscheduled principal prepayments on an asset as a percentage of the asset balance), vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our financial results are impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.

Current wording

The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, liabilities and hedges that are accounted for at fair value through earnings, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate and mortgage sector, and the credit performance of our credit sensitive residential mortgage assets. Changes in these factors, or uncertainty in the market regarding the potential for changes in these factors, can result in significant changes in the value and/or performance of our investment portfolio. Further, our GAAP results may be impacted by market volatility, resulting in changes in market values of certain financial instruments for which changes in fair value are recorded in net income each period, including certain residential whole loans, securitized debt and Swaps. Our net interest income varies primarily as a result of changes in interest rates, the slope of the yield curve (i.e., the differential between long-term and short-term interest rates), borrowing costs (i.e., our interest expense), the level of loan delinquencies, which may result in changes in the amount of non-accrual loans, and prepayment speeds, the behavior of which involves various risks and uncertainties. Interest rates and conditional prepayment rates (or CPRs) (which is an annualized measure of the amount of unscheduled principal prepayments on an asset as a percentage of the asset balance), vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our financial results are also impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.

Previous wording

Our investments in residential mortgage assets expose us to credit risk, meaning that we are generally subject to credit losses due to the risk of delinquency, default and foreclosure on the underlying real estate collateral. Our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk. With respect to investments in Business purpose and Non-QM loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss. Further, we believe the discounted purchase prices paid on Legacy RPL/NPL loans mitigate our risk of loss in the event that we receive less than 100% of the par value of these investments.

Current wording

Our investments in residential mortgage assets expose us to credit risk, meaning that we are generally subject to credit losses due to the risk of delinquency, default and foreclosure on the underlying real estate collateral. Our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk. With respect to investments in Business purpose and Non-QM loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss. Further, we believe the discounted purchase prices paid on Legacy RPL/NPL loans mitigate our risk of loss in the event that we receive less than 100% of the unpaid principal balance of these investments.

Previous wording

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. Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance. Accretable purchase discounts on these investments are accreted to interest income. 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.

Current wording

Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their unpaid principal balance. Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their unpaid principal balance. Accretable purchase discounts on these investments are accreted to interest income. Premiums 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.

Previous wording

CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general. In particular, CPR represents the annualized constant rate of principal repayment in excess of scheduled principal amortization. CPRs on our residential mortgage securities and whole loans may differ significantly. For the three months ended September 30, 2024, the average CPRs on certain of our loan portfolios were: 9.6% for Single-family rental loans, 11.3% for Non-QM loans, and 8.0% for Legacy RPL/NPL loans. In addition, for the three months ended September 30, 2024, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 63.5% for our Single-family transitional loans and 20.1% for our Multifamily transitional loans.

Current wording

CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general. In particular, CPR presents the annualized constant rate of principal repayment in excess of scheduled principal amortization. CPRs on our residential mortgage securities and whole loans may differ significantly. For the three months ended March 31, 2025, the average CPRs on certain of our loan portfolios were: 13.1% for Non-QM loans, 11.0% for Single-family rental loans, and 6.4% for Legacy RPL/NPL loans. In addition, for the three months ended March 31, 2025, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 63.0% for our Single-family transitional loans and 36.9% for our Multifamily transitional loans.

Previous wording

Third quarter 2024 portfolio activity and impact on financial results

Current wording

First quarter 2025 portfolio activity and impact on financial results

Previous wording

At September 30, 2024, our residential mortgage asset portfolio, which includes residential whole loans and REO, and Securities, at fair value, was approximately $10.3 billion, compared to $10.2 billion at June 30, 2024.

Current wording

At March 31, 2025, our residential mortgage asset portfolio, which includes residential whole loans and REO, and Securities, at fair value, was approximately $10.7 billion, compared to $10.5 billion at December 31, 2024.

