# Cherry Hill Mortgage Investment Corp: Form 10-Q for the period ended Mar 31, 2025

- Company: [Cherry Hill Mortgage Investment Corp](/companies/chmi.md) (CIK 1571776)
- Form: 10-Q
- Filed: 2025-05-06
- Accepted by EDGAR: May 6, 2025, 16:15 ET
- Period: 2025-03-31
- Accession: 0001140361-25-017536
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1571776/000114036125017536/ef20047583_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1571776/000114036125017536/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-01-01 to 2025-03-31 | −$3.0m | us-gaap:RevenuesNetOfInterestExpense |
| Cost of revenue | 3 months, 2025-01-01 to 2025-03-31 | $2.5m | us-gaap:CostOfGoodsAndServicesSold |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | $173.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | −$7.0m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2025-01-01 to 2025-03-31 | −$0.29 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | −$0.29 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-01-01 to 2025-03-31 | 31,690,657 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | $682.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2025-01-01 to 2025-03-31 | $7.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2025-03-31 | $47.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2025-03-31 | $1.45bn | us-gaap:Assets |
| Total liabilities | at 2025-03-31 | $1.22bn | us-gaap:Liabilities |
| Long-term debt | at 2025-03-31 | $150.1m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2025-03-31 | $226.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 78,327 characters.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes included in “Part I, Item 1. Consolidated Financial Statements” of this Quarterly Report on Form 10-Q. All currency amounts are presented in thousands, except per share amounts or as otherwise noted.

### General

We are a fully integrated, internally managed residential real estate finance company focused on acquiring, investing in and managing residential mortgage assets in the United States. We were incorporated in Maryland on October 31, 2012, and we commenced operations on or about October 9, 2013, following the completion of our initial public offering and a concurrent private placement. Our common stock, our Series A Preferred Stock and our Series B Preferred Stock are listed and traded on the NYSE under the symbols “CHMI”, “CHMI-PRA” and “CHMI-PRB”, respectively. As of November 14, 2024, we are a fully integrated, internally managed mortgage REIT. Prior to November 14, 2024, we were externally managed by Cherry Hill Mortgage Management, LLC, an SEC-registered investment adviser.

Prior to November 14, 2024, we were externally managed and advised by Cherry Hill Mortgage Management, LLC (“CHMM”) which was responsible for our investment strategies and decisions and our day-to-day operations, subject to the supervision and oversight of our board of directors. Effective as of November 14, 2024, we completed an “Internalization Event” within the meaning of the management agreement with CHMM by, among other things, directly hiring the senior management team and other personnel who had historically provided services to us through CHMM. Upon consummation of the Internalization Event, the management agreement terminated in accordance with its terms without payment of a termination fee and we ceased being externally managed (the “Internalization”). As a result of the Internalization, we began operating as a fully integrated, internally managed company.

Our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term, primarily through dividend distributions and secondarily through capital appreciation. We attempt to attain this objective by selectively constructing and actively managing a portfolio of Servicing Related Assets (as defined below) and residential mortgage-backed securities (“RMBS”) and, subject to market conditions, other cash flowing residential mortgage assets.

We are subject to the risks involved with real estate and real estate-related debt instruments. These include, among others, the risks normally associated with changes in the general economic climate, changes in the mortgage market, changes in tax laws, interest rate levels, and the availability of financing.

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2013. We operate so as to continue to qualify to be taxed as a REIT. Our asset acquisition strategy focuses on acquiring a diversified portfolio of residential mortgage assets that balances the risk and reward opportunities our internal management team observes in the marketplace. Aurora has or is in the process of obtaining the licenses necessary to invest in mortgage servicing rights (“MSRs”) on a nationwide basis and is an approved seller/servicer for Fannie Mae and Freddie Mac.

In addition to Servicing Related Assets, we invest in RMBS, primarily those backed by 30-, 20- and 15-year fixed rate mortgages that offer what we believe to be favorable prepayment and duration characteristics. Our RMBS consist solely of Agency RMBS on which the payments of principal and interest are guaranteed by an Agency. In the past, we have invested in collateralized mortgage obligations guaranteed by an Agency (“Agency CMOs”) consisting of interest only securities (“IOs”) as well as non-Agency RMBS and may do so in the future subject to market conditions and availability of capital. We finance our RMBS with an amount of leverage, that varies from time to time depending on the particular characteristics of our portfolio, the availability of financing and market conditions. We do not have a targeted leverage ratio for our RMBS. Our borrowings for RMBS consist of short-term borrowings under master repurchase agreements.

Subject to maintaining our qualification as a REIT, we utilize derivative financial instruments (or hedging instruments) to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates. In utilizing leverage and interest rate hedges, our objectives include, where desirable, locking in, on a long-term basis, a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders.

We also seek to operate our business in a manner that does not require us to register as an investment company under the Investment Company Act.

We conduct substantially all of our operations and own substantially all of our assets through our Operating Partnership. We are the sole general partner of our Operating Partnership. As of March 31, 2025, we owned 98.1% of our Operating Partnership. Our Operating Partnership, in turn, owns all of the outstanding common stock of CHMI Sub-REIT, Inc. (the “Sub-REIT”). The Sub-REIT has elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 2020.

From time to time, we may issue and sell shares of our common stock or preferred stock, including additional shares of our Series A Preferred Stock or Series B Preferred Stock. See “Item 1. Consolidated Financial Statements—Note 6. Equity and Earnings per Common Share—Common and Preferred Stock.”

Pursuant to the Company’s Common Stock ATM Program, the Company may offer and sell through one or more sales agents, up to $150.0 million in shares of its common stock at prices prevailing at the time, subject to volume and other regulatory limitations. As of March 31, 2025, approximately $45.6 million was remaining pursuant to the Common Stock ATM Program. During the three-month period ended March 31, 2025, the Company issued and sold 1,005,846 shares of common stock under the Common Stock ATM Program. The shares were sold at a weighted average price of $3.56 per share for aggregate gross proceeds of approximately $3.6 million before fees of approximately $72,000. During the year ended December 31, 2024, the Company issued and sold 1,544,917 shares of common stock under the Common Stock ATM Program. The shares were sold at a weighted average price of $3.59 per share for aggregate gross proceeds of approximately $5.6 million before fees of approximately $111,000.

Prior to January 29, 2024, the Company had an at-the-market offering program for its Series A Preferred Stock (the “Preferred Series A ATM Program”) pursuant to which it could offer and sell through one or more sales agents up to $35.0 million in shares of its Series A Preferred Stock at prices prevailing at the time, subject to volume and other regulatory limitations. During the year ended December 31, 2024 the Company did not issue and sell any shares of Series A Preferred Stock pursuant to the Preferred Series A ATM Program. The Company terminated the Preferred Series A ATM Program effective as of January 29, 2024.

In September 2019, the Company initiated a share repurchase program that allows for the repurchase of up to an aggregate of $10.0 million of its common stock. As of March 31, 2025, approximately $4.7 million was remaining under the share repurchase program. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act, or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The share repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. During the three-month period ended March 31, 2025 and the year ended December 31, 2024, the Company did not repurchase any common stock pursuant to the share repurchase program.

In December 2023, the Company initiated a preferred stock repurchase program that allows for the repurchase of up to an aggregate of $50.0 million of its shares of preferred stock. Shares of preferred stock may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 under the Exchange Act. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The preferred stock repurchase program does not require the purchase of any minimum number of shares of preferred stock, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. During the three-month period ended March 31, 2025, the Company did not repurchase any shares of its preferred stock pursuant to the repurchase program. During the year ended December 31, 2024, the Company repurchased 395,897 shares of its Series B Preferred Stock at a weighted average purchase price of $23.77 per share and paid aggregate brokerage commissions of approximately $11,900 on such repurchases. The difference between the consideration transferred and the carrying value of the preferred stock repurchased resulted in a gain attributable to common stockholders of $78,000 for the year ended December 31, 2024. Shares of preferred stock that are repurchased by the Company cease to be outstanding but remain authorized for future issuance.

### Effects of Federal Reserve Policy on the Company

Since December 18, 2024, the federal funds rate target has remained steady at 4.25% to 4.5%. This decision followed three consecutive rate cuts starting from September 18, 2024, totaling a 1.0% decrease. The September 2024 cut was the first in four years, following a period of tightened monetary policy in 2022 and 2023 to combat high inflation, which peaked at 9.1% in June 2022. By March 2025, inflation had declined to 2.4%.

The Federal Reserve has indicated its readiness to adjust monetary policy if new risks arise. Additionally, it has slowed the runoff of its balance sheet. On April 1, 2025, the monthly redemption cap on U.S. Treasury Securities was reduced from $25 billion to $5 billion, following a previous reduction from $60 billion to $25 billion in June 2024. The $35 billion cap on agency debt/MBS remains unchanged, with excess principal payments reinvested in U.S. Treasury securities.

Recently, Federal Reserve Chair Jerome Powell has indicated that the imposition of significant tariffs in the U.S. would likely cause inflation and unemployment to rise, threatening the Federal Reserve’s dual mandate to pursue maximum employment and stable prices. However, he said that the Federal Reserve will await taking action until the data demonstrates the impact of any new tariffs on the U.S. economy.

