Ellington Financial Inc
For the period ended Dec 31, 2024. Filed Mar 3, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 3, 2025
EFC$11.26-2.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-29.
0001411342-24-000021
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-03.
0001411342-25-000015
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 359 previous paragraphs and 341 current paragraphs.
167 unchanged; 102 reworded; 67 added; 66 removed; 24 previous and 5 current paragraphs rearranged.
Tables are not compared: 35 previous and 33 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (67)
Current report
We also acquire HELOCs and closed-end second lien loans, which are loans made to homeowners collateralized by the existing equity in their homes. Closed-end second lien loans allow the borrower to take a one-time lump sum and are subordinate to the rights of the first lien mortgage holder as well as other potential senior liens. A HELOC is a line of credit that allows the borrower to draw down on their available line of credit as needed, and is subordinate to the rights of the first lien mortgage holder and to the rights of any other lien-holder on the home.
Current report
Federal Reserve Policy
Current report
•In 2024, the U.S. Federal Reserve maintained its federal funds rate target range of 5.25%–5.50% across its first five meetings. At the September meeting, the Federal Reserve cut rates for the first time in four years, reducing the target range by 50 basis points to 4.75%–5.00%. The Federal Reserve cited a balance in risks to its employment and inflation goals.
Current report
•Subsequent meetings in November and December brought additional 25-basis-point cuts, bringing the range to 4.25%–4.50%. However, the December Summary of Economic Projections signaled a slower pace of rate cuts in 2025, with only two 25-basis-point reductions anticipated. Chair Powell noted further progress lowering inflation as a prerequisite for additional cuts.
Current report
•In June, the Federal Reserve reduced the pace of its balance sheet contraction by lowering the cap on portfolio runoff of U.S. Treasury securities from $60 billion to $25 billion, while maintaining the $35 billion cap on Agency RMBS.
Current report
Interest Rates
Current report
•Following sharp declines in the fourth quarter of 2023, interest rates rose in the first quarter of 2024 as expectations for Federal Reserve rate cuts shifted later in the year. The 2-year U.S. Treasury yield increased by 37 basis points to 4.62%, while the 10-year U.S. Treasury yield rose by 32 basis points to 4.20%. Interest rate volatility declined, with the MOVE Index reaching a two-year low by quarter-end.
Current report
In the second quarter, interest rates rose in April before declining in May and June, ending slightly higher overall. The 2-year U.S. Treasury yield increased by 13 basis points to 4.75%, and the 10-year U.S. Treasury yield rose by 20 basis points to 4.40%. Volatility spiked in mid-April but fell through the quarter's end.
Current report
The third quarter saw significant declines in interest rates, particularly short-term rates. The 10-year U.S. Treasury yield exceeded the 2-year yield for the first time since July 2022. The 2-year yield dropped by 111 basis points to
Current report
3.64%, and the 10-year yield fell by 62 basis points to 3.78%. Volatility spiked in early August and September before subsiding.
Current report
In the fourth quarter, interest rates reversed course again, with the 2-year U.S. Treasury yield rising 60 basis points to 4.24% and the 10-year U.S. Treasury yield increasing 79 basis points to 4.57%. The MOVE Index peaked ahead of the U.S. presidential election but declined by year-end.
Current report
•Mortgage rates closely tracked long-term interest rate movements. The Freddie Mac survey 30-year mortgage rate rose to 7.22% in May before declining to 6.08% by late September. Mortgage rates spiked again in the fourth quarter, ending the year at 6.85%.
Current report
•SOFR rates were stable in the first half of 2024 but fell sharply in the second half, reflecting the Federal Reserve rate cuts. For the full year, one-month SOFR decreased 102 basis points to 4.33%, while three-month SOFR fell 103 basis points to 4.31%. SOFR rates drive many of our financing costs.
Current report
Housing and Economic Indicators
Current report
•The Mortgage Bankers Association's Refinance Index, although still low on an historical basis, rose significantly in the first three quarters of 2024, tripling between the start of the year and September 27 th. However, the index declined sharply in the fourth quarter, ending 2024 only slightly higher year-over-year.
Current report
•Similarly, mortgage prepayment speeds increased during the year but remained at relatively low levels. Prepayment speeds for Fannie Mae 30-year RMBS started at 4.4 CPR in January 2024 and trended upward for most of the year, reaching a peak of 8.3 CPR in October. Prepayment speeds then declined towards year-end, with Fannie Mae 30-year RMBS registering 6.0 CPR in December.
Current report
•U.S. real GDP grew at annualized rates of 1.6% in the first quarter, 3.0% in the second quarter, and 3.1% in the third quarter, with an estimated growth rate of 2.3% in the fourth quarter. Unemployment edged up from 3.8% to 4.1% by year-end.
Current report
•Inflation trended lower, with the 12-month percentage change in the Consumer Price Index for All Urban Consumers, not seasonally adjusted, falling from 3.1% in January to a low of 2.4% in September before ending the year at 2.9%.
Current report
Fixed Income Performance
Current report
•MBS returns were mixed, with the Bloomberg U.S. MBS Index posting a full-year positive return of 1.20% and a positive excess return (on a duration-adjusted basis) of 0.37% relative to the Bloomberg U.S. Treasury Index. The performance of both indices was volatile, particularly in the fourth quarter, when returns were sharply negative overall.
Current report
•Corporate bonds fared better. The Bloomberg U.S. Corporate Bond Index returned 2.13% with an excess return of 2.46%, while the Bloomberg High Yield Bond Index posted an 8.19% return and 5.02% excess return. Corporate credit spreads tightened, with the Markit CDX North America Investment Grade and High Yield Indices narrowing by 7 and 45 basis points, respectively.
Current report
Leveraged Loans and CLOs
Current report
•Including $800 billion in repricings, U.S. leveraged loan issuance reached a record $1.5 trillion in 2024, per PitchBook|LCD. CLO new issue volume also hit a record, exceeding $200 billion, according to BofA Global Research.
Current report
•Default rates on U.S. leveraged loans declined in 2024. According to PitchBook|LCD the twelve-month trailing default rate on the Morningstar LSTA Leveraged Loan Index fell to 0.80% as of September 30 th, compared to 1.53% at the start of the year. Default rates rose slightly to 0.91% by December 31 st, but remained well below the 10-year historical average of 1.62%.
Current report
•Additionally, prices on leveraged loans increased, with the Morningstar LSTA US Leveraged Loan Index rising by $1.10 over the year, reaching $97.33 as of December 31 st.
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•European leveraged loans followed a similar trend, with default rates declining significantly year over year, to 0.42% from 1.62%. Prices increased as well, with the Morningstar LSTA EU Leveraged Loan Index rising by €1.96 to €98.01.
Current report
Equity Markets
Current report
•U.S. equities posted another strong year in 2024: the Dow Jones rose 12.9%, the S&P 500 gained 23.3%, and the NASDAQ climbed 28.6%. The FTSE 100 and MSCI World Indexes also posted gains of 5.7% and 17.0%, respectively.
Current report
•Equity volatility spiked at several points during 2024, with the VIX reaching, in early August, its highest level since October 2020.
Current report
(4)Also includes equity investments in unconsolidated entities holding commercial mortgage loans and REO.
Current report
(8)Also includes equity investment in Ellington affiliate.
Current report
(11)We participate in the economic returns of a portfolio of forward MSRs under various agreements with a licensed mortgage servicer holding such MSRs. Under such agreements, we can direct the servicer to finance the MSRs and distribute the proceeds of such financings to us. Forward MSR-related investments, at fair value are presented on our Consolidated Balance Sheet net of any such financing; as of December 31, 2024 and 2023, such borrowings were $93.5 million and $13.5 million, respectively.
