AG MORTGAGE INVESTME

MITT
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MORTGAGE INVESTMENT TRUST : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

06/12/2020 | 05:23pm


In this quarterly report on Form 10-Q, or this "report," we refer to AG Mortgage
Investment Trust, Inc.
as "we," "us," the "Company," or "our," unless we
specifically state otherwise or the context indicates otherwise. We refer to our
external manager, AG REIT Management, LLC, as our "Manager," and we refer to the
direct parent company of our Manager, Angelo, Gordon & Co., L.P., as "Angelo
Gordon
."

The following discussion should be read in conjunction with our consolidated
financial statements and the accompanying notes to our consolidated financial
statements, which are included in Item 1 of this report, as well as the
information contained in our Annual Report on Form 10-K for the year ended
December 31, 2019.


Forward-Looking Statements




We make forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in this
report that are subject to substantial known and unknown risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our business, financial condition,
liquidity, returns, results of operations, plans, yields, objectives, the
composition of our portfolio, actions by governmental entities, including the
Federal Reserve, and the potential effects of actual and proposed legislation on
us, our views on certain macroeconomic trends, and the impact of the novel
coronavirus ("COVID-19"). When we use the words "believe," "expect,"
"anticipate," "estimate," "plan," "continue," "intend," "should," "may" or
similar expressions, we intend to identify forward-looking statements.

These forward-looking statements are based upon information presently available
to our management and are inherently subjective, uncertain and subject to
change. There can be no assurance that actual results will not differ materially
from our expectations. Some, but not all, of the factors that might cause such a
difference include, without limitation:

•the uncertainty and economic impact of the COVID-19 pandemic and of responsive
measures implemented by various governmental authorities, businesses and other
third parties;
•changes in our business and investment strategy;
•our ability to predict and control costs;
•changes in interest rates and the fair value of our assets, including negative
changes resulting in margin calls relating to the financing of our assets;
•changes in the yield curve;
•changes in prepayment rates on the loans we own or that underlie our investment
securities;
•increased rates of default or delinquencies and/or decreased recovery rates on
our assets;
•our ability to obtain and maintain financing arrangements on terms favorable to
us or at all, particularly in light of the current disruption in the financial
markets;
•changes in general economic conditions, in our industry and in the finance and
real estate markets, including the impact on the value of our assets;
•conditions in the market for Agency RMBS, Non-Agency RMBS and CMBS securities,
Excess MSRs and loans;
•legislative and regulatory actions by the U.S. Department of the Treasury, the
Federal Reserve and other agencies and instrumentalities in response to the
economic effects of the COVID-19 pandemic
•how COVID-19 may affect us, our operations and personnel;
•the forbearance program included in the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act");
•our ability to make distributions to our stockholders in the future;
•our ability to maintain our qualification as a REIT for federal tax purposes;
and
•our ability to maintain our exemption from registration under the Investment
Company Act of 1940, as amended.

We caution investors not to rely unduly on any forward-looking statements, which
speak only as of the date made, and urge you to carefully consider the risks
noted above and identified under the captions "Risk Factors," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2019 and any
subsequent filings. New risks and uncertainties arise from time to time, and it
is impossible for us to predict those events or how they may affect us. Except
as required by law, we are not obligated to, and do not intend to, update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. All forward-looking statements that we make, or that
are attributable to us, are expressly qualified by this cautionary notice.

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Special Note Regarding COVID-19 Pandemic




As a result of the global COVID-19 pandemic and our disposition of assets to
preserve liquidity, we incurred large realized losses in the quarter ended March
31, 2020
and a sharp decline in book value. Our Net Loss Available to Common
Stockholders during this period was $(490.7) million and our book value per
share decreased $(14.98) per share from $17.61 as of December 31, 2019 to $2.63
as of March 31, 2020. We recognized net realized losses of $89.2 million on the
sale of real estate securities, loans and related collateral and realized losses
of $61.9 million on the termination of the related derivatives.

The Company also recognized a $(313.9) million increase in net unrealized losses
for the period comprised of unrealized losses on securities and unrealized
losses on loans of $203.4 million and $110.5 million, respectively. These losses
were due directly to the disruptions of the financial markets caused by the
COVID-19 pandemic and the Company's responses thereto, including $2.4 billion in
asset sales and a significant decrease in asset valuations in March. Included in
unrealized losses on both securities and loans are net unrealized gain reversals
due to sales during the first quarter of 2020 totaling $105.4 million. The
remaining losses of $208.5 million relate to mark to market losses on securities
and loans still held.

In the three month period ended March 31, 2020, we reduced the size of our GAAP
investment portfolio from $4.0 billion to $1.3 billion, and at March 31, 2020,
our equity capital allocation was 5% to Agency RMBS and 95% to Credit
Investments. In an effort to prudently manage our portfolio through
unprecedented market volatility and preserve long-term stockholder value, we
completed the sale of our 30 year fixed rate Agency securities during the
quarter. We believe the resulting capital allocation will impact our yield, cost
of funds and leverage ratio described below.We believe the reduction in the size
of our investment portfolio will limit our earnings going forward.

We do not yet know the full extent of the effects of the COVID-19 pandemic on
our business, operations, personnel, or the U.S. economy as a whole. We cannot
predict future developments, including the scope and duration of the pandemic,
the effectiveness of our work from home arrangements, third-party providers'
ability to support our operations, the nature and effect of any actions taken by
governmental authorities and other third parties in response to the pandemic,
and the other factors discussed above and throughout this report as discussed
more fully under "Risk Factors." Future developments with respect to the
COVID-19 pandemic could continue to materially and adversely affect our
business, operations, operating results, financial condition, liquidity or
capital levels.


Executive Summary




On March 11, 2020, the World Health Organization declared the outbreak of
COVID-19 as a pandemic. On March 13, 2020, the U.S. declared a national
emergency concerning the COVID-19 pandemic, and several states and
municipalities have subsequently declared public health emergencies. These
conditions have caused a significant disruption in the U.S. and world economies.
To slow the spread of COVID-19, many countries, including the U.S., have
implemented social distancing measures, which have prohibited large gatherings,
including at sporting events, movie theaters, religious services and schools.
Further, many regions, including the majority of U.S. states, have implemented
additional measures, such as shelter-in-place and stay-at-home orders. Many
businesses have moved to a remote working environment, temporarily suspended
operations, laid off a significant percentage of their workforce and/or shut
down completely. Moreover, the COVID-19 pandemic and certain of the actions
taken to reduce its spread have resulted in lost business revenue, rapid and
significant increases in unemployment, changes in consumer behavior and
significant reductions in liquidity and the fair value of many assets, including
those in which we invest. Although many of the government restrictions are in
the process of being relaxed, these conditions, or some level thereof, and
others are expected to continue over the near term and may prevail throughout
2020.

Beginning in mid-March, economic conditions caused financial and
mortgage-related asset markets to come under extreme duress, resulting in credit
spread widening, a sharp decrease in interest rates and unprecedented
illiquidity in repurchase agreement financing and MBS markets. These events, in
turn, resulted in falling prices of our assets and increased margin calls from
our repurchase agreement counterparties. To conserve capital, protect assets and
to pause the escalating negative impacts caused by the market dislocation and
allow the markets for many of our assets to stabilize, on March 20, 2020, we
notified our repurchase agreement counterparties that we did not expect to fund
the existing and anticipated future margin calls under our repurchase agreements
and commenced discussions with our counterparties with regard to entering into
forbearance agreements. In an effort to manage our portfolio through this
unprecedented turmoil in the financial markets and to improve liquidity, we
executed the following measures during the three months ended March 31, 2020:

•Reduced GAAP investment portfolio from $4.0 billion at December 31, 2019 to
$1.3 billion at March 31, 2020 and investment portfolio on a non-GAAP basis from
$4.4 billion at December 31, 2019 to $1.6 billion at March 31, 2020 through
sales, directly or as a result of financing counterparty seizures.
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•Reduced financing arrangement balance on a GAAP basis from $3.2 billion at
December 31, 2019 to $969.9 million at March 31, 2020 and financing arrangements
on a non-GAAP basis from $3.5 billion at December 31, 2019 to $1.2 billion at
March 31, 2020.
•Reduced our GAAP leverage ratio and Economic Leverage Ratio from 4.1x and 4.1x
at December 31, 2019, respectively, to 3.1x and 3.3x at March 31, 2020,
respectively.
•Unwound entire portfolio of pay-fixed, receive-variable interest rate swaps
held directly and through investments in debt and equity of affiliates,
recording net realized losses of $(65.4) million on a GAAP basis and $(67.9)
million
on a non-GAAP basis for the three months ended March 31, 2020.


In addition, subsequent to March 31, 2020, we took the following actions:




•Entered three consecutive forbearance agreements, pursuant to which the
forbearing counterparties agreed not to exercise any of their rights or remedies
under their applicable financing arrangement with the Company through June 15,
2020
.
•Entered into agreements with our financing counterparties to exit forbearance,
pursuant to which each Participating Counterparty agreed to permanently waive
all existing and prior events of default under our financing agreements and
reinstate our financing arrangements described in more detail below under the
"Financing arrangements" heading of this Item 2.
•Sold real estate securities for proceeds of approximately $232.3 million and
residential and commercial loans for proceeds of approximately $416.9 million.
•Further reduced financing arrangement balance on a GAAP basis from
$969.9 million at March 31, 2020 to $242.2 million at May 31, 2020 and financing
arrangements on a non-GAAP basis from $1.2 billion at March 31, 2020 to $518.3
million
at May 31, 2020. Financing arrangements exclude securitized debt and
subordinated debt .
•Reduced our debt obligations to approximately $710 million, net of
approximately $25 million of cash posted as collateral to our financing
counterparties. Debt obligations include all financing arrangements, securitized
debt and subordinated debt. Of this amount, approximately $280 million are
recourse debt obligations, approximately $410 million are non-recourse debt
obligations and approximately $20 million are subordinated debt obligations.


Reconciliations of GAAP and non-GAAP financial measures appear below.




In March 2020, our Manager transitioned to a fully remote work force, to protect
the safety and well-being of our personnel. Our Manager's prior investments in
technology, business continuity planning and cyber-security protocols have
enabled us to continue working with limited operational impact.


Our company




We are a hybrid mortgage REIT that opportunistically invests in a diversified
risk adjusted portfolio of Agency RMBS and Credit Investments. Our Credit
Investments include Residential Investments and Commercial Investments. We are a
Maryland corporation and are externally managed by our Manager, a wholly-owned
subsidiary of Angelo Gordon, pursuant to a management agreement. Our Manager,
pursuant to a delegation agreement dated as of June 29, 2011, has delegated to
Angelo Gordon the overall responsibility of its day-to-day duties and
obligations arising under the management agreement. We conduct our operations to
qualify and be taxed as a real estate investment trust ("REIT") for U.S. federal
income tax purposes. Accordingly, we generally will not be subject to U.S.
federal income taxes on our taxable income that we distribute currently to our
stockholders as long as we maintain our intended qualification as a REIT. We
also operate our business in a manner that permits us to maintain our exemption
from registration under the Investment Company Act of 1940, as amended, or the
Investment Company Act. Our common stock is traded on the New York Stock
Exchange
("NYSE") under the symbol MITT. Our 8.25% Series A Cumulative
Redeemable Preferred Stock, our 8.00% Series B Cumulative Redeemable Preferred
Stock, and our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock trade on the NYSE under the symbols MITT PrA, MITT PrB, and MITT
PrC, respectively.

Prior to December 31, 2019, we conducted our business through the following
segments; (i) Securities and Loans and (ii) Single-Family Rental Properties. On
November 15, 2019, we sold our portfolio of single-family rental properties and
no longer separate our business into segments. We reclassified the operating
results of our Single-Family Rental Properties segment to discontinued
operations and excluded the income associated with the portfolio from continuing
operations for all periods presented. See Note 14 to the "Notes to Consolidated
Financial Statements (unaudited)" for additional financial information regarding
our discontinued operations.

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Our target investments




Historically, our investment portfolio has been comprised of Agency RMBS,
Residential Investments and Commercial Investments, each of which is described
in more detail below. We intend to continue to focus on our core portfolio
strengths of residential and commercial credit assets. In periods where we have
working capital in excess of our short-term liquidity needs, we may invest the
excess in more liquid assets until such time as we are able to re-invest that
capital in credit assets that meet our underwriting requirements. Our investment
and capital allocation decisions depend on prevailing market conditions, among
other factors, and may change over time in response to opportunities available
in different economic and capital market environments. In light of recent market
turmoil related to the COVID-19 pandemic, we expect to maintain a defensive
posture in the near term as it relates to new investments until we have greater
clarity with respect to COVID-19 developments on market and economic conditions.


Agency RMBS




Prior to the COVID-19 pandemic, our investment portfolio was comprised primarily
of residential mortgage-backed securities ("RMBS"). Certain of the assets that
were in our RMBS portfolio had a guarantee of principal and interest by a U.S.
government agency such as the Government National Mortgage Association, or
Ginnie Mae, or by a government-sponsored entity such as the Federal National
Mortgage Association, or Fannie Mae, or the Federal Home Loan Mortgage
Corporation, or Freddie Mac (each, a "GSE"). We referred to these securities as
Agency RMBS. Our Agency RMBS portfolio included:

•Fixed rate securities (held as mortgage pass-through securities);
•Sequential pay fixed rate collateralized mortgage obligations ("CMOs");
•CMOs are structured debt instruments representing interests in specified pools
of mortgage loans subdivided into multiple classes, or tranches, of securities,
with each tranche having different maturities or risk profiles.
•Inverse Interest Only securities (CMOs where the holder is entitled only to the
interest payments made on the mortgages underlying certain mortgage backed
securities ("MBS") whose coupon has an inverse relationship to its benchmark
rate, such as LIBOR);
•Interest Only securities (CMOs where the holder is entitled only to the
interest payments made on the mortgages underlying certain MBS "interest-only
strips");
•Certain Agency RMBS for which the underlying collateral is not identified until
shortly (generally two days) before the purchase or sale settlement date
("TBAs"); and
•Excess mortgage servicing rights ("Excess MSRs") whose underlying collateral is
securitized in a trust held by a U.S. government agency or GSE.
•Excess MSRs are interests in an MSR, representing a portion of the interest
payment collected from a pool of mortgage loans, net of a basic servicing fee
paid to the mortgage servicer. An MSR provides a mortgage servicer with the
right to service a mortgage loan or a pool of mortgages in exchange for a
portion of the interest payments made on the mortgage or the underlying
mortgages. An MSR is made up of two components: a basic servicing fee and an
Excess MSR. The basic servicing fee is the compensation received by the mortgage
servicer for the performance of its servicing duties.


Residential Investments




The Residential Investments that we own include RMBS that are not issued or
guaranteed by Ginnie Mae or a GSE or that are collateralized by non-U.S.
mortgages, which we collectively refer to as our Non-Agency RMBS. The mortgage
loan collateral for residential Non-Agency RMBS consists of residential mortgage
loans that do not generally conform to underwriting guidelines issued by U.S.
government agencies or U.S. government-sponsored entities, or are non-U.S.
mortgages. Our Non-Agency RMBS include investment grade and non-investment grade
fixed and floating-rate securities.


We categorize certain of our Residential Investments by weighted average credit
score at origination:



•Prime (weighted average credit score above 700)
•Alt-A/Subprime
•Alt-A (weighted average credit score between 700 and 620); and
•Subprime (weighted average credit score below 620).



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The Residential Investments that we do not categorize by weighted average credit
score at origination include our:




•CRTs (described below)
•Non-U.S. RMBS
•Non-Agency RMBS which are collateralized by non-U.S. mortgages.
•Interest Only securities (Non-Agency RMBS backed by interest-only strips)
•Excess MSRs whose underlying collateral is securitized in a trust not held by a
U.S. government agency or GSE;
•Excess MSRs are grouped within "Interest Only and Excess MSR" throughout Part
I, Item 2 of this Report and are grouped within Excess mortgage servicing rights
or Excess MSRs in the Notes to the Consolidated Financial Statements (Unaudited)
included in Part I, Item 1 of this Report;
•Re/Non-Performing Loans (described below);
•Non-QM Loans (described below); and
•Land Related Financing (described below).


Credit Risk Transfer securities ("CRTs") include:




•Unguaranteed and unsecured mezzanine, junior mezzanine and first loss
securities issued either by GSEs or issued by other third-party institutions to
transfer their exposure to mortgage default risk to private investors. These
securities reference a specific pool of newly originated single family mortgages
from a specified time period (typically around the time of origination). The
risk of loss on the reference pool of mortgages is transferred to investors who
may experience losses when adverse credit events such as defaults, liquidations
or delinquencies occur in the underlying mortgages. Owners of these securities
generally receive an uncapped floating interest rate equal to a predetermined
spread over one-month LIBOR.


Re/Non-Performing Loans include:




•RPLs or NPLs in securitized form that are issued by an entity in which we own
an equity interest and that we hold alongside other private funds under the
management of Angelo Gordon. The securitizations typically take the form of
equity and various classes of notes. These investments are included in the
"RMBS" and "Investments in debt and equity of affiliates" line items on our
consolidated balance sheets.
•RPLs or NPLs that we hold through interests in certain consolidated trusts.
These investments are secured by residential real property, including prime,
Alt-A, and subprime mortgage loans, and are included in the "Residential
mortgage loans, at fair value" line item on our consolidated balance sheets.


Non-QM Loans include:




•Residential mortgage loans that do not qualify for the Consumer Finance
Protection Bureau's
(the "CFPB") safe harbor provision for "qualifying
mortgages," or "QM," that we hold alongside other private funds under the
management of Angelo Gordon. These investments are held in one of our
unconsolidated subsidiaries, Mortgage Acquisition Trust I LLC ("MATT") (see the
"Contractual obligations" section of this Item 2 for more detail), and are
included in the "Investments in debt and equity of affiliates" line item on our
consolidated balance sheets.
•Non-QM loans in securitized form that are issued by MATT. The securitizations
typically take the form of various classes of notes. These investments are
included in the "Investments in debt and equity of affiliates" line item on our
consolidated balance sheets.


Land Related Financing includes:




•First mortgage loans we originate to third party land developers and home
builders for the acquisition and horizontal development of land. These loans may
be held through our unconsolidated subsidiaries or in securitized form. These
loans are included either in the "Investments in debt and equity of affiliates"
or in the "RMBS" line items on our consolidated balance sheets.


Commercial Investments



We also invest in Commercial Investments. Our Commercial Investments include:



•Commercial mortgage-backed securities ("CMBS");
•Interest Only securities (CMBS backed by interest-only strips);



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•Commercial real estate loans secured by commercial real property, including
first mortgages, mezzanine loans, preferred equity, first or second lien loans,
subordinate interests in first mortgages, bridge loans to be used in the
acquisition, construction or redevelopment of a property and mezzanine financing
secured by interests in commercial real estate; and
•Freddie Mac K-Series (described below).


CMBS include:




•Fixed and floating-rate CMBS, including investment grade and non-investment
grade classes. CMBS are secured by, or evidence ownership interest in, a single
commercial mortgage loan or a pool of commercial mortgage loans.


Freddie Mac K-Series ("K-Series") include:




•CMBS, Interest-Only securities and CMBS principal-only securities which are
regularly-issued by Freddie Mac as structured pass-through securities backed by
multifamily mortgage loans. These K-Series feature a wide range of investor
options which include guaranteed senior and interest-only bonds as well as
unguaranteed senior, mezzanine, subordinate and interest-only bonds. Our
K-Series portfolio includes unguaranteed senior, mezzanine, subordinate and
interest-only bonds. Throughout Item 2, we categorize our Freddie Mac K-Series
interest-only bonds as part of our Interest-Only securities.