To the extent the Federal Reserve takes future action to ease monetary policy by reducing its federal funds rate and/or further reduce the speed at which it is decreasing its balance sheet, it will generally lower interest rates across asset classes, including for Agency RMBS. Lower rates could reduce our funding costs and spur economic activity, increasing our net interest income. Higher prepayment could reduce the length of cash flows from the MSRs and accelerate the premium amortization on the RMBS portfolio. In the event that the Federal Reserve reverses course and tightens monetary policy in the future by increasing the federal funds rate and/or the rate of its run off of its balance sheet, these actions could result in higher interest rates, including for Agency RMBS, and reduce economic activity in the United States, as well as decrease spreads on interest rates, which can reduce our net interest income and increase our funding costs. They may also negatively impact our results as we have certain assets and liabilities that are sensitive to changes in interest rates. In addition, lower net interest income resulting from higher rates is partially offset by lower prepayments which extends the length of cash flows from the MSRs and slows the premium amortization on the RMBS portfolio.

The impact on our operating results of future actions by the Federal Reserve that change market interest rates is discussed further below. See “Factors Impacting our Operating Results.”

### Factors Impacting our Operating Results

Our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts. Our net income includes the actual interest payments we receive on our RMBS, the net servicing fees we receive on our MSRs and the accretion/amortization of any purchase discounts/premiums. Changes in various factors such as market interest rates, prepayment speeds, estimated future cash flows, servicing costs and credit quality could affect the amount of premium to be amortized or discount to be accreted into interest income for a given period. Prepayment speeds 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 operating results may also be affected by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose mortgage loans underlie the MSRs held by Aurora.

Set forth below is the positive net spread between the yield on RMBS and our costs of funding those assets at the end of each of the quarters indicated below:

### Average Net Yield Spread at Period End

| Quarter Ended | Average Asset Yield | Average Cost of Funds (A) | Average Net Interest Rate Spread |
| --- | ---: | ---: | ---: |
| **March 31, 2025** | **5.00%** | **1.30%** | **3.70%** |
| **December 31, 2024** | **4.91%** | **1.12%** | **3.79%** |
| **September 30, 2024** | **4.93%** | **1.00%** | **3.92%** |
| **June 30, 2024** | **4.88%** | **1.13%** | **3.74%** |

(A) Average Cost of Funds also includes the benefits of related swaps.

### Changes in the Market Value of Our Assets

We hold our Servicing Related Assets as long-term investments. Our MSRs are carried at their fair value with changes in their fair value recorded in other income (loss) in our consolidated statements of income (loss). Those values may be affected by events or headlines that are outside of our control, such as events impacting the U.S. or global economy generally or the U.S. residential market specifically, and events or headlines impacting the parties with which we do business. See “Part I, Item 1A. Risk Factors – Risks Related to Our Business” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

All of our investments in RMBS are reported at their fair value. At the time of purchase, ASC 320, *Investments – Debt and Equity Securities* requires us to designate a security as held-to-maturity, available-for-sale or trading, depending on our ability to hold such security to maturity. Alternatively, we may elect the fair value option of accounting for securities pursuant to ASC 825, *Financial Instruments.* Prior to January 1, 2023, we designated all our investments in RMBS as available-for-sale. On January 1, 2023, we elected the fair value option of accounting for all RMBS acquired after such date. Unrealized gains and losses on RMBS classified as available-for-sale are reported in accumulated other comprehensive income, whereas unrealized gains and losses on RMBS for which we elected the fair value option are reported in the consolidated statements of income (loss).

We evaluate the cost basis of our available-for-sale RMBS on a quarterly basis under ASC 326-30, *Financial Instruments-Credit Losses: Available-for-Sale Debt Securities.* When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security’s cost basis is considered impaired. If we determine that we intend to sell the security or it is more likely than not that we will be required to sell before recovery, we recognize the difference between the fair value and amortized cost as a loss in the consolidated statements of income (loss). If we determine we do not intend to sell the security or it is not more likely than not we will be required to sell the security before recovery, we must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors. In our assessment of whether a credit loss exists, we perform a qualitative assessment around whether a credit loss exists and if necessary, we compare the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security. The estimated future cash flows reflect those that a “market participant” would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well as incorporating observations of current market developments and events. Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income. If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in provision for (reversal of) credit losses on securities in the consolidated statements of income (loss). If it is determined as of the financial reporting date that all or a portion of a security’s cost basis is not collectible, then we will recognize a realized loss to the extent of the adjustment to the security’s cost basis. This adjustment to the amortized cost basis of the security is reflected in realized gain (loss) on RMBS, net in the consolidated statements of income (loss).

### Impact of Changes in Market Interest Rates on Our Assets

The value of our assets may be affected by prepayment speeds on mortgage loans. Prepayment speed is the measurement of how quickly borrowers pay down the unpaid principal balance (“UPB”) of their loans or how quickly loans are otherwise liquidated or charged off. Generally, in a declining interest rate environment, prepayment speeds tend to increase. Conversely, in an increasing interest rate environment, prepayment speeds tend to decrease. When we acquire Servicing Related Assets or RMBS, we anticipate that the underlying mortgage loans will prepay at a projected rate generating an expected cash flow (in the case of Servicing Related Assets) and yield. If we purchase assets at a premium to par value and borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on our assets may reduce the expected yield on such assets because we will have to amortize the related premium on an accelerated basis. In addition, we will have to reinvest the greater amounts of prepayments in that lower rate environment, thereby affecting future yields on our assets. If we purchase assets at a discount to par value, and borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments may reduce the expected yield on assets because we will not be able to accrete the related discount as quickly as originally anticipated.

If prepayment speeds are significantly greater than expected, the fair value of the Servicing Related Assets could be less than their fair value as previously reported on our consolidated balance sheets. Such a reduction in the fair value of the Servicing Related Assets would have a negative impact on our book value. Furthermore, a significant increase in prepayment speeds could materially reduce the ultimate cash flows we receive from the Servicing Related Assets, and we could receive substantially less than what we paid for such assets. Our balance sheet, results of operations and cash flows are susceptible to significant volatility due to changes in the fair value of, or cash flows from, the Servicing Related Assets as interest rates change.

A slower than anticipated rate of prepayment due to an increase in market interest rates also will cause the life of the related RMBS to extend beyond that which was projected. As a result, we would have an asset with a lower yield than current investments for a longer period of time. In addition, if we have hedged our interest rate risk, extension may cause the security to be outstanding longer than the related hedge, thereby reducing the protection intended to be provided by the hedge.

Voluntary and involuntary prepayment rates may be affected by a number of factors including, but not limited to, the availability of mortgage credit, the relative economic vitality of, or natural disasters affecting, the area in which the related properties are located, the servicing of the mortgage loans, possible changes in tax laws, other opportunities for investment, homeowner mobility and other economic, social, geographic, demographic and legal factors, none of which can be predicted with any certainty.

We attempt to reduce the exposure of our MSRs to voluntary prepayments through the structuring of recapture agreements with Aurora’s subservicers. Under these agreements, the subservicer attempts to refinance specified mortgage loans. The subservicer sells the new mortgage loan to the applicable Agency, transfers the related MSR to Aurora and then subservices the new mortgage loan on behalf of Aurora. See “Part I, Item 1. Notes to Consolidated Financial Statements—Note 7. Transactions with Related Parties” for information regarding Aurora’s recapture agreements.

With respect to our business operations, increases in interest rates, in general, may over time cause:

- the interest expense associated with our borrowings to increase;
- the value of our assets to fluctuate;
- the coupons on any adjustable-rate and hybrid RMBS we may own to reset, although on a delayed basis, to higher interest rates;
- prepayments on our RMBS to slow, thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts; and
- an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy.

Conversely, decreases in interest rates, in general, may over time cause:

- prepayments on our RMBS to increase, thereby accelerating the amortization of our purchase premiums and the accretion of our purchase discounts;
- the interest expense associated with our borrowings to decrease;
- the value of our assets to fluctuate;
- a decrease in the value of any interest rate swap agreements we may enter into as part of our hedging strategy; and
- coupons on any adjustable-rate and hybrid RMBS assets we may own to reset, although on a delayed basis, to lower interest rates.

Regardless, we cannot predict the impact future actions by the Federal Reserve will have on our business, and any such actions may negatively impact us.

### Effects of Spreads on our Assets

The spread between the yield on our assets and our funding costs affects the performance of our business. Wider spreads imply the potential for greater income on new asset purchases but may have a negative impact on our stated book value. Wider spreads may also negatively impact asset prices. In an environment where spreads are widening, counterparties may require additional collateral to secure borrowings which may require us to reduce leverage by selling assets. Conversely, tighter spreads imply the potential for lower income on new asset purchases but may have a positive impact on stated book value of our existing assets. In this case, we may be able to reduce the amount of collateral required to secure borrowings.

### Credit Risk

We are subject to varying degrees of credit risk in connection with our assets. Although we expect relatively low credit risk with respect to our portfolios of Agency RMBS, we may become subject to the credit risk of borrowers under the loans backing any CMOs that we may own and to the credit enhancements built into the CMO structure. We also are subject to the credit risk of the borrowers under the mortgage loans underlying the MSRs that Aurora owns. Through loan level due diligence, we attempt to mitigate this risk by seeking to acquire high quality assets at appropriate prices given anticipated and unanticipated losses. We also conduct ongoing monitoring of acquired MSRs. Nevertheless, unanticipated credit losses could occur which could adversely impact our operating results.

### Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in accordance with US GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties. Our most critical accounting policies involve decisions and assessments that could affect our reported amounts of assets and liabilities, as well as our reported amounts of revenues and expenses. We believe that the decisions and assessments upon which our financial statements are based were reasonable at the time made and based upon information available to us at that time. Our critical accounting policies and accounting estimates may change over time as we diversify our portfolio. The material accounting policies and estimates that we expect to be most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below. For additional information on our material accounting policies and estimates, see “Item 1. Consolidated Financial Statements – Note 2. Basis of Presentation and Significant Accounting Policies.”

### Investments in MSRs

We have elected the fair value option to record our investments in MSRs in order to provide users of our consolidated financial statements with better information regarding the effects of prepayment risk and other market factors on the MSRs. Under this election, we record a valuation adjustment on our investments in MSRs on a quarterly basis to recognize the changes in fair value of our MSRs in net income as described below. Although transactions in MSRs are observable in the marketplace, the valuation includes unobservable market data inputs (prepayment speeds, delinquency levels, costs to service and discount rates). The change in fair value of MSRs is recorded within “Unrealized gain (loss) on investments in Servicing Related Assets” on the consolidated statements of income (loss). Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the MSRs and, therefore, may differ from their effective yields. In determining the valuation of MSRs, management uses internally developed pricing models that are based on certain unobservable market-based inputs. The Company classifies these valuations as Level 3 in the fair value hierarchy. For additional information on our fair value methodology, see “Item 1. Consolidated Financial Statements – Note 9. Fair Value.”

### Revenue Recognition on Investments in MSRs

Mortgage servicing fee income represents revenue earned from the ownership of MSRs. The servicing fees are based on a contractual percentage of the outstanding principal balance and are recognized as revenue as the related mortgage payments are collected. Corresponding costs to service are charged to expense as incurred. Servicing fee income received and servicing expenses incurred are reported on the consolidated statements of income (loss).

### Income Taxes

We elected to be taxed as a REIT under the Code commencing with our short taxable year ended December 31, 2013. We expect to continue to qualify to be treated as a REIT. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. Our taxable REIT subsidiary, Solutions, and its wholly-owned subsidiary, Aurora, are subject to U.S. federal income taxes on their taxable income.

We account for income taxes in accordance with ASC 740, *Income Taxes*. ASC 740 requires the recording of deferred income taxes that reflect the net tax effect of temporary differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, including operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. For information on our assessment of the realizability of deferred tax assets, see “Item 1. Consolidated Financial Statements – Note 15. Income Taxes.” We assess our tax positions for all open tax years and determine if we have any material unrecognized liabilities in accordance with ASC 740. We record these liabilities to the extent we deem them more-likely-than-not to be incurred. We record interest and penalties related to income taxes within the provision for income taxes in the consolidated statements of income (loss). We have not incurred any interest or penalties.

### Investments in Securities

Prior to fiscal year 2023, we designated all our investments in RMBS as available-for-sale pursuant to ASC 320, *Investments – Debt and Equity Securities*. Although we may hold most of our securities until maturity, we may, from time to time, sell any of our securities as part of our overall management of our asset portfolio. All assets classified as available-for-sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity. On January 1, 2023, we elected the fair value option of accounting pursuant to ASC 825, *Financial Instruments*, for all RMBS acquired after such date. Unrealized gains and losses on RMBS for which we elected the fair value option are reported in the consolidated statements of income (loss). Fair value of our investments in RMBS is determined based upon prices obtained from third-party pricing providers. Changes in underlying assumptions used in estimating fair value impact the carrying value of the investments in RMBS as well as their yield. For additional information on our assessment of credit-related impairment and our fair value methodology, see “Item 1. Consolidated Financial Statements – Note 4. Investments in RMBS and Note 9. Fair Value.”

### Revenue Recognition on Securities

Interest income from coupon payments is accrued based on the outstanding principal amount of the RMBS and their contractual terms. Premiums and discounts associated with the purchase of the RMBS are amortized or accreted into interest income over the projected lives of the securities using the effective interest method. Our policy for estimating prepayment speeds for calculating the effective yield is to evaluate historical performance, consensus prepayment speeds, and current market conditions. Adjustments are made for actual prepayment activity. For information on how interest rates affect net interest income, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Effect on Net Interest Income.”

### Repurchase Transactions

We finance the acquisition of our RMBS for our portfolio through repurchase transactions under master repurchase agreements. Repurchase transactions are treated as collateralized financing transactions and are carried at their contractual amounts as specified in the respective transactions. Accrued interest payable is included in “Accrued expenses and other liabilities” on the consolidated balance sheets. Securities financed through repurchase transactions remain on our consolidated balance sheet as an asset and cash received from the purchaser is recorded on our consolidated balance sheet as a liability. Interest paid in accordance with repurchase transactions is recorded in interest expense on the consolidated statements of income (loss).

### Results of Operations

Presented below is a comparison of the Company’s results of operations for the periods indicated (dollars in thousands):

### Results of Operations

| Income | Three Months Ended March 31, 2025 | December 31, 2024 | March 31, 2024 |
| --- | ---: | ---: | ---: |
| Interest income | $14,801 | $15,053 | $12,741 |
| Interest expense | 12,635 | 14,393 | 13,648 |
| Net interest income (expense) | 2,166 | 660 | (907) |
| Servicing fee income | 10,973 | 11,606 | 12,891 |
| Servicing costs | 2,545 | 3,123 | 2,634 |
| Net servicing income | 8,428 | 8,483 | 10,257 |
| Other income (loss) |  |  |  |
| Realized loss on RMBS, net | (3,992) | (1,085) | - |
| Realized gain on derivatives, net | 4,634 | 13,627 | 6,252 |
| Unrealized gain (loss) on RMBS, measured at fair value through earnings, net | 14,780 | (31,674) | (8,321) |
| Unrealized gain (loss) on derivatives, net | (22,741) | 21,838 | 12,324 |
| Unrealized gain (loss) on investments in Servicing Related Assets | (6,325) | 6,876 | (3,257) |
| Total Income (Loss) | **(3,050)** | **18,725** | **16,348** |
| **Expenses** |  |  |  |
| General and administrative expense | 2,059 | 2,507 | 1,717 |
| Compensation and benefits | 1,710 | 1,096 | 124 |
| Management fee to affiliate | - | 858 | 1,748 |
| **Total Expenses** | **3,769** | **4,461** | **3,589** |
| **Income (Loss) Before Income Taxes** | **(6,819)** | **14,264** | **12,759** |
| Provision for corporate business taxes | 173 | 2,450 | 703 |
| **Net Income (Loss)** | **(6,992)** | **11,814** | **12,056** |
| Net (income) loss allocated to noncontrolling interests in Operating Partnership | 133 | (232) | (235) |
| Dividends on preferred stock | (2,454) | (2,513) | (2,307) |
| Gain on repurchase and retirement of preferred stock | - | - | 152 |
| **Net Income (Loss) Applicable to Common Stockholders** | **$(9,313)** | **$9,069** | **$9,666** |

54

Presented below is summary financial data on our segments together with the data for the Company as a whole, for the periods indicated (dollars in thousands):

### Segment Summary Data

| Income Statement Three Months Ended March 31, 2025 | Servicing Related Assets | RMBS | All Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $- | $14,801 | $- | $14,801 |
| Interest expense | 764 | 11,871 | - | 12,635 |
| Net interest income (expense) | (764) | 2,930 | - | 2,166 |
| Servicing fee income | 10,973 | - | - | 10,973 |
| Servicing costs | 2,545 | - | - | 2,545 |
| Net servicing income | 8,428 | - | - | 8,428 |
| Other expense (A) | (5,818) | (7,826) | - | (13,644) |
| Other operating expenses (B) | (834) | (787) | (2,148) | (3,769) |
| Provision for corporate business taxes | (173) | - | - | (173) |
| Net other comprehensive income (loss) | - | 6,850 | - | 6,850 |
| Comprehensive income (loss) | $839 | $1,167 | $(2,148) | $(142) |

| Three Months Ended December 31, 2024 |  |  |  |  |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $- | $15,053 | $- | $15,053 |
| Interest expense | 531 | 13,862 | - | 14,393 |
| Net interest income (expense) | (531) | 1,191 | - | 660 |
| Servicing fee income | 11,606 | - | - | 11,606 |
| Servicing costs | 3,123 | - | - | 3,123 |
| Net servicing income | 8,483 | - | - | 8,483 |
| Other income (A) | 5,564 | 4,018 | - | 9,582 |
| Other operating expenses (B) | (1,136) | (659) | (2,666) | (4,461) |
| Provision for corporate business taxes | (2,450) | - | - | (2,450) |
| Net other comprehensive income (loss) | - | (10,795) | - | (10,795) |
| Comprehensive income (loss) | $9,930 | $(6,245) | $(2,666) | $1,019 |

| Three Months Ended March 31, 2024 |  |  |  |  |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $6 | $12,735 | $- | $12,741 |
| Interest expense | 767 | 12,881 | - | 13,648 |
| Net interest expense | (761) | (146) | - | (907) |
| Servicing fee income | 12,891 | - | - | 12,891 |
| Servicing costs | 2,634 | - | - | 2,634 |
| Net servicing income | 10,257 | - | - | 10,257 |
| Other income (expense) (A) | (4,238) | 11,236 | - | 6,998 |
| Other operating expenses (B) | (824) | (158) | (2,607) | (3,589) |
| Provision for corporate business taxes | (703) | - | - | (703) |
| Net other comprehensive income (loss) | - | (6,596) | - | (6,596) |
| Comprehensive income (loss) | $3,731 | $4,336 | $(2,607) | $5,460 |

(A) Included in other income (expense) are realized and unrealized gains (losses) on Servicing Related Assets, RMBS and derivatives.