Current report
Our total adjusted long credit portfolio increased by 24% to $3.42 billion as of December 31, 2024, from $2.75 billion as of December 31, 2023. The increase was primarily driven by net purchases of closed-end second lien loans, HELOCs, and commercial mortgage loans. A portion of the increase was offset by a smaller non-QM loan portfolio, driven by paydowns and the impact of three non-QM loan securitizations during the year, and net sales of non-Agency RMBS.
Current report
Strong net interest income and net gains from our non-QM loans and retained tranches, non-Agency RMBS, residential NPLs and RPLs, and ABS drove the positive performance of our credit portfolio during the year. We also benefited from mark-to-market gains on our equity investments in the loan originators, driven by strong origination volumes and gain-on-sale margins.
Current report
Offsetting a portion of these gains were net losses on our commercial mortgage loans, consumer loans and a related equity investment in a consumer loan originator, forward MSR-related investments, negative operating income on certain non-performing commercial mortgage loans and REO, and net losses on residential REO liquidations. Finally, we had a net loss on the Great Ajax common shares we purchased in connection with the prior year's terminated merger. Note that sector-level performance is inclusive of associated financing costs and hedging gains and losses.
Current report
The percentage of delinquent loans in our residential mortgage loan portfolio increased year over year. The percentage of delinquent loans in our commercial mortgage loan portfolio (including loans accounted for as equity method investments) increased in the first three quarters of 2024, but declined during the fourth quarter, leading to a year-over-year decline as well. Both our residential and commercial mortgage loan portfolios continue to experience low levels of realized credit losses and strong overall credit performance, though we continue to work out several non-performing commercial assets.
Current report
The table(1)(2) below summarizes our interests in commercial mortgage loans by payment status of the loan as of December 31, 2024:
Current report
(2)As discussed in Note 2 and Note 5 of the Notes to Consolidated Financial Statements, commercial loans that are 90 days or more delinquent are considered non-performing.
Current report
Delinquencies in our commercial loan portfolio (including loans accounted for as equity method investments) declined during the fourth quarter, which reversed the increased level of delinquencies during the first three quarters of 2024, and led to a year-over-year decline. As of December 31, 2024, we held two commercial REO properties with a fair value of $17.5 million.
Current report
Additionally, as of December 31, 2024, an unconsolidated variable interest entity in which we co-invest with other Ellington affiliates held a commercial multi-family REO property; the fair value of our allocable portion of such REO was approximately $33.6 million.
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Removed paragraphs (66)
Previous report
On June 30, 2023, we, Great Ajax Corp. (“Great Ajax”), and EF Acquisition I LLC, our wholly-owned subsidiary (“Great Ajax merger sub”), entered into an Agreement and Plan of Merger (the “Great Ajax merger agreement”), pursuant to which it was agreed that, subject to the terms and conditions therein, Great Ajax would be merged with and into Great Ajax merger sub, with Great Ajax merger sub remaining as our wholly-owned subsidiary (the “Great Ajax merger”). On October 20, 2023, we and Great Ajax executed a termination agreement (the “termination agreement”) to terminate the Great Ajax merger; pursuant to the terms of the termination agreement, we paid Great Ajax a termination fee of $5 million and also purchased 1,666,666 newly issued shares of Great Ajax common stock, at a per share price of $6.60, for a total purchase price of $11 million.
Previous report
•After increasing the target range for the federal funds rate by a cumulative 4.25% in 2022, the U.S. Federal Reserve, or the "Federal Reserve," slowed the pace of its interest rate hikes in 2023. In 2023, at its January/February meeting, the Federal Reserve raised the target range by 25 basis points to 4.50%–4.75%, which was its smallest increase since March 2022.
Previous report
In March 2023, in response to stress in the banking system, which included the failures of Silicon Valley Bank and Signature Bank, the Federal Deposit Insurance Corporation, or "FDIC," took steps to guarantee all deposits of those two failed banks, including deposits above the standard limit of $250,000. Meanwhile, concerns around the solvency of Credit Suisse Group AG prompted the Swiss Government to provide liquidity assistance and other financial support in conjunction with a merger of Credit Suisse Group AG into UBS Group AG. In addition, the Federal Reserve announced additional liquidity support through the creation of the Bank Term Funding Program, which provided loans with terms of up to one year to banks and other eligible depository institutions for qualified collateral, which included U.S. Treasury securities and Agency RMBS, at their par values. Other central banks around the world also announced plans to increase liquidity to financial institutions. Later in March 2023, at its monthly meeting, the Federal Reserve declared that the "U.S. banking system is sound and resilient" and increased the target range for the federal funds rate by an additional 25 basis points to 4.75%–5.00%.
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Next, the Federal Reserve increased the target range by an additional 25 basis points in May 2023, paused in June, increased by an additional 25 basis points in July to a range of 5.25%–5.50%, and then maintained that range at each of its meetings from September through December, noting in December that "inflation has eased over the past year but remains elevated." In a dovish shift, the Summary of Economic Projections released by the Federal Reserve in December implied three interest rate cuts in 2024. However, minutes from the December 2023 meeting released in early January 2024 revealed that during the meeting Federal Reserve participants "reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down," seemingly lowering the likelihood of a cut during the first quarter of 2024.
Previous report
Throughout 2023, the Federal Reserve continued to reinvest only principal payments that exceeded monthly caps of $60 billion on U.S. Treasury securities and $35 billion on Agency RMBS.
Previous report
•Interest rates were highly volatile during much of 2023, and many parts of the yield curve continued to be inverted. After falling in January, interest rates increased in February and early March, particularly short-term interest rates, as the yield on the 2-year U.S. Treasury surpassed 5% for the first time since June 2007. Then, in mid-March 2023, concerns about the stress in the banking system spurred a flight to safety, which drove interest rates down significantly. Overall, the yield on the 2-year U.S. Treasury decreased by 40 basis points to 4.03% in the first quarter, while the yield on the 10-year U.S. Treasury decreased by 41 basis points to 3.47%. Interest rate volatility spiked in mid-March 2023, with the MOVE Index surpassing its COVID-related highs and reaching its highest level since 2008.
Previous report
After trading in a relatively tight range in April and early May of 2023, interest rates rose steadily in the latter half of the second quarter, and the inversion of the yield curve deepened. Overall, the yield on the 2-year U.S. Treasury increased by 87 basis points to 4.90%, quarter over quarter, while the yield on the 10-year U.S. Treasury increased by 37 basis points to 3.84%. Meanwhile, interest rate volatility, as measured by the MOVE Index, declined during the quarter, particularly in June 2023 following the resolution of the federal government's debt ceiling dispute.
Previous report
In the third quarter of 2023, interest rates increased, particularly long-term interest rates, which caused the inversion of the yield curve to subside somewhat. The yield on the 2-year U.S. Treasury increased by 15 basis points quarter over quarter to 5.04%, while the yield on the 10-year U.S. Treasury increased by 73 basis points quarter over quarter to 4.57%. Toward the end of the quarter, the 2-year U.S. Treasury yield reached its highest level since July 2006, and the 10-year U.S. Treasury yield reached its highest level since October 2007. Meanwhile, interest rate volatility, as measured by the MOVE Index, remained elevated throughout the quarter.
Previous report
In the fourth quarter, interest rates reversed course and began to decline, as the market anticipated the conclusion of the Federal Reserve's interest rate hiking cycle. For the quarter, the yield on the 2-year U.S. Treasury decreased by 79 basis points to 4.25%, while the 10-year U.S. Treasury yield decreased by 69 basis points to 3.88%. The MOVE Index increased modestly from the previous quarter.
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•SOFR rates rose sharply from the start of the year through July 31, 2023, with one-month term SOFR increasing by 96 basis points to 5.32% and three-month term SOFR rising by 78 basis points to 5.37%. Beginning in August 2023, SOFR rates were relatively stable with one-month term SOFR ending the year at 5.35% and three-month term SOFR ending the year at 5.33%. Many of our financing costs are based on SOFR.