Investment classification




Throughout this Report, (1) we use the terms "credit portfolio" and "credit
investments" to refer to our Residential Investments, Commercial Investments,
and, if applicable, ABS, inclusive of investments held within affiliated
entities but exclusive of AG Arc (discussed below); (2) we refer to our
Re/Non-Performing Loans (exclusive of our RPLs or NPLs in securitized form that
we purchase from an affiliate or affiliates of the Manager), Non-QM Loans
(exclusive of those in securitized form), Land Related Financing (exclusive of
loans in securitized form), and commercial real estate loans, collectively, as
our "loans"; (3) we use the term "credit securities" to refer to our credit
portfolio, excluding Excess MSRs and loans; and (4) we use the term "real estate
securities" or "securities" to refer to our Agency RMBS portfolio, exclusive of
Excess MSRs, and our credit securities. Our "investment portfolio" refers to our
combined Agency RMBS portfolio and credit portfolio and encompasses all of the
investments described above.

We also use the term "GAAP investment portfolio" which consists of (i) our
Agency RMBS, exclusive of (x) TBAs and (y) any investments classified as "Other
assets" on our consolidated balance sheets (our "GAAP Agency RMBS portfolio"),
and (ii) our
credit portfolio, exclusive of (x) all investments held within affiliated
entities and (y) any investments classified as "Other assets" on our
consolidated balance sheets (our "GAAP credit portfolio"). See Note 2 to the
"Notes to Consolidated Financial Statements (unaudited)" for a discussion of our
investments held within affiliated entities. For a reconciliation of our
investment portfolio to our GAAP investment portfolio, see the GAAP Investment
Portfolio Reconciliation Table below.

This presentation of our investment portfolio is consistent with how our
management team evaluates our business, and we believe this presentation, when
considered with the GAAP presentation, provides supplemental information useful
for investors in evaluating our investment portfolio and financial condition.


Arc Home LLC




We, alongside private funds under the management of Angelo Gordon, through AG
Arc LLC
, one of our indirect subsidiaries ("AG Arc"), formed Arc Home LLC ("Arc
Home"). Arc Home, through its wholly-owned subsidiary, originates conforming,
Government, Jumbo, Non-QM and other non-conforming residential mortgage loans,
retains the mortgage servicing rights associated with the loans that it
originates, and purchases additional mortgage servicing rights from third-party
sellers.

Discontinued Operations

On November 15, 2019, we sold our portfolio of single-family rental properties
to a third party. We reclassified the operating results of our single-family
rental properties segment to discontinued operations and excluded the income
associated with the portfolio from continuing operations for all periods
presented. See Note 14 to the "Notes to Consolidated Financial Statements
(unaudited)" for additional financial information regarding our discontinued
operations.

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Market conditions




Though 2020 began with an improved interest rate environment for our business
and industry as a whole, the impact of the global response to the COVID-19
pandemic on the financial markets has resulted in unprecedented market
disruption. Beginning in the middle of the first quarter of 2020 and continuing
into the second quarter, financial and mortgage-related asset markets have
experienced significant volatility as a result of the spread of COVID-19. We
expect this volatility may continue in the near term due to the heightened
uncertainty relating to COVID-19's duration and potential impact. During the
first quarter of 2020, the significant dislocation in the financial markets
caused, among other things, credit spread widening, a sharp decrease in interest
rates and unprecedented illiquidity in repurchase agreement financing and MBS
markets. These conditions have put significant pressure on the mortgage REIT
industry, including financing operations, mortgage asset pricing and liquidity
demands. After a series of rate cuts in 2019, the U.S. Federal Reserve responded
to the effects of the COVID-19 pandemic with a series of large-scale actions,
including cutting the Fed Funds target rate by 150 basis points, back to the
zero bound. The Fed also committed in March to unlimited purchases of U.S.
Treasuries and Agency RMBS, in a round of quantitative easing known as QE4.

As the conditions created by the COVID-19 outbreak became more acute, financial
markets began to experience severe dislocations and volatility. In order to
maintain adequate liquidity in preparation for the expected economic
contraction, many companies began to increase cash levels notably in March, in
turn de-levering their businesses. In fixed income markets specifically, this
created acute selling pressures in U.S. Treasuries and Agency MBS, the two
markets with the deepest liquidity profile and hence the greatest potential for
raising cash.

In order to increase liquidity, fixed income investors were compelled to sell
U.S. Treasuries and Agency MBS, given their greater liquidity as compared to
other fixed income assets, leading to an excess supply of these assets in need
of redistribution. Pressure in financing markets and the need to meet margin
obligations created additional selling pressure in U.S. Treasury and Agency MBS
markets. This negative feedback loop was ultimately disrupted in part by the
Federal Reserve's asset purchases and other institutions' ability to invest
available cash on attractive terms. Other markets, including the market for
residential credit and commercial real estate securities, also saw de-levering
flows and similar cyclical feedback loops taking place, albeit on a lesser
scale.

The de-levering flows impacted the Agency MBS market due to its greater
liquidity relative to other less liquid asset classes, and the sector saw
meaningful underperformance versus comparable hedges for a short period of time
in mid-March. Other securitized asset markets saw similar dramatic
underperformance in pricing. Policy makers' actions appear to have stabilized
Agency MBS spreads and other securitized credit markets, both of which tightened
into the second quarter of 2020.


Recent government activity




The U.S. economy remained strong through January and February of 2020. Despite
this, the Federal Reserve has been conducting large scale overnight repo
operations since late 2019 to address disruptions in the U.S. Treasury, Agency
debt and Agency RMBS financing markets. These operations have been increased
substantially due to the funding disruptions resulting from the economic crisis
and market dislocations resulting from the COVID-19 pandemic. The Federal
Reserve
has taken a number of other actions to stabilize markets as a result of
the impact of the COVID-19 pandemic. On Sunday, March 15, 2020, the Federal
Reserve
announced a $700 billion asset purchase program to provide liquidity to
the U.S. Treasury and Agency RMBS markets. Specifically, the Federal Reserve
announced that it would purchase at least $500 billion of U.S. Treasuries and at
least $200 billion of Agency RMBS. The Federal Reserve also lowered the federal
funds rate by 100 basis points to a range of 0.0% - 0.25%, after having already
lowered the federal funds rate by 50 basis points on March 3, 2020.

The markets for U.S. Treasuries, MBS and other mortgage and fixed income markets
continued to deteriorate following this announcement as investors liquidated
investments in response to the economic crisis. Many of these markets
experienced severe dislocations during the second half of March, which resulted
in forced selling of assets to satisfy margin calls. To address these issues in
the fixed income and funding markets, on the morning of Monday, March 23, 2020,
the Federal Reserve announced a program to acquire U.S. Treasuries and Agency
RMBS in the amounts needed to support smooth market functioning. Since that
date, the Federal Reserve and the Federal Housing Finance Agency ("FHFA") have
taken various other steps to support certain other fixed income markets, to
support mortgage servicers and to implement various portions of the Coronavirus
Aid, Relief, and Economic Security ("CARES") Act, which was signed into law on
March 27, 2020.

One provision of the CARES Act provides up to 360 days of forbearance relief
from mortgage loan payments for borrowers with federally backed (e.g. Fannie Mae
or Freddie Mac) mortgages who experience financial hardship related to the
pandemic. Combined with expected widespread unemployment stemming from the
economic slowdown caused by the pandemic, residential mortgage assets came under
extreme spread pressure. The CARES Act also prohibits foreclosures for 60 days
and evictions by landlords for 120 days after its enactment. These legislative
actions have created uncertainty around the ultimate effects on delinquencies,
defaults, prepayment speeds, low interest rates and home price appreciation.
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The FHFA has instructed the GSEs on how they will handle servicer advances for
loans that back Agency RMBS that enter into forbearance, which should limit
prepayments during the forbearance period that could have resulted otherwise. In
addition, governors of several states have issued executive orders prohibiting
evictions and foreclosures for specified periods of time, and many courts have
enacted emergency rules delaying hearings related to evictions or foreclosures.
Further, the FHFA recently announced a loan payment deferment plan for Agency
multi-family borrowers facing hardship from revenue losses caused by COVID-19,
with the condition that these borrowers suspend all evictions for renters unable
to pay rent due to the impact of COVID-19. We anticipate that the number of
borrowers with residential loans and those loans that underlie the securities in
which we invest that become delinquent or default on their financial obligations
may increase significantly as a result of the ongoing pandemic and such
increased levels could materially adversely affect our business, financial
condition, results of operations and our ability to make distributions to our
stockholders.

The CARES Act also provides many forms of direct support to individuals and
small businesses in order to stem the steep decline in economic activity. This
over $2 trillion COVID-19 relief bill, among other things, provided for direct
payments to each American making up to $75,000 a year, increased unemployment
benefits for up to four months (on top of state benefits), provided funding to
hospitals and health care providers, provided loans and investments to
businesses, states and municipalities and provided grants to the airline
industry. On April 24, 2020, President Trump signed an additional funding bill
into law that provides an additional $484 billion of funding to individuals,
small businesses, hospitals, health care providers and additional coronavirus
testing efforts.

The scope and nature of any future actions the Federal Reserve and other
governmental authorities will ultimately undertake are unknown and will continue
to evolve, especially in light of the COVID-19 pandemic and the upcoming
presidential and Congressional elections in the United States. We cannot predict
how, in the long term, these and other actions, as well as the negative impacts
from the ongoing COVID-19 pandemic, will affect the efficiency, liquidity and
stability of the financial, credit and mortgage markets, and thus, our business.
Greater uncertainty frequently leads to wider asset spreads or lower prices and
higher hedging costs.

The current regulatory environment may be impacted by future legislative
developments, such as changes to Fannie Mae and Freddie Mac, including their
continued existence and their roles in the market. The impact of such potential
reforms on our operations remains unclear.


Results of operations




Our operating results can be affected by a number of factors and primarily
depend on the size and composition of our investment portfolio, the level of our
net interest income, the fair value of our assets and the supply of, and demand
for, our target assets in the marketplace, among other things, which can be
impacted by unanticipated credit events, such as defaults, liquidations or
delinquencies, experienced by borrowers whose mortgage loans are included in our
investment portfolio and other unanticipated events in our markets. Our primary
source of net income available to common stockholders is our net interest
income, less our cost of hedging, which represents the difference between the
interest earned on our investment portfolio and the costs of financing and
hedging our investment portfolio. Prior to the sale of our 30 year fixed rate
Agency RMBS portfolio in March 2020, our net interest income varied primarily as
a result of changes in market interest rates, prepayment speeds, as measured by
the Constant Prepayment Rate ("CPR") on the Agency RMBS in our investment
portfolio, and our funding and hedging costs. As a result of the global COVID-19
pandemic and our disposition of assets to preserve liquidity, we incurred large
realized losses in the quarter ended March 31, 2020 and a sharp decline in book
value. Additionally, we believe the reduction in the size of our investment
portfolio will limit our earnings going forward.

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Three Months Ended March 31, 2020 compared to the Three Months Ended March 31,
2019




The table below presents certain information from our consolidated statements of
operations for the three months ended March 31, 2020 and March 31, 2019 (in
thousands):

Three Months Ended
March 31, 2020 March 31, 2019 Increase/(Decrease)



Statement of Operations Data:
Net Interest Income
Interest income $ 40,268 $ 41,490 $ (1,222)
Interest expense 19,971 22,094 (2,123)
Total Net Interest Income 20,297 19,396 901

Other Income/(Loss)
Net realized gain/(loss) (151,143) (20,583) (130,560)
Net interest component of interest rate
swaps 923 1,781 (858)
Unrealized gain/(loss) on real estate
securities and loans, net (313,897) 46,753 (360,650)
Unrealized gain/(loss) on derivative and
other instruments, net 5,686 (10,086) 15,772
Foreign currency gain/(loss), net 1,649 - 1,649
Other income 3 414 (411)
Total Other Income/(Loss) (456,779) 18,279 (475,058)

Expenses
Management fee to affiliate 2,149 2,345 (196)
Other operating expenses 2,342 3,781 (1,439)
Equity based compensation to affiliate 88 126 (38)
Excise tax (815) 92 (907)
Servicing fees 579 371 208
Total Expenses 4,343 6,715 (2,372)

Income/(loss) before equity in
earnings/(loss) from affiliates (440,825) 30,960 (471,785)

Equity in earnings/(loss) from affiliates (44,192) (771) (43,421)
Net Income/(Loss) from Continuing Operations (485,017) 30,189 (515,206)
Net Income/(Loss) from Discontinued
Operations - (1,034) 1,034
Net Income/(Loss) (485,017) 29,155 (514,172)

Dividends on preferred stock 5,667 3,367 2,300

Net Income/(Loss) Available to Common
Stockholders $ (490,684) $ 25,788 $ (516,472)



Interest income



Interest income is calculated using the effective interest method for our GAAP
investment portfolio and calculated based on the actual coupon rate and the
outstanding principal balance on our U.S. Treasury securities, if any.



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Interest income decreased from March 31, 2019 to March 31, 2020 primarily due to
a decrease in the weighted average yield on our GAAP investment portfolio and
U.S. Treasury securities, if any, during the period of 0.54% from 5.02% for the
three months ended March 31, 2019 to 4.48% for the three months ended March 31,
2020
. This was offset by an increase in the weighted average cost of our GAAP
investment portfolio and U.S. Treasury securities, if any, of $0.3 billion from
$3.3 billion at March 31, 2019 to $3.6 billion at March 31, 2020. We expect our
interest income going forward to be materially lower compared to comparable
prior periods as a result of the changes in our investment portfolio as set
forth in the tables of the "Investment activities" section below as a result of
the COVID-19 pandemic.

Interest expense



Interest expense is calculated based on the actual financing rate and the
outstanding financing balance of our GAAP investment portfolio and U.S. Treasury
securities, if any.




Interest expense decreased from March 31, 2019 to March 31, 2020 primarily due
to a decrease in the weighted average financing rate on our GAAP investment
portfolio and U.S. Treasury securities, if any, during the period, by 0.52% from
3.16% for the three months ended March 31, 2019 to 2.64% for the three months
ended March 31, 2020. Our weighted average financing balance on our GAAP
investment portfolio and U.S. Treasury securities, if any, remained flat during
the three months ended March 31, 2019 and March 31, 2020. Refer to the
"Financing activities" section below for a discussion of the material changes in
our cost of funds. We do not expect our interest expense, set forth in the
consolidated statements of operations table above, to be indicative of our
future interest expense due to the changes in our financing arrangements
described in the "Financing activities" section below.


Net realized gain/(loss)




Net realized gain/(loss) represents the net gain or loss recognized on any (i)
sales and seizures by financing counterparties of real estate securities out of
our GAAP investment portfolio, including any associated deficiencies recognized,
(ii) sales of loans out of our GAAP investment portfolio, transfers of loans
from our GAAP investment portfolio to real estate owned included in Other
assets, and sales of Other assets, (iii) settlement of derivatives and other
instruments, and (iv) prior to the adoption of ASU 2016-13,
other-than-temporary-impairment ("OTTI") charges recorded during the period. See
Note 2, Note 3, Note 4 and Note 5 to the "Notes to Consolidated Financial
Statements (unaudited)" for further discussion on OTTI. The following table
presents a summary of Net realized gain/(loss) for the three months ended March
31, 2020
and March 31, 2019 (in thousands):


Three Months Ended



March 31, 2020 March 31, 2019


Sale/seizures of real estate securities and related
collateral


$


(86,305) $ 2,062
Sale of loans and loans transferred to or sold from Other
assets


(2,967) 173
Settlement of derivatives and other instruments (61,871) (19,776)
OTTI - (3,042)
Total Net realized gain/(loss) $


(151,143) $ (20,583)






As previously discussed, in order to preserve liquidity and meet margin calls,
we sold approximately $2.4 billion of securities during the three months ended
March 31, 2020 due to the unprecedented market conditions experienced as a
result of the global COVID-19 pandemic. During the three months ended March 31,
2020
, we recognized net realized losses of $86.3 million on the sale or seizure
of such securities and realized losses of $61.9 million on the termination of
the related derivatives. We also recognized $3.0 million of net realized losses
on residential loans during the three months ended March 31, 2020, primarily due
to the sale of one loan.


Net interest component of interest rate swaps



Net interest component of interest rate swaps represents the net interest income
received or expense paid on our interest rate swaps.



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Net interest component of interest rate swaps decreased from March 31, 2019 to
March 31, 2020 due to a decrease in the average 3 month LIBOR rate as well as a
decrease in the weighted average notional period over period. Average 3 month
LIBOR, the interest rate upon which the floating leg of these derivative
instruments is based, decreased from 2.687% for the three months ended March 31,
2019
to 1.535% for the three months ended March 31, 2020. In addition, the
weighted average swap notional decreased from $1.9 billion for the three months
ended March 31, 2019 to $1.5 billion for the three months ended March 31, 2020.
Refer to the "Hedging activities" section below for a discussion of material
changes in our interest rate swap portfolio.


Unrealized gain/(loss) on real estate securities and loans, net




The disruptions of the financial markets due to the COVID-19 pandemic have
caused credit spread widening, a sharp decrease in interest rates and
unprecedented illiquidity in repurchase agreement financing and MBS markets.
These conditions have put significant downward pressure on the fair value of our
assets and resulted in unrealized losses for the three months ended March 31,
2020
.

During the first quarter of 2020, the Company recognized a $313.9 million
increase in net unrealized losses comprised of unrealized losses on securities
and unrealized losses on loans of $203.4 million and $110.5 million,
respectively. These losses were due directly to the disruptions of the financial
markets caused by the COVID-19 pandemic and the Company's response thereto,
including $2.4 billion in asset sales and a significant decrease in asset
valuations in March. Included in unrealized losses on both securities and loans
are net unrealized gain reversals due to sales during the first quarter of 2020
totaling $105.4 million. The remaining losses of $208.5 million relate to mark
to market losses on securities and loans still held at March 31, 2020.


Unrealized gain/(loss) on derivative and other instruments, net



For the three months ended March 31, 2020, the gain of $5.7 million was
comprised of unrealized gains on securitized debt offset by unrealized losses on
excess MSRs and derivatives.



Foreign currency gain/(loss), net




Foreign currency gain/(loss), net pertains to the effects of remeasuring the
monetary assets and liabilities of our foreign investments into U.S. dollars
using foreign currency exchange rates at the end of the reporting period. Refer
to Note 2 of the "Notes to the Consolidated Financial Statements" for details on
what specifically is included in the "Foreign currency gain/(loss), net" line
item. During the three months ended March 31, 2020, the value of GBP relative to
USD decreased, resulting in a gain on the liabilities held in foreign
currencies.


Other income




Other income primarily includes certain fees we receive on our loans and CMBS
portfolios. Other income decreased from March 31, 2019 to March 31, 2020 due to
the fact that we did not originate any loans during Q1 2019.


Management fee to affiliate




Our management fee is based upon a percentage of our Stockholders' Equity. See
the "Contractual obligations" section of this Item 2 for further detail on the
calculation of our management fee and for the definition of Stockholders'
Equity. Management fees decreased from March 31, 2019 to March 31, 2020
primarily due to a decrease in our Stockholders' Equity as calculated pursuant
to our Management Agreement.