Previous wording

At September 30, 2024, our total recorded investment in residential whole loans and REO was $9.2 billion, or 88.9% of our residential mortgage asset portfolio. Of this amount, $4.2 billion are Non-QM loans, $1.5 billion are Single-family rental loans,$1.2 billion are Single-family transitional loans, $1.1 billion are Multifamily transitional loans and $1.1 billion are Legacy RPL/NPL loans. Loan acquisition activity of $565.2 million for the three months ended September 30, 2024 included $243.6 million of Single-family transitional loans (including draws), $236.2 million of Non-QM loans, $76.6 million of Single-family rental loans and $8.8 million of Multifamily transitional loans (including draws). For the three months ended September 30, 2024, we recognized approximately $157.4 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.74%, with Single-family transitional loans generating an effective yield of 9.53%, Multifamily transitional loans generating an effective yield of 8.20%, Single-family rental loans generating an effective yield of 6.52%, Non-QM loans generating an effective yield of 5.47% and Legacy RPL/NPL loans generating an effective yield of 7.75%. All new loans and 85% of our total loan portfolio are measured at fair value as a result of the election of the fair value option at acquisition or origination. Included in earnings in Other Income/(Loss), net are net gains/losses on these loans of $143.4 million for the three months ended September 30, 2024. At September 30, 2024 and June 30, 2024, we had REO with an aggregate carrying value of $127.1 million and $108.0 million, respectively, which is included in Other assets on our consolidated balance sheets.

Current wording

At March 31, 2025, our total recorded investment in residential whole loans and REO was $8.9 billion, or 83.3% of our residential mortgage asset portfolio. Of this amount, $4.5 billion are Non-QM loans, $1.3 billion are Single-family rental loans,$1.0 billion are Single-family transitional loans, $0.8 billion are Multifamily transitional loans and $1.1 billion are Legacy RPL/NPL loans. Loan acquisition activity of $606.9 million for the three months ended March 31, 2025 included $161.9 million of Single-family transitional loans (including draws), $383.4 million of Non-QM loans, $55.5 million of Single-family rental loans and $6.1 million of Multifamily transitional loans (including draws). For the three months ended March 31, 2025, we recognized approximately $151.3 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.77%, with Single-family transitional loans generating an effective yield of 9.77%, Multifamily transitional loans generating an effective yield of 8.67%, Single-family rental loans generating an effective yield of 6.42%, Non-QM loans generating an effective yield of 5.78% and Legacy RPL/NPL loans generating an effective yield of 7.01%. Since the second quarter of 2021 we have elected the fair value option for all loan acquisitions, and 86% of our total loan portfolio is measured at fair value through earnings. Included in earnings in Other Income/(Loss), net are net gains/losses on these loans of $54.4 million for the three months ended March 31, 2025. At March 31, 2025 and December 31, 2024, we had REO with an aggregate carrying value of $130.6 million and $130.9 million, respectively, which is included in Other assets on our consolidated balance sheets.

Previous wording

At September 30, 2024, we held $1.1 billion of Securities, at fair value, including $993.5 million of Agency MBS, $54.5 million of MSR-related assets, $68.2 million of CRT securities and $23.8 million of Non-Agency MBS. For the three months ended September 30, 2024, there were $293.9 million purchases of Agency MBS securities and $8.7 million sales of a CRT security. The net yield on our Securities, at fair value was 6.48% for the three months ended September 30, 2024, compared to 7.03% for the three months ended June 30, 2024.

Current wording

At March 31, 2025, we held $1.8 billion of Securities, at fair value, including $1.6 billion of Agency MBS, $54.7 million of MSR-related assets, $64.5 million of CRT securities and $22.9 million of Non-Agency MBS. For the three months ended March 31, 2025, there were $267.6 million purchases of Agency MBS securities and we sold a CRT security for $2.4 million. The net yield on our Securities, at fair value was 6.07% for the three months ended March 31, 2025, compared to 6.05% for the three months ended December 31, 2024.

Previous wording

For the three months ended September 30, 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.9 million. The total allowance for credit losses recorded on residential whole loans held at carrying value at September 30, 2024 was $10.7 million.

Current wording

For the three months ended March 31, 2025, we recorded a provision for credit losses on residential whole loans held at carrying value of $0.1 million. The total allowance for credit losses recorded on residential whole loans held at carrying value at March 31, 2025 was $10.2 million.