Previous report
•Mortgage rates moved in sympathy with long-term interest rates during 2023. The Freddie Mac survey 30-year mortgage rate declined from 6.41% at the start of the year to 5.95% in mid-January, and then steadily rose to 6.74% in early March, before declining to 6.24% by the end of the first quarter. From there, mortgage rates rose steadily for much of 2023, with the Freddie Mac 30-year mortgage rate peaking at 7.79% on October 26 th, its highest level since October 2000. The survey rate then reversed course and fell sharply over the final two months of 2023, declining to 6.42% on December 28 th, approximately where it started the year.
Previous report
After reaching a 25-year low at the end of 2022, the Mortgage Bankers Association's Refinance Index increased by 53% in the first quarter of 2023, before declining through the end of November, driven by higher mortgage rates. The index temporarily rose in mid-December 2023 with lower mortgage rates, and declined again toward the end of December 2023. Overall, the index increased by 15% year over year but remained at historically depressed levels. Prepayment speeds also remained at historically low levels throughout 2023. The Fannie Mae 30-year MBS registered a CPR of 4.5 in December 2023, unchanged year over year, reaching a 2023 low of 3.7 in January and a 2023 high of 6.4 in June.
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•U.S. real GDP increased at an annualized rate of 2.2% in the first quarter, 2.1% in the second quarter, 4.9% in the third quarter, and an estimated annualized rate of 3.2% in the fourth quarter. Meanwhile, the unemployment rate remained low throughout 2023, starting the year at 3.5% and registering 3.7% as of year end.
Previous report
•Inflation, while still elevated, declined during each of the first six months of 2023. The year-over-year percentage change in the Consumer Price Index for All Urban Consumers ("CPI-U"), not seasonally adjusted, declined from 6.4% in January 2023 to 3.0% in June 2023. Year-over-year inflation then increased again in the third quarter of 2023, registering 3.7% in September, before declining modestly in the fourth quarter, registering 3.4% in December.
Previous report
•After a historically difficult year in 2022, MBS performance was mixed in 2023. Following strong absolute and relative performance in January 2023, MBS performance reversed course in mid-February and especially in March, as concerns in the banking sector caused volatility to surge. Overall for the first quarter of 2023, the Bloomberg Barclays U.S. MBS Index ("BB MBS Index") generated a positive return of 2.53% but a negative excess return (on a duration-adjusted basis) of (0.50%) relative to the Bloomberg Barclays U.S. Treasury Index. In the second quarter of 2023, the BB MBS Index generated a negative return of (0.66%) but a positive excess return of 0.79%, driven by strong outperformance in June. For the third quarter, the BB MBS Index posted a negative return of (4.13%) and a negative excess return of (0.88%) relative to the Bloomberg Barclays U.S. Treasury Index, driven by underperformance of the mortgage basis in September 2023. That underperformance continued into October, but over the final two months of the year, volatility declined and yield spreads tightened and overall for the fourth quarter of 2023, the BB MBS Index generated a positive return of 7.31% and an excess return of 1.26%. For the full year 2023, the BB MBS Index generated a positive return of 5.05% and an excess return of 0.68%.
Previous report
•Similarly, after negative performance in 2022, the Bloomberg Barclays U.S. Corporate Bond Index ("BB IG Index") generated positive results on both an absolute and relative basis in 2023, driven by strong results in the fourth quarter of 2023. For the full year 2023, the BB IG Index generated a return of 8.52% on an absolute basis and an excess return of 4.55%. Meanwhile, the Bloomberg Barclays U.S. Corporate High Yield Bond Index ("BB HY Index") generated positive returns in each quarter of 2023 on both an absolute and relative basis. For the full year 2023, the BB HY Index generated a positive return of 13.45% and an excess return of 8.86%.
Previous report
•U.S. equities were also volatile during 2023, but performed well overall for the year, with the Dow Jones Industrial Average increasing by 13.7%, the S&P 500 rising by 24.2%, and the NASDAQ up 43.4%. Meanwhile, London's FTSE 100 index increased by 3.8% for the year, and the MSCI World global equity index increased by 21.8%. The VIX volatility index spiked in mid-March 2023 in response to the stress in the banking system and again in late September and October, before falling through year end.
Previous report
Our total long credit portfolio, excluding non-retained tranches of consolidated non-QM securitization trusts, increased by 8% to $2.74 billion as of December 31, 2023, from $2.54 billion as of December 31, 2022. The increase was driven primarily by a larger residential transition loan portfolio, where net purchases exceeded principal paydowns, the addition of Arlington's MSR-related portfolio, and net purchases of non-Agency RMBS. These increases were partially offset by smaller commercial mortgage loan and non-QM loan portfolios. For commercial mortgage loans, loan payoffs and paydowns exceeded new originations during the year. For non-QM, loan payoffs and paydowns, as well as loan sales and a non-consolidated securitization completed early in the year, exceeded new acquisitions.
Previous report
Strong net interest income from our loan portfolios, along with net realized and unrealized gains on our non-QM loan and non-Agency RMBS portfolios, drove the positive performance in our credit strategy for the year. We also had net realized and unrealized gains on our interest rate hedges, driven by the significant increase in rates during the second and third quarters of the year. A portion of these gains were offset by net realized and unrealized losses on consumer loans, commercial mortgage loans, CMBS, residential transition loans, as well as on credit hedges and equity investments in unconsolidated loan originators. During the year, we saw an uptick in delinquencies on our residential and commercial mortgage loan portfolios, and while those portfolios continue to experience low levels of realized credit losses and strong overall credit performance, we are monitoring developments closely and diligently working out a handful of nonperforming commercial mortgage assets.
Previous report
The year began on a constructive note with interest rates and volatility declining and Agency MBS yield spreads tightening in January. However, markets reversed course in mid-February on renewed anxiety over inflation and what the Federal Reserve's response would be. Then in March, turmoil in the banking system put further pressure on Agency yield spreads. Overall, Agency RMBS underperformed U.S. Treasuries and interest rate swaps (which are the primary instruments we use to hedge our interest rate risk) in the first quarter with the most pronounced underperformance coming on low-coupon MBS, where our Agency RMBS was concentrated, due to concerns over future selling from distressed regional banks.
Previous report
FDIC-directed sales of RMBS from failed regional banks commenced at the start of the second quarter, which pressured yield spreads but also drove strong RMBS demand into May, even as interest rate volatility remained elevated. Then in June, yield spreads tightened following the resolution of the debt ceiling dispute, and Agency RMBS outperformed hedging instruments for the quarter. In the third quarter, Agency RMBS faced the significant headwinds of elevated market volatility and rising long-term interest rates, resulting in wider yield spreads and Agency RMBS underperformance relative to hedging instruments.
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In the fourth quarter, interest rates and volatility increased in October, which drove yield spreads wider in most fixed income sectors, including Agency RMBS. Markets then reversed course, however, with interest rates and volatility declining, and yield spreads tightening, through year end. Overall for the fourth quarter, Agency RMBS outperformed hedging instruments, with lower and intermediate coupon RMBS exhibiting the most pronounced outperformance.
Previous report
Overall, we had positive net income in the Agency RMBS strategy for the year, primarily driven by net realized and unrealized gains on our Agency RMBS and interest rate hedges, which were partially offset by negative net interest income.
Previous report
Our Longbridge portfolio generated positive results for the year, driven by net servicing income, net gains on interest rate hedges, and mark-to-market gains on proprietary reverse mortgage loans driven by tighter yield spreads. We also had a modest net gain on our Reverse MSR-related Net Assets, which consisted primarily of a mark-to-market gain on a Reverse MSR portfolio we acquired out of a bankruptcy proceeding on July 1st, partially offset by the mark-to-market loss on our existing HMBS MSR Equivalent. These gains more than offset a net loss in originations, which was driven by reduced gain-on-sale margins and lower origination volumes.