On April 6, 2020 , we executed an amendment to our Management Agreement pursuant
to which our Manager agreed to defer our payment of the management fee and
reimbursement of expenses beginning with the first quarter of 2020 through
September 30, 2020, or such other time as we and the Manager agree.



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Other operating expenses




These amounts are primarily comprised of professional fees, directors' and
officers' ("D&O") insurance and directors' fees, as well as certain expenses
reimbursable to the Manager. We are required to reimburse our Manager or its
affiliates for operating expenses which are incurred by our Manager or its
affiliates on our behalf, including certain salary expenses and other expenses
relating to legal, accounting, due diligence, and other services. Refer to the
"Contractual obligations" section below for more detail on certain expenses
reimbursable to the Manager. The following table presents a summary of expenses
within Other operating expenses broken out between non-investment related
expenses and investment related expenses for the three months ended March 31,
2020
and March 31, 2019 (in thousands):


Three Months Ended



March 31, 2020 March 31, 2019
Non Investment Related Expenses
Affiliate expense reimbursement - Operating expenses $ 1,879 $ 1,745
Professional fees 545 440
D&O insurance 174 174
Directors' compensation 218 221
Restructuring related expenses (1) 1,500 -
Other 229 234
Total Corporate Expenses 4,545 2,814

Investment Related Expenses
Affiliate expense reimbursement - Deal related expenses 162 194


Affiliate expense reimbursement - Transaction related
expenses and deal related performance fees (2)


- 41
Professional fees 47 46
Residential mortgage loan related expenses 692 182
Transaction related expenses and deal related performance
fees (2) (3,219) 354
Other 115 150
Total Investment Expenses (2,203) 967
Total Other operating expenses $


2,342 $ 3,781






(1)Restructuring related expenses relate to legal and consulting fees primarily
incurred in connection with executing the Forbearance Agreement. Refer to the
"Financing activities" section below for more information regarding the
Forbearance Agreement.
(2)For the three months ended March 31, 2020 and March 31, 2019, total
transaction related expenses and deal related performance fees were $(3.4)
million
and $0.4 million, respectively. For the three months ended March 31,
2020
, the $(3.4) million includes $(0.2) million of deferred financing costs
that are included within interest expense. For the three months ended March 31,
2019
, the $0.4 million excludes a de minimis amount of deferred financing costs
that are included within interest expense. The decrease in Transaction related
expenses and deal related performance fees from the three months ended March 31,
2019
to the three months ended March 31, 2020 is primarily a result of accrued
deal related performance fees being reversed in the current period due to a
decline in the price of the related assets, as well as the seizure of such
assets by financing counterparties.


Equity based compensation to affiliate




Equity based compensation to affiliate represents the amortization of the fair
value of our restricted stock units granted to our Manager, less the present
value of dividends expected to be paid on the underlying shares through the
requisite period.


For the three months ended March 31, 2020 and March 31, 2019, our equity based
compensation to affiliate decreased due to a decrease in our stock price.



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Excise tax




Excise tax represents a four percent tax on the required amount of any ordinary
income and net capital gains not distributed during the year. The quarterly
expense is calculated in accordance with applicable tax regulations. For the
three months ended March 31, 2020 and March 31, 2019, our excise tax decreased
primarily due to losses associated with COVID-19.


Servicing fees




We incur servicing fee expenses in connection with the servicing of our
Residential mortgage loans. As of March 31, 2020 and March 31, 2019, we owned
Residential mortgage loans with a fair value of $767.0 million and $202.0
million
, respectively. This increase in the fair value of the Residential
mortgage loans was a result of our purchases of Residential mortgage loan pools
in 2019 and 2020.

For the three months ended March 31, 2020 and March 31, 2019, our servicing fees
increased primarily due to our purchases of residential mortgage loans described
above.


Equity in earnings/(loss) from affiliates




Equity in earnings/(loss) from affiliates represents our share of earnings and
profits of investments held within affiliated entities. A majority of these
investments are comprised of real estate securities, loans and our investment in
AG Arc. The decrease from the quarter ended March 31, 2019 to the quarter ended
March 31, 2020 primarily pertains to our share of the unrealized losses on
investments held within affiliated entities.


Discontinued operations




On November 15, 2019, we sold our portfolio of single-family rental properties
to a third party at a price of approximately $137 million. We recognized a gain
of $0.2 million as a result of the transaction. We reclassified the operating
results of the single-family rental properties segment to discontinued
operations and excluded the income from continuing operations for all periods
presented.

Book value per share



As of March 31, 2020 and December 31, 2019, our book value per common share was
$2.63 and $17.61, respectively.




Per share amounts for book value are calculated using all outstanding common
shares in accordance with GAAP, including all vested shares granted to our
Manager, and our independent directors under our equity incentive plans as of
quarter-end. Book value is calculated using stockholders' equity less net
proceeds of our 8.25% Series A Cumulative Redeemable Preferred Stock ($49.9
million
), 8.00% Series B Cumulative Redeemable Preferred Stock ($111.3 million),
and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
($111.2 million) as the numerator. The liquidation preference for the Series A,
Series B and Series C Preferred Stock is $51.8 million, $115 million and $115
million
, respectively.


Presentation of investment, financing and hedging activities




In the "Investment activities," "Financing activities," "Hedging activities" and
"Liquidity and capital resources" sections of this Item 2, where we disclose our
investment portfolio and the related financing arrangements, we have presented
this information inclusive of (i) unconsolidated ownership interests in
affiliates that are accounted for under GAAP using the equity method and (ii)
TBAs, which are accounted for as derivatives under GAAP. Our investment
portfolio and the related financing arrangements are presented along with a
reconciliation to GAAP. This presentation of our investment portfolio is
consistent with how our management team evaluates the business, and we believe
this presentation, when considered with the GAAP presentation, provides
supplemental information useful for investors in evaluating our investment
portfolio and financial condition. See Note 2 to the "Notes to Consolidated
Financial Statements (unaudited)" for a discussion of investments in debt and
equity of affiliates and TBAs.

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Net interest margin and leverage ratio




GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial
measure, are calculated by subtracting the weighted average cost of funds from
the weighted average yield for our GAAP investment portfolio or our investment
portfolio, respectively, which both exclude cash held by us and any net TBA
position. The weighted average yield on our Agency RMBS portfolio and our credit
portfolio represents an effective interest rate, which utilizes all estimates of
future cash flows and adjusts for actual prepayment and cash flow activity as of
quarter-end. The calculation of weighted average yield is weighted on fair
value. The weighted average cost of funds is the sum of the weighted average
funding costs on total financing arrangements outstanding at quarter-end,
including all non-recourse financing arrangements, and our weighted average
hedging cost, which is the weighted average of the net pay rate on our interest
rate swaps, the net receive/pay rate on our Treasury long and short positions,
respectively, and the net receivable rate on our IO index derivatives, if any.
Both elements of cost of funds are weighted by the outstanding financing
arrangements on our GAAP investment portfolio or our investment portfolio and
securitized debt at quarter-end, exclusive of repurchase agreements associated
with U.S. Treasury securities, if any.

As our capital allocation shifts, our weighted average yields and weighted
average cost of funds will also shift. Our Agency Investments, given their
liquidity and high credit quality, are eligible for higher levels of leverage,
while our Credit Investments, with less liquidity and/or more exposure to credit
risk and prepayment, utilize lower levels of leverage. As a result, our leverage
ratio is determined by our portfolio mix as well as many additional factors,
including the liquidity of our portfolio, the availability and price of our
financing, the diversification of our counterparties and their available
capacity to finance our assets, and anticipated regulatory developments. Over
the past several quarters, we have generally maintained a leverage ratio range
of 4.0 to 5.0 times to finance our investment portfolio, on a fully deployed
capital basis. Our debt-to-equity ratio is directly correlated to the
composition of our portfolio; specifically, the higher percentage of Agency
Investments we hold, the higher our leverage ratio is, while the higher
percentage of Credit Investments we hold, the lower our leverage ratio is. As
previously mentioned, in an effort to prudently manage our portfolio through
unprecedented market volatility and preserve long-term stockholder value, we
completed the sale of our 30 year fixed rate Agency securities during the first
quarter of 2020. We believe the resulting capital allocation impacts the
weighted average yield, weighted average cost of funds and leverage ratio
illustrated below.


Net interest margin and leverage ratio are metrics that management believes
should be considered when evaluating the performance of our investment
portfolio. See the "Financing activities" section below for more detail on our
leverage ratio.



The chart below sets forth the net interest margin and leverage ratio from our
investment portfolio as of March 31, 2020 and March 31, 2019 and a
reconciliation to our GAAP investment portfolio:



March 31, 2020



Investments in Debt
Weighted Average GAAP Investment Portfolio and Equity of Affiliates Investment Portfolio (a)
Yield 5.20 % 8.42 % 5.96 %
Cost of Funds (b) 2.88 % 4.94 % 3.25 %
Net Interest Margin 2.32 % 3.48 % 2.71 %
Leverage Ratio (c) 3.1x (d) 3.3x
March 31, 2019
Investments in Debt
Weighted Average GAAP Investment Portfolio and Equity of Affiliates Investment Portfolio (a)
Yield 5.05 % 6.10 % 5.18 %
Cost of Funds (b) 2.96 % 4.95 % 3.01 %
Net Interest Margin 2.09 % 1.15 % 2.17 %
Leverage Ratio (c) 4.2x (d) 4.6x


(a)Excludes any net TBA position.
(b)Includes cost of non-recourse financing arrangements.
(c)The leverage ratio on our GAAP investment portfolio represents GAAP leverage.
The leverage ratio on our investment portfolio represents Economic Leverage as
defined below in the "Financing Activities" section.
(d)Refer to the "Financing activities" section below for an aggregate breakout
of leverage.

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Core Earnings




We are not disclosing Core Earnings, a non-GAAP financial measure, for the first
quarter of 2020, as we determined that this measure, as we have historically
calculated it, would not appropriately capture the materially negative economic
impact of the COVID-19 pandemic on our business, liquidity, results of
operations, financial condition, and ability to make distributions to our
stockholders. As financial markets stabilize, we will evaluate whether core
earnings or other non-GAAP financial measures would help both management and
investors evaluate our operating performance for future periods.


Investment activities




Historically, our investment portfolio has been comprised of Agency RMBS,
Residential Investments and Commercial Investments. Our allocation to each of
these investments is set forth in more detail below. Our investment and capital
allocation decisions depend on prevailing market conditions, among other
factors, and may change over time in response to opportunities available in
different economic and capital market environments. The risk-reward profile of
our investment opportunities changes continuously with the market, with labor,
housing and economic fundamentals, and with U.S. monetary policy, among others.
As a result, in reacting to market conditions and taking into account a variety
of other factors, including liquidity, duration, interest rate expectations and
hedging, the mix of our assets changes over time as we opportunistically deploy
capital.

In light of recent market turmoil related to the COVID-19 pandemic, we expect to
maintain a defensive posture in the near term as it relates to new investments
until we have greater clarity of market and economic conditions resulting from
the COVID-19 pandemic and as related restrictions are reduced and states
"re-open." In Q1 2020, we reduced the size of our GAAP investment portfolio from
$4.0 billion to $1.3 billion, and at March 31, 2020, our equity capital
allocation was 5% to Agency RMBS and 95% to Credit Investments. We have
expertise in Agency RMBS, and may choose to allocate additional capital in those
assets should the opportunity arise; however, in the near term we expect our
capital to be almost entirely allocated to Credit Investments. Overall, our
intention is to allocate capital to investment opportunities with attractive
risk/return profiles in our target asset classes.

We evaluate investments in Agency RMBS using factors including, among others,
expected future prepayment trends, supply of and demand for Agency RMBS, costs
of financing, costs of hedging, liquidity, expected future interest rate
volatility and the overall shape of the U.S. Treasury and interest rate swap
yield curves. Prepayment speeds, as reflected by the CPR, and interest rates
vary according to the type of investment, conditions in financial markets,
competition and other factors, none of which can be predicted with any
certainty. In general, as prepayment speeds on our Agency RMBS portfolio
increase, the related purchase premium amortization increases, thereby reducing
the net yield on such assets.

Our credit investments are subject to risk of loss with regard to principal and
interest payments. We evaluate each investment in our credit portfolio based on
the characteristics of the underlying collateral, the securitization structure,
expected return, geography, collateral type, and the cost and availability of
financing, among others. We maintain a comprehensive portfolio management
process that generally includes day-to-day oversight by the portfolio management
team and a quarterly credit review process for each investment that examines the
need for a potential reduction in accretable yield, missed or late contractual
payments, significant declines in collateral performance, prepayments, projected
defaults, loss severities and other data which may indicate a potential issue in
our ability to recover our capital from the investment. These processes are
designed to enable our Manager to evaluate and proactively manage asset-specific
credit issues and identify credit trends on a portfolio-wide basis.
Nevertheless, we cannot be certain that our review will identify all issues
within our portfolio due to, among other things, adverse economic conditions or
events adversely affecting specific assets. Therefore, potential future losses
may also stem from issues with our investments that are not identified by our
credit reviews.



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The following table presents a detailed break-down of our investment portfolio
as of March 31, 2020 and December 31, 2019 and a reconciliation to our GAAP
Investment Portfolio ($ in thousands):




Percent of Investment
Portfolio
Fair Value Fair Value Leverage Ratio (a)
March 31, December 31,
March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019 2020 2019
Agency RMBS $ 37,620 $ 2,333,626 2.3 % 52.8 % 1.1x 7.1x
Residential Investments 1,284,972 1,493,869 79.3 % 33.8 % 3.8x 2.7x
Commercial Investments 298,508 589,709 18.4 % 13.4 % 2.3x 2.1x

Total: Investment Portfolio $ 1,621,100 $ 4,417,204 100.0 % 100.0 % 3.3x 4.1x


Investments in Debt and Equity



of Affiliates (b) $ 342,468 $ 373,126 N/A N/A (c) (c)

Total: GAAP Investment
Portfolio $ 1,278,632 $ 4,044,078 N/A N/A 3.1x 4.1x



(a)The leverage ratio on our investment portfolio represents Economic Leverage
as defined below in the "Financing Activities" section and is calculated by
dividing each investment type's total recourse financing arrangements by its
allocated equity (described in the chart below). Cash posted as collateral has
been allocated pro-rata by each respective asset class' Economic Leverage
amount. The Economic Leverage Ratio excludes any fully non-recourse financing
arrangements. The leverage ratio on our Agency RMBS includes any net receivables
on TBA. The leverage ratio on our GAAP Investment Portfolio represents GAAP
leverage.
(b)Certain Re/Non-Performing Loans held in securitized form are presented net of
non-recourse securitized debt.
(c)Refer to the "Financing activities" section below for an aggregate breakout
of leverage.


Refer to the Executive Summary above for information on securities and loans
sold subsequent to quarter end.




We allocate our equity by investment using the fair value of our investment
portfolio, less any associated leverage, inclusive of any long TBA position (at
cost). We allocate all non-investment portfolio related assets and liabilities
to our investment portfolio based on the characteristics of such assets and
liabilities in order to sum to stockholders' equity per the consolidated balance
sheets. Our equity allocation method is a non-GAAP methodology and may not be
comparable to the similarly titled measure or concepts of other companies, who
may use different calculations and allocation methodologies.


The following table presents a summary of the allocated equity of our investment
portfolio as of March 31, 2020 and December 31, 2019 ($ in thousands):




Allocated Equity Percent of Equity
March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
Agency RMBS $ 17,967 $ 295,358 5.0 % 34.8 %
Residential Investments 244,927 359,923 68.3 % 42.4 %
Commercial Investments 95,771 193,765 26.7 % 22.8 %

Total $ 358,665 $ 849,046 100.0 % 100.0 %


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The following table presents a reconciliation of our Investment Portfolio to our
GAAP Investment Portfolio as of March 31, 2020 ($ in thousands):



GAAP Investment Portfolio Reconciliation



Unrealized Mark- Weighted Average Weighted Weighted Average
Instrument Current Face Amortized Cost to-Market Fair Value (1) Coupon (2) Average Yield Life (Years) (3)



Agency RMBS:

Inverse Interest Only $ 96,198 $ 16,281 $ (2,675) $ 13,606 5.34 % 4.40 % 3.93
Interest Only 120,325 11,678 (2,152) 9,526 3.10 % (1.17) % 2.49
Excess MSR (4) 2,829,289 19,089 (4,601) 14,488 N/A 4.90 % 6.30

Total Agency RMBS 3,045,812 47,048 (9,428) 37,620 4.10 % 3.18 % 6.08

Credit Investments:
Residential Investments
Prime (5) 107,377 74,064 1,299 75,363 4.49 % 7.81 % 12.10
Alt-A/Subprime (5) 72,260 50,139 2,334 52,473 4.53 % 7.27 % 12.20
Credit Risk Transfer 42,222 42,367 (22,425) 19,942 5.34 % 5.35 % 13.32

Non-U.S. RMBS 22,281 27,932 (2,291) 25,641 4.24 % 4.11 % 3.33
Interest Only and Excess MSR
(4)(6) 232,527 370 38 408 0.74 % NM 5.28
Re/Non-Performing Loans 1,085,425 937,007 (89,254) 847,753 3.92 % 5.34 % 6.25
Non-QM Loans 1,365,916 255,271 (23,356) 231,915 1.71 % 7.40 % 3.71
Land Related Financing 31,283 31,081 396 31,477 12.69 % 12.79 % 2.50
Total Residential Investments 2,959,291 1,418,231 (133,259) 1,284,972 3.18 % 5.97 % 5.40
Commercial Investments
CMBS 162,840 154,233 (42,086) 112,147 4.23 % 5.44 % 4.03
Freddie Mac K-Series 26,304 11,358 (2,100) 9,258 3.83 % 9.30 % 10.88
Interest Only (7) 865,185 21,569 (2,517) 19,052 0.44 % 7.30 % 4.27
Commercial Real Estate Loans (8) 170,127 169,408 (11,357) 158,051 6.26 % 6.53 % 2.11
Total Commercial Investments 1,224,456 356,568 (58,060) 298,508 1.79 % 6.26 % 4.08

Total Credit Investments 4,183,747 1,774,799 (191,319) 1,583,480 2.69 % 6.03 % 5.01


Total: Investment Portfolio $ 7,229,559 $ 1,821,847 $ (200,747) $ 1,621,100


2.77 % 5.96 % 5.46


Investments in Debt and Equity of



Affiliates $ 1,889,611 $ 368,362 $ (25,894) $ 342,468 1.91 % 8.42 % 4.04

Total: GAAP Investment Portfolio $ 5,339,948 $ 1,453,485 $ (174,853) $ 1,278,632 3.17 % 5.20 % 5.98



(1)Refer to "Off-balance sheet arrangements" section below and Note 2 to the
"Notes of the Consolidated Financial Statements" section for more detail on what
is included in our "Investments in debt and equity of affiliates" line item on
our consolidated balance sheet and a discussion of our Investments in debt and
equity of affiliates.
(2)Equity residuals, principal only securities and Excess MSRs with a zero
coupon rate are excluded from this calculation.
(3)Weighted average life is based on projected life. Typically, actual
maturities of investments and loans are shorter than stated contractual
maturities. Maturities are affected by the contractual lives of the underlying
mortgages, periodic payments of principal and prepayments of principal.
(4)Within Agency RMBS, Excess MSRs whose underlying collateral is securitized in
a trust held by a U.S. government agency or GSE. Within Residential Investments,
Excess MSRs whose underlying collateral is securitized in a trust not held by a
U.S. government agency or GSE.
(5)Non-Agency RMBS with credit scores above 700, between 700 and 620 and below
620 at origination are classified as Prime, Alt-A, and Subprime, respectively.
The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency
RMBS were 721 and 670, respectively.
(6)A majority of the Interest Only and Excess MSR line is made up of two
Residential Interest Only positions. The overall impact of these investments'
yields on the Investment Portfolio is immaterial.
(7)Comprised of Freddie Mac K-Series interest-only bonds.
(8)Yield on Commercial Real Estate Loans includes any exit fees.