(B) Included in other operating expenses are general and administrative expenses, compensation and benefits and management fee to affiliate.

| Balance Sheet March 31, 2025 | Servicing Related Assets | RMBS | All Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Investments | $227,333 | $1,119,441 | $- | $1,346,774 |
| Other assets | 26,568 | 28,265 | 47,901 | 102,734 |
| Total assets | 253,901 | 1,147,706 | 47,901 | 1,449,508 |
| Debt | 149,304 | 1,049,867 | - | 1,199,171 |
| Other liabilities | 3,849 | 8,228 | 8,628 | 20,705 |
| Total liabilities | 153,153 | 1,058,095 | 8,628 | 1,219,876 |
| Net Assets | $100,748 | $89,611 | $39,273 | $229,632 |

| December 31, 2024 |  |  |  |  |
| --- | ---: | ---: | ---: | ---: |
| Investments | $233,658 | $1,122,420 | $- | $1,356,078 |
| Other assets | 28,874 | 59,159 | 47,064 | 135,097 |
| Total assets | 262,532 | 1,181,579 | 47,064 | 1,491,175 |
| Debt | 151,226 | 1,077,257 | - | 1,228,483 |
| Other liabilities | 4,290 | 15,010 | 9,770 | 29,070 |
| Total liabilities | 155,516 | 1,092,267 | 9,770 | 1,257,553 |
| Net Assets | $107,016 | $89,312 | $37,294 | $233,622 |

### Interest Income

Interest income for the three-month period ended March 31, 2025 was $14.8 million as compared to $15.1 million for the three-month period ended December 31, 2024. The decrease of $0.3 million in interest income was due to a smaller RMBS portfolio.

Interest income for the three-month period ended March 31, 2025 was $14.8 million as compared to $12.7 million for the three-month period ended March 31, 2024. The increase of $2.1 million in interest income was due to purchases of new securities as well as replacing lower yielding securities with higher yielding securities.

### Interest Expense

Interest expense for the three-month period ended March 31, 2025 was $12.6 million as compared to $14.4 million for the three-month period ended December 31, 2024. The decrease of $1.8 million in interest expense was due to a decrease in financing rates combined with a decrease in repurchase agreement borrowings and notes payable.

Interest expense for the three-month period ended March 31, 2025 was $12.6 million as compared to $13.6 million for the three-month period ended March 31, 2024. The decrease of $1.0 million in interest expense was due to a decrease in financing rates combined with a decrease in notes payable.

### Servicing Fee Income

Servicing fee income for the three-month period ended March 31, 2025 was $11.0 million as compared to $11.6 million for the three-month period ended December 31, 2024. The decrease of $0.6 million in servicing fee income was due to changes in the size of the portfolio.

Servicing fee income for the three-month period ended March 31, 2025 was $11.0 million as compared to $12.9 million for the three-month period ended March 31, 2024. The decrease of $1.9 million in servicing fee income was due to changes in the size of the portfolio.

### Servicing Costs

Servicing costs for the three-month period ended March 31, 2025 were $2.5 million as compared to $3.1 million for the three-month period ended December 31, 2024. The decrease of $0.6 million in servicing costs was due to changes in the size of the portfolio.

Servicing costs for the three-month period ended March 31, 2025 were $2.5 million as compared to $2.6 million for the three-month period ended March 31, 2024. The decrease of $0.1 million in servicing costs was due to changes in the size of the portfolio.

### Realized Loss on RMBS, Net

Realized loss on RMBS for the three-month period ended March 31, 2025 was approximately $4.0 million as compared to $1.1 million for the three-month period ended December 31, 2024. The increase of $2.9 million in realized loss on RMBS was due to the timing and volume of RMBS sales.

Realized loss on RMBS for the three-month period ended March 31, 2025 was approximately $4.0 million as compared to $0 for the three-month period ended March 31, 2024. The increase of $4.0 million in realized loss on RMBS was because no RMBS securities were sold during the three-month period ended March 31, 2024.

### Realized Gain (Loss) on Derivatives, Net

Realized gain on derivatives for the three-month period ended March 31, 2025 was approximately $4.6 million as compared to $13.6 million for the three-month period ended December 31, 2024. The decrease of $9.0 million in realized gain on derivatives was substantially comprised of a decrease of $7.2 million in gains on TBAs, an increase of $0.5 million in losses on U.S. Treasury futures and an decrease of $1.3 million in interest rate swaps periodic interest income due to changes in interest rates.

Realized gain on derivatives for the three-month period ended March 31, 2025 was approximately $4.6 million as compared $6.3 million for the three-month period ended March 31, 2024. The decrease of $1.7 million in realized gain on derivatives was substantially comprised of a decrease of $4.3 million in gains on interest rate swaps and a decrease of $2.2 million in interest rate swaps periodic interest income offset by a decrease of $4.0 million in losses on TBAs and a decrease of $1.0 million in losses on U.S. Treasury futures due to changes in interest rates.

### Unrealized Gain (Loss) on RMBS, Measured at Fair Value through Earnings, Net

Unrealized gain on RMBS measured at fair value through earnings for the three-month period ended March 31, 2025 was $14.8 million as compared to a loss of $31.7 million for the three-month period ended December 31, 2024. The increase of $46.5 million in unrealized gain on RMBS measured at fair value through earnings was due to a drop in interest rates during the quarter.

Unrealized gain on RMBS measured at fair value through earnings for the three-month period ended March 31, 2025 was $14.8 million as compared to a loss of $8.3 million for the three-month period ended March 31, 2024. The increase of $23.1 million in unrealized gain on RMBS measured at fair value through earnings was due to a drop in interest rates during the quarter.

### Unrealized Gain (Loss) on Derivatives

Unrealized loss on derivatives for the three-month period ended March 31, 2025 was approximately $22.7 million as compared to a gain of $21.8 million for the three-month period ended December 31, 2024. The increase of $44.5 million in unrealized loss on derivatives was primarily due to changes in interest rates and the composition of our derivatives relative to the prior period.

Unrealized loss on derivatives for the three-month period ended March 31, 2025 was approximately $22.7 million as compared to a gain of $12.3 million for the three-month period ended March 31, 2024. The increase of $35.0 million in unrealized loss on derivatives was primarily due to changes in interest rates and the composition of our derivatives relative to the prior period.

### Unrealized Loss on Investments in Servicing Related Assets

Unrealized loss on our investments in Servicing Related Assets for the three-month period ended March 31, 2025 was approximately $6.3 million as compared to a gain of $6.9 million for the three-month period ended December 31, 2024. The increase of $13.2 million in unrealized loss on our investments in Servicing Related Assets was primarily due to changes in valuation inputs or assumptions and paydown of underlying loans.

Unrealized loss on our investments in Servicing Related Assets for the three-month period ended March 31, 2025 was approximately $6.3 million as compared to $3.3 million for the three-month period ended March 31, 2024. The increase of $3.0 million in unrealized loss on our investments in Servicing Related Assets was primarily due to changes in valuation inputs or assumptions and paydown of underlying loans.

### General and Administrative Expense

General and administrative expense was $2.1 million for three-month period ended March 31, 2025 as compared to $2.5 million for the three-month period ended December 31, 2024. The decrease of $0.4 million in general and administrative expense was due to a decrease in professional fees related to the Internalization.

General and administrative expense was $2.1million for three-month period ended March 31, 2025 as compared to $1.7 million for the three-month period ended March 31, 2024. The increase of $0.4 million in general and administrative expense was due to an increase in professional fees.

### Compensation and Benefits

Compensation and benefits expense for the three-month period ended March 31, 2025 was $1.7 million as compared to $1.1 million for the three-month period ended December 31, 2024. The increase of $0.6 million in compensation and benefits was because the Company started operating as an internally managed Company effective November 14, 2024.

Compensation and benefits expense for the three-month period ended March 31, 2025 was $1.7 million as compared to $0.1 million for the three-month period ended March 31, 2024. The increase of $1.6 million in compensation and benefits was because the Company started operating as an internally managed Company effective November 14, 2024.

### Net Income Allocated to Noncontrolling Interests in Operating Partnership

Net income allocated to noncontrolling interests in the Operating Partnership, which are LTIP-OP Units owned by directors, officers and employees of the Company and by certain individuals who provided services to us through the Manager prior to the Internalization, represented approximately 1.9%, 2.0% and 2.0% of net income for the three-month periods ended March 31, 2025, December 31, 2024 and March 31, 2024 respectively.