Previous wording

During the third quarter of 2024, we completed two securitizations collateralized by $245.4 million UPB of Legacy RPL/NPL loans and $398.0 million of Non-QM loans. These securitizations provided longer term, non-recourse, non-mark-to-market financing. During the second quarter, we called one of our securitizations issued in 2021 and repaid the remaining $68.1 million amount. Subsequent to the third quarter, we completed one additional securitization collateralized by $423.8 million UPB of Legacy RPL/NPL loans. During the quarter, interest rates exhibited significant volatility, but ended the quarter only modestly higher, and credit spreads tightened. The net impact on the value of our investment portfolio resulted in net mark-to-market gains in our GAAP financial results. We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business.

Current wording

During the first quarter of 2025, we completed one securitization collateralized by $305.0 million UPB of Non-QM loans. This securitization provided longer term, non-recourse, non-mark-to-market financing. During the quarter, interest rates exhibited significant volatility, but ended the quarter lower, while credit spreads widened modestly. The net impact of interest rate fluctuations resulted in net mark-to-market gains on the GAAP value of our investment portfolio. We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business.

Previous wording

Our GAAP book value per common share was $13.77 as of September 30, 2024. Book value per common share was $13.80 as of June 30, 2024. 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 $14.46 as of September 30, 2024, an increase from $14.34 as of June 30, 2024. The slight decrease in GAAP book value during the third quarter of 2024 primarily reflects dividends declared on our common stock in excess of GAAP comprehensive income. The increase in Economic book value during the third quarter of 2024 primarily reflects GAAP earnings in excess of dividends declared on our common stock and increases in the fair value of our mortgage loans held at carrying value, partially offset by changes in the estimated fair value of our securities and our securitized debt at carrying value. For additional information regarding the calculation of Economic book value per share, including a reconciliation to GAAP book value per share, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below.

Current wording

Our GAAP book value per common share was $13.28 as of March 31, 2025. Book value per common share was $13.39 as of December 31, 2024. Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $13.84 as of March 31, 2025, a decrease from $13.93 as of December 31, 2024. The decrease in GAAP book value during the first quarter of 2025 primarily reflects dividends declared on our common stock in excess of GAAP comprehensive income. The modest decrease in Economic book value during the first quarter of 2025 primarily reflects dividends declared on our common stock in excess of GAAP earnings. For additional information regarding the calculation of Economic book value per share, including a reconciliation to GAAP book value per share, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below.

Previous wording

(1)Includes $305.6 million of cash and cash equivalents, $197.3 million of restricted cash, $55.9 million of Other loans and $16.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.

Current wording

(1)Includes $253.7 million of cash and cash equivalents, $219.6 million of restricted cash, $53.1 million of Other loans and $17.5 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.

Previous wording

Our Transitional loans contain various contractual extension features, typically ranging from three to twelve months subject to certain conditions, generally including our consent. Transitional loans are generally only extended if the loan is current and in compliance with various other loan terms. Given the short duration of our Transitional loans, maturity extensions are a regular occurrence, irrespective of market conditions. At September 30, 2024, approximately 15% of our Multifamily transitional loans and 21% of our Single-family transitional loans held as of period end had been extended.

Current wording

Our Transitional loans contain various contractual extension features, typically ranging from three to twenty-four months subject to certain conditions, generally including our consent. Transitional loans are generally only extended if the loan is current and in compliance with various other loan terms. Given the short duration of our Transitional loans, maturity extensions are a regular occurrence, irrespective of market conditions. At March 31, 2025, approximately 30% of our Multifamily transitional loans and 30% of our Single-family transitional loans held as of period end had been extended.

Previous wording

We estimate that for the nine months ended September 30, 2024, our REIT taxable income was approximately $81.6 million.

Current wording

We estimate that for the three months ended March 31, 2025, our REIT taxable income was approximately $37.8 million.

Previous wording

Generally, securitization transactions for GAAP and tax can be characterized as either sales or financings, depending on transaction type, structure and available elections. For GAAP purposes, our securitizations have been treated as on-balance sheet financing transactions. For tax purposes, they have been characterized as both financing and sale transactions.