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The following table presents a reconciliation of our Investment Portfolio to our
GAAP Investment Portfolio as of December 31, 2019 ($ in thousands):



Unrealized Mark- Weighted Average Weighted Weighted Average
Instrument Current Face Amortized Cost to-Market Fair Value (1) Coupon (2) Average Yield Life (Years) (3)
Agency RMBS:
30 Year Fixed Rate $ 2,125,067 $ 2,184,190 $ 57,108 $ 2,241,298 3.73 % 3.17 % 5.85

Inverse Interest Only 217,031 37,611 627 38,238 4.37 % 6.66 % 4.97
Interest Only 259,161 35,333 570 35,903 3.56 % 5.02 % 4.01
Excess MSR (4) 3,042,841 20,188 (2,001) 18,187 N/A 8.33 % 5.56

Total Agency RMBS 5,644,100 2,277,322 56,304 2,333,626 3.77 % 3.30 % 5.57

Credit Investments:
Residential Investments
Prime (5) 297,932 213,056 28,831 241,887 4.92 % 7.44 % 11.63
Alt-A/Subprime (5) 141,464 110,605 12,107 122,712 4.40 % 6.89 % 8.23
Credit Risk Transfer 270,397 270,988 8,967 279,955 5.17 % 5.27 % 5.66
Non-U.S. RMBS 44,867 54,340 3,391 57,731 3.21 % 3.58 % 2.53

Interest Only and Excess MSR (4) 244,115 1,592 (376) 1,216 0.77 % 7.73 % 6.34
Re/Non-Performing Loans 605,844 493,734 16,449 510,183 4.14 % 6.48 % 6.56
Non-QM Loans 1,141,131 250,087 4,189 254,276 1.69 % 5.35 % 1.71
Land Related Financing 25,607 25,395 514 25,909 12.27 % 12.40 % 3.00
Total Residential Investments 2,771,357 1,419,797 74,072 1,493,869 3.53 % 6.24 % 4.99
Commercial Investments
CMBS 277,020 262,233 784 263,017 4.87 % 5.57 % 4.07
Freddie Mac K-Series 235,810 100,427 17,723 118,150 5.01 % 11.34 % 8.34
Interest Only (6) 3,650,693 46,606 3,250 49,856 0.23 % 6.64 % 3.02
Commercial Real Estate Loans (7) 158,686 158,000 686 158,686 6.82 % 7.17 % 1.92
Total Commercial Investments 4,322,209 567,266 22,443 589,709 0.82 % 7.25 % 3.33

Total Credit Investments 7,093,566 1,987,063 96,515 2,083,578 1.74 % 6.53 % 3.98



Total: Investment Portfolio $ 12,737,666 $ 4,264,385 $ 152,819 $ 4,417,204


2.34 % 4.82 % 4.69


Investments in Debt and Equity of



Affiliates $ 1,676,838 $ 361,992 $ 11,134 $ 373,126 1.82 % 6.75 % 2.71

Total: GAAP Investment Portfolio $ 11,060,828 $ 3,902,393 $ 141,685 $ 4,044,078 2.41 % 4.57 % 4.94



(1)Refer to "Off-balance sheet arrangements" section below and Note 2 to the
"Notes of the Consolidated Financial Statements" section for more detail on what
is included in our "Investments in debt and equity of affiliates" line item on
our consolidated balance sheet and a discussion of Investments in debt and
equity of affiliates.
(2)Equity residuals, principal only securities and Excess MSRs with a zero
coupon rate are excluded from this calculation.
(3)Weighted average life is based on projected life. Typically, actual
maturities of investments and loans are shorter than stated contractual
maturities. Maturities are affected by the contractual lives of the underlying
mortgages, periodic payments of principal and prepayments of principal.
(4)Within Agency RMBS, Excess MSRs whose underlying collateral is securitized in
a trust held by a U.S. government agency or GSE. Within Residential Investments,
Excess MSRs whose underlying collateral is securitized in a trust not held by a
U.S. government agency or GSE.
(5)Non-Agency RMBS with credit scores above 700, between 700 and 620 and below
620 at origination are classified as Prime, Alt-A, and Subprime, respectively.
The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency
RMBS were 719 and 674, respectively.
(6)Comprised of Freddie Mac K-Series interest-only bonds.
(7)Yield on Commercial Real Estate Loans includes any exit fees.
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The following table presents the fair value ($ in thousands) and the CPR
experienced on our GAAP Agency RMBS portfolio for the periods presented:



Fair Value CPR (1)(2)
Agency RMBS March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
30 Year Fixed Rate (3) $ - $ 2,241,298 9.4 % 8.1 %
Fixed Rate CMO (4) - - - % 8.2 %

Inverse Interest Only 13,606 38,238 14.9 % 11.7 %
Interest Only 9,526 35,903 12.2 % 10.3 %
Total/Weighted Average $ 23,132 $ 2,315,439 9.5 % 8.2 %



(1)Represents the weighted average monthly CPRs published during the quarter
ended of March 31, 2020 and year ended December 31, 2019 for our in-place
portfolio during the same period.
(2)Source: Bloomberg.
(3)We held 30 Year Fixed Rate Agency RMBS during 2020, but sold them prior to
March 31, 2020.
(4)We held Fixed Rate CMOs during 2019, but sold them prior to December 31,
2019
.

The following table presents the fair value of the securities and loans in our
credit portfolio, and a reconciliation to our GAAP credit portfolio (in
thousands):

Fair Value
March 31, 2020 December 31, 2019
Non-Agency RMBS (1) $ 297,194 $ 835,325
CMBS (2) 140,457 431,023

Total Credit securities 437,651 1,266,348

Residential loans (3) 987,778 658,544
Commercial real estate loans 158,051 158,686
Total loans 1,145,829 817,230

Total Credit investments $ 1,583,480 $ 2,083,578
Less: Investments in Debt and Equity of Affiliates $ 341,933 $ 372,571
Total GAAP Credit Portfolio $ 1,241,547 $ 1,711,007



(1)Includes investments in Prime, Alt-A/Subprime, Credit Risk Transfer, Non-U.S
RMBS, Interest-Only and Excess MSR, Re/Non-Performing Loans, Non-QM Loans, and
Land Related Financing held in securitized form.
(2)Includes CMBS, Freddie Mac K-Series, and Interest-Only investments.
(3)Includes Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing
not held in securitized form.

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The following table presents certain information grouped by vintage as it
relates to our credit securities portfolio as of March 31, 2020 ($ in
thousands). We have also presented a reconciliation to GAAP.



Unrealized
Mark-to- Weighted Average Weighted Weighted Average
Credit Securities: Current Face Amortized Cost Market Fair Value (1) Coupon (2) Average Yield Life (Years) (3)
Pre 2009 $ 74,461 $ 53,535 $ 1,414 $ 54,949 4.82 % 7.65 % 15.23
2010 980 865 (59) 806 1.86 % 6.58 % 2.48
2011 4,376 3,919 (479) 3,440 4.42 % 4.87 % 4.19

2013 73,028 13,895 (1,642) 12,253 2.05 % 7.29 % 2.39
2014 29,862 21,753 1,682 23,435 4.43 % 18.49 % 5.96
2015 409,105 53,919 571 54,490 1.37 % 4.34 % 5.24
2016 216,287 12,951 (462) 12,489 0.90 % 9.09 % 4.44
2017 247,326 40,745 (2,607) 38,138 0.98 % 5.82 % 3.62
2018 227,390 62,200 (21,438) 40,762 1.42 % 5.09 % 5.84
2019 1,213,460 226,345 (47,593) 178,752 1.44 % 10.15 % 4.31
2020 303,403 24,824 (6,687) 18,137 0.92 % 14.19 % 3.74
Total: Credit Securities $ 2,799,678 $ 514,951 $ (77,300) $ 437,651 1.47 % 8.72 % 4.71
Investments in Debt and
Equity of Affiliates $ 1,536,378 $ 134,006 $ (12,778) $ 121,228 0.80 % 14.15 % 4.05
Total: GAAP Basis $ 1,263,300 $ 380,945 $ (64,522) $ 316,423 2.01 % 6.64 % 5.52



(1)Certain Re/Non-Performing Loans held in securitized form are presented net of
non-recourse securitized debt.
(2)Equity residual investments and principal only securities are excluded from
this calculation.
(3)Weighted average life is based on projected life. Typically, actual
maturities of mortgage-backed securities are shorter than stated contractual
maturities. Actual maturities are affected by the contractual lives of the
underlying mortgages, periodic payments of principal and prepayments of
principal.


The following table presents certain information grouped by vintage as it
relates to our credit securities portfolio as of December 31, 2019 ($ in
thousands). We have also presented a reconciliation to GAAP.



Unrealized
Mark-to- Weighted Average Weighted Weighted Average Life
Credit Securities: Current Face Amortized Cost



Market Fair Value (1) Coupon (2) Average Yield (Years) (3)
Pre 2009 $ 278,125 $ 198,225 $ 25,099 $ 223,324 5.07 % 7.12 % 12.67
2010 1,070 948 42 990 1.97 % 6.68 % 2.94
2011 4,812 4,302 29 4,331 4.44 % 5.73 % 4.93
2012 3,740 3,062 510 3,572 4.05 % 7.61 % 3.42
2013 76,869 17,724 1,367 19,091 2.18 % 7.06 % 2.58
2014 974,525 38,454 4,320 42,774 0.31 % 10.46 % 0.56
2015 895,235 108,425 17,520 125,945 0.84 % 9.24 % 4.22
2016 1,139,729 80,162 11,595 91,757 0.60 % 8.67 % 4.57
2017 1,054,591 176,767 8,632 185,399 0.88 % 6.43 % 4.27
2018 275,234 104,090 3,040 107,130 2.08 % 5.48 % 5.77
2019 1,498,432 449,682 12,353 462,035 2.07 % 6.05 % 2.73



Total: Credit Securities $ 6,202,362 $ 1,181,841


$ 84,507 $ 1,266,348 1.24 % 6.92 % 3.78
Investments in Debt and
Equity of Affiliates $ 1,311,008 $ 123,152 $ 8,803 $ 131,955 0.78 % 9.50 % 2.50
Total: GAAP Basis $ 4,891,354 $ 1,058,689 $ 75,704 $ 1,134,393 1.31 % 6.62 % 4.13



(1)Certain Re/Non-Performing Loans held in securitized form are recorded net of
non-recourse securitized debt.
(2)Equity residual investments and principal only securities are excluded from
this calculation.
(3)Weighted average life is based on projected life. Typically, actual
maturities of mortgage-backed securities are shorter than stated contractual
maturities. Actual maturities are affected by the contractual lives of the
underlying mortgages, periodic payments of principal and prepayments of
principal.

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The following table presents the fair value of our credit securities portfolio
by credit rating as of March 31, 2020 and December 31, 2019 (in thousands):




Credit Rating - Credit Securities (1) March 31, 2020 (2) December 31, 2019 (2)
AAA $ 687 $ 4,975
A 11,859 13,792
BBB 13,332 65,454
BB 37,923 106,311
B 62,432 226,083
Below B 31,161 103,985
Not Rated 280,257 745,748
Total: Credit Securities $ 437,651 $ 1,266,348
Less: Investments in Debt and Equity of
Affiliates $ 121,228 $ 131,955
Total: GAAP Basis $ 316,423 $ 1,134,393


(1)Represents the minimum rating for rated assets of S&P, Moody and Fitch credit
ratings, stated in terms of the S&P equivalent.
(2)Certain Re/Non-Performing Loans held in securitized form are presented net of
non-recourse securitized debt.

The following tables present the geographic concentration of the underlying
collateral for our Non-Agency RMBS and CMBS portfolios ($ in thousands):
March 31, 2020
Non-Agency RMBS CMBS (1)
State Fair Value (2) Percentage (2) State Fair Value Percentage
California $ 65,697 28.5 % California $ 19,519 13.9 %
New York 26,407 11.5 % Florida 17,304 12.3 %
Florida 23,331 10.1 % Texas 15,631 11.1 %
Maryland 9,289 4.0 % New York 15,093 10.7 %
New Jersey 8,154 3.5 % New Jersey 10,686 7.6 %
Other 164,316 42.4 % Other 62,224 44.4 %
Total $ 297,194 100.0 % Total $ 140,457 100.0 %


(1)CMBS includes all commercial credit securities, including CMBS, Freddie Mac
K-Series, and Interest-Only investments.
(2)Non-Agency RMBS fair value includes $66.9 million of investments where there
was no data regarding the underlying collateral. These positions were excluded
from the percent calculation.

December 31, 2019
Non-Agency RMBS CMBS (1)
State Fair Value (2) Percentage (2) State Fair Value Percentage
California $ 174,569 24.5 % California $ 52,647 12.2 %
Florida 62,100% 8.8 % New York 46,317 10.7 %
New York 57,931 8.1 % Texas 45,619 10.6 %
Texas 33,890 4.8 % Florida 45,032 10.4 %
New Jersey 22,736 3.3 % New Jersey 31,396 7.3 %
Other 483,403 50.5 % Other 210,012 48.8 %
Total $ 835,325 100.0 % Total $ 431,023 100.0 %


(1)CMBS includes all commercial credit securities, including CMBS, Freddie Mac
K-Series, and Interest-Only investments.
(2)Non-Agency RMBS fair value includes $123.0 million of investments where there
was no data regarding the underlying collateral. These positions were excluded
from the percent calculation.

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See Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for a
breakout of geographic concentration of credit risk within loans we include in
the "Residential mortgage loans, at fair value" line item on our consolidated
balance sheets.

The following tables present certain information regarding credit quality for
certain categories within our Non-Agency RMBS and CMBS portfolios ($ in
thousands):
March 31, 2020
Non-Agency RMBS*
Weighted Weighted Weighted
Average 60+ Days Average Loan Average Credit
Category Fair Value Delinquent Age (Months) Enhancement
Prime $ 75,363 10.6 % 133.3 16.1 %
Alt-A/Subprime 52,473 13.0 % 163.6 17.7 %
Credit Risk Transfer 19,942 0.4 % 16.1 0.5 %
Non-U.S. RMBS 25,641 6.3 % 105.6 7.1 %



CMBS*
Weighted Weighted Weighted
Average 60+ Days Average Loan Average Credit
Category Fair Value Delinquent Age (Months) Enhancement
CMBS $ 112,147 0.6 % 23.5 9.9 %
Freddie Mac K Series 9,258 0.1 % 19.0 0.0 %



December 31, 2019
Non-Agency RMBS*
Weighted Weighted Weighted
Average 60+ Days Average Loan Average Credit
Category Fair Value Delinquent Age (Months) Enhancement
Prime $ 241,887 10.6 % 136.7 9.8 %
Alt-A/Subprime 122,712 12.8 % 162.3 17.7 %
Credit Risk Transfer 279,955 0.4 % 24.5 1.8 %
Non-U.S. RMBS 57,731 7.3 % 147.8 15.8 %



CMBS*
Weighted Weighted Weighted
Average 60+ Days Average Loan Average Credit
Category Fair Value Delinquent Age (Months) Enhancement
CMBS $ 263,017 0.2 % 22.1 9.3 %
Freddie Mac K Series 118,150 0.6 % 45.3 0.4 %



*Sources: Intex, Trepp

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The following table presents detail on our commercial real estate loan portfolio
on March 31, 2020 ($ in thousands).



Weighted Average
Gross Life Extended
Loan Premium Unrealized Coupon (Years) Initial Stated Maturity
(1)(2) Current Face (Discount) Amortized Cost Losses Fair Value (3) (4) Yield (5) (6) Maturity Date Date (7) Location Collateral Type
Loan G (8) $ 52,089 $ - $ 52,089 $ (4,226) $ 47,863 5.76 % 5.76 % 1.46 July 9, 2020 July 9, 2022 CA Condo, Retail,
Hotel
Loan H (8)(9) 36,000 - 36,000 (1,800) 34,200 4.71 % 4.71 % 0.19 March 9, 2019 June 9, 2020 AZ Office
Loan I (10) 14,646 (181) 14,465 (819) 13,646 11.51 % 12.85 % 2.05 February 9, 2021 February 9, 2023 MN Office, Retail
Loan J (8) 5,220 - 5,220 (1,500) 3,720 6.23 % 6.23 % 2.20 January 1, 2023 January 1, 2024 NY Hotel, Retail
Loan K (11) 11,172 - 11,172 (1,000) 10,172 10.59 % 11.74 % 0.93 May 22, 2021 February 22, 2024 NY Hotel,


Retail



Loan L (11) 51,000 (538) 50,462 (2,012) 48,450 5.41 % 5.75 % 4.37 July 22, 2022 July 22, 2024 IL Hotel, Retail
$ 170,127 $ (719) $ 169,408 $ (11,357) $ 158,051 6.26 % 6.53 % 2.11



(1)We have the contractual right to receive a balloon payment for each loan.
(2)See our "Off-balance sheet arrangements" section below for details on our
commitments on commercial real estate loans as of March 31, 2020.
(3)Pricing is reflective of marks on unfunded commitments.
(4)Each commercial real estate loan investment has a variable coupon rate.
(5)Yield includes any exit fees.
(6)Actual maturities of commercial real estate loans may be shorter than stated
contractual maturities. Maturities are affected by prepayments of principal.
(7)Represents the maturity date of the last possible extension option.
(8)Loan G, Loan H, and Loan J are first mortgage loans.
(9)Subsequent to quarter end, Loan H was sold.
(10)Loan I is a mezzanine loan.
(11)Loan K and Loan L are comprised of first mortgage and mezzanine loans.


The following table presents detail on our commercial real estate loan portfolio
on December 31, 2019 ($ in thousands).



Weighted Average
Life Extended
Premium Gross Unrealized Coupon (Years) Initial Stated Maturity
Loan (1) Current Face (Discount) Amortized Cost Gains Fair Value (2) Yield (3) (4) Maturity Date Date (5) Location Collateral Type
Loan G (6) $ 45,856 $ - $ 45,856 $ - $ 45,856 6.46 % 6.46 % 0.53 July 9, 2020 July 9, 2022 CA Condo, Retail,
Hotel
Loan H (6) 36,000 - 36,000 - 36,000 5.49 % 5.49 % 0.19 March 9, 2019 June 9, 2020 AZ Office
Loan I (7) 11,992 (184) 11,808 184 11,992 12.21 % 14.51 % 1.04 February 9, 2021 February 9, 2023 MN Office, Retail
Loan J (6) 4,674 - 4,674 - 4,674 6.36 % 6.36 % 2.12 January 1, 2023 January 1, 2024 NY Hotel, Retail
Loan K (8) 9,164 - 9,164 - 9,164 10.71 % 11.86 % 1.72 May 22, 2021 February 22, 2024 NY Hotel,


Retail



Loan L (8) 51,000 (502) 50,498 502 51,000 6.16 % 6.50 % 4.63 July 22, 2022 July 22, 2024 IL Hotel, Retail
$ 158,686 $ (686) $ 158,000 $ 686 $ 158,686 6.82 % 7.17 % 1.92



(1)We have the contractual right to receive a balloon payment for each loan.
(2)Each commercial real estate loan investment has a variable coupon rate.
(3)Yield includes any exit fees.
(4)Actual maturities of commercial real estate loans may be shorter than stated
contractual maturities. Weighted average maturities are affected by prepayments
of principal.
(5)Represents the maturity date of the last possible extension option.
(6)Loan G, Loan H, and Loan J are first mortgage loans.
(7)Loan I is a mezzanine loan.
(8)Loan K and Loan L are comprised of first mortgage and mezzanine loans.


