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New words:
American, Connecticut, hawkish, Heritage, Laurence, Lending, mark, member, Michael, MLPA, pace, Penn, President, release, released, runoff, SASB, satisfactory, spiked, technology, Tecotzky, ticked, unaffiliated
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accumulating, achieve, Chair, conference, disruption, EDA, Georgia, meeting, Powell, scale, sector, uptick
Financial report summary
?Competition
Ellington Residential Mortgage REITRisks
- Difficult conditions in the mortgage and residential real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest.
- The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac, and Ginnie Mae and the U.S. Government, may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets.
- The principal and interest payments on our non-Agency RMBS and any CRTs that we may purchase are not guaranteed by any entity, including any government entity or GSE, and therefore are subject to increased risks, including credit risk.
- Less stringent underwriting guidelines and the resultant potential for delinquencies or defaults on certain mortgage loans could lead to losses on many of the non-Agency RMBS and European RMBS that we hold.
- We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio. Such models and other data may be incorrect, misleading or incomplete, which could cause us to purchase assets that do not meet our expectations or to make asset management decisions that are not in line with our strategy.
- Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time, and may differ from the values that would have been used if a ready market for these assets existed.
- We depend on third-party service providers, including mortgage servicers, for a variety of services related to our non-Agency RMBS, European assets, securitizations, and whole mortgage loans and loan pools. We are, therefore, subject to the risks associated with third-party service providers.
- We rely on mortgage servicers for our loss mitigation efforts, and we also may engage in our own loss mitigation efforts with respect to whole mortgage loans that we own directly. Such loss mitigation efforts may be unsuccessful or not cost effective.
- We may be affected by deficiencies in foreclosure practices of third parties, as well as related delays in the foreclosure process.
- Investments in second lien mortgage loans could subject us to increased risk of losses.
- Prepayment rates can change, adversely affecting the performance of our assets.
- Increases in interest rates could negatively affect the value of our assets and increase the risk of default on our assets.
- An increase in interest rates may cause a decrease in the issuance volumes of certain of our targeted assets, which could adversely affect our ability to acquire targeted assets that satisfy our investment objectives, and which could adversely affect the loan originators in which we invest.
- Interest rate mismatches between our assets and our borrowings may reduce our income during periods of changing interest rates, and increases in interest rates could adversely affect the value of our assets.
- Interest rate caps on ARMs and hybrid ARMs, including those that back our RMBS, may reduce our net interest margin during periods of rising or high interest rates.
- Non-government-guaranteed residential mortgage loans, including non-QM loans, residential transition loans, residential NPLs and RPLs and proprietary reverse mortgage loans, are subject to increased risks.
- If we subsequently resell any whole mortgage loans that we acquire, we may be required to repurchase such loans or indemnify purchasers if we breach representations and warranties.
- The commercial mortgage loans that we acquire or originate, and the mortgage loans underlying our CMBS investments, are subject to the ability of the commercial property owner to generate net income from operating the property as well as to the risks of delinquency and foreclosure.
- Our investments in CMBS are at risk of loss.
- We may not control the special servicing of the mortgage loans included in the CMBS in which we invest and, in such cases, the special servicer may take actions that could adversely affect our interests.
- A portion of our investments currently are, and in the future may be, in the form of non-performing and sub-performing commercial and residential mortgage loans, or loans that may become non-performing or sub-performing, which are subject to increased risks relative to performing loans.
- Our real estate assets and our real estate-related assets (including mortgage loans and MBS) are subject to the risks associated with real property.
- We engage in short selling transactions, which may subject us to additional risks.
- We use leverage in executing our business strategy, which may adversely affect the return on our assets and may reduce cash available for distribution to our stockholders, as well as increase losses when economic conditions are unfavorable.
- Our access to financing sources, which may not be available on favorable terms, or at all, may be limited, and our lenders and derivative counterparties may require us to post additional collateral. These circumstances may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- A failure to comply with restrictive covenants in our financing arrangements would have a material adverse effect on us, and any future financings may require us to provide additional collateral or pay down debt.
- Our securitizations may expose us to additional risks.
- If we are unable to fund our tail commitments or securitize our HECM loans (including tails), this could adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- The planned discontinuation of LIBOR and transition from LIBOR to an alternative reference rate may adversely affect the value and liquidity of the financial obligations to be held or issued by us that are linked to LIBOR.