For the periods indicated below, our accumulated other comprehensive income (loss) changed as a result of the indicated gains and losses (dollars in thousands):

### Accumulated Other Comprehensive Income (Loss)

|  | Three Months Ended March 31, 2025 |
| --- | ---: |
| Accumulated other comprehensive loss, December 31, 2024 | $(7,270) |
| Other comprehensive income | 6,850 |
| Accumulated other comprehensive loss, March 31, 2025 | $(420) |

|  | Three Months Ended December 31, 2024 |
| --- | ---: |
| Accumulated other comprehensive income, September 30, 2024 | $3,525 |
| Other comprehensive loss | (10,795) |
| Accumulated other comprehensive loss, December 31, 2024 | $(7,270) |

|  | Three Months Ended March 31, 2024 |
| --- | ---: |
| Accumulated other comprehensive loss, December 31, 2023 | $(2,545) |
| Other comprehensive loss | (6,596) |
| Accumulated other comprehensive loss, March 31, 2024 | $(9,141) |

Our GAAP equity changes as the values of our RMBS are marked to market each quarter, among other factors. The primary causes of mark to market changes are changes in interest rates and nominal spreads. During the three-month period ended March 31, 2025, a drop in interest rates caused a net unrealized gain on our available-for-sale RMBS. During the three-month periods ended December 31, 2024 and March 31, 2024, a rise in interest rates caused a net unrealized loss on our available-for-sale RMBS. Unrealized gain (loss) on available-for-sale RMBS is recorded in accumulated other comprehensive income (loss).

### Non-GAAP Financial Measures

This Management’s Discussion and Analysis of Financial Condition and Results of Operations section contains analysis and discussion of non-GAAP financial measures, including:

- earnings available for distribution; and
- earnings available for distribution per average common share.

Earnings available for distribution (“EAD”) is a non-GAAP financial measure that we define as GAAP net income (loss), excluding realized gain (loss) on RMBS, unrealized gain (loss) on RMBS measured at fair value through earnings, realized and unrealized gain (loss) on derivatives, realized gain (loss) on acquired assets, realized and unrealized gain (loss) on investments in MSRs (net of any estimated MSR amortization) and any tax expense (benefit) on realized and unrealized gain (loss) on MSRs. MSR amortization refers to the portion of the change in fair value of the MSR that is primarily due to the realization of cashflows, runoff resulting from prepayments and an adjustment for any gain or loss on the capital used to purchase the MSR. EAD also includes interest rate swap periodic interest income (expense) and drop income on TBA dollar roll transactions, which are included in “Realized gain (loss) on derivatives, net” on the consolidated statements of income (loss). EAD is adjusted to exclude outstanding LTIP-OP Units in our Operating Partnership and dividends paid on our preferred stock.

EAD is provided for purposes of potential comparability to other issuers that invest in residential mortgage-related assets. We believe providing investors with EAD, in addition to related GAAP financial measures, may provide investors some insight into our ongoing operational performance. However, the concept of EAD does have significant limitations, including the exclusion of realized and unrealized gains (losses), and given the apparent lack of a consistent methodology among issuers for defining EAD, it may not be comparable to similarly titled measures of other issuers, which define EAD differently from us and each other. As a result, EAD should not be considered a substitute for our GAAP net income (loss) or as a measure of our liquidity. While EAD is one indicia of the Company’s earnings capacity, it is not the only factor considered in setting a dividend and is not the same as REIT taxable income which is calculated in accordance with the rules of the IRS.

### Earnings Available for Distribution

EAD for the three-month period ended March 31, 2025 as compared to the three month period ended December 31, 2024 increased by approximately $2.1 million, or $0.07 per average common share due to an increase in drop income on TBA dollar rolls and a decrease in borrowing costs as well as Internalization expenses.

EAD for the three-month period ended March 31, 2025 as compared to the three month period ended March 31, 2024 increased by approximately $1.4 million, or $0.04 per average common share primarily due to a decrease in borrowing costs.

The following table reconciles the GAAP measure of net income (loss) to EAD and related per average common share amounts, for the periods indicated (dollars in thousands):

|  | Three Months Ended March 31, 2025 | December 31, 2024 | March 31, 2024 |
| --- | ---: | ---: | ---: |
| Net Income (Loss) | $(6,992) | $11,814 | $12,056 |
| Realized loss on RMBS, net | 3,992 | 1,085 | - |
| Realized loss (gain) on derivatives, net (A) | 2,782 | (5,502) | 3,109 |
| Unrealized loss (gain) on RMBS measured at fair value through earnings, net | (14,780) | 31,674 | 8,321 |
| Unrealized loss (gain) on derivatives, net | 22,741 | (21,838) | (12,324) |
| Unrealized gain on investments in MSRs, net of estimated MSR amortization | (719) | (14,550) | (5,937) |
| Tax expense on realized and unrealized gain on MSRs | 957 | 3,235 | 1,199 |
| Total EAD: | $7,981 | $5,918 | $6,424 |
| EAD attributable to noncontrolling interests in Operating Partnership | (151) | (113) | (125) |
| Dividends on preferred stock | (2,454) | (2,513) | (2,307) |
| **EAD Attributable to Common Stockholders** | **$5,376** | **$3,292** | **$3,992** |
| **EAD Attributable to Common Stockholders, per Diluted Share** | **$0.17** | **$0.10** | **$0.13** |
| **GAAP Net Income (Loss) Per Share of Common Stock, per Diluted Share** | **$(0.29)** | **$0.29** | **$0.32** |

(A) Excludes drop income on TBA dollar rolls of $0.9 million, $0.3 million and $0.7 million and interest rate swap periodic interest income of $6.5 million, $7.8 million and $8.7 million for the three-month periods ended March 31, 2025, December 31, 2024 and March 31, 2024, respectively.

### Our Portfolio

### MSRs

Aurora’s portfolio of Fannie Mae and Freddie Mac MSRs have an aggregate UPB of approximately $17.0 billion as of March 31, 2025.

The following tables set forth certain characteristics of the mortgage loans underlying those MSRs as of the dates indicated (dollars in thousands):

### MSR Collateral Characteristics

### As of March 31, 2025

|  | Current Carrying Amount | Collateral Characteristics Current Principal Balance | WA Coupon(A) | WA Servicing Fee(A) | WA Maturity (months)(A) | WA Loan Age (months)(A) | ARMs %(B) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| MSRs | $227,333 | $16,996,521 | 3.50% | 0.25% | 291 | 55 | 0.1% |
| **MSR Total/Weighted Average** | **$227,333** | **$16,996,521** | **3.50%** | **0.25%** | **291** | **55** | **0.1%** |

### As of December 31, 2024

|  | Current Carrying Amount | Collateral Characteristics Current Principal Balance | WA Coupon(A) | WA Servicing Fee(A) | WA Maturity (months)(A) | WA Loan Age (months)(A) | ARMs %(B) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| MSRs | $233,658 | $17,304,133 | 3.50% | 0.25% | 294 | 53 | 0.1% |
| **MSR Total/Weighted Average** | **$233,658** | **$17,304,133** | **3.50%** | **0.25%** | **294** | **53** | **0.1%** |

(A) Weighted average coupon, servicing fee, maturity and loan age of the underlying residential mortgage loans in the pool are based on the unpaid principal balance.

(B) ARMs % represents the percentage of the total principal balance of the pool that corresponds to ARMs and hybrid ARMs.

### RMBS

The following tables summarize the characteristics of our RMBS portfolio and certain characteristics of the collateral underlying our RMBS as of the dates indicated (dollars in thousands):

### RMBS Characteristics

### As of March 31, 2025

| Asset Type RMBS, available-for-sale, measured at fair value through OCI | Original Face Value | Book Value Gains | Gross Unrealized Losses | Rating | Carrying Value(A) Coupon | Number of Securities Yield(C) | Weighted Average Maturity (Years) |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | --- | ---: | ---: | ---: |
| Fannie Mae | $150,782 | $120,977 | $1,665 | $(978) | $121,664 | 10 | (B) | 4.68% | 4.84% | 27 |
| Freddie Mac | 125,240 | 101,093 | 479 | (1,553) | 100,019 | 10 | (B) | 4.68% | 4.77% | 27 |
| **RMBS, measured at fair value through earnings** |  |  |  |  |  |  |  |  |  |  |
| Fannie Mae | 346,747 | 308,493 | 4,204 | (1,921) | 310,776 | 25 | (B) | 4.94% | 5.06% | 28 |
| Freddie Mac | 662,961 | 584,175 | 6,966 | (4,159) | 586,982 | 49 | (B) | 4.93% | 5.04% | 28 |
| **Total/weighted average RMBS** | **$1,285,730** | **$1,114,738** | **$13,314** | **$(8,611)** | **$1,119,441** | **94** |  | **4.88%** | **5.00%** | **28** |

### As of December 31, 2024

| Asset Type RMBS, available-for-sale, measured at fair value through OCI | Original Face Value | Book Value | Gross Unrealized Gains | Losses | Carrying Value(A) | Number of Securities | Weighted Average Rating | Coupon | Yield(C) | Maturity (Years) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | --- | ---: | ---: | ---: |
| Fannie Mae | $160,092 | $131,441 | $492 | $(2,282) | $129,651 | 11 | (B) | 4.62% | 4.79% | 27 |
| Freddie Mac | 157,618 | 127,839 | - | (5,362) | 122,477 | 12 | (B) | 4.34% | 4.44% | 27 |
| **RMBS, measured at fair value through earnings** |  |  |  |  |  |  |  |  |  |  |
| Fannie Mae | 335,927 | 299,453 | 1,870 | (5,375) | 295,948 | 24 | (B) | 4.81% | 4.94% | 28 |
| Freddie Mac | 648,523 | 580,529 | 3,134 | (9,319) | 574,344 | 48 | (B) | 4.93% | 5.03% | 28 |
| **Total/weighted average RMBS** | **$1,302,160** | **$1,139,262** | **$5,496** | **$(22,338)** | **$1,122,420** | **95** |  | **4.80%** | **4.91%** | **28** |

(A) See “Part I, Item 1. Notes to Consolidated Financial Statements—Note 9. Fair Value” regarding the estimation of fair value, which approximates carrying value for all securities.