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Financing activities




Prior to the recent turmoil in the financial markets, we sought to achieve a
balanced and diverse funding mix to finance our assets and operations, which
included a combination of short-term borrowings, such as repurchase agreements
with terms typically of 30-90 days, longer term repurchase agreement borrowings,
and longer term financings, such as securitizations and revolving facilities,
with terms longer than one year. We have explored and will continue in the near
term to explore additional financing arrangements to further strengthen our
balance sheet and position ourselves for future investment opportunities,
including, without limitation, issuances of equity or debt securities and
longer-termed financing arrangements; however, no assurance can be given that we
will be able to access any such financing or the size, timing or terms thereof.

In Q1 2020, in response to the unprecedented illiquidity and drop in demand for
MBS due to the COVID-19 pandemic, which resulted in a significant decline in the
value of our assets, which, in turn, resulted in an unusually high number of
margin calls from our financing counterparties, we reduced our overall exposure
to our financing counterparties by selling a significant portion of our
investment portfolio and reducing the amount of our financing arrangements from
$3.2 billion to $969.9 million on a GAAP basis and from $3.5 billion to
$1.2 billion on a Non-GAAP basis, including a reduction in our repurchase
agreement balance from $3.2 billion to $527.4 million. Our revolving facilities
balance increased from $296.5 million to $703.8 million due primarily to the
financing of our purchase of a residential mortgage loan portfolio with a gross
aggregate acquisition fair value of $450.3 million. Additionally, the Federal
Reserve
cut the federal funds rate by a total of 150 basis points during Q1
2020. As previously described, we sold our entire portfolio of 30 year fixed
rate Agency RMBS in March of 2020. As a result, our investment portfolio was
primarily comprised of Credit Investments as of March 31, 2020. As financing
costs on our Credit Investments are typically higher than financing costs on our
Agency RMBS portfolio, our cost of financing increased from 2.51% at December
31, 2019
to 3.25% at March 31, 2020.

On March 20, 2020, we notified our financing counterparties that we did not
expect to be in a position to fund the anticipated volume of future margin calls
under our financing arrangements in the near term as a result of market
disruptions created by the COVID-19 pandemic. Since March 23, 2020, we have
received notifications of alleged events of default and deficiency notices from
several of our financing counterparties. Subject to the terms of the applicable
financing arrangement, if we fail to deliver additional collateral or otherwise
meet margin calls when due, the financing counterparties may be able to demand
immediate payment by us of the aggregate outstanding financing obligations owed
to such counterparties, and if such financing obligations are not paid, may be
permitted to sell the financed assets and apply the proceeds to our financing
obligations and/or take ownership of the assets securing our financing
obligations. During this period of market upheaval, we engaged in discussions
with our financing counterparties with regard to entering into forbearance
agreements pursuant to which each counterparty would agree to forbear from
exercising its rights and remedies with respect to an event of default under the
applicable financing arrangement for an agreed-upon period. Subsequent to
quarter end, on April 10, 2020, we entered into a forbearance agreement for an
initial 15 day period, a second forbearance agreement on April 27, 2020, for an
extended period ending on June 1, 2020, and a third forbearance agreement on
June 1, 2020 for an additional period ending June 15, 2020 (collectively, the
"Forbearance Agreement") with certain of our financing counterparties (the
"Participating Counterparties"). Pursuant to the terms of the Forbearance
Agreement, the Participating Counterparties agreed to forbear from exercising
any of their right and remedies in respect of events of default and any and all
other defaults under the applicable financing arrangement with us for the
duration of the forbearance period specified in the Forbearance Agreement (the
"Forbearance Period").

On June 10, 2020, we entered into a Reinstatement Agreement with the
Participating Counterparties, pursuant to which the parties agreed to terminate
the Forbearance Agreement and each Participating Counterparty agreed to
permanently waive all existing and prior events of default under our financing
agreements (each, a "Bilateral Agreement") and to reinstate each Bilateral
Agreement, as it may be amended by agreement between the Participating
Counterparty and the Company. As a result of the termination of the Forbearance
Agreement and entry into the Reinstatement Agreement, default interest on the
our outstanding borrowings under each Bilateral Agreement will cease to accrue
as of June 10, 2020 and the interest rate shall be the non-default rate of
interest or pricing rate, as set forth in the applicable Bilateral Agreements,
all cash margin will be applied to outstanding balances we owe, and the DTC repo
tracker coding for each Bilateral Agreement will be reinstated, thereby allowing
principal and interest payments on the underlying collateral to flow to and be
used by us, just as it was before the prior forbearance agreements were put in
place. In addition, pursuant to the terms of the Reinstatement Agreement, the
security interests granted to Participating Counterparties as additional
collateral under the various forbearance agreements are being terminated and
released. We also agreed to pay the reasonable fees and out-of-pocket expenses
of counsel and other professional advisors for the Participating Counterparties
and the collateral agent. Additionally, the Reinstatement Agreement provides a
set of financial covenants that override and replace the financial covenants in
each Bilateral Agreement and sets forth various reporting requirements from the
Company to the Participating Counterparties, releases, certain netting
obligations and cross-default provisions. In connection with the negotiation and
execution of the Reinstatement Agreement, we entered into certain amendments to
the Bilateral Agreements with certain of the Participating Counterparties to
reflect current market terms. In general, the amendments reflect increased
haircuts and higher coupons.
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On June 10, 2020, we also entered a separate reinstatement agreement with
JPMorgan Chase Bank (the "JPM Reinstatement Agreement") on substantially the
same terms as those set forth in the Reinstatement Agreement. The Reinstatement
Agreement and the JPM Reinstatement Agreement collectively cover all of our
existing financing arrangements as of the date of this Report.

As previously described, through the end of March and subsequent to the end of
the quarter, we sold certain assets in an effort to satisfy outstanding
financing obligations and reduce our exposure to various counterparties. As of
June 10, 2020, we had met all margin call requirements. Refer to Note 13 in the
"Notes to Consolidated Financial Statements (Unaudited)" for more information on
outstanding deficiencies.

We use leverage to finance the purchase of our target assets. In 2020 and 2019,
our leverage has primarily been in the form of repurchase agreements,
facilities, and securitized debt. Repurchase agreements involve the sale and a
simultaneous agreement to repurchase the transferred assets or similar assets at
a future date. The amount borrowed generally is equal to the fair value of the
assets pledged less an agreed-upon discount, referred to as a "haircut." The
size of the haircut reflects the perceived risk associated with the pledged
asset. Haircuts may change as our financing arrangements mature or roll and are
sensitive to governmental regulations. We experienced fluctuations in our
haircuts that caused us to alter our business and financing strategies for the
three months ended March 31, 2020. As previously described, this resulted in us
raising liquidity and de-risking our portfolio. Through asset sales and related
debt pay-offs, we have reduced the aggregate number of our financing
counterparties, bringing the counterparties we have debt outstanding with down
from 30 as of December 31, 2019 to 18 as of March 31, 2020. We have further
reduced the number of our outstanding financing counterparties to 5 on a GAAP
basis and to 6 on a non-GAAP basis subsequent to quarter end.

Our repurchase agreements are accounted for as financings and require the
repurchase of the transferred securities or loans or repayment of the advance at
the end of each agreement's term, typically 30 to 90 days. If we maintain the
beneficial interest in the specific assets pledged during the term of the
borrowing, we receive the related principal and interest payments. If we do not
maintain the beneficial interest in the specific assets pledged during the term
of the borrowing, we will have the related principal and interest payments
remitted to us by the lender. Interest rates on borrowings are fixed based on
prevailing rates corresponding to the terms of the borrowings, and interest is
paid at the termination of the borrowing at which time we may enter into a new
borrowing arrangement at prevailing market rates with the same counterparty or
repay that counterparty and negotiate financing with a different counterparty.

We have also entered into revolving facilities to purchase certain loans in our
investment portfolio. These facilities typically have longer stated maturities
than repurchase agreements. Interest rates on these facilities are based on
prevailing rates corresponding to the terms of the borrowings, and interest is
paid on a monthly basis. Additionally, these facilities contain representations,
warranties, covenants, including financial covenants, events of default and
indemnities that are customary for agreements of these types.

In response to declines in fair value of pledged assets due to changes in market
conditions or the publishing of monthly security paydown factors, lenders
typically require us to post additional assets as collateral, pay down
borrowings or establish cash margin accounts with the counterparties in order to
re-establish the agreed-upon collateral requirements, referred to as margin
calls.

The following table presents the quarter-end balance, average quarterly balance
and maximum balance at any month-end for our (i) financing arrangements on our
investment portfolio and U.S Treasury securities ("Non-GAAP Basis" below), and
(ii) financing arrangements through affiliated entities, excluding any financing
utilized in our investment in AG Arc, with a reconciliation of all quarterly
figures to GAAP ("GAAP Basis" below) (in thousands). Refer to the "Hedging
Activities" section below for more information on repurchase agreements secured
by U.S. Treasury securities.
Average Maximum
Quarter-End Quarterly Balance at
Quarter Ended Balance Balance Any Month-End
March 31, 2020
Non-GAAP Basis $ 1,231,231 $ 2,878,844 $ 3,904,578
Less: Investments in Debt and Equity of Affiliates 261,374 260,737 280,195
GAAP Basis $ 969,857 $ 2,618,107 $ 3,624,383
December 31, 2019
Non-GAAP Basis $ 3,490,884 $ 3,703,921 $ 3,929,708
Less: Investments in Debt and Equity of Affiliates 257,416 240,602 257,830


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GAAP Basis $ 3,233,468 $ 3,463,319 $ 3,671,878
September 30, 2019
Non-GAAP Basis $ 3,720,937 $ 3,301,725 $ 3,720,937



Less: Investments in Debt and Equity of



Affiliates 195,949 238,144 279,478
GAAP Basis $ 3,524,988 $ 3,063,581 $ 3,441,459
June 30, 2019
Non-GAAP Basis $ 3,074,536 $ 3,166,610 $ 3,263,481



Less: Investments in Debt and Equity of



Affiliates 183,286 216,024 238,045
GAAP Basis $ 2,891,250 $ 2,950,586 $ 3,025,436
March 31, 2019
Non-GAAP Basis $ 3,290,383 $ 3,069,958 $ 3,290,383



Less: Investments in Debt and Equity of



Affiliates 177,548 174,672 179,524
GAAP Basis $ 3,112,835 $ 2,895,286 $ 3,110,859
December 31, 2018
Non-GAAP Basis $ 2,860,227 $ 2,851,744 $ 2,866,872



Less: Investments in Debt and Equity of



Affiliates 139,739 125,851 139,739
GAAP Basis $ 2,720,488 $ 2,725,893 $ 2,727,133
September 30, 2018
Non-GAAP Basis $ 2,913,543 $ 2,862,935 $ 2,913,543



Less: Investments in Debt and Equity of



Affiliates 102,149 92,833 102,149
GAAP Basis $ 2,811,394 $ 2,770,102 $ 2,811,394
June 30, 2018
Non-GAAP Basis $ 2,719,376 $ 2,792,123 $ 2,932,186



Less: Investments in Debt and Equity of



Affiliates 85,194 170,006 213,489
GAAP Basis $ 2,634,182 $ 2,622,117 $ 2,718,697
March 31, 2018
Non-GAAP Basis $ 3,035,398 $ 2,954,404 $ 3,043,392



Less: Investments in Debt and Equity of



Affiliates 208,819 77,309 208,819
GAAP Basis $ 2,826,579 $ 2,877,095 $ 2,834,573
December 31, 2017
Non-GAAP Basis $ 3,011,591 $ 2,882,548 $ 3,011,591



Less: Investments in Debt and Equity of



Affiliates 7,184 8,849 9,807
GAAP Basis $ 3,004,407 $ 2,873,699 $ 3,001,784
September 30, 2017
Non-GAAP Basis $ 2,703,069 $ 2,596,533 $ 2,746,151



Less: Investments in Debt and Equity of



Affiliates 8,517 8,697 8,869
GAAP Basis $ 2,694,552 $ 2,587,836 $ 2,737,282
June 30, 2017
Non-GAAP Basis $ 2,265,227 $ 2,209,991 $ 2,339,133



Less: Investments in Debt and Equity of



Affiliates 8,485 8,806 9,116
GAAP Basis $ 2,256,742 $ 2,201,185 $ 2,330,017
March 31, 2017
Non-GAAP Basis $ 1,887,767 $ 1,813,668 $ 1,887,766



Less: Investments in Debt and Equity of



Affiliates 8,424 8,788 9,172
GAAP Basis $ 1,879,343 $ 1,804,880 $ 1,878,594



The balance on our financing arrangements can reasonably be expected to (i)
increase as the size of our investment portfolio increases primarily through
equity capital raises and as we increase our investment allocation to Agency
RMBS and (ii) decrease as the size of our portfolio decreases through asset
sales, principal paydowns, and as we increase our investment allocation to
credit investments. Credit investments, due to their risk profile, have lower
leverage ratios than Agency RMBS,
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which restricts our financing counterparties from providing as much financing to
us and lowers the balance of our total financing.



Financing arrangements on our investment portfolio




As of March 31, 2020, we had received notifications from several of our
financing counterparties of alleged events of default under their financing
agreements, and of those counterparties' intentions to accelerate our
performance obligations under the relevant agreements as a result of our
inability to meet certain margin calls as a result of market disruptions created
by the COVID-19 pandemic. As discussed above, until a formal agreement was
reached, we negotiated with our financing counterparties regarding the lenders'
forbearance from exercising their rights and remedies under their applicable
financing arrangements. While as of March 31, 2020 certain lenders had
accelerated our obligations under their applicable financing arrangements, once
subject to the Reinstatement Agreement, the Participating Counterparties agreed
to extend the maturity dates of each of their respective repurchase agreements
as determined by their respective Bilateral Agreements. As a result, we have not
presented the maturity of our financing arrangements as of March 31, 2020 in the
tables below. Additionally, due to declines in the fair value of our portfolio,
certain haircuts were negative as of March 31, 2020. Subsequent to quarter end,
as a result of asset sales and delevering, we had positive equity in our
investments and positive haircuts. As of June 10, 2020 we had met all margin
calls related to our financing arrangements. Refer to Note 13 in the "Notes to
Consolidated Financial Statements (Unaudited)" for more information on
outstanding deficiencies.

We continue to take steps to manage and de-lever our portfolio. Through asset
sales and related debt pay-offs, we have reduced our exposure to various
counterparties, bringing the counterparties with debt outstanding down from 30
as of December 31, 2019 to 18 as of March 31, 2020. See Note 7 to the "Notes to
Consolidated Financial Statements (unaudited)" for a description of our material
financing arrangements as of March 31, 2020.

Our financing arrangements generally include customary representations,
warranties, and covenants, but may also contain more restrictive supplemental
terms and conditions. Although specific to each repurchase agreement, typical
supplemental terms include requirements of minimum equity, leverage ratios,
performance triggers or other financial ratios.

The following table presents a summary of the financing arrangements on our
investment portfolio as of March 31, 2020 and December 31, 2019 (in thousands).

March 31, 2020 December 31, 2019
Repurchase agreements $ 527,442 $ 3,194,409
Revolving facilities (1) 703,789 296,475
Total: Non-GAAP Basis $ 1,231,231 $ 3,490,884



Investments in Debt and Equity of Affiliates $ 261,374 $



257,416
Total: GAAP Basis $ 969,857 $ 3,233,468



(1)Increasing our borrowing capacity under a majority of our revolving
facilities requires consent of the lenders.



The following table presents a summary of the financing arrangements on our
Investment Portfolio as of March 31, 2020 ($ in thousands):




Agency Credit Total
Weighted Weighted Weighted
Average Average Average
Balance Funding Cost Balance Funding Cost Balance Funding Cost

Total: Non-GAAP Basis $ 21,522 1.87 % $ 1,209,709 3.36 % $ 1,231,231 3.33 %
Investments in Debt and
Equity of Affiliates $ - - $ 261,374 4.94 % $ 261,374 4.94 %
Total: GAAP Basis $ 21,522 1.87 % $ 948,335 2.92 % $ 969,857 2.90 %




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The following table presents a summary of the financing arrangements by maturity
on our Investment Portfolio as of December 31, 2019 ($ in thousands):




Agency Credit Total
Weighted Weighted Weighted
Financing Arrangements Average Average Average
Maturing Within: (1) Balance Funding Cost Balance Funding Cost Balance Funding Cost

30 days or less $ 1,011,185 2.05 % $ 587,325 2.92 % $ 1,598,510 2.37 %
31-60 days 1,098,093 1.96 % 470,568 3.29 % 1,568,661 2.36 %
61-90 days - - 71,753 2.99 % 71,753 2.99 %
91-180 days - - 20,384 3.79 % 20,384 3.79 %
Greater than 180 days - - 231,576 3.90 % 231,576 3.90 %
Total: Non-GAAP Basis $ 2,109,278 2.01 % $ 1,381,606 3.23 % $ 3,490,884 2.49 %
Investments in Debt and
Equity of Affiliates $ - - $ 257,416 3.94 % $ 257,416 3.94 %
Total: GAAP Basis $ 2,109,278 2.01 % $ 1,124,190 3.07 % $ 3,233,468 2.38 %



(1)As of December 31, 2019, our weighted average days to maturity is 94 days and
our weighted average original days to maturity is 164 days on a GAAP Basis. As
of December 31, 2019, our weighted average days to maturity is 92 days and our
weighted average original days to maturity is 196 days on a Non-GAAP Basis.


Repurchase agreements




The following table presents, as of March 31, 2020, a summary of the repurchase
agreements on our real estate securities ($ in thousands). It also reconciles
these items to GAAP:

Weighted Average Weighted Average Weighted Average
Balance Rate Funding Cost Haircut

Total: Non-GAAP Basis $ 394,878 2.56 % 2.56 % 2.1 %
Investments in Debt and Equity of
Affiliates $ 82,556 3.64 % 3.64 % 12.4 %
Total: GAAP Basis $ 312,322 2.27 % 2.27 % (0.6) %




The following table presents, as of December 31, 2019, a summary of the
repurchase agreements by maturity on our real estate securities ($ in
thousands). It also reconciles these items to GAAP:




Weighted Weighted Weighted


Weighted



Repurchase Agreements Maturing Average Average Average Days Average
Within: Balance Rate Funding Cost to Maturity Haircut

30 days or less $ 1,598,510 2.37 % 2.37 % 14 9.8 %
31-60 days 1,366,178 2.13 % 2.13 % 46 7.0 %
61-90 days 71,753 2.99 % 2.99 % 67 23.5 %
91-180 days 20,384 3.79 % 3.79 % 176 21.1 %
Greater than 180 days 2,973 3.79 % 3.79 % 283 23.7 %
Total: Non-GAAP Basis $ 3,059,798 2.29 % 2.29 % 31


9.0 %



Investments in Debt and Equity of



Affiliates $ 72,443 3.76 % 3.76 % 67 29.8 %
Total: GAAP Basis $ 2,987,355 2.25 % 2.25 % 30 8.5 %



The decrease in the balance of our repurchase agreements from December 31, 2019
to March 31, 2020 is due primarily to selling collateral in order to meet margin
calls.