Current wording

Generally, securitization transactions for GAAP and tax can be characterized as either sales or financings, depending on transaction type, structure and available elections. For GAAP purposes, our securitizations have generally been treated as on-balance sheet financing transactions. For tax purposes, they have been characterized primarily as sale transactions.

Previous wording

We estimate that for the nine months ended September 30, 2024, our net TRS taxable income will be $36.3 million. Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period. REIT taxable income generally does not include taxable income of the TRS unless and until it is distributed to the REIT. For example, because our securitization transactions that are treated as a sale for tax purposes are undertaken by a domestic TRS, any gain or loss recognized on the sale is not included in our REIT taxable income until it is distributed by the TRS. Similarly, the income earned from loans, securities, REO and other investments held by our domestic TRS is excluded from REIT taxable income until it is distributed by the TRS. Net income of our foreign domiciled TRS subsidiaries is included in REIT taxable income as if distributed to the REIT in the taxable year it is earned by the foreign domiciled TRS. A TRS may carry forward its net taxable losses indefinitely as net operating losses to offset up to 80% of its taxable income in future tax years, but REIT taxable income generally does not include the net taxable loss of a TRS unless the TRS liquidates for tax purposes.

Current wording

We estimate that for the three months ended March 31, 2025, our net TRS taxable income (loss) will be $(16.5) million. Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period. REIT taxable income generally does not include taxable income of the TRS unless and until it is distributed to the REIT. For example, because our securitization transactions that are treated as a sale for tax purposes are undertaken by a domestic TRS, any gain or loss recognized on the sale is not included in our REIT taxable income until it is distributed by the TRS. Similarly, the income earned from loans, securities, REO and other investments held by our domestic TRS is excluded from REIT taxable income until it is distributed by the TRS. Net income of our foreign domiciled TRS subsidiaries is included in REIT taxable income as if distributed to the REIT in the taxable year it is earned by the foreign domiciled TRS. A TRS may carry forward its net taxable losses indefinitely as net operating losses to offset up to 80% of its taxable income in future tax years, but REIT taxable income generally does not include the net taxable loss of a TRS unless the TRS liquidates for tax purposes.

Previous wording

Numerous regulations have been issued pursuant to the Dodd-Frank Act, including regulations regarding mortgage loan servicing, underwriting and loan originator compensation, and others could be issued in the future. 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. 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.

Current wording

Numerous regulations have been issued pursuant to the Dodd-Frank Act, including regulations regarding mortgage loan servicing, underwriting and loan originator compensation, and others could be issued in the future. 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. 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.

Previous wording

In addition, certain court rulings may call into question the CFPB’s authority and other rules promulgated during CFPB’s self-funding structure. For example, in October 2022, the Fifth Circuit Court of Appeals issued an opinion in Community Financial Services Association of America, et al. v. Consumer Financial Protection Bureau, et al., concluding that the CFPB’s funding structure unconstitutionally violates the Appropriations Clause of the U.S. Constitution, and vacated the payday lending rule that was the subject of challenge. On May 16, 2024, the Supreme Court reversed the Fifth Circuit's decision in the Community Financial case and upheld the CFPB's funding mechanism as constitutionally permissible. However, future litigation and court rulings may still cast uncertainty on the CFPB’s authority and funding mechanism. Any such uncertainty could adversely impact the cash flow on mortgage loans.

Current wording

Services Association of America, et al. v. Consumer Financial Protection Bureau, et al., concluding that the CFPB’s funding structure unconstitutionally violates the Appropriations Clause of the U.S. Constitution, and vacated the payday lending rule that was the subject of challenge. On May 16, 2024, the Supreme Court reversed the Fifth Circuit's decision in the Community Financial case and upheld the CFPB’s funding mechanism as constitutionally permissible. However, future litigation and court rulings may still cast uncertainty on the CFPB’s authority and funding mechanism. Any such uncertainty could adversely impact the cash flow on mortgage loans.

Previous wording

While the likelihood of enactment of major mortgage finance system reform in the short term remains uncertain, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations. A reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may adversely affect the mortgage markets generally and adversely affect the ability of mortgagors to refinance their mortgage loans. In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in general.