(B) The Company used an implied AAA rating for the Agency RMBS.

(C) The weighted average yield is based on the most recent gross monthly interest income, which is then annualized and divided by the book value of settled securities.

The following table summarizes the net interest spread of our RMBS portfolio as of the dates indicated:

### Net Interest Spread

|  | March 31, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Weighted Average Asset Yield | 5.54% | 4.93% |
| Weighted Average Interest Expense (A) | 1.99% | 2.03% |
| **Net Interest Spread** | **3.55%** | **2.90%** |

(A) Weighted average interest expense includes the benefits of related swaps.

### Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments and other general business needs. Additionally, to maintain our status as a REIT under the Code, we must distribute annually at least 90% of our REIT taxable income. In 2017, the Internal Revenue Service issued a revenue procedure permitting “publicly offered” REITs to make elective stock dividends (i.e., dividends paid in a mixture of stock and cash), with at least 20% of the total distribution being paid in cash, to satisfy their REIT distribution requirements. In December 2021, the Internal Revenue Service issued a revenue procedure that temporarily reduces the minimum amount of the total distribution that must be paid in cash to 10% for distributions declared on or after November 1, 2021, and on or before June 30, 2022, provided certain other parameters detailed in the Revenue Procedure are satisfied. Pursuant to these revenue procedures, the Company has in the past elected to make distributions of its taxable income in a mixture of stock and cash.

Our primary sources of funds for liquidity consist of cash provided by operating activities (primarily income from our investments in RMBS and net servicing income from our MSRs), sales or repayments of RMBS and borrowings under repurchase agreements and our MSR financing arrangements.

In the future, sources of funds for liquidity may include additional MSR financing, warehouse agreements, securitizations and the issuance of equity or debt securities, when feasible, including, without limitation, the issuance of shares of our common stock pursuant to our Common Stock ATM program or any other ATM program we have in place. For more information regarding issuances of our securities pursuant to our ATM programs, including our Common Stock ATM Program, please refer to “—General” above. In the past we have used, and we anticipate that in the future we will use a significant portion of the paydowns of the RMBS to purchase MSRs. We may also sell certain RMBS and deploy the net proceeds from such sales to the extent necessary to fund the purchase price of MSRs.

Our primary uses of funds are the payment of interest, management fees, outstanding commitments, other operating expenses, investments in new or replacement assets, margin calls and the repayment of borrowings, as well as dividends. Although we continue to maintain a higher level of unrestricted cash than prior to the pandemic, we expect to invest more of that unrestricted cash in our targeted assets if normalization of the economy continues. We may also use capital resources to repurchase additional shares of common stock under our stock repurchase program when we believe such repurchases are appropriate and/or the stock is trading at a significant discount to net asset value. We seek to maintain adequate cash reserves and other sources of available liquidity to meet any margin calls resulting from decreases in value related to a reasonably possible (in the opinion of management) change in interest rates.

As of the date of this filing, we believe we have sufficient liquid assets to satisfy all of our short-term recourse liabilities and to satisfy covenants in our financing documents. With respect to the next twelve months, we expect that our cash on hand combined with the cash flow provided by our operations will be sufficient to satisfy our anticipated liquidity needs with respect to our current investment portfolio, including related financings, potential margin calls and operating expenses. While it is inherently more difficult to forecast beyond the next twelve months, we currently expect to meet our long-term liquidity requirements through our cash on hand and, if needed, additional borrowings, proceeds received from repurchase agreements and similar financings, proceeds from equity offerings and the liquidation or refinancing of our assets.

Our operating cash flow differs from our net income due primarily to: (i) accretion of discount or premium on our RMBS, (ii) unrealized gains or losses on our RMBS and Servicing Related Assets, and (iii) impairment on our securities, if any.

### Repurchase Agreements

As of March 31, 2025, we had repurchase agreements with 35 counterparties and approximately $1,049.9 million of outstanding repurchase agreement borrowings from 12 of those counterparties, which were used to finance RMBS. As of March 31, 2025, our exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity. Under these agreements, which are uncommitted facilities, we sell a security to a counterparty and concurrently agree to repurchase the same security at a later date at the same price that we initially sold the security plus the interest charged. The sale price represents financing proceeds and the difference between the sale and repurchase prices represents interest on the financing. The price at which the security is sold generally represents the market value of the security less a discount or “haircut.” The weighted average haircut on our repurchase debt at March 31, 2025 was approximately 4.3%. During the term of the repurchase transaction, which can be as short as a few days, the counterparty holds the security and posts margin as collateral. The counterparty monitors and calculates what it estimates to be the value of the collateral during the term of the transaction. If this value declines by more than a de minimis threshold, the counterparty requires us to post additional collateral (or “margin”) in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents. Furthermore, we are, from time to time, a party to derivative agreements or financing arrangements that may be subject to margin calls based on the value of such instruments.

Set forth below is the average aggregate balance of borrowings under the Company’s repurchase agreements for each of the periods shown and the aggregate balance as of the end of each such period (dollars in thousands):

### Repurchase Agreement Average and Maximum Amounts

| Quarter Ended | Average Monthly Amount | Maximum Month-End Amount | Quarter Ending Amount |
| --- | ---: | ---: | ---: |
| March 31, 2025 | $1,047,203 | $1,049,867 | $1,049,867 |
| December 31, 2024 | $1,092,320 | $1,132,004 | $1,077,257 |
| September 30, 2024 | $1,051,750 | $1,108,496 | $1,108,496 |
| June 30, 2024 | $972,701 | $994,764 | $994,764 |
| March 31, 2024 | $937,193 | $965,005 | $965,005 |
| December 31, 2023 | $897,547 | $903,489 | $903,489 |
| September 30, 2023 | $972,935 | $984,931 | $967,289 |
| June 30, 2023 | $992,631 | $1,010,934 | $979,907 |

The decrease in the Company’s borrowings under its repurchase agreements as of March 31, 2025 as compared to December 31, 2024 was primarily due to the sale of RMBS, a large portion of which are financed through repurchase agreements.

These short-term borrowings were used to finance certain of our investments in RMBS. The RMBS repurchase agreements are guaranteed by the Company. The weighted average difference between the market value of the assets and the face amount of available financing for the RMBS repurchase agreements, or the haircut, was 4.3% as of March 31, 2025 and 4.4% as of December 31, 2024. The following tables provide additional information regarding borrowings under our repurchase agreements (dollars in thousands):

### Repurchase Agreement Characteristics

### As of March 31, 2025

|  | RMBS Market Value | Repurchase Agreements | Weighted Average Rate |
| --- | ---: | ---: | ---: |
| Less than one month | $821,716 | $786,525 | 4.46% |
| One to three months | 276,049 | 263,342 | 4.46% |
| **Total/Weighted Average** | **$1,097,765** | **$1,049,867** | **4.46%** |

### As of December 31, 2024

|  | RMBS Market Value | Repurchase Agreements | Weighted Average Rate |
| --- | ---: | ---: | ---: |
| Less than one month | $1,029,996 | $1,005,685 | 4.75% |
| One to three months | 73,626 | 71,572 | 4.72% |
| **Total/Weighted Average** | **$1,103,622** | **$1,077,257** | **4.75%** |

The amount of collateral as of March 31, 2025 and December 31, 2024, including cash, was $1,098.1 million and $1,123.7 million, respectively.

The weighted average term to maturity of our borrowings under repurchase agreements as of March 31, 2025 and December 31, 2024 was 25 days and 18 days, respectively.

### MSR Financing

As of March 31, 2025, the Company had two separate MSR financing facilities: (i) the Freddie Mac MSR Revolver, which is a revolving credit facility for up to $100.0 million that is secured by all Freddie Mac MSRs owned by Aurora; and (ii) the Fannie Mae MSR Revolving Facility, which is a revolving credit facility for up to $150.0 million, that is secured by all Fannie Mae MSRs owned by Aurora. Both financing facilities are available for MSRs as well as certain servicing related advances associated with MSRs.

*Freddie Mac MSR Revolver*. In July 2018, the Company, Aurora and QRS V (collectively with Aurora and the Company, the “Borrowers”) entered into a $25.0 million revolving credit facility (the “Freddie Mac MSR Revolver”) pursuant to which Aurora pledged all of its existing and future MSRs on loans owned or securitized by Freddie Mac. On April 2, 2019, Aurora and QRS V entered into an amendment that increased the maximum amount of the Freddie Mac MSR Revolver to $100.0 million. In July 2024, the Borrowers entered into an amendment that extended the revolving period for an additional 364 days with the Borrowers’ option for two renewals for similar terms followed by a one-year term out feature with a 24-month amortization schedule. Amounts borrowed bear interest at a weighted average borrowing rate of 7.2%. At March 31, 2025 and December 31, 2024, approximately $56.5 million was outstanding under the Freddie Mac MSR Revolver.