The following table presents, as of March 31, 2020, a summary of our repurchase
agreements on our Re/Non-performing loans ($ in thousands).



Weighted Average Weighted Average Weighted Average
Balance Rate Funding Cost Haircut

Total: GAAP Basis $ 129,194 2.63 % 2.99 % 7.0 %


88



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The following table presents, as of December 31, 2019, a summary of repurchase
agreements on our Re/Non-performing loans ($ in thousands).




Weighted Weighted Weighted Weighted
Repurchase Agreements Maturing Average Average Average Days Average
Within: Balance Rate Funding Cost to Maturity Haircut
31-60 days $ 24,584 3.14 % 3.14 % 56 33.7 %
Greater than 180 days 107,010 3.61 % 3.80 % 727 19.3 %
Total: GAAP Basis $ 131,594 3.53 % 3.68 % 602 22.0 %




The following table presents, as of March 31, 2020, a summary of repurchase
agreements on our commercial real estate loans ($ in thousands).




Weighted Average Weighted Average Weighted Average
Balance Rate Funding Cost Haircut
Total: GAAP Basis $ 3,370 3.76 % 5.13 % 9.4 %




The following table presents, as of December 31, 2019, a summary of repurchase
agreements on our commercial real estate loans ($ in thousands).




Weighted Weighted Weighted Weighted
Repurchase Agreements Maturing Average Average Average Days Average
Within: Balance Rate Funding Cost to Maturity Haircut
Greater than 180 days $ 3,017 4.46 % 5.89 % 1,097 35.4 %



Financing facilities

The following table presents information regarding revolving facilities as of
March 31, 2020 and December 31, 2019 ($ in thousands). It also reconciles these
items to GAAP.
March 31, 2020 December 31, 2019
Funding Cost Maximum Aggregate Funding Cost
Facility Investment Maturity Date Rate (1) Balance Borrowing Capacity Rate (1) Balance

Revolving facility B
(2)(3) Re/Non-performing loans June 28, 2021 3.61 % 3.61 % $ 20,627 $ 110,000 3.80 % 3.80 % $ 21,546
Revolving facility C
(2)(3) Commercial loans August 10, 2023 2.80 % 3.05 % 94,007 100,000 3.85 % 4.01 % 89,956
Revolving facility D
(2)(3) Non-QM loans February 16, 2021 2.84 % 5.62 % 172,059 312,130 3.61 % 4.02 % 177,899
Revolving facility E (2) Re/Non-performing loans November 25, 2020 2.90 % 2.90 % 1,670 1,670 3.73 % 3.73 % 1,808
Revolving facility F (2) Re/Non-performing loans July 25, 2021 3.42 % 3.42 % 5,089 14,120 3.55 % 3.55 % 5,266
Revolving facility G
(2)(3) Re/Non-performing loans January 26, 2021 3.16 % 3.26 % 410,337 440,000 - - -
Total: Non-GAAP Basis $ 703,789 $ 977,920 $ 296,475
Investments in Debt and
Equity of Affiliates $ 178,818 $ 327,920 $ 184,973
Total: GAAP Basis $ 524,971 $ 650,000 $ 111,502



(1)Funding costs represent the stated rate inclusive of any deferred financing
costs.
(2)Under the terms of our financing agreements, the counterparties may, in
certain cases, sell or re-hypothecate the pledged collateral.
(3)Increasing our borrowing capacity under this facility requires consent of the
lender. See Note 7 to the "Notes to Consolidated Financial Statements
(unaudited)" for more detail on Revolving Facility G.


The increase in our Revolving facility G balance from December 31, 2019 to March
31, 2020
is due primarily to financing obtained to purchase a new pool of
Re/nonperforming loans during the period.



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As previously mentioned, on May 28, 2020, we entered into a MLPSA. The MLPSA
provided for the Loan Sale which closed on May 28, 2020, resulting in Revolving
facility G being paid off.

Other financing transactions

In 2014, we entered into a resecuritization transaction, pursuant to which we
created a special purpose entity ("SPE") to facilitate the transaction. We
determined that the SPE was a variable interest entity ("VIE") and that the VIE
should be consolidated by us under ASC 810-10. The transferred assets were
recorded as a secured borrowing (the "Consolidated December 2014 VIE"). See Note
2 to the "Notes to Consolidated Financial Statements (unaudited)" for more
detail on Consolidated December 2014 VIE.


The following table details certain information related to the Consolidated
December 2014 VIE as of March 31, 2020 ($ in thousands):



Weighted Average
Current Face Fair Value Coupon Yield Life (Years) (1)
Consolidated tranche (2) $ 6,011 $ 5,836 3.33 % 1.29 % 0.93
Retained tranche 7,680 5,354 5.30 % 18.18 % 6.74
Total resecuritized asset (3) $ 13,691 $ 11,190 4.43 % 9.37 % 4.19



(1)This is based on projected life. Typically, actual maturities of investments
and loans are shorter than stated contractual maturities. Maturities are
affected by the contractual lives of the underlying mortgages, periodic payments
of principal and prepayments of principal.
(2) As of March 31, 2020, we have recorded secured financing of $5.8 million on
our consolidated balance sheets in the "Securitized debt, at fair value" line
item. We recorded the proceeds from the issuance of the secured financing in the
"Cash Flows from Financing Activities" section of the consolidated statement of
cash flows at the time of securitization.
(3)As of March 31, 2020, the fair market value of the total resecuritized asset
is included on our consolidated balance sheets as "Non-Agency RMBS."


The following table details certain information related to the Consolidated
December 2014 VIE as of December 31, 2019 ($ in thousands):



Weighted Average
Current Face Fair Value Coupon Yield Life (Years) (1)
Consolidated tranche (2) $ 7,204 $ 7,230



3.46 % 4.11 % 1.96
Retained tranche 7,851 6,608 5.37 % 18.14 % 7.64
Total resecuritized asset (3) $ 15,055 $ 13,838 4.46 % 10.81 % 4.92



(1)This is based on projected life. Typically, actual maturities of investments
and loans are shorter than stated contractual maturities. Maturities are
affected by the contractual lives of the underlying mortgages, periodic payments
of principal and prepayments of principal.
(2)As of December 31, 2019, we have recorded secured financing of $7.2 million
on our consolidated balance sheets in the "Securitized debt, at fair value" line
item. We recorded the proceeds from the issuance of the secured financing in the
"Cash Flows from Financing Activities" section of the consolidated statement of
cash flows at the time of securitization.
(3)As of December 31, 2019, the fair market value of the total resecuritized
asset is included on our consolidated balance sheets as "Non-Agency RMBS."

In August 2019, we entered into a securitization transaction of certain of our
residential mortgage loans, pursuant to which we created an SPE to facilitate
the transaction. We determined that the SPE was a VIE and that the VIE should be
consolidated by us under ASC 810-10. The transferred assets were recorded as a
secured borrowing (the "Consolidated August 2019 VIE"). See Note 2 to the "Notes
to Consolidated Financial Statements (unaudited)" for more detail on the
Consolidated August 2019 VIE.

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The following table details certain information related to the Consolidated
August 2019 VIE as of March 31, 2020 ($ in thousands):



Weighted Average
Current Unpaid
Principal Balance Fair Value Coupon Yield Life (Years) (1)
Residential mortgage loans (2) $ 258,424 $ 214,176 4.03 % 4.73 %


6.90



Securitized debt (3) 211,749 191,346 2.92 % 2.80 % 5.00



(1)Weighted average life is based on projected life. Typically, actual
maturities of investments and loans are shorter than stated contractual
maturities. Maturities are affected by the contractual lives of the underlying
mortgages, periodic payments of principal and prepayments of principal.
(2)This represents all loans contributed to the Consolidated August 2019 VIE.
(3)As of March 31, 2020, we have recorded secured financing of $191.3 million on
the consolidated balance sheets in the "Securitized debt, at fair value" line
item. We recorded the proceeds from the issuance of the secured financing in the
"Cash Flows from Financing Activities" section of the consolidated statement of
cash flows at the time of securitization.


The following table details certain information related to the Consolidated
August 2019 VIE as of December 31, 2019 ($ in thousands):




Weighted Average
Current Unpaid
Principal Balance Fair Value Coupon Yield Life (Years) (1)
Residential mortgage loans (2) $ 263,956 $ 255,171 3.96 % 5.11 %


7.66



Securitized debt (3) 217,455 217,118 2.92 % 2.86 % 5.00



(1)Weighted average life is based on projected life. Typically, actual
maturities of investments and loans are shorter than stated contractual
maturities. Maturities are affected by the contractual lives of the underlying
mortgages, periodic payments of principal and prepayments of principal.
(2)This represents all loans contributed to the Consolidated August 2019 VIE.
(3)As of December 31, 2019, we have recorded secured financing of $217.1 million
on the consolidated balance sheets in the "Securitized debt, at fair value" line
item. We recorded the proceeds from the issuance of the secured financing in the
"Cash Flows from Financing Activities" section of the consolidated statement of
cash flows at the time of securitization.


Leverage




We define GAAP leverage as the sum of (1) our GAAP financing arrangements net of
any restricted cash posted on such financing arrangements, (2) the amount
payable on purchases that have not yet settled less the financing remaining on
sales that have not yet settled, and (3) securitized debt, at fair value. We
define Economic Leverage, a non-GAAP metric, as the sum of: (i) our GAAP
leverage, exclusive of any fully non-recourse financing arrangements, (ii)
financing arrangements held through affiliated entities, net of any restricted
cash posted on such financing arrangements, exclusive of any financing utilized
through AG Arc, any adjustment related to unsettled trades as described in (2)
in the previous sentence, and any fully non-recourse financing arrangements and
(iii) our net TBA position (at cost). Our calculations of GAAP leverage and
Economic Leverage exclude financing arrangements and net receivables/payables on
unsettled trades pertaining to U.S. Treasury securities due to the highly liquid
and temporary nature of these investments.

Historically, we reported non-GAAP "At-Risk" leverage, which included
non-recourse financing arrangements, but we believe that the adjustments made to
our GAAP leverage in order to compute Economic Leverage, including the exclusion
of non-recourse financing arrangements, allow investors the ability to identify
and track the leverage metric that management uses to evaluate and operate the
business. Our obligation to repay our non-recourse financing arrangements is
limited to the value of the pledged collateral thereunder and does not create a
general claim against us as an entity.

The calculations in the tables below divide GAAP leverage and Economic Leverage
by our GAAP stockholders' equity to derive our leverage ratios. The following
tables present a reconciliation of our Economic Leverage ratio back to GAAP ($
in thousands).

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March 31, 2020 Leverage Stockholders' Equity Leverage Ratio
GAAP Leverage $ 1,122,525 $ 358,665 3.1x
Non-recourse financing arrangements (197,182)
Financing arrangements through affiliated
entities 250,511
Net TBA (receivable)/payable adjustment (392)
Economic Leverage $ 1,175,462 $ 358,665 3.3x



December 31, 2019 Leverage Stockholders' Equity Leverage Ratio
GAAP Leverage $ 3,441,451 $ 849,046 4.1x
Non-recourse financing arrangements (224,348)
Financing arrangements through affiliated
entities 257,416

Economic Leverage $ 3,474,519 $ 849,046 4.1x



Hedging activities

Subject to maintaining our qualification as a REIT and our Investment Company
Act exemption, to the extent leverage is deployed, we may utilize derivative
instruments in an effort to hedge the interest rate risk associated with the
financing of our portfolio. We may utilize interest rate swaps, swaption
agreements, and other financial instruments such as short positions in U.S.
Treasury securities. In addition, we may utilize Eurodollar Futures, U.S.
Treasury Futures, British Pound Futures and Euro Futures (collectively,
"Futures"). Specifically, we may seek to hedge our exposure to potential
interest rate mismatches between the interest we earn on our investments and our
borrowing costs caused by fluctuations in short-term interest rates. In
utilizing leverage and interest rate derivatives, our objectives are to improve
risk-adjusted returns and, where possible, to lock in, on a long-term basis, a
spread between the yield on our assets and the costs of our financing and
hedging. Derivatives have not been designated as hedging instruments for GAAP.
Refer to the tables below for a summary of our derivative instruments.
Our centrally cleared trades require that we post an "initial margin" to our
counterparties of an amount determined by the Chicago Mercantile Exchange
("CME") and the London Clearing House ("LCH"), the central clearinghouses
("CCPs") through which those trades are cleared, which is generally intended to
be set at a level sufficient to protect the CCPs from the maximum estimated
single-day price movement in that market participant's contracts. We also
exchange cash "variation margin" with our counterparties on our centrally
cleared trades based upon daily changes in the fair value as measured by the
CCPs. The daily exchange of variation margin associated with a CCP instrument is
legally characterized as the daily settlement of the derivative instrument
itself. Accordingly, we account for the daily receipt or payment of variation
margin associated with our centrally cleared interest rate swaps and futures as
a direct reduction to the carrying value of the interest rate swap and future
derivative asset or liability, respectively. The carrying amount of centrally
cleared interest rate swaps and futures reflected in our consolidated balance
sheets is equal to the unsettled fair value of such instruments. See Note 8 to
the "Notes to Consolidated Financial Statements (unaudited)" for more
information.


On March 23, 2020, in an effort to prudently manage our portfolio through
unprecedented market volatility resulting from the COVID-19 pandemic and
preserve long-term stockholder value, we sold our 30 Year Fixed Rate Agency
securities, our most interest rate sensitive assets, and as a result, removed
all of our interest rate swap positions, a decrease of $1.9 billion swap
notional amount.



The following table summarizes certain information on our non-hedge derivatives
and other instruments (in thousands) as of the dates indicated.




March 31, 2020 December 31, 2019
Notional amount of non-hedge Weighted Average Weighted


Average



derivatives and other instruments: Notional Currency Notional Amount Life (Years) Notional Amount Life (Years)
Pay Fix/Receive Float Interest Rate
Swap Agreements (1)(2) USD $ - - $ 1,943,281 4.25
Payer Swaptions USD 350,000 0.43 650,000 0.42

Short positions on British Pound
Futures (3) GBP 7,563 0.21 6,563


0.21



Short positions on Euro Futures (4) EUR 1,625 0.21 1,500 0.21


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(1)As of December 31, 2019, there were $94.5 million notional amount of pay
fix/receive float interest rate swap agreements held through investments in debt
and equity of affiliates.
(2)As of December 31, 2019, the weighted average life of interest rate swaps on
a GAAP basis was 4.32 years and the weighted average life of interest rate swaps
held through investments in debt and equity of affiliates was 2.83 years.
(3)Each British Pound Future contract embodies £62,500 of notional value.
(4)Each Euro Future contract embodies €125,000 of notional value.


Interest rate swaps




To help mitigate exposure to increases in interest rates, we may use
currently-paying and forward-starting, one- or three-month LIBOR-indexed,
pay-fixed, receive-variable, interest rate swap agreements. This arrangement
helps hedge our exposure to higher interest rates because the variable-rate
payments received on the swap agreements help to offset additional interest
accruing on the related borrowings due to the higher interest rate, leaving the
fixed-rate payments to be paid on the swap agreements as our effective borrowing
rate, subject to certain adjustments including changes in spreads between
variable rates on the swap agreements and actual borrowing rates.


During the quarter ended March 31, 2020, we sold our interest rate sensitive
assets. As a result, we did not hold any interest rate swap positions as of
March 31, 2020.




As of December 31, 2019, our interest rate swap positions consisted of pay-fixed
interest rate swaps. The following table presents information about our interest
rate swaps as of December 31, 2019 ($ in thousands). It also reconciles these
items to GAAP.

Weighted Average Weighted Average Weighted Average
Maturity Notional Amount Pay-Fixed Rate Receive-Variable Rate Years to Maturity
2020 $ 105,000 1.54 % 1.91 % 0.20

2022 837,531 1.64 % 1.91 % 2.69
2023 5,750 3.19 % 1.91 % 3.85
2024 650,000 1.52 % 1.90 % 4.80

2026 180,000 1.50 % 1.89 % 6.70

2029 165,000 1.77 % 1.94 % 9.85
Total/Wtd Avg $ 1,943,281 1.60 % 1.91 % 4.25
Investments in Debt and
Equity of Affiliates $ 94,531 1.61 % 1.93 % 2.83
Total/Wtd Avg: GAAP Basis $ 1,848,750 1.60 % 1.91 % 4.32



(1) 100% of our receive variable interest rate swap notional amount resets
quarterly based on three-month LIBOR.



Dividends




Federal income tax law generally requires that a REIT distribute annually at
least 90% of its REIT ordinary 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 net taxable income. 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 financing arrangements and other debt
payable. If our cash available for distribution is less than our net taxable
income, we could be required to sell assets or borrow funds to make required
cash distributions or we may make a portion of the required distribution in the
form of a taxable stock distribution or distribution of debt securities. In
addition, prior to the time we have fully deployed the net proceeds of our
follow-on offerings to acquire assets in our target asset classes we may fund
our quarterly distributions out of such net proceeds.

As described above, our distribution requirements are based on taxable income
rather than GAAP net income. The primary differences between taxable income and
GAAP net income include (i) unrealized gains and losses associated with
investment and derivative portfolios which are marked-to-market in current
income for GAAP purposes, but excluded from taxable income until realized or
settled, (ii) temporary differences related to amortization of premiums and
discounts paid on investments, (iii) the timing and amount of deductions related
to stock-based compensation, (iv) temporary differences related to the
recognition of realized gains and losses on sold investments and certain
terminated derivatives, (v) taxes and (vi) methods of depreciation.
Undistributed taxable income is based on current estimates and is not finalized
until we file our annual tax return for that tax
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year, typically in September of the following year. We estimate that we do not
have any undistributed taxable income as of March 31, 2020. Refer to the
"Results of operations" section above for more detail.




On March 27, 2020, we announced that our Board of Directors approved a
suspension of our quarterly dividends on our common stock, 8.25% Series A
Cumulative Redeemable Preferred Stock, 8.00% Series B Cumulative Redeemable
Preferred Stock, and 8.000% Series C Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, beginning with the common dividends that normally
would have been declared in March 2020 and the preferred dividend that would
have been declared in May 2020, in order to conserve capital and preserve
liquidity. Based on current circumstances, it is our intention to suspend
quarterly dividends on common and preferred stock for the foreseeable future.
Refer to Note 12 in the "Notes to Consolidated Financing Statements (Unaudited)"
for more information on the Company's preferred stock.

No common stock dividends were declared during the three months ended March 31,
2020
. The following tables detail our common stock dividends during the three
months ended March 31, 2019:


2019



Declaration Date Record Date Payment Date Dividend Per Share
3/15/2019 3/29/2019 4/30/2019 $ 0.50



The following tables detail our preferred stock dividends on our 8.25% Series A
and 8.00% Series B Preferred Stock during the three months ended March 31, 2020
and March 31, 2019.