Current wording

While the likelihood of enactment of major mortgage finance system reform in the short term remains uncertain, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations. A reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may adversely affect the mortgage markets generally and adversely affect the ability of mortgagors to refinance their mortgage loans. In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of our Agency MBS and Residential whole loans in general.

Previous wording

For the third quarter of 2024, we had net income available to our common stock and participating securities of $40.0 million, or $0.38 per basic common share and $0.37 per diluted common share, compared to net income available to common stock and participating securities of $33.7 million, or $0.32 per basic and diluted common share, for the second quarter of 2024. The increase in net income available to common stock and participating securities in the current period primarily reflects a higher Other income/(loss), net, which increased by $10.4 million to $40.3 million for the current quarter, compared to an Other income/(loss), net of $29.8 million in the immediately prior quarter, partially offset by lower Net Interest Income after Reversal/(Provision) for Credit Losses and a higher provision for income taxes. The increase in Other income/(Loss) net was primarily driven by higher mark-to-market results in the current period on our residential whole loans, securities and other portfolio investments, partially offset by losses on derivatives used for risk management purposes and securitized debt that are measured at fair value through earnings.

Current wording

For the first quarter of 2025, we had net income available to our common stock and participating securities of $33.0 million, or $0.32 per basic common share and $0.31 per diluted common share, compared to net loss available to common stock and participating securities of $(2.3) million, or $(0.02) per basic and diluted common share, for the fourth quarter of 2024. The increase in net income available to common stock and participating securities in the current period primarily reflects an increase in Other income/(loss), net of $24.5 million for the current quarter compared to an Other income/(loss), net of $(7.1) million in the immediately prior quarter, as well as higher Net Interest Income, partially offset by higher Operating and Other Expense and a lower benefit from income taxes.

Previous wording

For the third quarter of 2024, our net interest spread and margin (including the impact of swaps) were 2.18% and 3.00%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.16% and 3.01%, respectively, for the second quarter of 2024. Our net interest income decreased by $2.9 million and was $50.6 million for the third quarter of 2024, compared to $53.5 million for the second quarter of 2024. For the third quarter of 2024, net interest income, which does not include the benefit of swap carry, includes lower net interest income from our residential whole loan portfolio of $6.3 million, compared to the second quarter of 2024, primarily due to lower asset yields and average balances, partially offset by lower average financing agreement balances. Net interest income for the third quarter of 2024 also includes approximately $2.8 million of additional interest income from other investments and lower net interest income from our Securities, at fair value portfolio.

Current wording

For the first quarter of 2025, our net interest spread and margin (including the impact of swaps) were 1.84% and 2.63%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 1.99% and 2.76%, respectively, for the fourth quarter of 2024. Our net interest income increased by $6.7 million and was $57.5 million for the first quarter of 2025, compared to $50.8 million for the fourth quarter of 2024. For the first quarter of 2025, net interest income, which does not include the benefit of swap carry, includes higher net interest income from our residential whole loan portfolio of $4.4 million, compared to the fourth quarter of 2024, primarily due to lower average balances of, and rates on, our financing agreements and an increase in yields on our residential whole loan portfolio, partially offset by lower average balance of our residential whole loan portfolio and higher average balances of and rates on our securitized debt. Net interest income for the first quarter of 2025 also includes higher net interest income from our Securities, at fair value portfolio of $3.4 million, compared to the fourth quarter of 2024, primarily due to higher average balances of our securities portfolio and lower rates on securities repurchase agreements, partially offset by higher average balances of our securities repurchase agreements. In addition, the first quarter of 2025 had lower interest income of approximately $1.3 million from cash and cash equivalents and other interest earnings assets, as compared to the fourth quarter of 2024.

Previous wording

The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the nine months ended September 30, 2024 and 2023. Average yields are derived by dividing annualized interest income by the average amortized cost of the related assets, and average costs are derived by dividing annualized interest expense by the daily average balance of the related liabilities, for the periods shown. The yields and costs include premium amortization and purchase discount accretion which are considered adjustments to interest rates.