Previous report
Longbridge's portfolio increased by 69% year over year to $552.4 million as of December 31, 2023, driven primarily by proprietary reverse mortgage loan originations. Meanwhile, the Reverse MSR-related Net Assets increased slightly, as the addition of a Reverse MSR portfolio acquired out of a bankruptcy proceeding was partially offset by mark-to-market losses on existing Reverse MSR-related Net Assets.
Previous report
(1)Excludes loans originated prior to the Longbridge Transaction and resulting consolidation.
Previous report
Our results for the year reflect the bargain purchase gain associated with the closing of the Arlington Merger, partially offset by merger-related transaction expenses, including certain compensation and severance costs that had been previously negotiated as part of the merger agreement. Although the bargain purchase gain, net of the related expenses, resulted in positive net income for the year, the common shares issued as consideration for the Arlington Merger were issued at a discount to our book value per share, and the transaction was dilutive to common shareholders overall by approximately 1.1%.
Previous report
Finally, our results include the additional costs associated with the mutual termination of the Great Ajax merger in October.
Previous report
For the years ended December 31, 2023 and 2022, interest income from the Longbridge segment was $18.9 million and $2.9 million, respectively. The increase was due to the recognition of interest income, primarily related to proprietary reverse mortgage loans, for the entirety of 2023 as compared to just one quarter in the prior year, as we only began to consolidate Longbridge in the fourth quarter of 2022; as well as to a larger average portfolio of reverse mortgage loans year over year.
Previous report
For the years ended December 31, 2023 and 2022, interest income not allocated to either the investment portfolio segment or Longbridge segment was $6.7 million and $2.2 million, respectively. The increase year over year was due to an increase in interest income on cash margins posted by us.
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In addition to the base management fee, our Manager is also entitled to a quarterly incentive fee if our performance (as measured by adjusted net income, as defined in the management agreement) over the relevant rolling four quarter calculation period (including any opening loss carryforward) exceeds a defined return hurdle for the period. No incentive fee was incurred for either of the years ended December 31, 2023 and 2022, since for each quarter during these periods, our income did not exceed the prescribed hurdle amount on a rolling four quarter basis. Because our operating results can vary materially from one period to another, incentive fee expense can be highly variable.
Previous report
For the years ended December 31, 2023 and 2022, Other investment related expenses in our investment portfolio segment were $9.9 million and $21.4 million, respectively. The decrease in other investment related expenses was primarily due to lower debt issuances costs related to Other secured borrowings, at fair value, which reflects lower non-QM securitization activity in 2023 as compared to 2022.
Previous report
For the year ended December 31, 2022, other investment related expenses not allocated to either the investment portfolio segment or Longbridge segment were $3.6 million, consisting of debt issuance costs related to our Unsecured borrowings, at fair value. For the year ended December 31, 2023, all other investment related expenses were allocated to our investment portfolio.
Previous report
For the year ended December 31, 2022, other income (loss) was $(118.8) million, consisting primarily of net realized and unrealized losses on our securities and loans of $(582.6) million, partially offset by $194.2 million of net realized and unrealized gains on our financial derivatives, $258.1 million of net unrealized gains on our Other secured borrowings, at fair value, and a bargain purchase gain of $7.9 million related to the Longbridge Transaction. Rapidly rising interest rates and widening yield spreads drove net realized and unrealized losses of $(582.6) million on our securities and loans, primarily Agency RMBS, non-QM loans, non-Agency RMBS, and consumer loans and ABS backed by consumer loans. These losses were partially offset by net realized and unrealized gains on short positions in U.S. Treasury securities and sovereign bonds. Net realized and unrealized gains of $194.2 million on our financial derivatives were primarily related to net realized and unrealized gains on interest rate swaps, short positions in TBAs, futures, and forwards, which were driven by rising interest rates, and in the case of short positions in TBAs, also by widening yield spreads. We recognized net unrealized gains of $258.1 million on our Other secured borrowings, at fair value for the year ended December 31, 2022, related to borrowings on our securitized non-QM loans. These securitized non-QM loans had net unrealized losses of $(291.7) million, which are included in Unrealized gains (losses) on securities and loans, net.
Previous report
For the year ended December 31, 2022, other income (loss) from Longbridge was $39.9 million, consisting primarily of gains from Net change from reverse mortgage loans, at fair value of $199.2 million, which were partially offset by Net change related to HMBS obligations, at fair value of $(162.4) million.
Previous report
Income tax expense (benefit) was $0.5 million for the year ended December 31, 2023, as compared to $(17.7) million for the year ended December 31, 2022. For the year ended December 31, 2022, our deferred tax liability decreased as a result of net realized and unrealized losses in a domestic TRS, resulting in a significant income tax benefit.
Previous report
For the year ended December 31, 2022 we had net income (loss) attributable to common stockholders of $(85.3) million, compared to $125.3 million for the year ended December 31, 2021. The reversal in our results of operations was primarily due to realized and unrealized losses on our securities and loans, and losses from investments in unconsolidated entities, as compared to realized and unrealized gains on our securities and loans, and earnings from investments in unconsolidated entities in the prior period as well as an increase in preferred dividends and total expenses. Such decreases for the year ended December 31, 2022 were partially offset by an increase in net interest income, net realized and unrealized gains on financial derivatives, an increase in unrealized gains on other secured borrowings, at fair value, net change from reverse mortgage loans and HMBS-related obligations, at fair value, and unrealized gains on our Unsecured borrowings, at fair value.
Previous report
Interest Income
Previous report
Interest income from our investment portfolio for the year ended December 31, 2022 increased to $277.1 million as compared to $175.4 million for the year ended December 31, 2021.
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For the year ended December 31, 2022, interest income from our credit portfolio was $234.0 million, as compared to $140.2 million for the year ended December 31, 2021. This year-over-year increase was primarily due to the larger size of the credit portfolio partially offset by a decrease in average asset yields for the year ended December 31, 2022.
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Reworded paragraphs (102)
Previous wording
We conduct all of our operations and business activities through the Operating Partnership. As of December 31, 2023, we had an ownership interest of approximately 99.3% in the Operating Partnership. The remaining ownership interest of approximately 0.7% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest. We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 29-year history of investing in the Agency and credit markets.
Current wording
We conduct all of our operations and business activities through the Operating Partnership. As of December 31, 2024, we had an ownership interest of approximately 99.2% in the Operating Partnership. The remaining ownership interest of approximately 0.8% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest. We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 30-year history of investing in the Agency and credit markets.
Previous wording
On October 3, 2022, we completed the acquisition of a controlling interest in Longbridge Financial, LLC ("Longbridge"), a reverse mortgage loan originator and servicer (the "Longbridge Transaction"). As a result of the Longbridge Transaction, we consolidate Longbridge's financial results. On December 14, 2023, we completed a merger between Arlington Asset Investment Corp., a Virginia corporation ("Arlington"), and our subsidiary EF Merger Sub Inc., a Virginia corporation (such transaction, the "Arlington Merger"). We have accounted for the Arlington Merger as a business combination in accordance with the provisions of ASC 805, Business Combinations, or "ASC 805." In applying the acquisition method of accounting, we are treated as the acquirer of Arlington for accounting purposes. See Note 25, Business Combinations of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details of the Longbridge Transaction and the Arlington Merger.
Current wording
On October 3, 2022, we completed the acquisition of a controlling interest in Longbridge Financial, LLC ("Longbridge"), a reverse mortgage loan originator and servicer (the "Longbridge Transaction"). As a result of the Longbridge Transaction, we consolidate Longbridge's financial results. On December 14, 2023, we completed a merger between Arlington Asset Investment Corp., a Virginia corporation ("Arlington"), and our subsidiary EF Merger Sub Inc., a Virginia corporation (such transaction, the "Arlington Merger").