*Fannie Mae MSR Revolving Facility*. In October 2021, Aurora and QRS III entered into the Fannie Mae MSR Revolving Facility, pursuant to which Aurora and QRS III pledged their respective rights in all existing and future MSRs for loans owned or securitized by Fannie Mae to secure borrowings outstanding from time to time. The maximum credit amount outstanding at any one time under the Fannie Mae MSR Revolving Facility is $150.0 million. The revolving period is 24 months which may be extended by agreement with the lender. In October 2023, Aurora and QRS III entered into an amendment to the Fannie Mae MSR Revolving Facility that extended the revolving period for an additional 24 months. Amounts borrowed bear interest at a weighted average borrowing rate of 7.1%. At the end of the revolving period, the outstanding amount will be converted to a three-year term loan that will bear interest at a rate calculated at a spread over the rate for one-year interest rate swaps. The Company has guaranteed repayment of all indebtedness under the Fannie Mae MSR Revolving Facility. At March 31, 2025 and December 31, 2024, approximately $93.6 million and $95.6 million, respectively, was outstanding under the Fannie Mae MSR Revolving Facility.

### Cash Flows

### Operating and Investing Activities

Our operating activities provided cash of approximately $0.7 million and our investing activities provided cash of approximately $19.5 million during the three-month period ended March 31, 2025. The cash provided by our investing activities resulted substantially from RMBS sales and principal paydowns of RMBS offset by purchases of RMBS.

### Dividends

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make regular quarterly distributions of all or substantially all of our REIT taxable income to holders of our common and preferred stock out of assets legally available for this purpose, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our repurchase agreements and other debt payable. If our cash available for distribution is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash distributions, or, with respect to our common stock, we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. We will make distributions only upon the authorization of our board of directors. The amount, timing and frequency of distributions will be authorized by our board of directors based upon a variety of factors, including:

- actual results of operations;
- our level of retained cash flows;
- our ability to make additional investments in our target assets;
- restrictions under Maryland law;
- the terms of our preferred stock;
- any debt service requirements;
- our taxable income;
- the annual distribution requirements under the REIT provisions of the Code; and
- other factors that our board of directors may deem relevant.

Our ability to make distributions to our stockholders will depend upon the performance of our investment portfolio, and, in turn, upon the management of our business by our management team. Distributions will be made quarterly in cash to the extent that cash is available for distribution. We may not be able to generate sufficient cash available for distribution to pay distributions to our stockholders. In addition, our board of directors may change our distribution policy with respect to our common stock in the future. No assurance can be given that we will be able to make any other distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time.

We make distributions based on a number of factors, including an estimate of taxable earnings. Dividends distributed and taxable income will typically differ from GAAP earnings due to items such as fair value adjustments, differences in premium amortization and discount accretion, and nondeductible general and administrative expenses. Our common dividend per share may be substantially different than our taxable earnings and GAAP earnings per share. Our GAAP loss per diluted share for the three-month period ended March 31, 2025 was $0.29 and our GAAP income per diluted share for the three-month periods ended December 31, 2024 and March 31, 2024 was $0.29 and $0.32, respectively.

### Contractual Obligations

Our contractual obligations as of March 31, 2025 and December 31, 2024 included repurchase agreements, borrowings under our MSR financing arrangements, and our subservicing agreements.

The following table summarizes our contractual obligations for borrowed money as of the dates indicated (dollars in thousands):

### Contractual Obligations Characteristics

### As of March 31, 2025

| Repurchase agreements | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Borrowings under repurchase agreements | $1,049,867 | $- | $- | $- | $1,049,867 |
| Interest on repurchase agreement borrowings(A) | $2,642 | $- | $- | $- | $2,642 |
| **Freddie Mac MSR Revolver** |  |  |  |  |  |
| Borrowings under Freddie Mac MSR Revolver | $56,500 | $- | $- | $- | $56,500 |
| Interest on Freddie Mac MSR Revolver borrowings | $1,000 | $- | $- | $- | $1,000 |
| **Fannie Mae MSR Revolving Facility** |  |  |  |  |  |
| Borrowings under Fannie Mae MSR Revolving Facility | $2,216 | $14,388 | $76,996 | $- | $93,600 |
| Interest on Fannie Mae MSR Revolving Facility | $578 | $- | $- | $- | $578 |

### As of December 31, 2024

| Repurchase agreements | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Borrowings under repurchase agreements | $1,077,257 | $- | $- | $- | $1,077,257 |
| Interest on repurchase agreement borrowings(A) | $4,112 | $- | $- | $- | $4,112 |
| **Freddie Mac MSR Revolver** |  |  |  |  |  |
| Borrowings under Freddie Mac MSR Revolver | $56,500 | $- | $- | $- | $56,500 |
| Interest on Freddie Mac MSR Revolver borrowings | $1,098 | $- | $- | $- | $1,098 |
| **Fannie Mae MSR Revolving Facility** |  |  |  |  |  |
| Borrowings under Fannie Mae MSR Revolving Facility | $555 | $14,323 | $80,722 | $- | $95,600 |
| Interest on Fannie Mae MSR Revolving Facility | $603 | $- | $- | $- | $603 |

(A) Interest expense is calculated based on the interest rate in effect at March 31, 2025 and December 31, 2024, respectively, and includes all interest expense incurred through those dates.

### Subservicing Agreements

As of March 31, 2025, Aurora had four subservicing agreements in place, one of which is with Freedom Mortgage. Following the sale of the Ginnie Mae MSRs to Freedom Mortgage in June 2020, Freedom Mortgage continued to subservice certain loans that had been purchased from Ginnie Mae pools due to delinquency or default. Freedom Mortgage ceased subservicing these loans during 2021 because these loans and any related advance claims had been rehabilitated or liquidated. One of the other subservicing agreements is with RoundPoint Mortgage Servicing Corporation (“RoundPoint”). Freedom Mortgage acquired RoundPoint and it became a wholly-owned subsidiary of Freedom Mortgage in August 2020. On September 30, 2023, RoundPoint ceased being a wholly owned subsidiary of Freedom Mortgage when it was acquired by an unaffiliated entity, Matrix Financial Services Corporation. The agreements have varying initial terms (three years, for Freedom Mortgage, and two years for the other three sub-servicers) and are subject to automatic renewal for additional terms equal to the applicable initial term unless either party chooses not to renew. Each agreement may be terminated without cause by either party by giving notice as specified in the agreement. If an agreement is not renewed by the Company or terminated by the Company without cause, de-boarding fees will be due to the subservicer. Under each agreement, the subservicer agrees to service the applicable mortgage loans in accordance with applicable law and the requirements of the applicable Agency and the Company pays customary fees to the applicable subservicer for specified services. All expiring agreements to date have been automatically renewed for the extended terms.

### Inflation

Substantially all of our assets and liabilities are financial in nature. As a result, interest rates and other factors affect our performance more so than inflation, although inflation rates can often have a meaningful influence over the direction of interest rates. As discussed above under “—Effects of Federal Reserve Policy on the Company”, Federal Reserve Chair Jerome Powell has recently indicated that the imposition of significant tariffs in the U.S. would likely cause inflation and unemployment to rise, threatening the Federal Reserve’s dual mandate to pursue maximum employment and stable prices. Since December 2024, the Federal Reserve had been reducing its federal funds rate target and otherwise easing monetary policy based on improved inflation data. To the extent the Federal Reserve continues to ease monetary policy, its actions may decrease interest rates across asset classes and our interest expense and, thereby, increase our interest income. If the Federal Reserve decides to tighten monetary policy however, it may increase our interest expense, which expense may not be fully offset by any resulting increase in our interest income. Furthermore, our financial statements are prepared in accordance with GAAP and our distributions are determined by our board of directors primarily based on our REIT taxable income, and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

## Market risk

As filed, 12,548 characters.

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.

### Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations. In general, we finance the acquisition of certain of our assets through financings in the form of repurchase agreements and bank facilities. We expect to make use of additional MSR financing, as well as possibly warehouse facilities, securitizations, re-securitizations, and public and private equity and debt issuances in addition to transaction or asset specific funding arrangements. In addition, the values of our Servicing Related Assets are highly sensitive to changes in interest rates, historically increasing when rates rise and decreasing when rates decline. Subject to maintaining our qualification as a REIT, we attempt to mitigate interest rate risk and financing pricing risk through utilization of hedging instruments, primarily interest rate swap agreements and U.S. Treasury futures, respectively. We may also use financial futures, options, interest rate cap agreements, and forward sales. These instruments are intended to serve as a hedge against future interest rate or pricing changes on our borrowings.

### Interest Rate Effect on Net Interest Income

Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing and hedging activities. The costs of our borrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (1) while the yields earned on our leveraged fixed-rate mortgage assets will remain static and (2) at a faster pace than the yields earned on our leveraged adjustable-rate and hybrid adjustable-rate RMBS, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our assets, other than our Servicing Related Assets. A decrease in interest rates could have a negative impact on the market value of our Servicing Related Assets. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Hedging techniques are partly based on assumed levels of prepayments of our assets, specifically our RMBS. If prepayments are slower or faster than assumed, the life of the investment will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivatives are highly complex and may produce volatile returns.