Current wording

The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the three months ended March 31, 2025 and December 31, 2024. Average yields are derived by dividing annualized interest income by the average amortized cost of the related assets, and average costs are derived by dividing annualized interest expense by the average balance of the related liabilities, for the periods shown. The yields and costs may include premium amortization and discount accretion which are considered adjustments to interest income or expense.

Previous wording

(4)Includes both securitized debt, at carrying value, and securitized debt, at fair value.

Current wording

(3)Includes both securitized debt, at carrying value, and securitized debt, at fair value.

Previous wording

(3)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 1 of this Quarterly Report on Form 10-Q.

Current wording

(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 1 of this Quarterly Report on Form 10-Q.

Previous wording

(1)Reflects the difference between the yield on average interest-earning assets and average cost of funds (including net swap expense).

Current wording

(1)Reflects the difference between the yield on average interest-earning assets and average cost of funds (including net swap income or expense).

Previous wording

(2)Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps and, accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended September 30, 2024, this decreased the overall funding cost by 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 56 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 227 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 238 basis points for our Legacy RPL/NPL loans. For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 235 basis points for our Business purpose loans, 177 basis points for our Non-QM loans, and 251 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 240 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 254 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2023, this decreased the overall funding cost by 144 basis points for our Residential whole loans, 222 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 297 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2023, this decreased the overall funding cost by 127 basis points for our Residential whole loans, 198 basis points for our Business purpose loans, 161 basis points for our Non-QM loans, and 251 basis points for our Legacy RPL/NPL loans.

Current wording

(2)Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps and, accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended March 31, 2025, this decreased the overall funding cost by 60 basis points for our Residential whole loans, 45 basis points for our Business purpose loans, 77 basis points for our Non-QM loans, and 31 basis points for our Legacy RPL/NPL loans. For the quarter ended December 31, 2024, this decreased the overall funding cost by 101 basis points for our Residential whole loans, 80 basis points for our Business purpose loans, 136 basis points for our Non-QM loans, and 19 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2024, this decreased the overall funding cost by 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 56 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 99 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans.

Previous wording

(2)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the quarter ended September 30, 2024, this decreased the overall funding cost by 171 basis points. For the quarter ended June 30, 2024, this decreased the overall funding cost by 190 basis points. For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 basis points. For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points. For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points. For the quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points. For the quarter ended March 31, 2023, this decreased the overall funding cost by 104 basis points.

Current wording

(2)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the quarter ended March 31, 2025, this decreased the overall funding cost by 108 basis points. For the quarter ended December 31, 2024, this decreased the overall funding cost by 168 basis points. For the quarter ended September 30, 2024, this decreased the overall funding cost by 171 basis points. For the quarter ended June 30, 2024, this decreased the overall funding cost by 190 basis points. For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 basis points.

Previous wording

Interest income on our residential whole loans for the third quarter of 2024 decreased by $8.3 million, or 5.0%, to $157.4 million, compared to $165.7 million for the second quarter of 2024. This decrease primarily reflects a decrease in the yield to 6.74% for the third quarter of 2024 from 6.92% for the second quarter of 2024, and a $232.9 million decrease in the average balance of this portfolio to $9.3 billion for the third quarter of 2024 from the second quarter of 2024. This decrease in residential whole loan interest income was partially offset by an increase in other interest earning assets of $2.8 million and securities, at fair value of $1.1 million.

Current wording

Interest income on our residential whole loans for the first quarter of 2025 decreased by $1.5 million, or 1.0%, to $151.3 million, compared to $152.8 million for the fourth quarter of 2024. This decrease primarily reflects a $241.0 million decrease in the average balance of this portfolio to $8.9 billion for the first quarter of 2025 from the fourth quarter of 2024, partially offset by an increase in the yield to 6.77% for the first quarter of 2025 from 6.65% for the fourth quarter of 2024.

Previous wording

Our interest expense for the third quarter of 2024 decreased by $2.0 million, or 1.5%, to $131.3 million, from $133.3 million for the second quarter of 2024. This decrease primarily reflects a decrease in the average balance and rates on financing agreements on residential whole loans as well as zero interest expense for the third quarter for the 6.25% convertible notes due in June 2024 (or Convertible Senior Notes), which we fully repaid in June 2024, partially offset by higher average balance and rates on securitized debt and higher average balances for securities repurchase agreements.