Previous wording
In our investment portfolio, we invest in a diverse array of financial assets, including residential mortgage-backed securities, or "RMBS," including RMBS for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "Agency RMBS"; residential and commercial mortgage loans; commercial mortgage-backed securities, or "CMBS"; consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans; investments referencing mortgage servicing rights on traditional forward mortgage loans, or "Forward MSR-related investments"; collateralized loan obligations, or "CLOs"; non-mortgage- and mortgage-related derivatives; equity investments in loan origination companies; and other strategic investments. We refer to the portion of our investment portfolio excluding Agency RMBS as our credit portfolio.
Current wording
We have two reportable segments, the Investment Portfolio Segment and the Longbridge Segment. In our Investment Portfolio Segment, we invest in a diverse array of financial assets, including residential and commercial mortgage loans; residential mortgage-backed securities, or "RMBS," including RMBS for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "Agency RMBS"; commercial mortgage-backed securities, or "CMBS"; consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans; investments referencing mortgage servicing rights on traditional forward mortgage loans, or "Forward MSR-related investments"; collateralized loan obligations, or "CLOs"; non-mortgage- and mortgage-related derivatives; debt and equity investments in loan origination companies; and other strategic investments. We refer to the portion of our investment portfolio excluding Agency RMBS as our credit portfolio.
Previous wording
Longbridge originates and services reverse mortgage loans, including both home equity conversion mortgage loans ("HECM loans") which are insured by the Federal Housing Administration ("FHA"), as well as non-FHA-insured reverse mortgage loans, which we refer to as "proprietary reverse mortgage loans." HECM loans are generally eligible for securitization into HECM-backed MBS ("HMBS"), which are guaranteed by the Government National Mortgage Association ("GNMA").
Current wording
Our Longbridge Segment is focused on the origination and servicing of, and investment in, reverse mortgage loans, including associated financial assets, financing, hedging, and allocated expenses. Longbridge originates home equity conversion mortgage loans ("HECM loans"), which are insured by the Federal Housing Administration ("FHA"), and non-FHA-insured reverse mortgage loans, which we refer to as "proprietary reverse mortgage loans." HECM loans are generally eligible for securitization into HECM-backed MBS ("HMBS"), which are guaranteed by the Government National Mortgage Association ("GNMA").
Previous wording
The majority of CMBS utilize senior/subordinate structures, similar to those found in non-Agency RMBS. Subordination levels vary so as to provide for one or more AAA credit ratings on the most senior classes, with less senior securities rated investment grade and non-investment grade, including a first loss component which is typically unrated. This first loss component is commonly referred to as the "B-piece," which is the most subordinated (and therefore highest yielding and riskiest) tranche of a CMBS securitization. Much of our focus within the CMBS sector has been on B-pieces, but we also acquire other CMBS with more senior credit priority.
Current wording
The majority of CMBS utilize senior/subordinate structures, similar to those found in non-Agency RMBS. Subordination levels vary so as to provide for one or more AAA credit ratings on the most senior classes, with less senior securities rated investment grade and non-investment grade, including a first loss component which is typically unrated. This first loss component is commonly referred to as the "B-piece," which is the most subordinated (and therefore highest yielding and riskiest) tranche of a CMBS securitization. We acquire investment grade, non-investment grade, and non-rated CMBS. Our target assets also include single-asset single-borrower CMBS, or "SASB CMBS." SASB CMBS can be collateralized by single properties or by a portfolio of properties.
Previous wording
We acquire U.S. consumer whole loans and ABS, including ABS backed by U.S. consumer loans. Our U.S. consumer loan portfolio consists of unsecured loans and secured auto loans. We are currently purchasing newly originated consumer loans under flow agreements with certain originators, as well as seasoned consumer loans in the secondary market, and we continue to evaluate new opportunities.
Current wording
We acquire U.S. consumer whole loans and ABS, including ABS backed by U.S. consumer loans. Our U.S. consumer loan portfolio consists of unsecured loans and secured auto loans. We purchase newly originated consumer loans under flow agreements with certain originators and may also purchase seasoned consumer loans in the secondary market, and we continue to evaluate new opportunities.
Previous wording
Non-Agency RMBS are generally debt obligations issued by private originators of, or investors in, residential mortgage loans. Non-Agency RMBS generally are issued as CMOs and are backed by pools of whole mortgage loans or by mortgage pass-through certificates. Non-Agency RMBS generally are securitized in senior/subordinated structures, or in excess spread/over-collateralization structures. In senior/subordinated structures, the subordinated tranches generally absorb all losses on the underlying mortgage loans before any losses are borne by the senior tranches. In excess spread/over-collateralization structures, losses are first absorbed by any existing over-collateralization, then borne by subordinated tranches and excess spread, which represents the difference between the interest payments received on the mortgage loans backing the RMBS and the interest due on the RMBS debt tranches, and finally by senior tranches and any remaining excess spread. We also have acquired, and may acquire in the future, both Agency-issued and non-Agency-issued CRTs, which have credit risks similar to those of subordinated RMBS tranches, as well as non-QM RMBS, including retained tranches from non-QM RMBS securitizations in which we have participated.
Current wording
Non-Agency RMBS are generally debt obligations issued by private originators of, or investors in, residential mortgage loans. Non-Agency RMBS generally are issued as CMOs and are backed by pools of whole mortgage loans or by mortgage pass-through certificates. Non-Agency RMBS generally are securitized in senior/subordinated structures, or in excess spread/over-collateralization structures. In senior/subordinated structures, the subordinated tranches generally absorb all losses on the underlying mortgage loans before any losses are borne by the senior tranches. In excess spread/over-collateralization structures, losses are first absorbed by any existing over-collateralization, then borne by subordinated tranches and excess spread, which represents the difference between the interest payments received on the mortgage loans backing the RMBS and the interest due on the RMBS debt tranches, and finally by senior tranches and any remaining excess spread. We also have acquired, and may acquire in the future, both Agency-issued and non-Agency-issued CRTs, which have credit risks similar to those of subordinated RMBS tranches, as well as RMBS backed by non-QM and CES loans, including retained tranches from loan securitizations in which we have participated.
Previous wording
The residential transition loans that we originate or purchase include: (i) "fix and flip" loans, which are made to real estate investors for the purpose of acquiring residential homes, making value-add improvements to such homes, and reselling the newly rehabilitated homes for a potential profit, and (ii) loans made to real estate investors for a "business purpose," such as purchasing a rental investment property, financing or refinancing a fully rehabilitated home awaiting sale, or securing short-term financing pending qualification for longer-term lower-rate financing. Our residential transition loans are secured by non-owner occupied properties, and are typically structured as fixed-rate, interest-only loans with terms to maturity between 6 and 24 months. Our underwriting guidelines focus on both the "as is" and "as repaired" property values, borrower experience as a real estate investor, and asset verification.
Current wording
The residential transition loans that we purchase are typically newly originated loans and include: (i) "fix and flip" loans, which are made to real estate investors for the purpose of acquiring residential homes, making value-add improvements to such homes, and reselling the newly rehabilitated homes for a potential profit, and (ii) loans made to real estate investors for a "business purpose," such as purchasing a rental investment property, financing or refinancing a fully rehabilitated home awaiting sale, or securing short-term financing pending qualification for longer-term lower-rate financing. Our residential transition loans are secured by non-owner occupied properties, and are typically structured as fixed-rate, interest-only loans with terms to maturity between 6 and 24 months. Our underwriting guidelines focus on both the "as is" and "as repaired" property values, borrower experience as a real estate investor, and asset verification.