2020



Dividend Declaration Date Record Date Payment Date



Dividend Per Share
8.25% Series A 2/14/2020 2/28/2020 3/17/2020 $ 0.51563



Dividend Declaration Date Record Date Payment Date Dividend Per Share
8.00% Series B 2/14/2020 2/28/2020 3/17/2020 $ 0.50



Dividend Declaration Date Record Date Payment Date Dividend Per Share
8.000% Series C 2/14/2020 2/28/2020 3/17/2020 $ 0.50



2019
Dividend Declaration Date Record Date Payment Date



Dividend Per Share
8.25% Series A 2/15/2019 2/28/2019 3/18/2019 $ 0.51563



Dividend Declaration Date Record Date Payment Date Dividend Per Share
8.00% Series B 2/15/2019 2/28/2019 3/18/2019 $ 0.50




Liquidity and capital resources




Our liquidity determines our ability to meet our cash obligations, including
distributions to our stockholders, payment of our expenses, financing our
investments and satisfying other general business needs. Our principal sources
of cash as of March 31, 2020 consisted of proceeds from sales of assets in an
effort to prudently manage our portfolio through unprecedented market volatility
resulting from the global pandemic of the COVID-19 virus, borrowings under
financing arrangements, principal and interest payments we receive on our
investment portfolio, cash generated from our operating results, and proceeds
from capital market transactions. We typically use cash to repay principal and
interest on our financing arrangements, to purchase real estate securities,
loans and other real estate related assets, to make dividend payments on our
capital stock, and to fund our operations. At March 31, 2020, we had $92.3
million
of cash available to support our liquidity needs. Refer to the
"Contractual obligations" section of this Item 2 for additional obligations that
could impact our liquidity.

As previously discussed, on June 1, 2020, we entered into a third forbearance
agreement with the Participating Counterparties, providing for a forbearance
period ending on June 15, 2020. Pursuant to the terms of the Forbearance
Agreement, we must comply with a set of restrictive covenants set forth in the
Forbearance Agreement, including restrictions on the use of our cash,
restrictions on our incurrence of additional debt, and restrictions on the sale
of our assets. We also granted to the Participating Counterparties a lien and
security interest in all of our unencumbered assets. Upon entering into the
Reinstatement Agreement
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with the Participating Counterparties, we are no longer subject to the
restrictive covenants set forth in the Forbearance Agreement and the lien and
security interest granted to the Participating Counterparties on all of our
unencumbered assets were terminated and released.



Leverage




The amount of leverage, or debt, we may deploy for particular assets depends
upon our Manager's assessment of the credit and other risks of those assets, and
also depends on any limitations placed upon us through covenants contained in
our financing arrangements. We generate income principally from the yields
earned on our investments and, to the extent that leverage is deployed, on the
difference between the yields earned on our investments and our cost of
borrowing and the cost of any hedging activities. Subject to maintaining both
our qualification as a REIT for U.S. federal income tax purposes and our
Investment Company Act exemption, to the extent leverage is deployed, we may use
a number of sources to finance our investments.

As previously described, due to market volatility during the quarter ended March
31, 2020
, we executed on various asset sales in an effort to create additional
liquidity and de-risk our portfolio. As a result of these asset sales and
related debt pay-offs, we have reduced the number of financing counterparties we
have, bringing the overall number of counterparties with debt outstanding down
from 30 as of December 31, 2019 to 18 as of March 31, 2020 with debt outstanding
of $1.2 billion, inclusive of financing arrangements through affiliated
entities. These agreements generally include customary representations,
warranties, and covenants, but may also contain more restrictive supplemental
terms and conditions. Although specific to each lending agreement, typical
supplemental terms include requirements of minimum equity, leverage ratios,
performance triggers or other financial ratios.

Under our financing arrangements, we may be required to pledge additional assets
to our lenders in the event the estimated fair value of the existing pledged
collateral under such agreements declines and such lenders demand additional
collateral, which may take the form of additional securities or cash. Certain
securities that are pledged as collateral under our financing arrangements are
in unrealized loss positions.


See "Financing arrangements on our investment portfolio" section above for
information on the contractual maturity of our financing arrangements at March
31, 2020
and December 31, 2019.




As described above in the "Financing activities" section of this Item 2, we
entered into a resecuritization transaction in 2014 and a securitization
transaction of certain of our residential mortgage loans in August 2019 that
resulted in the consolidation of those VIEs created with the SPEs. We recorded
the proceeds from the issuance of the secured financing in the "Cash Flows from
Financing Activities" section of the consolidated statement of cash flows. See
Note 3 and 4 to the "Notes to Consolidated Financial Statements (unaudited)" for
more detail.

Subsequent to quarter end, we entered into the Forbearance Agreement pursuant to
which the consent of the Participating Counterparties was required in order for
us to increase our leverage. As described above, upon entering in to the
Reinstatement Agreement, we are no longer subject to the restrictive covenants
set forth in the Forbearance Agreement, though the Reinstatement Agreement
limits our Recourse Indebtedness to Stockholder's Equity (both as defined
therein) leverage ratio to no greater than 3:1.

The following table presents information at March 31, 2020 with respect to each
counterparty that provides us with financing for which we had greater than 5% of
our stockholders' equity at risk ($ in thousands).

Stockholders' Equity Weighted Average Percentage of
Counterparty at Risk Maturity (days) Stockholders' Equity

Credit Suisse Securities, LLC -
Non-GAAP $ 34,269 105 9.5 %
Non-GAAP Adjustments (a) (32,539) 978 (9.0) %
Credit Suisse Securities, LLC - GAAP $ 1,731 1,083 0.5 %



(a)Represents stockholders' equity at risk, weighted average maturity and
percentage of stockholders' equity from financing arrangements held in
investments in debt and equity of affiliates.



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The following table presents information at December 31, 2019 with respect to
each counterparty that provides us with financing for which we had greater than
5% of our stockholders' equity at risk ($ in thousands).

Stockholders' Equity Weighted Average Percentage of
Counterparty at Risk Maturity (days) Stockholders' Equity
Credit Suisse Securities, LLC -
Non-GAAP $ 47,996 72 5.7 %
Non-GAAP Adjustments (a) (44,588) 47 (5.3) %
Credit Suisse Securities, LLC - GAAP $ 3,408 119 0.4 %

Barclays Capital Inc $ 77,334 277 9.1 %
Citigroup Global Markets Inc. 50,263 22 5.9 %



(a)Represents stockholders' equity at risk, weighted average maturity and
percentage of stockholders' equity from financing arrangements held in
investments in debt and equity of affiliates.



Margin requirements




The fair value of our real estate securities and loans fluctuate according to
market conditions. When the fair value of the assets pledged as collateral to
secure a financing arrangement decreases to the point where the difference
between the collateral fair value and the financing arrangement amount is less
than the haircut, our lenders may issue a "margin call," which requires us to
post additional collateral to the lender in the form of additional assets or
cash. Under our repurchase facilities, our lenders have full discretion to
determine the fair value of the securities we pledge to them. Our lenders
typically value assets based on recent trades in the market. Lenders also issue
margin calls as the published current principal balance factors change on the
pool of mortgages underlying the securities pledged as collateral when scheduled
and unscheduled paydowns are announced monthly. We experience margin calls in
the ordinary course of our business. In seeking to manage effectively the margin
requirements established by our lenders, we maintain a position of cash and
unpledged Agency RMBS. We refer to this position as our "liquidity." The level
of liquidity we have available to meet margin calls is directly affected by our
leverage levels, our haircuts and the price changes on our securities.
Typically, if interest rates increase or if credit spreads widen, then the
prices of our collateral (and our unpledged assets that constitute our
liquidity) will decline, we will experience margin calls, and we will need to
use our liquidity to meet the margin calls. There can be no assurance that we
will maintain sufficient levels of liquidity to meet any margin calls. If our
haircuts increase, our liquidity will proportionately decrease. In addition, if
we increase our borrowings, our liquidity will decrease by the amount of
additional haircut on the increased level of indebtedness. We intend to maintain
a level of liquidity in relation to our assets that enables us to meet
reasonably anticipated margin calls but that also allows us to be substantially
invested in our target assets. We may misjudge the appropriate amount of our
liquidity by maintaining excessive liquidity, which would lower our investment
returns, or by maintaining insufficient liquidity, which may force us to
liquidate assets into potentially unfavorable market conditions and harm our
results of operations and financial condition. Further, an unexpected rise in
interest rates and a corresponding fall in the fair value of our securities may
also force us to liquidate assets under difficult market conditions, thereby
harming our results of operations and financial condition, in an effort to
maintain sufficient liquidity to meet increased margin calls.

Similar to the margin calls that we receive on our borrowing agreements, we may
also receive margin calls on our derivative instruments when their fair values
decline. This typically occurs when prevailing market rates change adversely,
with the severity of the change also dependent on the terms of the derivatives
involved. We may also receive margin calls on our derivatives based on the
implied volatility of interest rates. Our posting of collateral with our
counterparties can be done in cash or securities, and is generally bilateral,
which means that if the fair value of our interest rate hedges increases, our
counterparty will be required to post collateral with us. Refer to the
"Liquidity risk - derivatives" section of Item 3 below for a further discussion
on margin.

On March 20, 2020, we notified our financing counterparties that we did not
expect to be in a position to fund the anticipated volume of future margin calls
under our financing arrangements in the near term as a result of market
disruptions created by the COVID-19 pandemic. Since March 23, 2020, we have
received notifications of alleged events of default and deficiency notices from
several of our financing counterparties. Subject to the terms of the applicable
financing arrangement, if we fail to deliver additional collateral or otherwise
meet margin calls when due, the financing counterparties may be able to demand
immediate payment by us of the aggregate outstanding financing obligations owed
to such counterparties, and if such financing obligations are not paid, may be
permitted to sell the financed assets and apply the proceeds to our financing
obligations and/or take ownership of the assets securing our financing
obligations. During this period of market upheaval, we engaged in discussions
with our financing counterparties and entered into the Forbearance Agreement.
During the Forbearance Period, we did not have
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any obligation to make any margin payments as it related to the Participating
Counterparties. As described above, on June 10, we entered into a Reinstatement
Agreement with the Participating Counterparties and the JPM Reinstatement
Agreement which reinstates each Bilateral Agreement. As a result, we will be
responsible for making any future margin payments with respect to any financing
arrangements relating to these agreements.


As of June 10, 2020, we have met all margin calls. Refer to Note 13 in the
"Notes to Consolidated Financial Statements (Unaudited)" for more information on
outstanding deficiencies.




Cash Flows

As of March 31, 2020, our cash, cash equivalents, and restricted cash totaled
$133.7 million representing a net increase of $8.3 million from $125.4 million
at December 31, 2019. Cash provided by continuing operating activities of $7.4
million
was attributable to net interest income less operating expenses. Cash
provided by continuing investing activities of $1,976.3 million was attributable
to sales of investments and principal repayments of investments less purchases
of investments. Cash used in continuing financing activities of
$(1,975.4) million was primarily attributable to repayments of financing
arrangements and dividend payments offset by borrowings under financing
arrangements.


Equity distribution agreement




On May 5, 2017, we entered into an equity distribution agreement with each of
Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the
"Sales Agents"), which we refer to as the "Equity Distribution Agreements,"
pursuant to which we may sell up to $100.0 million aggregate offering price of
shares of our common stock from time to time through the Sales Agents, under the
Securities Act of 1933. The Equity Distribution Agreements were amended on May
2, 2018
in conjunction with the filing of our shelf registration statement
registering up to $750.0 million of its securities, including capital stock (the
"2018 Registration Statement"). For the three months ended March 31, 2020, we
did not sell any shares of common stock under the Equity Distribution
Agreements. For the three months ended March 31, 2019, we sold 503.7 thousand
shares of common stock under the Equity Distribution Agreements for net proceeds
of approximately $8.6 million. As of March 31, 2020, we have sold approximately
1.5 million shares of common stock under the Equity Distribution Agreements for
net proceeds of approximately $26.6 million.


Common stock offering




On February 14, 2019, we completed a public offering of 3,000,000 shares of our
common stock and subsequently issued an additional 450,000 shares pursuant to
the underwriters' exercise of their over-allotment option at a price of $16.70
per share. Net proceeds to us from the offering were approximately $57.4
million
, after deducting estimated offering expenses.


Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock issuance




On September 17, 2019, we completed a public offering of 4,000,000 shares of
8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
(the "Series C Preferred Stock") and subsequently issued 600,000 shares of
Series C Preferred Stock pursuant to the underwriters' exercise of their
over-allotment option with a liquidation preference of $25.00 per share. We
received total gross proceeds of $115.0 million and net proceeds of
approximately $111.2 million, net of underwriting discounts, commissions and
expenses. The Series C Preferred Stock has no stated maturity and is not subject
to any sinking fund or mandatory redemption. Under certain circumstances upon a
change of control, the Series C Preferred Stock is convertible to shares of our
common stock. Holders of Series C Preferred Stock have no voting rights, except
under limited conditions, and holders are entitled to receive cumulative cash
dividends before holders of our common stock are entitled to receive any
dividends. The initial dividend rate for the Series C Preferred Stock, from and
including the date of original issue to, but not including, September 17, 2024,
is equal to 8.000% per annum of the $25.00 per share liquidation preference. On
and after September 17, 2024, dividends on the Series C Preferred Stock will
accumulate at a percentage of the $25.00 liquidation preference equal to an
annual floating rate of the three-month LIBOR plus a spread of 6.476% per annum.
Shares of our Series C Preferred Stock are redeemable at $25.00 per share plus
accumulated and unpaid dividends (whether or not declared) exclusively at our
option commencing on September 17, 2024, or earlier under certain circumstances
intended to preserve our qualification as a REIT for Federal income tax
purposes. Dividends are payable quarterly in arrears on the 17th day of each
March, June, September and December.

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Contractual obligations



Management agreement




On June 29, 2011, we entered into an agreement with our Manager pursuant to
which our Manager is entitled to receive a management fee and the reimbursement
of certain expenses. The management fee is calculated and payable quarterly in
arrears in an amount equal to 1.50% of our Stockholders' Equity, per annum.

For purposes of calculating the management fee, "Stockholders' Equity" means the
sum of the net proceeds from any issuances of equity securities (including
preferred securities) since inception (allocated on a pro rata daily basis for
such issuances during the fiscal quarter of any such issuance, and excluding any
future equity issuance to the Manager), plus our retained earnings at the end of
such quarter (without taking into account any non-cash equity compensation
expense or other non-cash items described below incurred in current or prior
periods), less any amount that we pay for repurchases of our common stock,
excluding any unrealized gains, losses or other non-cash items that have
impacted stockholders' equity as reported in our financial statements prepared
in accordance with GAAP, regardless of whether such items are included in other
comprehensive income or loss, or in net income, and excluding one-time events
pursuant to changes in GAAP, and certain other non-cash charges after
discussions between the Manager and our independent directors and after approval
by a majority of our independent directors. Stockholders' Equity, for purposes
of calculating the management fee, could be greater or less than the amount of
stockholders' equity shown on our financial statements. For the three months
ended March 31, 2020 and March 31, 2019, we incurred management fees of
approximately $2.1 million and $2.3 million, respectively.

Our Manager uses the proceeds from its management fee in part to pay
compensation to its officers and personnel, who, notwithstanding that certain of
them also are our officers, receive no compensation directly from us. We are
required to reimburse our Manager or its affiliates for operating expenses which
are incurred by our Manager or its affiliates on our behalf, including certain
salary expenses and other expenses relating to legal, accounting, due diligence
and other services. Our reimbursement obligation is not subject to any dollar
limitation; however, the reimbursement is subject to an annual budget process
which combines guidelines from the Management Agreement with oversight by our
Board of Directors and discussions with our Manager. Of the $2.3 million and
$3.8 million of Other operating expenses for the three months ended March 31,
2020
and March 31, 2019, respectively, we have accrued $2.0 million in both
periods, representing a reimbursement of expenses.

On April 6, 2020, we executed an amendment to the management agreement pursuant
to which the Manager agreed to defer our payment of the management fee and
reimbursement of expenses as detailed above through September 30, 2020, or such
other time as we and the Manager agree.


Subordinated debt




On April 10, 2020, in connection with the initial Forbearance Agreement, we
issued a secured promissory note (the "Note") to the Manager evidencing a $10
million
loan made by the Manager to us. Additionally, on April 27, 2020, in
connection with the second forbearance agreement, we entered into an amendment
to the Note to reflect an additional $10 million loan by the Manager to us. The
$10 million loan made on April 10, 2020 is payable on March 31, 2021, and the
$10 million loan made on April 27, 2020 is payable on July 27, 2020. The unpaid
balance of the Note accrues interest at a rate of 6.0% per annum. Interest on
the Note is payable monthly in kind through the addition of such accrued monthly
interest to the outstanding principal balance of the Note.


The Manager has agreed to subordinate our obligations with respect to the Note
and liens held by the Manager for the security of the performance of our
obligations under the Note to our obligations to the Participating
Counterparties and to the secured promissory note payable to Royal Bank of
Canada, which we repaid in full on June 11, 2020.



Share-based compensation




Pursuant to the Manager Equity Incentive Plan and the Equity Incentive Plan, we
can award up to 277,500 shares of common stock in the form of restricted stock,
stock options, restricted stock units or other types of awards to our directors,
officers, advisors, consultants and other personnel and to our Manager. As of
March 31, 2020, 11,456 shares of common stock were available to be awarded under
the equity incentive plans. Awards under the equity incentive plans are
forfeitable until they become vested. An award will become vested only if the
vesting conditions set forth in the applicable award agreement (as determined by
the compensation committee) are satisfied. The vesting conditions may include
performance of services for a specified period, achievement of performance
goals, or a combination of both. The compensation committee also has the
authority to provide for accelerated vesting of an award upon the occurrence of
certain events in its discretion.

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As of March 31, 2020, we have granted an aggregate of 105,794 and 40,250 shares
of restricted common stock to our independent directors and Manager,
respectively, and 120,000 restricted stock units to our Manager under our equity
incentive plans. As of March 31, 2020, all the shares of restricted common stock
granted to our Manager and independent directors have vested and 99,991
restricted stock units granted to our Manager have vested. The 20,009 restricted
stock units that have not vested as of March 31, 2020 were granted to the
Manager on July 1, 2017, and represent the right to receive an equivalent number
of shares of our common stock when the units vest on July 1, 2020. The units do
not entitle the recipient the rights of a holder of our common stock, such as
dividend and voting rights, until shares are issued in settlement of the vested
units. The vesting of such units is subject to the continuation of the
management agreement. If the management agreement terminates, all unvested units
then held by the Manager or the Manager's transferee shall be immediately
cancelled and forfeited without consideration.


Unfunded commitments




See our "Off-balance sheet arrangements" section below and Note 13 of the "Notes
to Consolidated Financial Statements" for a details on our unfunded commitments
as of March 31, 2020.


MATT Financing Arrangement Restructuring




On April 3, 2020, we, alongside private funds under the management of Angelo
Gordon
, restructured our financing arrangements in MATT ("Restructured Financing
Arrangement"). The Restructured Financing Arrangement requires all principal and
interest on the underlying assets in MATT be used to paydown principal and
interest on the outstanding financing arrangements. As of the April 3, 2020, the
financing arrangement within MATT will be non-recourse to us. The Restructured
Financing Arrangement provides for a termination date of October 1, 2021. At the
earlier of the termination date or the securitization or sale by us of the
remaining assets subject to the Restructured Financing Arrangement, the
financing counterparty will be entitled to 35% of the remaining equity in the
assets. We have an approximate 44.6% interest in MATH.


Other




As of March 31, 2020 and December 31, 2019, we are obligated to pay accrued
interest on our financing arrangements in the amount of $1.5 million and $10.8
million
, respectively, inclusive of accrued interest accounted for through
investments in debt and equity of affiliates, and exclusive of accrued interest
on any financing utilized through AG Arc. The change in accrued interest on our
financing arrangements was due primarily to the repayment of financing
arrangements in conjunction with the sales of various assets by us and the
seizures of various assets by financing counterparties in Q1 2020.