- Our investments that are denominated in foreign currencies subject us to foreign currency risk, which may adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- Hedging against credit events, interest rate changes, foreign currency fluctuations, and other risks may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- Hedging instruments and other derivatives, including some credit default swaps, may not, in many cases, be traded on regulated exchanges, or may not be guaranteed or regulated by any U.S. or foreign governmental authority and involve risks and costs that could result in material losses.
- Our use of derivatives may expose us to counterparty risk.
- Our rights under our repos are subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders.
- Certain actions by the Federal Reserve could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- We may change our investment strategy, investment guidelines, hedging strategy, and asset allocation, operational, and management policies without notice or stockholder consent, which may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. In addition, our Board of Directors may authorize us to revoke or otherwise terminate our REIT election without the approval of our stockholders.
- We operate in a highly competitive market.
- We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers and system failures could significantly disrupt our business, which may, in turn, materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- Because we are highly dependent on information systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows.
- Lack of diversification in the number of assets we acquire would increase our dependence on relatively few individual assets.
- The lack of liquidity in our assets may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- We could be subject to liability for potential violations of various federal, state and local laws and regulations, including predatory lending laws, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
- We may be exposed to environmental liabilities with respect to properties in which we have an interest.
- Consumer loans are subject to delinquency and loss, which could have a negative impact on our financial results.
- Increased regulatory attention and potential regulatory action on certain areas within the consumer credit or reverse mortgage businesses could have a negative impact on our reputation, or cause losses on our investments in consumer loans or our equity investments in loan originators.
- Our investments in distressed debt and equity have significant risk of loss, and our efforts to protect these investments may involve large costs and may not be successful.
- We have held and may continue to hold the debt securities, loans or equity of companies that are more likely to enter into bankruptcy proceedings or have other risks.
- We may be subject to risks associated with syndicated loans.
- We have made and may in the future make investments in companies that we do not control.
- We have invested and may in the future invest in securities in the CRT sector that are subject to mortgage credit risk.
- We are required to consolidate Longbridge.
- Longbridge is required to follow specific guidelines and eligibility standards that impact the way it services and originates U.S. government agency loans.
- Failure to comply with FHA underwriting guidelines could adversely impact Longbridge’s business.
- Material changes to the laws, regulations or practices applicable to reverse mortgage programs operated by FHA and HUD could adversely affect the reverse mortgage business of Longbridge.
- Longbridge relies on a subservicer to perform reverse mortgage servicing functions, which presents us with a number of risks.
- The global outbreak of the COVID-19 pandemic adversely affected, and this pandemic or future epidemics or pandemics could adversely affect in the future, our business, financial condition, liquidity, and results of operations.
- We cannot predict the effect that government policies, laws, and plans adopted in response to the COVID-19 pandemic or other future outbreaks involving highly infectious or contagious diseases and resulting recessionary economic conditions will have on us.
- Measures intended to prevent the spread of COVID-19 have disrupted our ability to operate our business, and could again do so in the future.
- We are dependent on our Manager and certain key personnel of Ellington that are provided to us through our Manager and may not find a suitable replacement if our Manager terminates the management agreement or such key personnel are no longer available to us.
- The base management fee payable to our Manager is payable regardless of the performance of our portfolio, which may reduce our Manager's incentive to devote the time and effort to seeking profitable opportunities for our portfolio.
- Our Manager's incentive fee may induce our Manager to acquire certain assets, including speculative or high risk assets, or to acquire assets with increased leverage, which could increase the risk to our portfolio.
- Our Board of Directors has approved very broad investment guidelines for our Manager and will not approve each decision made by our Manager to acquire, dispose of, or otherwise manage an asset.
- We compete with Ellington's other accounts for access to Ellington.
- We compete with other Ellington accounts for opportunities to acquire assets, which are allocated in accordance with Ellington's investment allocation policies.
- There are conflicts of interest in our relationships with our Manager and Ellington, which could result in decisions that are not in the best interests of our stockholders.
- The management agreement with our Manager was not negotiated on an arm's-length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party and may be costly and difficult to terminate.
- If our Manager ceases to be our Manager pursuant to the management agreement or one or more of our Manager's key personnel ceases to provide services to us, our lenders and our derivative counterparties may cease doing business with us.