Previous wording
Currently, our credit hedges consist primarily of financial instruments tied to corporate credit, such as CDS on corporate bond indices, short positions in and CDS on corporate bonds; and positions involving exchange traded funds, or "ETFs," of corporate bonds. Our credit hedges also currently include CDS tied to individual MBS or an index of several MBS, such as CDS on CMBS indices, or "CMBX."
Current wording
Our credit hedges consist of financial instruments tied to corporate credit, such as CDS on corporate bond indices, short positions in and CDS on corporate bonds, and positions involving exchange traded funds, or "ETFs," of corporate bonds. They also include put contracts on certain equity indices, as well as CDS tied to individual MBS or an index of several MBS, such as CDS on CMBS indices, or "CMBX."
Previous wording
For the full year 2023, the 2-year U.S. Treasury yield decreased by 18 basis points, while the 10-year yield increased by 1 basis point.
Current wording
For 2024 as a whole, the 2-year U.S. Treasury yield decreased by 1 basis point, while the 10-year yield rose by 69 basis points.
Previous wording
•Despite higher mortgage rates for much of 2023, the S&P CoreLogic Case-Schiller US National Home Price NSA Index increased by 5.5% during the year. The National Association of Realtors Housing Affordability Index declined by 7% during 2023, as higher mortgage rates and record home prices continued to stress housing affordability.
Current wording
•Housing price metrics showed modest gains. The S&P CoreLogic Case-Schiller US National Home Price Index increased by 3.9%, while the National Association of Realtors Housing Affordability Index rose 0.2%.
Previous wording
Portfolio Overview and Outlook—Investment Portfolio
Current wording
Portfolio Overview and Outlook—Investment Portfolio Segment
Previous wording
(1)This information does not include U.S. Treasury securities, interest rate swaps, TBA positions, or other hedge positions.
Current wording
(1)This information does not include U.S. Treasury securities, securities sold short, or financial derivatives.
Previous wording
(1)Conformed to current period presentation.
Current wording
(2)Conformed to current period presentation.
Previous wording
(3)REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to consolidated financial statements.
Current wording
(3)Also includes related REO. In accordance with U.S. GAAP, REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to consolidated financial statements.
Previous wording
(2)Includes equity investments in securitization-related vehicles.
Current wording
(5)Also includes equity investments in securitization-related vehicles.
Previous wording
(6)Includes corporate loans to certain loan origination entities in which we hold an equity investment.
Current wording
(6)Also includes corporate loans to certain loan origination entities in which we hold an equity investment.
Previous wording
(7)Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interests in entities holding such RMBS.
Current wording
(7)Retained RMBS represents RMBS issued by non-consolidated Ellington-sponsored loan securitization trusts, and interests in entities holding such RMBS.
Previous wording
(5)Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization.
Current wording
(9)Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization.
Previous wording
(8)Includes an investment in an unconsolidated entity holding European RMBS.
Current wording
(10)Includes an investment in an unconsolidated entity holding European RMBS.
Previous wording
During the year, our asset yields increased, driven by turnover of assets that had been purchased in a lower-yield market environment, and we continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate. At the same time, borrowing costs on our credit investments increased, driven by higher short term interest rates, which slightly exceeded the increase in our asset yields. As a result, the net interest margin on our credit portfolio (which represents the weighted average asset yield less the weighted average secured financing cost of funds, as adjusted to include the effect of actual and accrued periodic payments on interest rate swaps used to hedge the assets) decreased slightly to 2.70% from 2.74% year over year.
Current wording
For the full year, the net interest margin on our credit portfolio, including the effect of actual and accrued periodic payments on interest rate swaps used to hedge the assets, was 2.83%, up from 2.70% for the prior year. The year-over-year increase was driven by higher asset yields, partially offset by a higher cost of funds. We continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
Previous wording
The following tables provide supplemental information to, and should be read in conjunction with, the notes to our financial statements. See Note 5—Investments in Loans, Note 7—Forward MSR-related Investments, and Note 8—Investments in Unconsolidated Entitiesto the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Current wording
The following tables provide supplemental information to, and should be read in conjunction with, the notes to our financial statements. See Note 5—Investments in Loans, Note 7—Forward MSR-related Investments, and Note 8—Investments in Unconsolidated Entities, of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Previous wording
(1)Excludes commercial mortgage loans in non-accrual status, with a fair value of $33.3 million.
Current wording
(1)Excludes commercial mortgage loans in non-accrual status, with a fair value of $37.6 million.
Previous wording
(4)As of December 31, 2023 all of our commercial mortgage loans were first-lien mortgages, the vast majority of which have floating rates with a rate floor.
Current wording
(4)As of December 31, 2024 all of our commercial mortgage loans were first-lien mortgages, the vast majority of which have floating rates, most of which benefit from interest rate floors.
Previous wording
Our total long Agency RMBS portfolio decreased by 12% year over year to $853.2 million, as principal repayments and net sales exceeded net gains, and as we rotated a portion of our investment capital to our credit portfolio.
Current wording
Our total long Agency RMBS portfolio decreased by approximately 65% year over year to $296.7 million, driven primarily by net sales, as we rotated investment capital into credit investments and away from Agency RMBS.
Previous wording
During the year, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities, and futures. We ended 2023 with a net short TBA position, both on a notional basis and as measured by 10-year equivalents. Ten-year equivalents for a group of positions represent the amount of 10-year U.S. Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates.
Current wording
For the full year, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities and futures. We ended the year with a net short TBA position on a notional basis but a net long TBA position on a duration-weighted basis.
Previous wording
In the Agency strategy, our cost of funds increased significantly year over year, driven by higher short-term interest rates, and despite positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate. Our asset yields also increased, though by a lesser amount. As a result, the net interest margin on our Agency RMBS, excluding the Catch-up Amortization Adjustment, declined year over year to 1.03% from 1.43%. Average pay-ups on our specified pools decreased to 0.84% as of December 31, 2023, as compared to 0.96% as of December 31, 2022.
Current wording
For the full year, the net interest margin on our Agency RMBS, excluding the Catch-up Amortization Adjustment, was 1.84%, up from 1.03% for the prior year. The increase was driven by higher asset yields and a lower cost of funds. As with our credit portfolio, we continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
Previous wording
As of December 31, 2023, the weighted average net pass-through rate on our fixed-rate specified pools was 3.9% as compared to 3.4%, as of December 31, 2022. Portfolio turnover for our Agency strategy, as measured by sales and excluding paydowns, was 153.0% for the year ended December 31, 2023.
Current wording
As of December 31, 2024 and 2023, the weighted average net pass-through rate on our fixed-rate specified pools was 4.1% and 3.9%, respectively.
Previous wording
Portfolio Overview and Outlook—Longbridge
Current wording
Portfolio Overview and Outlook—Longbridge Segment
Previous wording
As discussed in Note 13 of the Notes to the Consolidated Financial Statements, when Longbridge pools HECM loans into HMBS, such transfers do not qualify as sales under U.S. GAAP, and as a result, such transactions are treated as secured borrowings on our Consolidated Balance Sheet. The HECM loans are included in Loans, at fair value, and the related liabilities are reflected as HMBS-related obligations, at fair value. After pooling the HECM loans into HMBS, Longbridge retains the mortgage servicing rights associated with such HMBS, which we refer to as the "HMBS MSR Equivalent." Additionally, Longbridge typically retains the MSRs associated with the proprietary reverse mortgage loans that it originates and has acquired MSRs on reverse mortgage loans in the secondary market ("Reverse MSRs"). We refer to the HMBS MSR Equivalent and Reverse MSRs collectively as our "Reverse MSR-related Net Assets."