Off-balance sheet arrangements




We may enter into long TBA positions to facilitate the future purchase or sale
of Agency RMBS. We may also enter into short TBA positions to hedge Agency RMBS.
We record TBA purchases/shorts and sales/covers on the trade date and present
the amount net of the corresponding payable or receivable until the settlement
date of the transaction. As of March 31, 2020, we had a net long TBA position
with a net payable amount of $0.4 million. We recorded $2.7 million of
derivative assets and $2.3 million of derivative liabilities, in the "Other
assets" and "Other liabilities" line items, respectively, on our consolidated
balance sheets.

Our investments in debt and equity of affiliates are primarily comprised of real
estate securities, Excess MSRs, loans, our interest in AG Arc, and certain
derivatives. Investments in debt and equity of affiliates are accounted for
using the equity method of accounting. See Note 2 to the "Notes to Consolidated
Financial Statements (unaudited)" for a discussion of investments in debt and
equity of affiliates. The below table details our investments in debt and equity
of affiliates as of March 31, 2020 and December 31, 2019 (in thousands):

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March 31, 2020 December 31, 2019
Assets (1) Liabilities Equity Assets (1) Liabilities Equity
Agency Excess MSR $ 535 $ - $ 535 $ 555 $ - $ 555
Total Agency RMBS 535 - 535 555 - 555

Re/Non-Performing Loans 76,532 (59,054) 17,478 87,216 (56,811) 30,405
Non-QM Loans 231,915 (202,039) 29,876 254,276 (200,257) 54,019
Land Related Financing 22,655 - 22,655 16,979 - 16,979
Total Residential Investments 331,102 (261,093) 70,009 358,471 (257,068) 101,403

Freddie Mac K-Series 9,131 - 9,131 12,237 - 12,237
CMBS Interest Only 1,700 - 1,700 1,863 - 1,863
Total Commercial 10,831 - 10,831 14,100 - 14,100
Total Credit Investments 341,933 (261,093) 80,840 372,571 (257,068) 115,503
Total Investments excluding AG Arc 342,468 (261,093) 81,375 373,126 (257,068) 116,058

AG Arc, at fair value 18,519 - 18,519 28,546 - 28,546

Cash and Other
assets/(liabilities) (2) 20,642 (1,324) 19,318 12,953 (1,246) 11,707

Investments in debt and equity of
affiliates $ 381,629 $ (262,417)


$ 119,212 $ 414,625 $ (258,314) $ 156,311





(1)Certain Re/Non-Performing Loans held in securitized form are presented net of
non-recourse securitized debt.
(2)Includes financing arrangements on real estate owned as of March 31, 2020 and
December 31, 2019 of $(0.3) million for both periods.

The table below details our additional commitments as of March 31, 2020 (in
thousands):

Remaining
Commitment Type Date of Commitment Total Commitment Funded Commitment Commitment
MATH (a)(b) March 29, 2018 $ 46,820 $ 44,590 $ 2,230
Commercial loan G (c)(d) July 26, 2018 84,515 52,089 32,426
Commercial loan I (c) January 23, 2019 20,000 14,646 5,354
Commercial loan J (c)(e) February 11, 2019 30,000 5,220 24,780
Commercial loan K (c) February 22, 2019 20,000 11,172 8,828
LOTS (a) Various 44,995 22,655 22,340

Total $ 246,330 $ 150,372 $ 95,958



(a)Refer to "Contractual obligations" section above for more information
regarding MATH and LOTS.
(b)Subsequent to quarter end, the financing arrangement in this entity was
restructured and the commitment was removed. Refer to "Contractual obligations"
section above for further details.
(c)We entered into commitments on commercial loans relating to construction
projects. See Note 4 to the "Notes to the Consolidated Financial Statements
(unaudited)" for further details.
(d)We expect to receive financing of approximately $21.1 million on our
remaining commitment, which would cause our remaining equity commitment to be
approximately $11.3 million. This financing is not committed and actual
financing could vary significantly from our expectations.
(e)We expect to receive financing of approximately $16.1 million on our
remaining commitment, which would cause our remaining equity commitment to be
approximately $8.7 million. Of the expected financing, $8.1 million is committed
by the financing counterparty. Subsequent to quarter end, $6.5 million was
committed by the financing counterparty. Actual financing could vary
significantly from our expectations.

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Certain related person transactions




Our Board of Directors has adopted a policy regarding the approval of any
"related person transaction," which is any transaction or series of transactions
in which (i) we or any of our subsidiaries is or are to be a participant, (ii)
the amount involved exceeds $120,000, and (iii) a "related person" (as defined
under SEC rules) has a direct or indirect material interest. Under the policy, a
related person would need to promptly disclose to our Secretary or Assistant
Secretary any related person transaction and all material facts about the
transaction. Our Secretary or Assistant Secretary, in consultation with outside
counsel, to the extent appropriate, would then assess and promptly communicate
that information to the audit committee of our Board of Directors. Based on its
consideration of all of the relevant facts and circumstances, the audit
committee will review, approve or ratify such transactions as appropriate. The
audit committee will not approve or ratify a related person transaction unless
it shall have determined that such transaction is in, or is not inconsistent
with, our best interests and does not create a conflict of interest. If we
become aware of an existing related person transaction that has not been
approved under this policy, the transaction will be referred to the audit
committee which will evaluate all options available, including ratification,
revision or termination of such transaction. Our policy requires any director
who may be interested in a related person transaction to recuse himself or
herself from any consideration of such related person transaction.


Grants of restricted common stock



See "Share-based compensation" section above for detail on our grants of
restricted common stock.



Red Creek




In connection with our investments in Re/Non-Performing Loans and non-QM loans,
we may engage asset managers to provide advisory, consultation, asset management
and other services. Beginning in November 2015, we also engaged Red Creek Asset
Management LLC
("Asset Manager"), an affiliate of the Manager and direct
subsidiary of Angelo Gordon, as the asset manager for certain of our
Re/Non-Performing Loans. Beginning in September 2019, we engaged the Asset
Manager as the asset manager for our non-QM loans. We pay the Asset Manager
separate arm's-length asset management fees as assessed and confirmed
periodically by a third party valuation firm for our Re/Non-Performing Loans and
non-QM loans. In the third quarter of 2019, the third party assessment of asset
management fees resulted in our updating the fee amount for our
Re/Non-Performing Loans. We also utilized the third party valuation firm to
establish the fee level for non-QM loans in the third quarter of 2019. For the
three months ended March 31, 2020, the fees paid by us to the Asset Manager
totaled $0.3 million and $0.1 million, respectively. In connection with the
Forbearance Agreement, we deferred the payment of all fees payable to the Asset
Manager as it is an affiliate of the Manager. For the three months ended March
31, 2020
, we deferred $0.1 million of fees owed to the Asset Manager and plan to
continue to defer fees through September 30, 2020 or such other time as we and
the Manager agree.

Arc Home

On December 9, 2015, we, alongside private funds under the management of Angelo
Gordon
, through AG Arc, formed Arc Home, a Delaware limited liability company.
Arc Home originates conforming, Government, Jumbo, Non-QM and other
non-conforming residential mortgage loans, retains the mortgage servicing rights
associated with the loans it originates, and purchases additional mortgage
servicing rights from third-party sellers. We have an approximate 44.6% interest
in AG Arc.

Our investment in Arc Home, which is conducted through AG Arc, one of our
indirect subsidiaries, is reflected on the "Investments in debt and equity of
affiliates" line item on our consolidated balance sheets. See "Off-balance sheet
arrangements" section above for the fair value as Arc Home of March 31, 2020 and
December 31, 2019.

Arc Home may sell loans to us or to affiliates of our Manager. Arc Home may also
enter into agreements with us, third parties, or affiliates of our Manager to
sell Excess MSRs on the mortgage loans that it either purchases from third
parties or originates. We, directly or through our subsidiaries, have entered
into agreements with Arc Home to purchase rights to receive the excess servicing
spread related to certain of its MSRs and as of March 31, 2020 and December 31,
2019
, these Excess MSRs had fair values of approximately $14.5 million and $18.2
million
, respectively.

In connection with our investments in Excess MSRs purchased through Arc Home, we
pay an administrative fee to Arc Home. For the three months ended March 31, 2020
and March 31, 2019, the administrative fees paid by us to Arc Home totaled $0.1
million
for both periods.

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Mortgage Acquisition Trust I LLC



See our "Off-balance sheet arrangements" and "MATT Financing Arrangement
Restructuring" sections above.



LOT SP I LLC and LOT SP II LLC



See our "Off-balance sheet arrangements" section above.



Management agreement




On June 29, 2011 we entered into a management agreement with our Manager, which
governs the relationship between us and our Manager and describes the services
to be provided by our Manager and its compensation for those services. The terms
of our management agreement, including the fees payable by us to Angelo Gordon,
were not negotiated at arm's length, and its terms may not be as favorable to us
as if they had been negotiated with an unaffiliated party. Our Manager, pursuant
to the delegation agreement dated as of June 29, 2011, has delegated to Angelo
Gordon
the overall responsibility of its day-to-day duties and obligations
arising under our management agreement. For further detail on the Management
Agreement, see the "Contractual obligations-Management agreement" section of
this Item 2.

Subordinated debt



See our "Contractual obligations-Subordinated debt" section above.



Other transactions with affiliates




Our Board of Directors has adopted a policy regarding the approval of any
"affiliated transaction," which is any transaction or series of transactions in
which Angelo Gordon arranges for the purchase and sale of a security or other
investment between or among us, on the one hand, and an entity or entities under
Angelo Gordon's management, on the other hand (an "Affiliated Transaction"). In
order for us to enter into an Affiliated Transaction, the Affiliated Transaction
must be approved by our Chief Risk Officer and the Chief Compliance Officer of
Angelo Gordon. For most instruments, if market bids are available, the trading
desk will request external bids from the market while simultaneously submitting
an internal bid to Compliance and/or Risk. If the highest bid is an external
bid, the security or other instrument will be sold to the external bidder and no
affilaited transaction will take place. If the highest bid is the internal bid,
the price will be the midpoint between the internal bid and the highest external
bid. If market bids are not available or prove to be impracticable in Angelo
Gordon
's reasonable judgment, appropriate pricing will generally be based on a
valuation analysis prepared by an independent third party. Our Affiliated
Transactions are reviewed by our Audit Committee on a quarterly basis to confirm
compliance with the policy.

In October 2018, in accordance with our Affiliated Transactions Policy, we
acquired certain real estate securities and loans from an affiliate of the
Manager (the "October 2018 Selling Affiliate"). As of the date of the trade, the
real estate securities and loans acquired from the October 2018 Selling
Affiliate had a total fair value of $0.5 million. As procuring market bids for
the real estate securities and loans was determined to be impracticable in the
Manager's reasonable judgment, appropriate pricing was based on a valuation
prepared by independent third-party pricing vendors. The third-party pricing
vendors allowed us to confirm third-party market pricing and best execution.

In March 2019, in accordance with our Affiliated Transactions Policy, we
executed one trade whereby we acquired a real estate security from an affiliate
of the Manager (the "March 2019 Selling Affiliate"). As of the date of the
trade, the security acquired from the March 2019 Selling Affiliate had a total
fair value of $0.9 million. The March 2019 Selling Affiliate sold the real
estate security through a BWIC. Prior to the submission of the BWIC by the March
2019
Selling Affiliate, we submitted our bid for the real estate security to the
March 2019 Selling Affiliate. The pre-submission of our bid allowed us to
confirm third-party market pricing and best execution.

In June 2019, we, alongside private funds under the management of Angelo Gordon,
participated through our unconsolidated ownership interest in MATT in a rated
non-QM loan securitization, in which non-QM loans with a fair value of $408.0
million
were securitized. Certain senior tranches in the securitization were
sold to third parties with us and private funds under the management of Angelo
Gordon
retaining the subordinate tranches, which had a fair value of $42.9
million
as of June 30, 2019. We have a 44.6% interest in the retained
subordinate tranches.

In July 2019, in accordance with our Affiliated Transactions Policy, we acquired
certain real estate securities from an affiliate of the Manager (the "July 2019
Selling Affiliate"). As of the date of the trade, the real estate securities
acquired from the July 2019 Selling Affiliate had a total fair value of $2.0
million
. As procuring market bids for the real estate securities was
102
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determined to be impracticable in the Manager's reasonable judgment, appropriate
pricing was based on a valuation prepared by independent third-party pricing
vendors. The third-party pricing vendors allowed us to confirm third-party
market pricing and best execution.

In September 2019, we, alongside private funds managed by Angelo Gordon,
participated through our unconsolidated ownership interest in MATT in a rated
non-QM loan securitization, in which non-QM loans with a fair value of $415.1
million
were securitized. Certain senior tranches in the securitization were
sold to third parties with us and private funds under the management of Angelo
Gordon
retaining the subordinate tranches, which had a fair value of $28.7
million
as of September 30, 2019. We have a 44.6% interest in the retained
subordinate tranches.

In October 2019, in accordance with our Affiliated Transactions Policy, we
acquired certain real estate securities from an affiliate of the Manager (the
"October 2019 Selling Affiliate"). As of the date of the trade, the real estate
securities acquired from the October 2019 Selling Affiliate had a total fair
value of $2.2 million. The October 2019 Selling Affiliate sold the real estate
securities through a BWIC. Prior to the submission of the BWIC by the October
2019
Selling Affiliate, we submitted its bid for the real estate securities to
the October 2019 Selling Affiliate. The pre-submission of our bid allowed us to
confirm third-party market pricing and best execution.

In November 2019, we, alongside private funds managed by Angelo Gordon,
participated through our unconsolidated ownership interest in MATT in a rated
non-QM loan securitization, in which non-QM loans with a fair value of $322.1
million
were securitized. Certain senior tranches in the securitization were
sold to third parties with us and private funds under the management of Angelo
Gordon
retaining the subordinate tranches, which had a fair value of $21.4
million
as of December 31, 2019. We have a 44.6% interest in the retained
subordinate tranches.

In February 2020, we, alongside private funds managed by Angelo Gordon,
participated through our unconsolidated ownership interest in MATT in a rated
non-QM loan securitization, in which non-QM loans with a fair value of
$348.2 million were securitized. Certain senior tranches in the securitization
were sold to third parties with us and private funds under the management of
Angelo Gordon retaining the subordinate tranches, which had a fair value of
$26.6 million as of March 31, 2020. We have a 44.6% interest in the retained
subordinate tranches.


Critical accounting policies




We prepare our consolidated financial statements in conformity with GAAP, which
requires the use of estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates are based, in part, on our
judgment and assumptions regarding various economic conditions that we believe
are reasonable based on facts and circumstances existing at the time of
reporting. We believe that the estimates, judgments and assumptions utilized in
the preparation of our consolidated financial statements are prudent and
reasonable. Although our estimates contemplate conditions as of March 31, 2020
and how we expect them to change in the future, it is reasonably possible that
actual conditions could be different than anticipated in those estimates, which
could materially affect reported amounts of assets, liabilities and accumulated
other comprehensive income at the date of the consolidated financial statements
and the reported amounts of income, expenses and other comprehensive income
during the periods presented. Moreover, the uncertainty over the ultimate impact
that that the COVID-19 pandemic will have on the global economy generally, and
on our business in particular, makes any estimates and assumptions inherently
less certain than they would be absent the current and potential impacts of the
COVID-19 pandemic.

Accounting policies and estimates related to specific components of our
consolidated financial statements are disclosed in the notes to our consolidated
financial statements. A discussion of the critical accounting policies and the
possible effects of changes in estimates on our consolidated financial
statements is included in Item 8 of our Annual Report on Form 10-K for the year
ended December 31, 2019 and in Note 2 to the "Notes to Consolidated Financial
Statements (unaudited)." Some of the critical accounting policies described
therein include but are not limited to: Valuation of financial instruments,
Accounting for real estate securities, Accounting for residential and commercial
mortgage loans, Interest income recognition and Financing arrangements.

Additionally, we rely upon the independent pricing of our assets at each quarter
end to arrive at what we believe to be reasonable estimates of fair value,
whenever available. For more information on our fair value measurements, see
Note 6 to the "Notes to Consolidated Financial Statements (unaudited).

103
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Inflation



Virtually all of our assets and liabilities are interest rate sensitive in
nature. As a result, interest rates and other factors influence our performance
far more than inflation. Changes in interest rates do not necessarily correlate
with inflation rates or changes in inflation rates.


Compliance with Investment Company Act and REIT Tests




We intend to conduct our business so as to maintain our exempt status under, and
not to become regulated as an investment company for purposes, of the Investment
Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company
is an investment company if it is, or holds itself out as being, engaged
primarily, or proposes to engage primarily, in the business of investing,
reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment
Company Act, a company is deemed to be an investment company if it is engaged,
or proposes to engage, in the business of investing, reinvesting, owning,
holding or trading in securities and owns or proposes to acquire "investment
securities" having a value exceeding 40% of the value of its total assets
(exclusive of U.S. government securities and cash items) on an unconsolidated
basis (the "40% Test"). "Investment securities" do not include, among other
things, U.S. government securities, and securities issued by majority-owned
subsidiaries that (i) are not investment companies and (ii) are not relying on
the exceptions from the definition of investment company provided by Section
3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private
investment company" exemptions).

If we failed to comply with the 40% Test or another exemption under the
Investment Company Act and became regulated as an investment company, our
ability to, among other things, use leverage would be substantially reduced and,
as a result, we would be unable to conduct our business as described in this
Report. Accordingly, in order to maintain our exempt status, we monitor our
subsidiaries' compliance with Section 3(c)(5)(C) of the Investment Company Act,
which exempts from the definition of "investment company" entities primarily
engaged in the business of purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate. The staff of the Securities and Exchange
Commission
, or the SEC, generally requires an entity relying on Section
3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" and at
least another 25% in additional qualifying assets or in "real estate-related"
assets (with no more than 20% comprised of miscellaneous assets). As of December
31, 2019
, we determined that our subsidiaries maintained compliance with both
the 55% Test and the 80% Test requirements.

Due to the recent market conditions as a result of the COVID-19 pandemic and the
resultant issues related to our financing arrangements, we sold assets to meet
margin calls on our financing arrangements, and some of our subsidiaries
currently fail to meet the 55% Test, and as a result must rely on Section
3(c)(7) to avoid registration as investment companies. As a result, we no longer
maintain our exempt status.

As we cannot rely on our historical exemption from regulation as an investment
company, we now must rely upon Rule 3a-2, which provides a safe harbor
exemption, not to exceed one year, for companies that have a bona fide intent to
be engaged in an excepted activity but that temporarily fail to meet the
requirements for another exemption from registration as an investment company.
As required by the rule, after we learned that we would become out of
compliance, our board of directors promptly adopted a resolution declaring our
bona fide intent to be engaged in excepted activities and we are currently
working to restore our assets to compliance.

We calculate that at least 75% of our assets were real estate assets, cash and
cash items and government securities for the year ended December 31, 2019. We
also calculate that a sufficient portion of our revenue qualifies for the 75%
gross income test and for the 95% gross income test rules for the year ended
December 31, 2019. Overall, we believe that we met the REIT income and asset
tests. We also believe that we met all other REIT requirements, including the
ownership of our stock and the distribution of our taxable income. Therefore,
for the year ended December 31, 2019, we believe that we qualified as a REIT
under the Code.


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