- Our Manager's failure to identify and acquire assets that meet our asset criteria or perform its responsibilities under the management agreement could materially adversely affect our business, financial condition and results of operations, our ability to maintain our qualification as a REIT, and our ability to pay dividends to our stockholders.
- We do not own the Ellington brand or trademark, but may use the brand and trademark as well as our logo pursuant to the terms of a license granted by Ellington.
- Our stockholders may not receive dividends or dividends may not grow over time.
- An increase in interest rates may have an adverse effect on the market price of our equity or debt securities and our ability to pay dividends to our stockholders.
- Investing in our securities involves a high degree of risk.
- Our certificate of incorporation, bylaws and management agreement contain provisions that may inhibit potential acquisition bids that stockholders may consider favorable, and the market price of our common stock may be lower as a result.
- There are ownership limits and restrictions on transferability in our certificate of incorporation.
- Our rights and the rights of our stockholders to take action against our directors and officers or against our Manager or Ellington are limited, which could limit your recourse in the event actions are taken that are not in your best interests.
- Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors or officers.
- Maintenance of our exclusion from registration as an investment company under the Investment Company Act imposes significant limitations on our operations.
- If we were required to register as an investment company under the Investment Company Act, we would be subject to the restrictions imposed by the Investment Company Act, which would require us to make material changes to our strategy.
- Your investment has various U.S. federal, state, and local income tax risks.
- Our failure to maintain our qualification as a REIT would subject us to U.S. federal, state and local income taxes, which could adversely affect the value of our common stock and would substantially reduce the cash available for distribution to our stockholders.
- Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
- Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders.
- Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.
- The failure of MBS subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to maintain our qualification as a REIT.
- Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
- Complying with REIT requirements may limit our ability to hedge effectively.
- Our ownership of and relationship with our TRSs will be limited, and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.
- Our ownership limitation may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their common shares.
- Dividends payable by REITs do not qualify for the reduced tax rates available for "qualified dividend income."
- We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
- Our recognition of "phantom" income may reduce a stockholder's after-tax return on an investment in our common stock.
- Liquidation of our assets may jeopardize our REIT qualification or may be subject to a 100% tax.
- The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing MBS, that would be treated as sales of dealer property for U.S. federal income tax purposes.
- The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests.
- Generally, our investments in residential transition loans, or "RTLs," and occasionally, our investments in small balance commercial mortgage loans, or "SBCs," will require us to make estimates about the fair value of land improvements that may be challenged by the IRS.
- The failure of a mezzanine loan or similar debt to qualify as a real estate asset could adversely affect our ability to maintain our qualification as a REIT.
- Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that we acquire, and the
- inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.
- We, Ellington, or its affiliates may be subject to adverse legislative or regulatory changes.
- We, Ellington, or its affiliates may be subject to regulatory inquiries and proceedings, or other legal proceedings.
- The market for our common stock and our preferred stock may be limited, which may adversely affect the price at which our common stock and our preferred stock trade and make it difficult to sell our common stock or our preferred stock.
- The market price and trading volume of our common stock and our preferred stock may be volatile.
- Future offerings of debt securities, which would rank senior to our common and preferred stock upon our liquidation, and future offerings of equity securities, which could dilute our existing stockholders and, in the case of preferred equity, may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
- Certain provisions of Delaware law may inhibit potential acquisition bids that stockholders may consider favorable, and the market price of our common stock may be lower as a result.
- Failure to procure adequate funding and capital would adversely affect our results and may, in turn, negatively affect the value of our common shares and our ability to pay dividends to our stockholders.
- Climate change has the potential to impact the properties underlying our investments.
- We are subject to risks related to corporate social responsibility.
- We are largely dependent on external sources of capital in order to grow.
- Periods of heightened inflation could adversely impact our financial results.
Management Discussion
- (1)See Note 16 of the notes to the condensed consolidated financial statements for further details on management fee rebates.
- (1)See Note 16 of the notes to the condensed consolidated financial statements for further details on management fee rebates.
- For the three-month period ended June 30, 2024 we had net income (loss) attributable to common stockholders of $52.3 million, compared to $2.9 million for the three-month period ended June 30, 2023. The increase in our results of operations was primarily due to increases in total other income and net interest income, along with earnings from investments in unconsolidated entities in the current period, as compared to losses from investments in unconsolidated entities in the prior period.