Current wording
As discussed in Note 13 of the Notes to the Consolidated Financial Statements, when Longbridge pools HECM loans into HMBS, such transfers do not qualify as sales under U.S. GAAP, and as a result, such transactions are treated as secured borrowings on our Consolidated Balance Sheet. The pooled HECM loans are included in Loans, at fair value, and the related liabilities are reflected as HMBS-related obligations, at fair value. After pooling the HECM loans into HMBS, Longbridge retains the mortgage servicing rights associated with such HMBS, which we refer to as the "HMBS MSR Equivalent."
Previous wording
(3)As of December 31, 2023, includes $6.9 million of assignable HECM Buyout Loans, $10.2 million of non-assignable HECM Buyout Loans, and $4.9 million of other inactive HECM loans.
Current wording
(3)As of December 31, 2024, includes $7.8 million of active HECM Buyout Loans, $11.1 million of inactive HECM Buyout Loans, and $5.0 million of other inactive HECM loans. As of December 31, 2023, includes $6.9 million of assignable HECM Buyout Loans, $10.2 million of non-assignable HECM Buyout Loans, and $4.9 million of other inactive HECM loans.
Previous wording
The following table summarizes origination volumes by channel for the three-month periods ended December 31, 2023 and 2022 and the year ended December 31, 2023:
Current wording
The following table summarizes origination volumes by channel for the years ended December 31, 2024 and 2023:
Previous wording
(2)Represents initial borrowed amounts on reverse mortgage loans.
Current wording
(1)Represents initial borrowed amounts on reverse mortgage loans.
Previous wording
We have various financing arrangements in place as of December 31, 2023, including both secured and unsecured borrowings. We use repos, secured lines of credit, and various other secured borrowings to finance our portfolios, each of which we account for as collateralized borrowings. We have also obtained, through the securitization markets, term financing for certain of our non-qualified mortgage, or "non-QM," loans and certain of our consumer loans. Additionally, as an issuer of HMBS, we account for HMBS-related obligations as secured borrowings. Finally, as of December 31, 2023, we had $297.7 million of outstanding Unsecured borrowings including (i) senior notes of $210.0 million, maturing in April 2027 and bearing an interest rate of 5.875%; (ii) senior notes of $34.9 million, maturing in March 2025 and bearing an interest rate of 6.75%; and (iii) senior notes of $37.8 million, maturing in August 2026 and bearing an interest rate of 6.00% (collectively, the "Senior Notes") as well as $15.0 million of unregistered junior subordinated unsecured debt securities (the "Trust Preferred Debt"). The indentures governing the outstanding Senior Notes contain a number of covenants, including several financial covenants. See Note 14 of the Notes to the Consolidated Financial Statements for additional details on our Unsecured borrowings.
Current wording
We have various financing arrangements in place as of December 31, 2024, including both secured and unsecured borrowings. We use repos, secured lines of credit, and various other secured borrowings to finance our portfolios, each of which we account for as collateralized borrowings. We have also obtained, through the securitization markets, term financing for non-QM loans, proprietary reverse mortgage loans, closed-end second lien mortgage loans, and consumer loans. Additionally, as an issuer of HMBS, we account for HMBS-related obligations as secured borrowings. Finally, as of December 31, 2024, we had $297.7 million of outstanding Unsecured borrowings including: (i) senior notes of $210.0 million, maturing in April 2027 and bearing an interest rate of 5.875%; (ii) senior notes of $34.9 million, maturing in March 2025 and bearing an interest rate of 6.75%; and (iii) senior notes of $37.8 million, maturing in August 2026 and bearing an interest rate of 6.00% (collectively, the "Senior Notes") as well as $15.0 million of unregistered junior subordinated unsecured debt securities (the "Trust Preferred Debt"). The indentures governing the outstanding Senior Notes contain a number of covenants, including several financial covenants. See Note 14 of the Notes to the Consolidated Financial Statements for additional details on our Unsecured borrowings.
Previous wording
As of December 31, 2023, outstanding borrowings under repos and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Consolidated Balance Sheet) were $4.6 billion, of which approximately 23.6%, or $1.1 billion, related to our Agency RMBS holdings. The remaining outstanding borrowings related to our credit portfolio and Longbridge. Additionally, we had $8.4 billion of HMBS-related obligations.
Current wording
As of December 31, 2024, outstanding borrowings under repos and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Consolidated Balance Sheet) were $4.8 billion, of which approximately 5.0%, or $238.1 million, related to our Agency RMBS holdings. The remaining outstanding borrowings related to our credit portfolio and Longbridge. Additionally, we had $9.2 billion of HMBS-related obligations.
Previous wording
(1)As of both December 31, 2023 and 2022, excludes borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings was 2.4:1 and 2.7:1 as of December 31, 2023 and 2022, respectively.
Current wording
(1)As of December 31, 2024 and 2023, excludes borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings was 2.1:1 and 2.4:1 as of December 31, 2024 and 2023, respectively.
Previous wording
(2)For unsettled purchases and sales, assumes associated borrowings are subject to haircuts of 5.1% and 5.3% as of December 31, 2023 and 2022, respectively.
Current wording
(2)For unsettled purchases and sales, assumes associated borrowings are subject to haircuts of 5.9% and 5.1% as of December 31, 2024 and 2023, respectively.
Previous wording
(4)Relates to our non-QM loan securitizations, where we have elected the fair value option on the related debt.
Current wording
(4)Relates to our non-QM, European residential mortgage, and reverse mortgage loan securitizations, where we have elected the fair value option on the related debt.
Previous wording
Our debt-to-equity ratio based on total recourse and non-recourse borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales, decreased to 8.4:1 as of December 31, 2023 as compared to 10.0:1 as of December 31, 2022. This decline was primarily driven by a significant increase in shareholders' equity, including the impact of closing the Arlington Merger, partially offset by an increase in borrowings on our larger portfolio and an increase in Longbridge's non-recourse
Current wording
Our recourse debt-to-equity ratio, excluding U.S. Treasury securities and adjusted for unsettled purchases and sales, decreased to 1.8:1 as of December 31, 2024 as compared to 2.0:1 as of December 31, 2023. The decrease was primarily driven by a decrease in borrowings on our smaller Agency portfolio, higher shareholders' equity, and the impact of several securitizations completed during the year, which converted certain recourse borrowings to non-recourse borrowings. A portion of the decline was offset by an increase in borrowings on our larger credit portfolio. Our overall debt-to-equity ratio, based on total recourse and non-recourse borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales, also increased during the year, to 8.8:1 as of December 31, 2024, as compared to 8.4:1 as of December 31, 2023.
Previous wording
Our secured financing costs include interest expense related to our repo borrowings and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Consolidated Balance Sheet but exclude HMBS-related obligations). For the year ended December 31, 2023, the average cost of funds on our secured financings increased to 5.45%, as compared to 4.43% for the year ended December 31, 2022. The year-over-year increase was primarily driven by higher short-term interest rates. Our unsecured financing costs consist of interest expense related to our Unsecured borrowings. For the years ended December 31, 2023 and 2022, the average borrowing rate on our unsecured financings was 5.98% and 5.88%, respectively. Our average cost of funds, including both secured and unsecured financings, increased to 5.48% from 4.49% over the same period.
Current wording
Our secured financing costs include interest expense related to our repo borrowings and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Consolidated Balance Sheet but exclude HMBS-related obligations). For the year ended December 31, 2024, the average cost of funds on our secured financings increased to 5.65%, as compared to 5.45% for the year ended December 31, 2023 due to increases in interest rates. Our unsecured financing costs consist of interest expense related to our Unsecured borrowings. For the years ended December 31, 2024 and 2023, the average borrowing rate on our unsecured financings was 6.12% and 5.98%, respectively. Our average cost of funds, including both secured and unsecured financings, increased to 5.68% from 5.48% over the same period.