Current wording

Our interest expense for the first quarter of 2025 decreased by $4.6 million, or 3.6%, to $123.0 million, from $127.5 million for the fourth quarter of 2024. This decrease primarily reflects a decrease in the average balance of, and rates on, our financing agreements on residential whole loans as well as a decrease in the rates on our securities repurchase agreements, partially offset by higher average balance of our securities repurchase agreements and higher average balance of, and rates on, our securitized debt.

Previous wording

For the third quarter of 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.9 million compared to a reversal of provision for credit losses of $1.1 million for the second quarter of 2024. The reversal of provision recorded in the current period and in the second quarter of 2024 primarily reflects minor changes to modeling assumptions and the run-off of loans held at carrying value.

Current wording

For the first quarter of 2025, we recorded a provision for credit losses on residential whole loans held at carrying value of $0.1 million compared to a provision for credit losses of $0.4 million for the fourth quarter of 2024. The provision recorded in the current period primarily reflects minor changes to modeling assumptions, partially offset by the run-off of loans held at carrying value.

Previous wording

For the third quarter of 2024, Other Income/(Loss), net was $40.3 million, compared to Other Income/(Loss), net of $29.8 million for the second quarter of 2024. The components of Other Income/(Loss), net for the third and second quarter of 2024 are summarized in the table below:

Current wording

For the first quarter of 2025, Other Income/(Loss), net was $24.5 million, compared to Other Income/(Loss), net of $(7.1) million for the fourth quarter of 2024. The components of Other Income/(Loss), net for the first quarter of 2025 and fourth quarter of 2024 are summarized in the table below:

Previous wording

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One sales commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense increased by $0.7 million to $22.4 million for the third quarter of 2024, compared to $21.7 million for the second quarter of 2024, primarily driven by the accrual of executive severance pay, partially offset by a reduction in employee stock-based compensation, annual bonus, and Lima One salary and commission expenses.

Current wording

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One sales commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense increased by $5.2 million to $23.3 million for the first quarter of 2025, compared to $18.0 million for the fourth quarter of 2024, primarily driven by the accelerated recognition of stock-based compensation in the first quarter of 2025 related to awards made to retirement eligible employees in January 2025.

Previous wording

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses of $11.4 million for the third quarter of 2024 were higher when compared to $10.8 million for the second quarter of 2024, primarily as a result of impairment on a software asset at Lima One and fair value adjustments on the deferred compensation plan for the board of directors, partially offset by lower professional fees at Lima One and software expense at our corporate offices.

Current wording

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses of $10.3 million for the first quarter of 2025 were relatively unchanged when compared to $10.0 million for the fourth quarter of 2024.

Previous wording

Loan servicing and other related operating expenses are composed of non-recoverable advances, upfront costs on securitization and other fees related to our residential whole loan activities. These expenses decreased compared to the prior quarter period by approximately $0.2 million, or 2.5%, primarily due to lower expenses recognized related to loan securitization activities.

Current wording

Loan servicing and other related operating expenses are composed of non-recoverable advances, upfront costs on securitization and other fees related to our residential whole loan activities. These expenses decreased compared to the prior quarter period by approximately $3.8 million, or 34.3%, primarily due to lower expenses recognized related to loan securitization activities.

Previous wording

(2)Reflects annualized net interest income (including net swap expense) divided by average interest-earning assets.

Current wording

(2)Reflects annualized net income divided by average total stockholders’ equity.

Previous wording

(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.

Current wording

(6)Represents the sum of our borrowings under financing agreements (excluding securitized debt and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity.

Previous wording

Nine Month Period Ended September 30, 2024 Compared to the Nine Month Period Ended September 30, 2023

Current wording

Three Month Period Ended March 31, 2025 Compared to the Three Month Period Ended March 31, 2024

Previous wording

The following table summarizes the changes in our results of operations for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Current wording

The following table summarizes the changes in our results of operations for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.