### Interest Rate Cap Risk

Any adjustable-rate RMBS that we acquire will generally be subject to interest rate caps, which potentially could cause such RMBS to acquire many of the characteristics of fixed-rate securities if interest rates were to rise above the cap levels. This issue will be magnified to the extent we acquire adjustable-rate and hybrid adjustable-rate RMBS that are not based on mortgages which are fully indexed. In addition, adjustable-rate and hybrid adjustable-rate RMBS may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of less cash income on such assets than we would need to pay the interest cost on our related borrowings. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above under “—Interest Rate Risk.” Actual economic conditions or implementation of decisions by our management team may produce results that differ significantly from the estimates and assumptions used in our models.

### Prepayment Risk; Extension Risk

The following tables summarize the estimated change in fair value of our MSRs as of the dates indicated given several parallel shifts in the discount rate, voluntary prepayment rate and servicing cost (dollars in thousands):

### MSR Fair Value Changes

### As of March 31, 2025

|  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | **(20)%** | **(10)%** | **-%** | **10%** | **20%** |
| **Discount Rate Shift in %** |  |  |  |  |  |
| Estimated FV | $249,784 | $238,082 | $227,333 | $217,434 | $208,297 |
| Change in FV | $22,451 | $10,749 | $- | $(9,899) | $(19,036) |
| % Change in FV | 10% | 5% | - | (4)% | (8)% |
| **Voluntary Prepayment Rate Shift in %** |  |  |  |  |  |
| Estimated FV | $235,649 | $232,083 | $227,333 | $221,928 | $216,237 |
| Change in FV | $8,316 | $4,750 | $- | $(5,404) | $(11,096) |
| % Change in FV | 4% | 2% | - | (2)% | (5)% |
| **Servicing Cost Shift in %** |  |  |  |  |  |
| Estimated FV | $234,907 | $231,120 | $227,333 | $223,545 | $219,758 |
| Change in FV | $7,574 | $3,787 | $- | $(3,787) | $(7,574) |
| % Change in FV | 3% | 2% | - | (2)% | (3)% |

### As of December 31, 2024

|  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | **(20)%** | **(10)%** | **-%** | **10%** | **20%** |
| **Discount Rate Shift in %** |  |  |  |  |  |
| Estimated FV | $257,269 | $244,952 | $233,658 | $223,276 | $213,708 |
| Change in FV | $23,611 | $11,294 | $- | $(10,382) | $(19,950) |
| % Change in FV | 10% | 5% | - | (4)% | (9)% |
| **Voluntary Prepayment Rate Shift in %** |  |  |  |  |  |
| Estimated FV | $240,653 | $237,709 | $233,658 | $228,942 | $223,862 |
| Change in FV | $6,995 | $4,051 | $- | $(4,716) | $(9,796) |
| % Change in FV | 3% | 2% | - | (2)% | (4)% |
| **Servicing Cost Shift in %** |  |  |  |  |  |
| Estimated FV | $241,240 | $237,449 | $233,658 | $229,867 | $226,076 |
| Change in FV | $7,582 | $3,791 | $- | $(3,791) | $(7,582) |
| % Change in FV | 3% | 2% | - | (2)% | (3)% |

70

The following tables summarize the estimated change in fair value of our RMBS as of the dates indicated given several parallel shifts in interest rates (dollars in thousands):

### RMBS Fair Value Changes

### As of March 31, 2025

|  |  |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
|  | **March 31, 2025** | **(0.75)%** | **(0.50)%** | **(0.25)%** | **0.25%** | **0.50%** | **0.75%** |
| **RMBS Portfolio** |  |  |  |  |  |  |  |
| RMBS, net of swaps | $795,502 |  |  |  |  |  |  |
| Estimated FV |  | $796,537 | $796,847 | $796,479 | $793,943 | $791,866 | $789,371 |
| Change in FV |  | $1,035 | $1,345 | $977 | $(1,558) | $(3,636) | $(6,131) |
| % Change in FV |  | 0.13% | 0.17% | 0.12% | (0.20)% | (0.46)% | (0.77)% |

### As of December 31, 2024

|  |  |  |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
|  | **December 31, 2024** | **(0.75)%** | **(0.50)%** | **(0.25)%** | **0.25%** | **0.50%** | **0.75%** |
| **RMBS Portfolio** |  |  |  |  |  |  |  |
| RMBS, net of swaps | $800,308 |  |  |  |  |  |  |
| Estimated FV |  | $803,881 | $803,288 | $802,088 | $798,050 | $795,322 | $792,144 |
| Change in FV |  | $3,574 | $2,980 | $1,781 | $(2,258) | $(4,986) | $(8,164) |
| % Change in FV |  | 0.45% | 0.37% | 0.22% | (0.28)% | (0.62)% | (1.02)% |

The sensitivity analysis is hypothetical and is presented solely to assist an analysis of the possible effects on the fair value under various scenarios. It is not a prediction of the amount or likelihood of a change in any particular scenario. In particular, the results are calculated by stressing a particular economic assumption independent of changes in any other assumption. In practice, changes in one factor may result in changes in another, which might counteract or amplify the sensitivities. In addition, changes in the fair value based on a 10% variation in an assumption generally may not be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.

### Counterparty Risk

When we engage in repurchase transactions, we generally sell securities to lenders (i.e., the repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same securities back to us at the end of the term of the transaction. Because the cash we receive from the lender when we initially sell the securities to the lender is less than the value of those securities (this difference is the haircut), if the lender defaults on its obligation to resell the same securities back to us we would incur a loss on the transaction equal to the amount of the haircut (assuming there was no change in the value of the securities). As of March 31, 2025, the Company’s exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity.

Our interest rate swaps and U.S. Treasury futures contracts are required to be cleared on an exchange which greatly mitigates, but does not entirely eliminate, counterparty risk.

Our investments in Servicing Related Assets are dependent on the applicable mortgage sub-servicer to perform its sub-servicing obligations. If our sub-servicer fails to perform its obligations and is terminated by one or more Agencies as an approved servicer, the value of the MSRs being subserviced by that sub-servicer may be adversely affected. In addition, when we purchase MSRs from third parties, we rely, to a certain extent, on the ability and willingness of the sellers to perform their contractual obligations to remedy breaches of representations and warranties or to repurchase the affected loan and indemnify us for any losses.

### Funding Risk

To the extent available on desirable terms, we expect to continue to finance our RMBS with repurchase agreement financing. We also anticipate continuing to finance our MSRs with bank loans secured by a pledge of those MSRs. Over time, as market conditions change, in addition to these financings, we may use other forms of leverage. Weakness in the financial markets, the residential mortgage markets and the economy generally could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.

### Liquidity Risk

Our Servicing Related Assets, as well as some of the assets that may in the future comprise our portfolio, are not publicly traded. A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.

### Credit Risk

Although we expect relatively low credit risk with respect to our portfolio of Agency RMBS, our investments in MSRs and any CMOs we may acquire expose us to the credit risk of borrowers.

### Inflation Risk

Almost all of our assets and liabilities are financial in nature. As a result, changes in interest rates and other factors drive our performance more directly than does inflation. However, changes in interest rates generally correlate with inflation rates or changes in inflation rates, and therefore adverse changes in inflation or changes in inflation expectations can lead to lower returns on our investments than originally anticipated. Our consolidated financial statements are prepared in accordance with GAAP. Our activities and consolidated balance sheets are measured primarily with reference to fair value without considering inflation.

## Controls and procedures

As filed, 1,192 characters.

**Disclosure Controls and Procedures.** The Company’s President and Chief Executive Officer and the Company’s Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s President and Chief Executive Officer and the Company’s Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

**Changes in Internal Control Over Financial Reporting.** There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 2,077 characters.

There have been no material changes to the risk factors set forth under the heading “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Except as set forth below, there have been no material changes to the risk factors set forth under the heading “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

***Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition and results of operations.***

Recently, there have been significant changes to trade policies, export control laws, sanctions, legislation, treaties, and tariffs in the United States and other countries. The future of global trade relationships remains uncertain, including with respect to potential changes in trade laws, regulations, policies, and tariffs. While we are not directly engaged in international trade, such developments can indirectly affect macroeconomic conditions in the United States, including inflation and interest rates—both of which have a significant impact on the residential real estate and mortgage markets. For example, heightened tariffs or ongoing trade disputes may lead to increased input costs, contributing to inflationary pressures and potentially influencing monetary policy decisions by the Federal Reserve. Rising interest rates could, in turn, reduce housing affordability, slow home price appreciation, increase mortgage delinquency rates, and adversely impact the performance of the residential mortgage assets in which we invest. We cannot predict what additional actions may be taken by the United States or other governments, what sectors may be affected, or how financial markets may respond. To the extent that trade policy changes or broader geopolitical developments adversely affect inflation, interest rates, or the housing and mortgage markets more generally, our business, financial condition, and results of operations could be materially and adversely affected.

Filed May 6, 2025.
Source: SEC EDGAR, the filing index for accession 0001140361-25-017536. Last ingested by Listed: Nov 4, 2026, 07:15 ET. No prices; not investment advice.