Showing the first 40 of 102 pairs. Open the source sections for the rest.
Rearranged current paragraphs (5)
Current report — wording carried from elsewhere
(1)Includes our allocable portion of commercial mortgage loans, based on our ownership percentage, held in variable interest entities. Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet.
Current report — wording carried from elsewhere
Additionally, Longbridge typically retains the MSRs associated with the proprietary reverse mortgage loans that it originates and has acquired MSRs on reverse mortgage loans in the secondary market (collectively, "Reverse MSRs"). We refer to the HMBS MSR Equivalent and Reverse MSRs collectively as our "Reverse MSR-related Net Assets." We have also securitized some of the proprietary reverse mortgage loans originated by Longbridge, and we have retained certain securitization tranches in compliance with credit risk retention rules.
Current report — wording carried from elsewhere
(1)See Note 16 of the notes to the consolidated financial statements for further details on management fee rebates.
Current report — wording carried from elsewhere
For the year ended December 31, 2024, our average borrowings in the Longbridge segment were $555.7 million and our average cost of funds was 7.39%. This compares to average borrowings of $300.2 million and an average cost of funds of 8.59% for the year ended December 31, 2023.
Current report — wording carried from elsewhere
For the year ended December 31, 2023, Earnings (losses) from investments in unconsolidated entities of $(0.9) million, primarily consisted of unrealized losses on investments in loan originators, partially offset by unrealized gains on investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates, and investments in unconsolidated entities related to risk retention related vehicles related to non-QM loan securitizations.
Rearranged previous paragraphs (24)
Previous report — wording carried elsewhere
Our results for the year also reflect a significant gain, driven by higher interest rates, on the fixed payer interest rate swaps that we held in connection with the then-pending Great Ajax merger. This gain was partially offset by a net loss, also driven by higher interest rates, on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt, or "Unsecured borrowings," and our preferred equity.
Previous report — wording carried elsewhere
HMBS-related obligations. Our recourse debt-to-equity ratio, excluding U.S. Treasury securities and adjusted for unsettled purchases and sales, decreased to 2.0:1 from 2.5:1, year over year.
Previous report — wording carried elsewhere
(4)Includes investments in unconsolidated entities holding commercial mortgage loans and REO.
Previous report — wording carried elsewhere
REO and claims and other receivables. In addition to our secured borrowings, as of both December 31, 2023 and 2022, we had $297.7 million and $210.0 million of Unsecured borrowings outstanding, respectively.
Previous report — wording carried elsewhere
Some of the variability in our interest income and portfolio yields is due to the Catch-up Amortization Adjustment. For the year ended December 31, 2023, we had a negative Catch-up Amortization Adjustment of $(0.1) million, which decreased our interest income. Comparatively, for the year ended December 31, 2022, we had a positive Catch-up Amortization Adjustment of $4.1 million, which increased our interest income. Excluding the Catch-up Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 3.68% and 6.35%, respectively, for the year ended December 31, 2023. Excluding the Catch-up Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 2.48% and 5.05%, respectively, for the year ended December 31, 2022.
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Net Income (Loss) Attributable to Common Stockholders
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Interest income was $282.2 million for the year ended December 31, 2022, as compared to $175.5 million for the year ended December 31, 2021. Interest income includes coupon payments received and accrued on our holdings, the net accretion and amortization of purchase discounts and premiums on various holdings, and interest on our cash balances, including those balances held by our counterparties as collateral.
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The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2022 and 2021:
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(1)Amounts exclude interest income on cash and cash equivalents (including when posted as margin) and long positions in U.S. Treasury securities.
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Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our Unsecured borrowings, coupon interest on securities sold short, the related net accretion and amortization of purchase discounts and premiums on those short holdings, and interest on our counterparties' cash collateral held by us. For the years ended December 31, 2022 and 2021, we had total interest expense of $141.8 million and $44.0 million, respectively.
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The table below summarizes the components of interest expense in our Investment Portfolio for the years ended December 31, 2022 and 2021.
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The following table summarizes our aggregate secured borrowings, including repos and Total other secured borrowings, for the years ended December 31, 2022 and 2021.
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(1)Excludes U.S. Treasury securities.
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Among other instruments, we use interest rate swaps to hedge against the risk of rising interest rates. If we were to include as a component of our cost of funds the amortization of upfront payments and the actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would decrease to 2.50% and increase to 1.44% for the years ended December 31, 2022 and 2021, respectively. Excluding the Catch-up Premium Amortization Adjustment, our net interest margin, defined as the average yield on our portfolio of yield-bearing targeted assets less the average cost of funds on our secured borrowings (including amortization of upfront payments and actual and accrued periodic payments on interest rate swaps as described above), was 2.55% and 3.15% for the years ended December 31, 2022 and 2021, respectively. These metrics do not include costs associated with other instruments that we use to hedge interest rate risk, such as TBAs and futures.
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For the year ended December 31, 2022, the gross base management fee, which is based on total equity at the end of each quarter, was $18.5 million, and our Manager credited us with rebates on our base management fee of $1.6 million, resulting in a net base management fee of $16.8 million. For the year ended December 31, 2021, the gross base management fee, which is based on total equity at the end of each quarter, was $16.0 million, and our Manager credited us with rebates on our base management fee of $2.6 million, resulting in a net base management fee of $13.4 million. For each period, the base management fee rebates related to those of our CLO investments for which Ellington or one of its affiliates earned CLO management fees. The increase in the net base management fee period over period was due to a larger capital base at the end of the first and second quarters in 2022, as compared to the respective quarter ends in 2021, as well as a decrease in the base management fee rebates.
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Other investment related expenses consist of servicing fees on our mortgage and consumer loans, as well as various other expenses and fees directly related to our financial assets and certain financial liabilities carried at fair value. For the years ended December 31, 2022 and 2021 other investment related expenses were $30.9 million and $18.5 million, respectively.
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Other operating expenses consist of professional fees, compensation and benefit expenses related to our dedicated or partially dedicated personnel, and various other operating expenses necessary to run our business. Other operating expenses exclude management and incentive fees, interest expense, and other investment related expenses. Other operating expenses were $37.2 million for the year ended December 31, 2022 as compared to $17.8 million for the year ended December 31, 2021.
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For the year ended December 31, 2022, other operating expenses related to Longbridge were $17.8 million primarily consisting of compensation and benefits expense, and consisting to a lesser extent of various overhead costs including rent expense, licensing fees, expenses related to office equipment, and amortization of intangible assets. Since the Longbridge Transaction closed in 2022, there were no Other operating expenses related to the Longbridge portfolio for the year ended December 31, 2021.
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Other income (loss) consists of net realized and unrealized gains (losses) on securities and residential mortgage, commercial mortgage, consumer, and corporate loans, financial derivatives, and real estate owned, unrealized gains (losses) on Other secured borrowings, at fair value and Unsecured borrowings, at fair value, net change from reverse mortgage loans, at fair value, net change related to HMBS obligations, at fair value, and bargain purchase gain. Other, net, another component of Other income (loss), includes rental income and income related to loan originations, as well as realized gains (losses) on foreign currency transactions and unrealized gains (losses) on foreign currency remeasurement.
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Earnings (Losses) from Investments in Unconsolidated Entities
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(1)Includes realized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps and foreign currency transactions which are components of Other Income (Loss) on the Consolidated Statement of Operations.
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(2)Includes unrealized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), borrowings carried at fair value, and foreign currency transactions which are components of Other Income (Loss) on the Consolidated Statement of Operations.
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(4)Includes net interest income and operating expenses for certain investments in unconsolidated entities.
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It is expected that amounts due upon maturity of our repos will be funded primarily through the roll/re-initiation of repos and, if we are unable or unwilling to roll/re-initiate our repos, through free cash and proceeds from the sale of securities.